By JEAN MARC VON DER WEID*

The government took a long time to realize that the increase in the cost of food, at home or away from home, is much more important, socially and politically, than the general index used to measure inflation.

1.

The Lula government woke up late to the political impact of food inflation. Buoyed by the positive results of policies that favored increasing the income of the poorest, such as the Bolsa Família program and the Continuous Benefit Program and the real increase in the minimum wage, by the greater-than-expected growth of the economy with greater job creation, by relatively low inflation (IPCA) and by the exceptionally low food inflation (1%) in 2023, the government slept in a splendid cradle… and woke up with a hangover.

The government's "wake-up call" was the recent opinion polls that showed a disconnect between the administration's self-satisfaction with the macroeconomic figures and the electorate's growing dissatisfaction with the government's performance, including that of President Lula. And what do the opinion polls indicate about the causes of this bad mood among the electorate? The prices of food, electricity and fuel, with widespread complaints about the former.

It is surprising how long it took the administration to realize that the increase in the cost of food (IPAB), at home or away from home, is much more important, socially and politically, than the general index used to measure inflation for the entire economy, all goods and services included (IPCA). In 2024, the IPCA reached 4,8%, slightly above the target limit, but the IPAB grew 50% faster, reaching 7,7%.

It seems that economists and politicians in the government have very short memories. Food inflation was the theme of Lula's 2022 campaign, with the use and abuse of the expression "bolsocaro", referring to the price of food. In a previous article, I indicated the frequency of years in which the IPAB exceeded the IPCA, from 2002 to 2022. During this period, food inflation was lower than general inflation only four times, and in the other years there were several years in which the IPAB exceeded the IPCA by 100%. In other words, the problem is not new at all and has not been properly studied to be able to be addressed correctly.

Studies showing the enormity of our food problem have been abundant since the creation of the first CONSEA, during the government of Itamar Franco. The most recent, carried out in 2022, showed that half of the population suffered from severe or moderate food insecurity. For the poorest, who came to benefit from the Bolsa Família Program (PBF) or the Continuous Cash Benefit (BPC), the problem had two dimensions, quantitative and qualitative. For the others, poor or well-off, the dimension was qualitative – people adopted a diet poor in essential nutrients such as proteins, vitamins, fiber and minerals.

The causes of this situation have not been explored in depth. The proposal of the popular governments was to increase the income of the undernourished, which implies believing that the problem was limited to the lack of resources to eat well, in quantity and quality. This ignores the problem of food supply, which would have to increase significantly in order to meet the increase in demand driven by the increase in income.

2.

When the Lula government formulated the first Harvest Plan for family farming, I joined Plinio Sampaio in drafting the proposal to increase PRONAF credit, with special incentives for the production of basic foodstuffs – beans, rice, milk, wheat and others that I don't remember. This proposal had a premise that we all accepted: the production of food for domestic consumption would be the focus of this sector (family farming), considered responsible for 70% of the supply for the domestic market.

The other premise was that facilitating access to credit would allow family farming to expand its production and respond to the increase in demand expected due to the PBF/BPC effect on the income of the poorest.

Both premises proved to be false. The share of family farming in total food production was much smaller than we imagined, perhaps a little less than half of the mythical 70%. And the credit facilitated by subsidies in interest rates on loans for food products was not enough to prevent family farming, especially the most capitalized in the South and Southeast regions, from turning to the production of commodities for export, a more profitable operation than the production of basic foods for the domestic market.

The result is that the participation of family farming in food production has fallen instead of rising, reaching less than 20% in recent years. According to the 2017 census, the participation of all family farming production (including commodities) does not reach a quarter of the basic production value (VBP) of all Brazilian agriculture, family and employer-based.

Popular governments, including the current one, have continued to cultivate this myth about the role of family farming while granting even greater benefits and subsidies to the agribusiness sector. I do not recall any reference to this sector other than as exporters of commodities, although a significant part was a producer of rice, beans, wheat, milk and other food products for the domestic market.

Even without a policy aimed at food production by the employers' agribusiness, the sector was modernized with easy credit, but this did not increase production. There was an increase in productivity, but this only compensated for the reduction in cultivated areas, maintaining a stable supply over time, while per capita production continued to fall, with the increase in population. On the other hand, the capitalization of food production indexed food prices to the costs of inputs (fertilizers, pesticides, seeds, machinery), which followed an international trend of constant price increases.

In another indexing move, food prices were tied to commodity prices. Quite naturally, all agricultural producers, and even more so rural agribusiness capitalists, choose what to produce based on two factors: the suitability of the land and climate in which they produce, and the prices of the products they will take to the market. If food prices for the domestic market are lower than those of commodities, they will opt to produce the latter.

