The Brazilian food staple has seen prices escalate due to supply and climate issues.

By wpengine

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For years, Brazilian soap operas—Latin American TV’s most popular dramatic genre—did more than just entertain. They also popularized versions of Brazilian identity.

In 1979, the TV network Globo aired a working-class, slapstick comedy that poked fun at the vices and flaws of the upper class. The title of the telenovela was Feijao Maravilha (Wonder Bean), an allusion to the bean as an icon of the Brazilian popular diet. The opening theme of the show was the song O Preto que Satisfaz (The Black One Which Gets the Job Done). The lyrics went like this:

Ten of every ten Brazilians prefer beans/The typical taste of Brazil/True symbol of family union/The typical taste of adventure/Famous black wonder/Makes mom, dad, son and daughter happier at home.

Fast forward to 2013 and the scenario is dramatically different. Today, Globo is the second-largest commercial TV network in the world in terms of annual revenue, second only to the American Broadcasting Company (ABC). It is also the largest producer of telenovelas in the world.

The economic situation in Brazil is also different. The middle class, which comprised 15% of the Brazilian population back in the early 1980s, now comprises over a third of the country’s 200 million inhabitants. The growth of this demographic has paralleled Brazil’s strong economic performance in recent years, thanks in part to government policies to reduce poverty and create new job opportunities.

One of the most dramatic changes has occurred in the bean market, now virtually unrecognizable from what it once was. No longer considered a “wonder,” the longstanding icon of Brazilian culture is now being referred to as “the Villain in the Basic Foods Basket,” and has put the government between the devil and the deep blue sea. With prices rising by 35% since January, the future of the bean market seems to be at least uncertain. How did Brazil get itself into this situation?

Black Bean Price Evolution

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Carioca Bean Price Evolution

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Decline In Local Production

In the past, Brazil has produced between 3.2 and 3.5 million MT of beans per year while domestic demand has kept growing steadily, reaching 3.6 million MT per year, an average 19 kilos per capita. Historically imports, primarily from Argentina and China, have made up for the shortfall between production and domestic demand. But things have changed lately, due in large part to problems in planting areas:

  • In the South, plantations suffered heavy rains and overall bad weather during the first harvest (Brazil has 3 annual yields).
  • In the Central Region, whitefly plague caused an estimated 70% crop loss and increased production costs. There has been some lobbying work done by farming associations to approve transgenic bean production but apparently this discussion will not take place until 2015.
  • In the Northeast, the extended drought further diminished supply.

There’s a consensus among analysts that the second harvest will not make up for the severe shortfalls of the first yield. Government stocks are nearly at zero.

International Market

The situation in Argentina and China is not promising.  Argentina’s worst drought in 70 years, with severe crop damage in the main bean producing region, has generated widespread uncertainty among Brazilian importers. And even if the current situation improves, the overall economic situation in Argentina generates even more obstacles.

With restriction on the sale of US dollars implemented in late 2011, the Argentine Government has—unsuccessfully—tried to stem capital flight and protect foreign exchange reserves. The fight of the peso against the American dollar has led to severe restrictions which in many cases backfired and generated new problems: after breaking the 10 to 1 barrier, the US dollar is now trading at around AR $8.50 on the black market, roughly 62% more than the official rate.

Commodity exporters, who are one of the main contributors of government revenues in US dollars via export taxes, feel great pressure from government officials to sell their production. But their profit is made in US dollars that, after being wired to Argentina, are converted to pesos at the official rate.

Because of this asymmetry, many producers have decided to sit on their stocks and wait for better conditions to sell their production.

“It is crazy; exporters from Argentina are saying that in order to buy we should pay upfront in cash. And we cannot do that,” an importer from the Brazilian city of Curitiba said.

Hence, Brazilian reliance on Chinese beans has grown significantly. Brazilian black bean imports, which usually come from Argentina during the second semester of the year, have been increasingly coming from China. But quality issues and rumors of low stocks in the Asian nation have further complicated matters.

“Today, China is just sending everything they’ve got,” said another broker from Curitiba. “Normally, we would never accept this quality of product but today we have no other option. Our main concern at this point is: how much is left there?”

Worst Case Scenario

“Worst scenario: very high prices,” another broker said one month before  the Brazilian Minister of Agriculture announced that the Government would tackle the issue.

Even though the lower and middle classes have increased their purchasing power significantly over the past few years (analysts say that despite higher prices, domestic demand hasn’t decreased yet), food inflation is seriously threatening Brazil’s stability. Very high prices for beans, which is one of the two main elements in the Brazilian diet—the other being rice—is very bad news for an administration that has been dealing with huge problems associated to food inflation.

Veja Magazine (the Brazilian equivalent of Time) used a Portuguese expression to address Dilma Rousseff’s concern about food inflation rising in their April issue. The title literally translates as “Inflation: Dilma Steps on the Tomato.” (or the non-literal English equivalent: “Inflation: Dilma Drops the Ball.”)

The Government has no choice: it must do whatever it can to counteract the rise in prices, which has rendered beans the ultimate “villain” of the basic foods basket. In early June, Minister of Agriculture Antônio Andrade announced that he had been meeting with producers and other key players in the bean industry to address the issue, and confirmed that the government is opening the door to more imports.

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“If needed, we will import more beans to control prices. We are currently researching markets with lower prices and studying our options. At this point we want to bring calm to our people; we will soon have a good quality product at a lower price,” Andrade said.

Only time will tell if the Brazilian administration finds the superhero it needs to defeat the food inflation brought about by the bean “villain.”