South America’s 2021 crop harvest in doubt amid droughts

. Dec 09, 2020
Next year's crop harvest in doubt amid droughts Photo: J.J. Gouin/Shutterstock

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Today, we talk about how droughts are threatening South American farmers — and how they are connected to Amazon deforestation. Plus, the heated battle between Brasília and São Paulo over coronavirus vaccines.

Drought season puts South American farmers on alert

With one of the worst starts to a growing season on record, Brazil’s early planted crops are under immense stress.

Some regions endured the driest September-December stretch in decades, and crops are now getting behind schedule. In the state of Mato Grosso, a Brazilian agricultural powerhouse, high soil temperatures forced many farmers to replant, causing massive losses. Northern Uruguay and Argentina are also seeing reduced yields caused by dry weather. According to Tarso Veloso, of Chicago-based commodity advisory firm AgResource, the total South American soybean crop may be 6 to 10 percent smaller than initially expected.</p> <ul><li>Yields are dropping fast in the southern state of Paraná, with 15 percent of crops already at the flowering stage.</li><li>In Argentina, the planting pace reached 20 percent this year, compared to 31 percent in 2019. Soybean production estimates are down from 50 to 48 million tons, and farmers are worried about the slow progression of advance sales — so far, only 7 percent of production has been bought up ahead of time.&nbsp;</li><li>For the first time this week, forecasts show rain developing in mid-December. The quantity and location of precipitation will be key for the success of next year&#8217;s harvest. Brazil&#8217;s grain production for 2021 was initially estimated at above 130 million tons, but anywhere around 120 million tons would now be considered a success.</li></ul> <figure class="wp-block-image size-large"><img loading="lazy" width="1024" height="769" src="https://brazilian.report/wp-content/uploads/2020/12/drought-1024x769.jpeg" alt="droughts south america" class="wp-image-53859" srcset="https://brazilian.report/wp-content/uploads/2020/12/drought-1024x769.jpeg 1024w, https://brazilian.report/wp-content/uploads/2020/12/drought-300x225.jpeg 300w, https://brazilian.report/wp-content/uploads/2020/12/drought-768x576.jpeg 768w, https://brazilian.report/wp-content/uploads/2020/12/drought-600x450.jpeg 600w, https://brazilian.report/wp-content/uploads/2020/12/drought.jpeg 1239w" sizes="(max-width: 1024px) 100vw, 1024px" /></figure> <p><strong>Why it matters.</strong> Agribusiness is a key component in the Brazilian GDP, and any disruption would have ripple effects across multiple sectors that indirectly depend on farm production.</p> <p><strong>Climate.</strong> To make matters worse, we are entering a possible La Niña season. This phenomenon is characterized by cooler-than-normal surface waters in the equatorial Pacific and creates climate conditions that could cause <a href="https://brazilian.report/business/2019/07/07/climate-change-food-prices-brazil/">mid-to-late season droughts</a> in southern Brazil and Argentina.</p> <ul><li>However, it remains too early to know how much of an impact a 2020 La Niña would have — in the 2016-2017 season, farmers were largely unaffected by it.</li></ul> <p><strong>Meanwhile … </strong>Chinese consumers are turning to the U.S. for supplies, especially for the month of February, when South American crops are harvested. “Brazil has a quality and freight advantage into China, but other world importers will be prodded to cover their soy import needs from the U.S.,” AgResource said.</p> <hr class="wp-block-separator"/> <h2>One-third of the Amazon is &#8220;under pressure&#8221;</h2> <p>A new report by Raisg, a group of Amazon-based NGOs, shows that one-third of the world&#8217;s largest rainforest is under &#8216;high&#8217; or &#8216;very high&#8217; pressure. The term &#8216;pressure&#8217; is used to describe the impact of activities that affect environmental balance, thus putting the Amazon at risk.</p> <ul><li>Infrastructure projects — coupled with advances from mining ventures and agricultural producers — have skyrocketed since 2012, when the previous version of the Raisg study was produced. In 2020, researchers identified almost 4,500 illegal mining sites across the Amazon — 87 percent of which are currently active.&nbsp;</li><li>While rising deforestation is observed in most of the nine Amazon countries, Brazil is the clear trendsetter — as it is home to 62 percent of the rainforest. Bolivia and Colombia, meanwhile, rank second and third as the countries in which forest areas are suffering the most.</li></ul> <p><strong>Why it matters.</strong> The destruction of the rainforest affects the &#8220;<a href="https://brazilian.report/environment/2020/09/15/pantanal-wildfires-in-brazil-continue-to-rage-out-of-control/">flying rivers</a>&#8221; phenomenon, a movement of large quantities of water vapor transported into the atmosphere from the Amazon Basin to other parts of South America.</p> <ul><li>So, if farmers are struggling with droughts, they can also blame it on <a href="https://news.mongabay.com/2020/08/deforestation-in-the-amazon-is-drying-up-the-rest-of-brazil-report/">the destruction of the Amazon</a>.&nbsp;</li></ul> <p><strong>Government.</strong> Environment Minister Ricardo Salles announced goals to make Brazil carbon neutral by 2060. That deadline could be lower, Mr. Salles said, if developed countries pay up to USD 10 billion per year starting in 2021.</p> <ul><li>It is hard to take Mr. Salles seriously on the issue, as he was the one who said earlier this year that the government should slash environmental controls while the press had its undivided attention on the pandemic.</li></ul> <p><strong>Market.</strong> While demand from environmentally-friendly solutions has grown, the clean tech market in Brazil remains far from being viable. A recent survey showed that 39 percent of the sector&#8217;s startups operate at a loss. Their biggest challenges are expanding their business, raising more funds, and convincing clients of the value of their services.