Conflict of interests in agribusiness

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By FERNANDO NOGUEIRA DA COSTA*

Five environmental agendas are distinguished in the productive chain strategies of “rural” entrepreneurs

The publication of the IPEC Electoral Survey Map by States provoked critical comments about the backwardness of the states in the Southwest of Brazil. Apart from the former territories bordering the North with small electorates (RR 0,2%, AC 0,4%, RO 0,8%), Lula does not lead in the DF (1,4%), in MT (1,6 %) and in SC (3,5%). It is in a technical tie with a numerical advantage for the disqualified current holder of the position of President of the Republic in MS (1,3%), GO (3,1%) and PR (5,4%). It leads in 14, including the two largest (SP 22,2% and MG 10,4%), and also has a technical tie with numerical advantage in ES (1,9%), RS (5,5%) and Rio de Janeiro (8,2%). Let's remember: unlike the United States, here there is no rule "the winer takes it all”, that is, a victory implies winning all the votes in the state.

These comments critical of the delay provoked reactions on the allegation that the western states are showing greater demographic, economic and, mainly, export growth. In 2000, MS, MT, RO, AC and RR accounted for 4,0% of Brazil's population and 2,5% of exports. In 2021, they increased to 4,6% of the population and 10,9% of exports from Brazil.

Those who were indignant argued that, instead of classifying them as “backward”, it was necessary to try to understand the dynamics of these states and present a better political agenda compared to the current one for this region.

I also reacted against their economism by saying: economics does not directly determine politics. Voting against a socially and nationally progressive candidacy in the name of supposedly defending the dominant interests in these agribusiness regions, in my view, is indeed a parochial symptom of political and cultural backwardness.

I had the opportunity to travel to almost all Brazilian states and I was shocked by the educational and/or cultural inequality, precisely in those places where the reactionary candidate is at the forefront, although I met very kind people everywhere. Worse, its inhabitants do not have this notion, as they are unaware of the level of higher education existing in other places.

As my grandmother used to say about snobs, whose main value is pecuniary – and not cultural: “they eat angu… and burp turkey!” Do they not see each other or are they resentful?

I learned from Caio Pompeia, author of the book Political formation of agribusiness, in virtual debate and article (Folha de S. Paul, 25/02/21), that agribusiness is not homogeneous. There are fractions in dispute for political power within the caste of agribusiness merchants. They constitute subcastes.

For example, five environmental agendas are distinguished in the productive chain strategies of “rural” entrepreneurs, expressed by employers' associations.

(1) The União Democrática Ruralista (UDR), allied with the unnameable president, has “denialist” claims, as it contests Brazil's climate commitments, the provisions of the Forest Code and the existence of the Ministry of the Environment (MMA). At the same time, they encourage legal and administrative changes, “to pass the cattle”, in wild territorial expansion to seek competitive advantages.

(2) The “conservative” positions of the Confederation of Agriculture and Livestock of Brazil are expressed in the work with the Parliamentary Front for Agriculture in Congress and converge with those extremists in defending the current environmental policy and in criticizing the demarcation of indigenous lands. Due to exporter opportunism, they give a “green bath” [greenwashing] in the most radical proposals, not opposing the Paris Agreement, but demanding more timid goals for the country, and make LOBBY for the continuity of MMA under a command suited to their positions.

(3) The Brazilian Association of Vegetable Oil Industries is an example of those who make “voluble” claims for not investing with impetus against a relevant part of the anti-environmental proposals, existing in the National Congress, where it has considerable influence. Forced by criticism, it differs from conservative positions by taking seriously its commitments to rural debt moratoriums and traceability.

(4) The Coalizão Brasil Clima, Florestas e Agricultura adopts “decarbonizing” positions and is clearly opposed to the current environmental policy of the government that exterminates forests and genocides natives. He has defended the transition to a low-carbon economy, the fight against illegal deforestation in the country, the Forest Code and conservation units.

(5) European associations, led by agents linked to tertiary activities, such as the financial institution Storebrand and the retail chain Tesco, adopt “socio-environmental” positions and propose zero deforestation in the Amazon, challenge attempts to loosen environmental licensing rules and , with greater emphasis on decarbonizing positions, defend traditional territorial rights.

