The disaster in Rio Grande do Sul and its impacts on the Brazilian economy
Importance of the South
Rio Grande do Sul boasts the fourth-largest economy in Brazil in terms of Gross Domestic Product (GDP) size, according to data released by the Brazilian Institute of Geography and Statistics (IBGE). In agriculture, the state ranks as the second-largest grain producer in the country, according to the latest report from the National Supply Company (Conab). Additionally, it is also the largest producer of wheat and rice and the second-largest producer of soybeans in Brazil.
Current Reality
The harvest of the current soybean crop has not yet concluded, and analysts have observed that production losses are highly likely, given possible flooding in planting areas and logistical problems caused by rains, including road blockages and bridge damage. According to reports by Broadcast Agro, the climatic tragedy has also affected the agricultural sector in Rio Grande do Sul. The main impact has been on logistics, affecting the transportation of animals for slaughter, the delivery of feed for poultry and swine, and even the availability of professionals to carry out work. As a result, some slaughterhouses have halted activities, while others operate at reduced slaughter levels. In addition, floods have affected 94.3% of all industrial economic activity in Rio Grande do Sul, according to a survey released on Monday (5/14) by the Federation of Industries of the State of Rio Grande do Sul (Fiergs). Three of the hardest-hit regions (Metropolitan Region of Porto Alegre, Vale dos Sinos, and Serra) contribute R$ 220 billion to the Brazilian economic activity. These three regions are home to 23.7 thousand industries employing approximately 433 thousand people.
Impacts
Floods have consequences on agricultural crops, trade, employment, overall economic activity in Rio Grande do Sul, and consequently impact the country's economy in at least three fronts: on this year's GDP growth, on the agricultural sector, and on Brazil's fiscal issue. A study by Bradesco predicts that the crisis's impact could reduce national GDP growth by 0.2 to 0.3 percentage points. Another survey by the National Confederation of Municipalities estimates flood-related financial losses at over R$ 8.9 billion. Additionally, according to the CMN, R$ 2.4 billion of these losses are in the public sector, R$ 1.9 billion in the private productive sector, R$ 4.6 billion specifically in destroyed homes, and the agricultural GDP in Brazil could decline by 3.5%.
Furthermore, losses in agribusiness could be amplified by logistical issues, affecting both crop distribution and the arrival of inputs. Floods have also caused shocks in some international prices — the global soybean quotation on the Chicago exchange rose by 2% last week, and national prices were not left out. In Brazil, the price of rice has already increased, and the government announced the importation of the product to prevent a larger shock. There are fears that prices of chicken and pork could also rise soon. It is estimated that 7.5% of Brazil's rice production and 2.2% of soybean production may be compromised if the worst-case scenarios are confirmed. Additionally, significant financial aid to Rio Grande do Sul could have a major impact on national accounts, as it has the potential to worsen Brazil's fiscal situation, which is already suffering. However, economists point out that the exact extent of the economic impact cannot yet be quantified precisely because the rains are ongoing, and a precise assessment of the damage has not yet been conducted.
By: Anita Perez Buckup on 05/20/2024
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