SUNS4370 Tuesday 9 February 1999

Commodities: Brazilian crisis to hit Third World exporters

Rio de Janeiro, Feb 5 (IPS/Mario Osava) -- Devaluation of the Real will play havoc with agricultural exports in the developing world due to Brazil's leading position in these export markets, said a World Bank report.

And all the more so as Brazil is the world's biggest exporter of coffee, sugar, soya and orange juice, and one of the main sources of beef, pork and chicken.

Successive financial crises in Asia and Russia from July 1997 caused commodity prices to tumble, mainly due to shrinking demand, as these regions are chiefly food importers rather than exporters.

In the case of Brazil, the effect is potentially more disastrous still, as the nation is a great competitor with export products vital to many developing countries, while it is also an important importer of wheat, cotton, rice, corn and beans.

This nation also imports large quantities of dairy products and beef from Argentina and Uruguay, and is a weighty enough exporter of chicken, beef and pork to affect prices on several continents.

As a leading producer and exporter, Brazil plays a determining role in sugar and coffee prices, both of great importance to the Central American, Caribbean and African economies, as well as some South American and Asian nations, like Colombia and Indonesia.

Prices for both products have already seen a downturn as a consequence of the real's fall against the dollar since January 13. The accumulated rate up until now is 48%, with the most optimistic estimates expecting
a final rate of 25% within a few months.

Falling coffee prices will probably be less catastrophic because supply is regulated by the Association of Coffee Producing Countries, partly made up by the big exporters, and by the shortage of the product in
Brazil.

Brazil's share in international coffee trading increased from 21% in 1997 to 23% last year, impelled by a good harvest of 35 million 60 kilogramme sacks, following three years of crops ruined by frosts.

But this year, the harvest was once again insufficient to recover lost markets, said Esteve Jorge, president of the Brazilian Association of Coffee Exporters, a body calling for greater freeing of government controlled stockpiles to meet domestic consumption and export needs.

In the case of sugar, Brazil has a massive surplus which threatens to crush prices even further - already at one of the lowest points this decade - and the stockpile could become even bigger considering the mass of sugarcane available - mostly destined to the production of alcohol fuel.

Other products, however, affect less numerous competitors.

Cheaper Brazilian soya already threatens Argentine exports, while tobacco especially worries Zimbabwe - another big exporter - and US producers for domestic consumption.

Brazil's situation puts pressure on prices, both as it exports are cheaper and the call for discounts on imports, more expensive in reals, on top of reduced demand due to expectations of a recession this year - forecasts state the annual national product will fall more than three percent.

On another front, Brazil will be an aggressive exporter, as it needs to obtain a trade surplus after four years of negative outcome and balance its foreign accounts, striking fear into the hearts of its partners in the Southern Cone Common Market (Mercosur): Argentina, Paraguay and Uruguay.

Argentina, which accumulated a favourable balance of some $5.2 billion in trade with Brazil in 1995, will come out worst from the new situation, admitted Antonio Ernesto de Salvo, head of the National Agriculture Confederation.

Agricultural and mineral prices started to fall before the Asian crisis, following strong upward spurts in the first half of the decade, according to a World Bank report on the world commodities market.

Food prices had already fallen 12.7% from their peak in April 1996 by July 1997 when the turbulence in Asia got underway.

The World Bank study attributes the fall to technological advances, greater productivity and a broader offer, stimulated by good previous prices, leading to the conclusion that these losses will be difficult to make up.

The financial crises only made this tendency worse. Although the effects of the Brazilian devaluation can still not be measured - the intensity is still undefined - they will undoubtedly be vast as they involve many products of interest above all to the poor and developing countries.