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Brazil's food inflation: don't blame it all on the weather

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(Globalpost/GlobalPost)

By Caroline Stauffer and Silvio Cascione

SALTO, Brazil (Reuters) - Brazil, an up-and-coming agricultural superpower with abundant fertile land, is struggling to provide consistently affordable food for its population.

To understand how, consider the tomato.

Prices of the red fruit shot up 122 percent in March from a year earlier, putting it on the cover of two national magazines, spurring reports of tomato trafficking from Argentina and igniting national outrage over how any produce could possibly cost more in the tropics than in, say, frigid Alaska.

Brazil's output of export commodity crops like soybeans, corn, sugar and coffee is growing faster than anywhere in the world, and no one is warning of an imminent food shortage in a country so rich in natural resources.

But Latin America's largest economy is increasingly becoming a tale of two contrasting agriculture policies. Export crops are a model of technological prowess and high yields while the farms responsible for feeding a growing consumer class have remained much the same for decades: mostly small and family-run.

Weighed down by debt, vulnerable to weather damage and squeezed out of their lands by the commodity crops, these farms are the first link in a long chain of inefficiencies that made food prices soar in a country still scarred by its long history of runaway inflation - complicating President Dilma Rousseff's efforts to rekindle economic growth.

"Brazil is only concerned about the agriculture that affects our trade balance," said Cyro Cury, who grows 10 kinds of tomatoes on a farm an hour outside Sao Paulo, South America's biggest city.

"There is no strategy, no regional statistics. We don't deserve to be called the world's bread basket, we don't have the right policies for that," he said while examining freshly harvested tomatoes from the dozen greenhouses he manages.

Some of the problems facing the small farms clustered around Brazil's largest cities, such as scarce labor and poor transport lines, are also felt by manufacturers and entrepreneurs. They make up part of the so-called Brazil cost that has choked economic growth and made doing business here so expensive.

Brazil's government largely blames the recent rise in tomato, onion and carrot prices - which helped drive inflation above the upper end of the central bank's target range in March for the first time in a year and a half - on seasonal factors it can't control.

"There were climate problems in some regions," secretary of agriculture policy Neri Geller said, suggesting prices would soon fall. "We have well-defined policies for these products through credit lines and intervention through minimum prices."

There is a growing consensus among farmers and economists, however, that deeper structural issues, not just irregular rains, leave Brazil vulnerable to oscillating food prices at a time when few comparable countries are worried about inflation.

As in many developing countries, food still accounts for a large chunk of Brazil's consumer price index - 22 percent - and fresh fruits and vegetables are widely consumed by all classes.

LACK OF LABOR

Chief among the factors spurring high food prices is a lack of farm workers in a country now enjoying almost full employment. After years of strong growth, services companies have lured unskilled workers away from farms by offering them better perks and a lighter workload, often inside air-conditioned shops rather than under the blazing sun.

"Today the scarcest type of workers in Brazil are the unskilled workers. Farm workers live just outside the big cities and have other opportunities," said Mauro Lopes, an agronomist at the Getulio Vargas Foundation think tank in Rio de Janeiro.

Unlike the large soy and sugar plantations that are largely mechanized, well-capitalized and often run by foreign firms, some 60 percent of Brazil's vegetable farms are still family run and rely on manual labor.

Cury, the tomato farmer, said the scarcity of tomatoes and record prices this season are mainly due to an outbreak of a deadly fungus, fewer seeds planted as farmers emerge from debt, and the increasing difficulty finding workers.

He says he would have liked to plant tomatoes in eight more greenhouses this season to help meet surging demand in Sao Paulo. But he couldn't find the additional workers for a salary of about 1,000 reais ($500) a month.

Brazil is now the world's top producer of sugar, citrus and coffee, the leading exporter of poultry and beef and on the verge of becoming the top soybean grower. But land for non-export crops is increasingly scarce.

Data from statistics agency IBGE shows that the area planted with rice and beans, staples of the national diet, has fallen about 30 percent since 1990, when the population was 25 percent smaller.

In Sao Paulo state, an economic powerhouse that is home to 40 million people, cane fields and orange groves dominate the landscape.

"There is a clear divide in Brazilian agriculture," said João Pedro Stedile, leader of Brazil's landless peasants' movement, known as MST. "There are 16 million workers in family farms; they have only 15 percent of the land, but grow 80 percent of what's consumed domestically."

Cury and other farmers can't move too far from the cities in search of cheaper land and labor in the interior like their soy and corn farming counterparts because vegetables would spoil long before they arrived.

"Transport restrictions are a chronic problem in Brazil," said Geraldo Barros, a professor at University of Sao Paulo in Piracicaba. "They hurt producers directly. A large part of the burden falls upon them, through lower prices (at the farm)."

Though tomato prices in Brazilian grocery stores have fallen slightly since March, when they cost more than in supermarkets in northern Alaska at $8 per kilo, onion prices remain around $3 per kilo, double their price in Mexico City and three times what they cost in Lima, Peru.

In addition to labor, land and transportation, there is another part to Brazil's food inflation story: a large gap between wholesale and consumer prices. As Brazilians celebrate newfound job security, it sometimes feels like there is always someone willing to pay sky-high prices for goods or services.

"Stronger purchasing power made companies pass through all the increasing costs to consumers, and also inhibited them from lowering prices when costs started to drop at the farm's gate," said Mauricio Nakahodo, an economist with Bank of Tokyo-Mitsubishi in Sao Paulo.

Though tomato producers welcomed this year's boon of higher prices, Cury said it is not making them rich. A box of his standard tomatoes costs 3.5 reais, but was selling for four times that amount at a local supermarket, he said.

He said the small share of profits limits farmers' ability to increase food output for Brazilians, ensuring a cycle of high prices for years to come if nothing changes. "If we don't adopt policies for small-scale crops and guarantee nourishment, we are going to have big problems in 10 years."

(Additional reporting by Alexandra Alper in Mexico City and Mitra Taj in Lima; Editing by Todd Benson and Kieran Murray)

http://www.globalpost.com/dispatch/news/thomson-reuters/130508/brazils-food-inflation-dont-blame-it-all-the-weather