Brazil empties food stocks and loses tool to hold prices 09/19/2020

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In a decade, public food stocks had a 96% reduction in the annual average, considering six different types of grains. Villain of the basic basket due to the high price, rice is among those that most pulled the fall in storage. Two other products are out of stock. Considered an indispensable item on the Brazilian’s table, beans disappeared from public stocks more than three years ago. Soy, one of the country’s main products, has not been stored since 2013.

For economists heard by Twitter, the situation reflects a liberal policy of the last governments, which leaves product prices at the mercy of market supply and demand and of the fluctuation in the value of the dollar, without State interference. The government, on the other hand, claims that there are high storage costs and says that the grains cannot be purchased above the minimum price – value defined annually – as established by legislation.

Despite the difference in views, the reduction in inventories is a concrete fact. The data are available on the website of the National Supply Company (Conab) and were updated earlier this month.

Rice: from 1 million to 21 thousand tons

The case of rice draws attention. In 2010, almost 1 million tonnes of the grain had been stored, a volume that plummeted to 21,000 tonnes – a level that has been maintained since February last year to now.

In the year-over-year analysis, it is possible to see an upward curve in the rice stock in the first three years, reaching around 1.5 million. However, after August 2012, silos only lost grain.

Conab’s offer management superintendent, Allan Silveira dos Santos, notes that there were two purchases of rice during the period: in 2011 and 2018. “In 2014, most of the sale was made. It is natural that inventories start at a level and fall. “

Unlike other products, rice can be stored for years. However, according to the superintendent, storage costs are high – the amounts have not been informed.

Okay, the product has increased in value now, but we never know how long it will take to be stored. It could be a year, five years.
Allan Silveira dos Santos, from Conab

When stocks are made

To form the stock, Conab only buys the product when the market value (paid to the producer) is below the minimum price (minimum remuneration to a market, sufficient to cover at least production costs), observes the superintendent.

Today, the minimum price for a 50 kg bag of rice is R $ 39.63 in Rio Grande do Sul. In Mato Grosso, it is set at R $ 47.55. However, the average price paid to the producer is R $ 102.92 for the same quantity. In this situation, the superintendent stresses, forming stock is not feasible. “The product is already scarce, it would get even more.”

But isn’t it risky to keep rice stocks so low?

In fact, it is a market regulation option. It has an option via stock and also a reduction in TEC (Common External Tariff, applied for rice imports). Obviously, if he had high stock, he could regulate the price.
Allan Silveira dos Santos, from Conab

The rise in rice prices was due to an association of factors. The devalued real against the dollar was the first of them. As a result, there was an increase in demand for grain due to the drop in the supply of large producers such as China and India in the pandemic. With low value of the grain on the domestic market, producers took the opportunity to export.

Beans and soybeans: out of stock

Since June 2016, there is no storage of beans in public stocks, and now prices are rising on supermarket shelves. The Conab superintendent notes that, unlike rice, the grain is more perishable and cannot be stored for long. “In three, four months you lose quality very quickly. It’s difficult to buy and when you sell it, you can’t do it. It’s not just the price, it’s the quality.” The last time the government formed stock was in 2015.

Today, the minimum price for a 60 kilo bag of beans is R $ 94.90 in Minas Gerais and Paraná. However, the market price (paid to the producer) fluctuated, last week, between R $ 242.36, in Paraná, and R $ 276, in Minas Gerais.

In the case of soybeans, the explanation is related to price: since 2007, the amount paid to the producer is higher than the minimum price, which prevents Conab from buying the grain. Today, the minimum price for a 60 kilo sack of soybeans is R $ 43.38 in Mato Grosso. The market value is R $ 116.80.

Corn: roller coaster of numbers

In the case of corn, a roller coaster is practically seen in the storage data. From 5 million tons in 2010, the stock fell to an average of 236 thousand tons in eight months of this year – in August, the accumulated in the stocks was of 183 thousand tons. Since 2010, there has been a rise and fall in the total stock, but without ever returning to the initial mark.

The superintendent of Conab says that there was a structural problem in relation to this grain and the price dropped frequently. However, the construction of ethanol plants in 2017 ended up generating demand for the product. “The corn market has changed since then. The price paid to the producer is above the minimum. 1 million tons were purchased in 2017 and since then, it has not been acquired. The acquisitions were larger than those of rice, but after 2017 there was a change. “

Wheat and coffee: low stocks

Wheat and coffee were two other products that had a drop in public stocks. In the case of coffee, the stored volume dropped from 39 thousand tons, in 2010, to just three tons in September 2017 – and, since August 2017, the stored product has stagnated at 31 tons.

In the case of wheat, the fall was more abrupt: from an average of 1 million tons in 2010, it fell to 1,592.88 tons.

The economist and professor at PUC-RS (Pontifical Catholic University of Rio Grande do Sul), Izete Bagolin, observes that, in the case of wheat, the country is not self-sufficient in production and, therefore, most of what is consumed comes from abroad. “As it depends on imports, Brazil’s regulatory capacity is limited – unlike coffee, in which Brazil is a major producer.”

For experts, low stock is government decision

The decrease in inventories sounds like a warning to experts, who perceive a liberal movement of the last governments in relation to prices. For the professor of economics at the Federal University of Paraná (UFPR), José Guilherme Vieira, the product stored by the government could be used both to absorb production – and to protect rural producers – as well as to sustain the surge in prices, such as now occurring with rice.

There are people who think that this is government intervention, but it is not. When we analyze the food strategy, it is not the minimum price that matters.
José Guilherme Vieira, from UFPR

For the researcher, countries should have at least six months of regulatory stocks to avoid being exposed to bad weather, exchange rate fluctuations or a drop in the supply of a certain product on the international market.

The reduction in inventories was totally incorrect. The formation of stocks is a guarantee of food for the people. It is food security. In addition, a price regulation instrument.
José Guilherme Vieira, from UFPR

Vieira stated that, for liberal governments, the artificial manipulation of prices – such as the entry into the grain market, for example – is considered “absurd”. “For liberals, the price is the artificer of the system. It is one of the roots of the policy of abandoning stocks. There is another reason: the Brazilian state lives in a fiscal crisis, and liberalism does not like a public deficit. Imagine, then, investing on stocks. That goes for money. If you think that money is lacking, and the government has priorities, the last thing is to control price, and spending money to control price is the absurdity of the absurd. “

The teacher Izete Bagolin, from PUC-RS, understands that low stocks leave the Brazilian population vulnerable to soaring prices.

We now have the price of food priced according to market logic, without government planning. That’s nice? Is bad? For the government there will be less maintenance costs, because the government ends up making stock without using it. On the other hand, it ends up transferring the collective cost to the individual. Building regulatory stocks is not a free policy, but in times of crisis, [as consequências] end up surfacing. It’s a choice.
Izete Bagolin, gives
PUC-RS

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