Brazilian fruit market struggle with meager profit margins amid low export levelsSep, 01, 2022 Posted by Gabriel Malheiros
The Brazilian fruit market is going through a delicate moment marked by a decline of 11.6% from shipments concluded until July, accompanied by a drop in profit margins which are in peril of decreasing even further. Such a scenario arises from high production cost levels and likely cool-down prices, prompting producers to employ more conservative management tactics.
This is the assessment of the consulting firm Agro Itaú BBA in its August 31 report, which recalls that the weather has not made things easier for this industry. In the São Francisco Valley, Brazil’s leading fruit export hub, 500 millimeters of rain were recorded between October 2021 and March 2022, up 65% from the historical average. Excessive humidity made it difficult to control flowering, on top of putting barriers to pest control and disease management.
Producers invested more to minimize adverse effects but ended up harvesting less; the quality of fruits also worsened.
These losses resulted in a drop of 11.3% in the volume of fruits and derivatives exported by Brazil in the first seven months of the year, which stood at 518.9 thousand tonnes. As a result, sales revenue dropped 11.6% compared to the same period last year to BRL 511.6 million. Among the most exported fruits, the production of grapes in the northeastern portion of the country was the most severely hit. As a result, shipments decreased by 45% to 12,400 tonnes. Papaya exports also retracted by 17% to 25.2 thousand tonnes, and mango exports dropped 14% to 78.3 thousand tonnes.
Also, hit by the La Niña phenomenon, Brazil’s south had little rain at the time when apples usually pass through filling and graining, harming the supply for exports – which decreased volume by 64% to 34.8 thousand tonnes from January to July this year.
See below the track record of fruit exports by Brazil from January 2021 to July 2022. The data is from DataLiner.
Brazilian Fruit Exports | Jan 2021 – Jul 2022 | TEUs
Projections for the international scenario that lies ahead are still cloudy. According to analysts at Itaú BBA, stoppages in China’s key ports and the increase in oil prices this year resulted in low container availability and high sea freight costs in the year’s second half. This scenario is worrying because about 90% of Brazilian fruit exports are exported via ships.
The specter of global recession adds uncertainty to the demand end of things. “A possible reduction in foreign purchases without equal movement in supply could weigh on prices,” comment the analysts. In addition, the weakening of the economy in Europe, the leading market for Brazilian fruit abroad, may affect volumes and prices.
Finally, to paint the whole picture, because the blooms happened not too far apart, there is a chance that Brazilian supplies will be concentrated in a short period. “Availability in a centralized period can put pressure on quotations and harm producer margins,” the paper concludes.
Among all the factors cited by the bank, only one is absolutely outside the control of rural producers: the weather. La Niña is expected to persist in the coming months, causing more rain than usual in the Northeast and hurting local plantations for the second year in a row.
Itaú BBA recommends producers negotiate part of their deals exclusively in dollars or euros to preserve margins. In addition, investing in products with higher added value in the domestic market, such as premium grapes and mangoes, can be an alternative to circumvent an eventual decline in exports. Finally, maintaining or strengthening partnerships with supermarket chains can help the market segment reach more remunerative conditions.
Source: Valor Econômico
To read the full original article, please go to: https://valor.globo.com/agronegocios/noticia/2022/09/01/clima-e-reducao-das-exportacoes-afetam-margens-da-fruticultura.ghtml
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