In a move to combat domestic food price inflation, Brazil plans to encourage more stockpiling of food staples by increasing incentives to store more corn, soybeans, and rice rather than sell it. The move could cut into Brazil’s exports of the commodities and reduce available supplies from one of the world’s biggest agricultural producers.
Brazil’s supply and statistics agency, CONAB (Companhia Nacional de Abastecimento), announced a rise in storage tariffs — the amount paid to owners of storage facilities — by an average of 34% effective June 15, the first increase in the tariffs since 2017.
Brazil has long had a shortage of storage capacity, and the government hopes the higher tariffs will promote accreditation and development of additional storage for public stockpiles of food. The measure also aims to support farmers’ income.
While Brazil is self-sufficient in terms of food production, food price inflation has often been volatile. Gro’s Brazil Food Price Index — a consumption-weighted basket of prices for key food staples ranging from grains such as wheat and rice to poultry and beef — has risen 39.5% since January 2020. The new administration of President Luiz Inacio Lula da Silva and Agriculture Minister Carlos Favaro discussed plans late last year for increasing food storage capacity in order to help relieve inflationary pressures.
The move comes as Brazil this year harvested a bumper soybean crop, which increased by 21% above the five-year average to reach record production, as is shown in Gro’s Brazil Soybean Monitor. The large crop has helped reduce the country’s export prices, which are currently 13% lower than the US and 10% lower than Argentina, as seen in this Gro display.
By encouraging greater stockpiles of soybeans, Brazil’s government in effect may be buying low in the hopes of selling high in the future, similar to how the US government manages its Strategic Petroleum Reserve (SPR).
Strategic reserves are typically used by countries that are net importers of a given stored commodity. Brazil, however, is one of the largest producers and exporters of agricultural products in the world.
As a result, global markets and trade flows could see ripple effects from Brazil’s higher storage tariffs as the country removes some of its surplus from export markets. China, for example, is the largest importer of Brazilian soybeans, and may need to look elsewhere to make up any shortfall. China’s imports of Brazil soybeans have more than tripled since 2010 and are forecasted to reach a new record of 96.5 million tonnes in 2023/24.
Eventually, Brazil’s stockpiles could — and likely will — find their way back on the market, but in a more measured way that helps ensure a more stable price and flow of exports over time. CONAB can distribute the food at reduced prices or donate it. Farmers will have more options for where to store their products, and the government can manage the price at which it purchases from the farmers. In times of scarcity, the government can also distribute soybeans to crushing facilities.