In other words, Brazilian consumers have to compete with international commodity markets and, of course, food demand is now defined by existing payment capacity. With the huge income gap between the poorest and the richest, food supply is now directed to the minority who can pay prices indexed to international markets and input costs.

It is strange that no one in the government has bothered to study the different levels of inflation according to the income strata of the population. Even without more precise and detailed data, it is well known that the composition of spending among the poorest is radically different from that found among the richest. Food accounts for close to 50% of spending among the poorest and less than 10% among the richest. And, since the diet of these two sectors is radically different, the increase in prices is not identical for one and the other. In other words, the IPAB of the poor and that of the rich may be higher or lower than the annual average.

3.

It will be necessary to analyze the diet adopted by these different income groups if we want to define policies to address food inflation. Without this understanding, government officials and Lula himself have said some embarrassing nonsense that was quickly mocked by the media and the opposition as the “Marie Antoinette syndrome.”

The unfortunate queen of France at the end of the 18th century is said to have recommended that the poor of Paris eat brioches, as they were complaining about the lack of bread. It was not (only) for this reason that she was beheaded during the French Revolution and perhaps the phrase was an example of fake news (fausses nouvelles, in French) of the past, but the satirical comparison with the current situation is politically devastating.

To suggest that the poorest have cheaper options to replace items in their diet is to ignore what this diet is and the normal dynamics of all those in need. The poorest have been making these adjustments to their diet since forever, and so have other consumers. The difference is that the less poor can exchange beef for chicken and the well-off can exchange rump steak for topside, but what can the poorest do? When the diet is reduced to the consumption of noodles with sausage, rice with egg and bread or crackers with margarine, what is the possible exchange?

The government does not seem to know what the beneficiaries of the PBF or BPC eat, nor how the prices of the products in this diet have varied. We continue to talk about the “basic food basket” as if it were what was defined in 1938, in the definition of the minimum wage law, and applied to everyone, rich, well-off, poor and the poorest, which is obviously false.

This false premise allows us to say that social benefits had no effect on food inflation, pointing to the fall in the prices of beans (-8,6%), cassava flour (-1,8%), potatoes (-12,4%), tomatoes (-25,9%) and onions (-25,3%) in 2024. With the exception of cassava flour, depending on the region, none of these products (included in the basic food basket) have any weight in the current diet of the poorest and, even in the event of a fall, their prices do not make them substitutes for anything.

On the other hand, the price of rice rose 8,3% and soybean oil 8,0%, while wheat remained stable and eggs fell 4,5%, both of which are important products in the diet of the poorest. Ultra-processed products, a very important item in the diet of the poorest, continue to experience a relative decline, compared to natural and minimally processed products.

The main culprits of the current rise in food prices are meat (+20%), coffee (+40%) and milk and dairy products (+20%). These prices have little impact on the cost of the diet of the poorest, but they affect the poor and the well-off as much as possible. Chicken, whose consumption increased significantly during the government of President Fernando Henrique Cardoso, becoming a symbol of prosperity, rose 10,3%. Second-rate meats (considered popular consumption) rose the most: 25% for chuck, 24% for flank and 20% for sirloin.

Interestingly, the price of picanha, a symbol of prosperity in President Lula's speeches, increased by much less, 8%, but this cut is not part of the diet of the poor or the poorest. Even among the well-off, picanha is consumed only at parties, at most at a weekend barbecue.

Without knowing exactly what the diet of these different groups is, it is not possible to know precisely how much each one was affected, but given the weight of the cost of food in the budget of the poorest families (50%), it can be inferred that even though they are not the sector with the highest percentage increases in their expenditure items, PBF and BPC beneficiaries must be suffering the most. Precisely because they are the poorest, they have more difficulty absorbing increases, even if they are comparatively smaller.

The upper strata have faced price increases for the most common foods in their diet, although their impact on the family budget is lower. The fact is that the increases are quite widespread, and everyone is complaining. How can we explain this price movement?

In addition to the structural issues presented above and which broadly define our problems in supplying food at prices compatible with the reality of our consumers, there are cyclical explanations.

First, given our dependence on international markets, prices of commodities Rising prices drag down all our prices, with the exception of vegetables and legumes. This globalization of agriculture also reduces the supply of food in the country, since the rise in commodities results in greater exports. In addition, the rise in the dollar contributes greatly to these immediate increases, but also to the costs of food production and distribution, since a strong dollar raises the price of fuel.

Secondly, the prices of inputs used in agriculture have been rising regularly on the international market, even more so since the war in Ukraine, a major supplier of chemical fertilizers.

Thirdly, climate phenomena (heat waves, droughts and floods) have been intensifying in recent years, aggravated in Brazil by deforestation and fires. This has reduced crop and livestock productivity, reducing the supply of products.

