South America Calling

Brazilian Ag Confidence Bounces Back

A deep recession allied to political uncertainty caused confidence among Brazil's agribusiness to slump over the last 18 months.

But a bounce in local commodities prices and healthy margins has led to a resurgence of positivity since April, according to an industry survey released Monday.

The IC Agro agribusiness confidence index surged 19.5 points to 102.1 in the second quarter of 2016, the Sao Paulo Industrial Federation (Fiesp) announced.

The index that measures confidence among input suppliers, industry and farmers runs from 0 to 200 with 100 representing the neutral point. The last quarter is the first time the index has topped 100 since the first quarter of 2014.

"We have seen a big recovery in confidence. It is very encouraging but we are a long way from euphoria," said Antonio Carlos Costa, manager of Fiesp's agribusiness department.

Brazilian business confidence in general has taken a massive hit over the last two years due to a toxic cocktail of negative growth; GDP shrunk 3.8% in 2015; consistently high inflation, 10.7% last year; and political chaos amid an impeachment of the president and a corruption investigation that threatens to bring down many of Brazil's leading politicians.

In the agriculture sphere, the contraction of the economy hit food consumption and therefore the food industry hard. Meanwhile, the sharp contraction in credit and uncertainty also hit the input, machinery and storage industries hard.

Farmers weren't that badly hit. A devaluation of the real and an upturn in commodity prices had allowed many farmers to basically maintain their margins.

So what changed last quarter?

Basically, confidence that the Brazilian economy had bottomed out and was starting to come back.

The level of confidence in the economy among agribusiness players jumped 40 points to 84 in the second quarter (again on the 0 to 200 range). As a result, pre-farmgate industry confidence jumped 28.5 points to 101.8 and post-farmgate confidence rose 23.7 points to 100.7.

The return of confidence indicates there may well be a return of investment after a very quiet couple of years.

Agriculture is one of the few sectors to have grown through the recession, expanding 1.8% last year. As a result, Costa highlighted that the Brazilian farm sector had to fight against moves to try to tax the sector more heavily, along the lines of Argentina that taxed exports.

(AG)

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