In the current legislature (2019-2022), the Agricultural Parliamentary Front (FPA) now has 257 signatories, while in 2018 there were 240. PP and PSD are the acronyms with the most affiliated members at the head, with 29 and 27, respectively. Then MDB and PSL are the most numerous, with 25 parliamentarians each. They are followed by DEM (22), PR (18), PSDB (16) and PRB (12), PDT (11) and PSB (11).

The 225 deputies affiliated to the FPA represent 44% of the Chamber with 513 parliamentarians. In the Senate, the ruralists hold 32 of the 81 available seats (39,5%).

Evidently, this proportionality with ruralist over-representation does not represent the direct interests of the majority of the Brazilian population, on the contrary, it has a conflict of interests. According to data from PNAD 2015 by IBGE, most of them (84,7%) live in urban areas. Only 15,3% of Brazilians live in rural areas.

In fact, Brazilian agribusiness attracts many foreign investors with a strong interest in acquiring or leasing rural land. As a matter of economic strategy, Brazilian legislation restricts such investments in the territory for the maintenance of national sovereignty.

Justifying the temporary use of the land, retrograde landowners usually opt for the structure of the rural partnership contract, not subject to the legal restrictions of lease contracts. This works as a kind of land rent, where the lessee pays a certain and determined amount, in national currency, to the lessor, while in partnership the parties share the risk of the business and share the gains. Many of these so-called partnership contracts are, in practice, leasing contracts with a fixed price stipulation and without risk sharing. They circumvent the law.

According to the index Best and Biggest 2020, a survey carried out by the magazine “Exame”, ten companies emerged as the holders of the highest external net revenues in the order: 1º Vale (US$ 19,2 billion); 2nd Petrobras (US$ 17,7 billion); 3rd Agricultural Cargill (US$ 9,3 billion); 4th Shell Brazil (US$ 7,7 billion); 5th Bunge (US$ 5,3 billion); 6th Louis Dreyfus Company ($4,2 billion); 7th Suzano Papel e Celulose (US$ 3,6 billion); 8th JBS (US$ 3,3 billion); 9th Amaggi Commodities (US$ 3,2 billion); 10th CSN Mineração (US$ 2,7 billion).

In the Forbes Agro 100 List, among the 25 largest companies by revenue in agribusiness in the country, nine are of foreign origin: CARGILL (5th), BUNGE (7th), COFCO (10th), LOUIS DREYFUS (12th), YARA (16th), TEREOS (21st), GAVILON (23rd), BAYER (24th), VITERRA (25th).

Another important observation, but little known, concerns the so-called “alligator mouth”. It is formed by the difference between the exchange rate shipped or exported, disclosed by SECEX, and the contracted exchange rate, determined by the Central Bank of Brazil. At the end of August 2022, it reached US$ 30,7 billion (a value close to that of Argentine foreign exchange reserves), well away from the peak of US$ 58,7 billion, reached in August 2021.

When credit conditions are more expensive here, there is an increase in the price of some imported inputs and the exporter needs to have more capital, he brings in the dollars previously left abroad. It also internalizes by carry trade: apply where the interest is higher.

The closing of the “jacaré mouth”, that is, the internalization of earnings in dollars from physical exports from production in Brazil, leads to the appreciation of the national currency. The opening of the “mouth” facilitates the depreciation – and reinforces the imported inflationary pressure.

A part of the dollars is kept abroad. Not all foreign exchange resources appropriated by Brazilian exporters will be internalized. That 'gap' [gap] exists because part of that foreign money is poured into countless services of the big exporters out there. But a contracted exchange rate much lower than the one shipped is also not expected by the national interest.

It is not a question related to a country's structural risk, but to the fact that the cash management of multinationals, exporters from Brazil, is less related to macroeconomic aspects and much more linked to microeconomic risk management and balance of currency balance foreign. A company with a functional currency in the dollar manages its business in that currency. For her, it makes no sense to accumulate reserves in another currency other than the dollar just to appropriate higher interest rates in reais.

*Fernando Nogueira da Costa He is a full professor at the Institute of Economics at Unicamp. Author, among other books, of Economic analysis methods (Context).

 

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