RaboResearch - Economic Research

Latin America: F&A sector dynamics in Brazil

Economic Comment


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  • The F&A sector in Brazil has performed much better than the rest of the economy
  • The sector recorded volume growth of 1.8% y-o-y in 2015; in 2016, a severe drought could cause economic activity in the sector to even contract
  • Investments are currently not spectacular, in line with the cyclical international downturn in commodity prices and tighter domestic credit conditions
  • In labour dynamics, the export oriented agricultural sector diverges from the rest of the economy and posted job growth in 2015; in the domestically oriented food and beverage processing industry employment contracted

Author: Andy Duff


Against the backdrop of the severe recession that Brazil has suffered over the last two years, the output of the agriculture and agribusiness sectors has held relatively firm in comparison with much of the rest of the economy. On its own, the agriculture sector accounts for around 5% of GDP and around 10% of employment. In 2015, agriculture recorded volume growth of 1.8%, versus -6.2% and -2.7% for industry and services, respectively. Part of this performance is due to the external orientation of Brazil´s agribusiness – the country is a leading exporter of an array of major agricultural commodities. As a result, the sector’s revenue depends heavily on world prices and on the exchange rate (with little policy intervention in the domestic markets for commodities, domestic prices for many commodities reflect export parity), as well as on the level of output.  

However, for 2016 the current signs are that agriculture´s contribution to GDP growth may well turn negative. The prime driver of this projection is weather related, as severe drought associated with El Niño hit grain-producing regions in the northeast and centre of the country in late 2015 and early 2016, affecting the yields and output of soybeans, corn and cotton.


Investment in Brazil´s agriculture and agribusiness sectors tends to be cyclical, reflecting the commodity price cycle. As a result, the sector´s investments in 2016 were never likely to be spectacular, given that the international prices of major commodities such as soybeans and corn have seen a cyclical decline after reaching high levels in 2012 and 2013.

However, the sector´s investments have been further squeezed over the last year owing to the tightening of credit conditions and an increase in interest rates in Brazil. Even the government´s official rural credit lines for investment – made available at interest rates significantly closer to market rates owing to the pressure on government finances - have seen reduced demand. For the 2015/16 (Jul/Jun) crop year, uptake of official rural credit lines for investment purposes declined by 29%.

Evidence of how the cyclical downturn in prices plus tighter credit conditions have impacted investment is most clearly seen in the evolution of agricultural machinery sales. On a national basis, sales for 2016 to date are down 26% on the equivalent period for 2015 (which in turn was 27% below the figure for 2014). As signaled above, 2014 saw a boom in sales following high prices and margins for grains and oilseeds; the interest rate environment for both government and market credit was also more benign than in 2016. 


Official employment data suggests a divergence in the trends for labour between the agriculture and food processing sectors. Although the overall national employment as contracted by some 4% over the past year (basis June 2015 to June 2016), the agricultural sector managed to deliver positive job growth, of 0.6%, over the same period. The food and beverage industry, however, has seen a net decline in the employment of 2.3%, a decline which appears to have been accelerating since 2014.

The most likely explanation of these divergent trends is that much of Brazilian agriculture is globally competitive and export-oriented, and the sector has been cushioned from the worst effects of the crisis in Brazil by robust demand for its products outside the country. Moreover, export competitiveness was enhanced by the significant devaluation of the currency in 2015. In contrast, the food and beverage processing industry is largely domestically oriented, and is therefore fully exposed to Brazil´s recession. It is no surprise that in the face of high inflation and rising unemployment, consumers have reduced expenditure, provoking not only a process of trading down to simpler, cheaper brands and foods but also an absolute reduction in the sales volumes of various food and beverage categories. 

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