4.

How can we face this disastrous situation in the immediate, medium and long term?

To address the current rise in food prices, it is first necessary to define what the target of government initiatives should be. Should the beneficiaries be the poorest, the beneficiaries of the PBF and BPC? Or should the poor or the well-off be included? Or should the policies be aimed at the entire consumer public?

It is not easy to separate food policies by income stratum in this market-based model. If the government, for example, subsidizes the prices of rice or wheat, all consumers will benefit, even though the needs of different income strata are completely different.

What can the government do to lower prices? Tax cuts are one of the few alternatives and are included in the tax reform, which is not yet in force. However, measures of this type have already been implemented for several basic food products since Dilma Rousseff's government, and this has not prevented the current increase. The complementary law that eliminates taxes on 22 basic food products and reduces taxes on many others by 60% will only come into force in 2027. It would be necessary to adopt these rates immediately, but the effect would not be enough to bring prices down to the low levels of 2023.

The government can also increase the value of social program benefits, restoring the purchasing power of the poorest. However, without an increase in the supply of basic foods for consumption by this income group, the effect would be null, as it would stimulate a demand that could not be met and would raise prices again.

In the short term, it would be necessary to increase imports of these products. However, this measure will not reduce the prices of these foods, since international prices are as high or higher than their domestic market values. Once again, lowering import taxes is a possibility within the government's reach. And, once again, it may not be enough.

The combination of imports and increased social benefits can meet the food needs of the poorest, but the problem would still be present for consumers as a whole. To meet the needs of these other groups, the solution would be to adopt government subsidies for a wide variety of products, which implies a large budget. This policy is difficult to implement given the strong pressure from economic agents, the media and Congress against increasing government spending.

On the other hand, food imports can only be seen as a short-term solution, as long as there is no incentive to increase domestic production. And every rice, bean or wheat producer will tell you that imports discourage increased domestic production. An alternative would be to replenish public regulatory stocks, which are currently depleted, and to set guaranteed prices by the government to attract investment from producers with a view to increasing supply.

To combine the short, medium and long term, the government will need to negotiate with national producers to ensure sustainable prices and markets in the future. It will be necessary to sit down with representatives of the producers of the most important foods for the half of the population that suffers from acute or moderate food insecurity.

In cases where national food production competes directly with exports, as is the case with meat, soybean oil, sugar and coffee, to name those that have seen the greatest recent increases, it will also be necessary to negotiate with producers and agree on an agreement that guarantees quotas for the domestic market with prices negotiated and guaranteed by the government.

5.

None of this solves the structural problem of low food supply on the domestic market, which is the result of the strong ties between Brazilian agribusiness and the international market. The purchasing power of the majority of the population cannot compete with the purchasing power of consumers in developed countries or even in countries like China, where the state subsidizes consumption and makes huge purchases on the international market.

Furthermore, the agribusiness production model implies high costs in inputs and machinery, which places a very high price floor, excluding a large portion of the low-income population.

Finally, we must take into account the growing threat of climate disruptions to the supply of products, both for the domestic market and for exports. The increasing frequency of torrential rains, intense and prolonged droughts and heat waves will inevitably have an impact on the supply of food products and, therefore, their prices.

Climate threats only appear in government speeches aimed at the international public. For many years and through many international agreements, since Eco 92, scientists have been insisting on the need for governments and UN entities to adopt measures to contain greenhouse gas emissions and mitigate the impact of ongoing temperature increases. In Brazil, no government has done either of these things seriously.

Regarding the containment of increases in greenhouse gas emissions, what we are seeing is this government fighting for an increase in oil production, under the pretext that the resources obtained will finance the replacement of fossil fuels with “clean energy”. Meanwhile, it promotes greater consumption of gasoline and diesel, spending twice as much on subsidies as is spent on their green alternatives.

The government boasts about the decline in deforestation in the Amazon, but ignores the increases in other biomes. Worse still, it ignores the impact of the sharp increase in forest fires, claiming that these are caused by “natural causes.” The impact is already enormous, both on food production and on commodities for export.

The government’s concern seems to be simply not to look bad at the COP30 meeting in November of this year. It would be ridiculous if it weren’t tragic to believe that the politicians, civil society organizations and scientists who follow these meetings will forget what this government is doing or not doing to tackle global warming. Lula could say goodbye to his intended role as an international green leader, which he stated before taking office at the COP in Sharm-el-Sheik in 2022.

To address both the cost problem and climate threats, the solution is medium and long term: converting Brazilian agriculture to agroecological production. But this is something that is beyond the horizon of this government.

*Jean Marc von der Weid is a former president of the UNE (1969-71). Founder of the non-governmental organization Family Agriculture and Agroecology (ASTA).

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