</p> <hr class="wp-block-separator"/> <h2>For the first time, government talks about universal immunization</h2> <p>During a videoconference with state governors over a nationwide Covid-19 vaccination plan, Health Minister Eduardo Pazuello admitted for the first time that the Brazilian government will pursue universal immunization against the coronavirus.&nbsp;</p> <p><strong>Why it matters.</strong> This is a U-turn for a government that until recently overtly defended people&#8217;s right not to get a vaccine. In last week’s draft of a national immunization plan, only half of the population would receive a vaccine by June 2021.</p> <p><strong>What is behind.</strong> The federal administration has been pushed away from its usual denialist stance thanks to a political move by São Paulo Governor João Doria. He announced the start of his state’s own vaccination plan for January 25, coaxing Mr. Bolsonaro into action.&nbsp;</p> <ul><li>São Paulo has placed its bets on the Chinese-made CoronaVac, and has initiated talks to sell doses to at least 850 cities outside of the state. The federal government, meanwhile, wagered its chips on the vaccine being developed by the University of Oxford and AstraZeneca. Initially considered to be a front-runner in the race, it has <a href="https://www.nytimes.com/2020/12/08/business/covid-vaccine-oxford-astrazeneca.html?utm_source=meio&amp;utm_medium=email">fallen behind</a> after a series of miscues and transparency issues concerning its clinical trials.</li></ul> <p><strong>War. </strong>The vaccine has become a culture war battleground between Mr. Doria and the president — both of whom try to gain politically from the pandemic, albeit with diametrically opposite strategies.&nbsp;</p> <ul><li>During the meeting with the Health Ministry, Mr. Doria once again challenged the federal government, asking why it is reluctant to purchase the CoronaVac: &#8220;Are the reasons political and ideological, or is it just a sheer lack of interest [from the federal government] to make more vaccines available?” asked Mr. Doria.</li></ul> <p><strong>Hold your horses.</strong> Mr. Doria&#8217;s excessive attempts to gain prominence as the politician who &#8220;saved Brazil from the pandemic&#8221; are making other governors wary. And that could jeopardize his potential presidential bid in 2022 — as it could be hard to gather support from regional leaders.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Central Bank.</strong> Analysts expect the Brazilian Central Bank to hold the country&#8217;s benchmark interest rate at 2 percent a year, indicating that a change of course is not on the horizon providing the government avoids overspending and inflation does not spiral out of control. However, the consensus is that the Central Bank will acknowledge the deterioration of the economic outlook — particularly when it comes to inflationary risks. &#8220;Recent price hikes are contaminating expectations for next year,&#8221; <a href="https://valor.globo.com/financas/noticia/2020/12/09/copom-deve-reconhecer-deterioracao-no-balanco-de-risco.ghtml">wrote</a> JPMorgan in a report to clients.</li><li><strong>Housing.</strong> The Senate has <a href="https://exame.com/brasil/senado-aprova-criacao-do-programa-habitacional-casa-verde-e-amarela/">approved</a> the creation of the &#8220;Green and Yellow House&#8221; program, to finance the construction, rental, or renovation of homes for families with a combined monthly income of up to BRL 7,000 (USD 1,366). The program comes in replacement of a similar initiative created in 2009 by former President Luiz Inácio Lula da Silva. The government plans to build up to 1.6 million houses within four years. The money will come from the FGTS, a mandatory severance fund for formal employees administered by the government.</li><li><strong>Venezuela. </strong>Brazil&#8217;s Foreign Affairs Ministry says it will continue to recognize opposition leader Juan Guaidó as the legitimate Venezuelan interim president,&nbsp;even after January 5, when the new legislature elected on Sunday takes office — without Mr. Guaidó. Brazil does not plan to recognize the <a href="https://brazilian.report/newsletters/brazil-weekly/2020/12/07/brazil-supreme-court-turns-new-leaf-for-congress/">legislative election as fair and free</a>, as the Nicolás Maduro administration controls electoral authorities and the opposition boycotted the vote. But after two years of unsuccessful attempts to take down Mr. Maduro, Mr. Guaidó is losing his ability to mobilize popular support.</li><li><strong>Health.</strong> As if the Covid-19 crisis was not enough, Brazil&#8217;s federal health regulator Anvisa has issued a <a href="https://static.poder360.com.br/2020/12/comunicado-anvisa.pdf">warning</a> about what could be the country&#8217;s first case of infection by Candida auris, a fungus highly resistant to medication and lethal in up to 60 percent of cases. Anvisa labeled the fungus a &#8220;serious threat to public health.&#8221; Four years ago, the Pan-American Health Organization raised concerns about outbreaks in Latin American health services, but Candida auris has also been found in Asia, Europe, North America, and Africa since being discovered in 2009.</li><li><strong>Regulation. </strong>Multiple health organizations will file a request to antitrust watchdog Cade to force U.S. pharmaceutical giant Gilead to lower its prices for Sofosbuvir, a drug used for the treatment of hepatitis C and sold under the brand name Sovaldi. They claim Gilead&#8217;s drug costs BRL 8,000 in Brazil and has virtually no competition. While previous attempts to twist the company&#8217;s arm at Cade have failed, there is an <a href="https://brazilian.report/society/2018/09/26/brazil-generic-drug-regulations/">ongoing lawsuit</a> pending in higher courts which could strip Gilead of its patent over Sofosbuvir in Brazil.

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