🍊 Orange crash

Good morning! Today, we’re discussing the current and future economic impacts of climate change on Brazil and Latin America. Orange and rice producers are feeling the pinch now — but the entire economy is set to suffer, a study says.

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Higher temperatures, lower GDP figures

A recent report by Allianz Trade assesses the economic risk that a 2oC increase in global average temperatures by 2050 would slash Brazil’s economic potential by 13.5 percent — mainly due to droughts and labor productivity losses caused by excessive heat.

 Why it matters. The data shows that investing in climate adaptation, while seeming costly, would be far cheaper in the long term than bearing the consequences of inaction — which include the worsening of a country’s risk assessment.

But, but, but … Brazil’s Senate recently passed a climate adaptation bill, but it lacks teeth. The bill provides guidelines and principles for local governments to design climate adaptation plans but doesn’t impose implementation deadlines or numerical benchmarks.

By the numbers. According to the World Bank, Brazil’s required additional investment for climate action represents approximately 1.2 percent of its gross domestic product for the 2022-2050 period, including around 0.8 percent of GDP between 2022 and 2030.

Regional impact. The Allianz Trade study finds that Latin America is heavily exposed to the consequences of climate change. Labor productivity losses and extreme events such as droughts and heatwaves could cost the region 11 percent of its economic output. The study analyzed four of the region’s top economies.

Low productivity. In Latin America, Brazil is set to be the country worst affected by the reduction in workforce productivity due to extreme heat, emphasizing sectors that are physically demanding on workers, such as agriculture and construction (although big Brazilian farmers are increasingly automating their production).

Too much rain. Argentina should be most affected by floods. Impacts ranging from flooding in urban areas such as Buenos Aires to losses in agricultural production are expected to reduce GDP by around 2 percent by 2050.

Not enough rain. Chile, meanwhile, should be most impacted by severe droughts — which are already making a nasty impact on the country. By 2050, droughts could curb the Chilean GDP by 7.4 percent.

High temperatures. Mexico, where many regions are already facing water shortages, will suffer from severe heatwaves, with impacts on public health, electricity consumption, and agricultural productivity. Extreme heat alone could cut GDP by 2.1 percent by mid-century.

What to do. The report highlights the need for countries to invest in measures such as constructing infrastructure resilient to floods and heat, planning drought-resistant crops, improving irrigation systems, preparing health systems, and protecting vulnerable populations.

Globally. Another study, recently published on Nature, showed that the global economic losses that will occur if the planet’s average temperature exceeds 2ºC will be six times higher than the investment needed to contain warming within this limit. 

• Annual losses of 19 percent of the global GDP (or USD 38 trillion) are already considered inevitable by the middle of this century.

The smallest orange crop in 36 years?

Data from the Citrus Producers’ Defense Fund (Fundecitrus) suggests that Brazil will have its smallest orange crop in 36 years. The 2024-2025 harvest is expected to produce 232 million boxes, down 24 percent from the previous cycle.

What’s happening? Fundecitrus cites climate issues as the main culprit for the expected losses, with heatwaves and droughts harming the trees’ flowering stage.

• Brazil is already coming off an underwhelming orange harvest, hindered by the spread of greening disease, a bacterial disease that attacks the vascular system of citrus plants. Greening disease could still hamper production in the next cycle.

 Why it matters. Brazil is by far the world’s largest orange producer and is projected to account for three-quarters of global orange juice exports. Any issues with Brazilian production will have ripple effects all over the world.

By the numbers. Orange futures have climbed 30 percent so far this year, making it one of the world’s top-performing commodities. 

Zoom out. For global markets, the effects of Brazil’s orange production woes are maximized by issues with production in Florida. Since the 2003-2004 cycle, bearing acreage of Florida’s orange trees has declined at an annual average of 3 percent. 

• In April, the U.S. Department of Agriculture forecast for Florida orange production for 2023-2024 at 846,000 tons, the second-smallest harvest in nearly 90 years.

Brazil facilitates rice exports to local producers’ chagrin

The government on Monday decided to lift import levies on three kinds of rice until the end of the year. The measure aims at avoiding an inflationary bubble caused by the floods in the state of Rio Grande do Sul, by far the biggest rice producer in the country — accounting for 70 percent of the country’s demand.

• Most rice production had already been harvested by the time Rio Grande do Sul was hit by torrential rainfall and flooding. But it remains to be seen how much stock was damaged. 

• Moreover, transportation costs will go through the roof due to the severe damages to infrastructure in Brazil’s southernmost state.

 Why it matters. Rice is arguably the Brazilian staple food — and is the food product with the biggest weight on the IPCA consumer price index. 

State of play. Even before the floods hit South Brazil, rice inflation stood at more than 25 percent in 12 months. While it is bad, it is nowhere near the 79 percent it reached in December 2020, the height of the pandemic.

Yes, but … Local producers have frowned upon the move, calling it unnecessary. The Rio Grande do Sul federation of rice producers says the only issues they will face concern how to move their production and how to issue invoices.

Political calculations. For the government, the decision looks like a no-brainer. Food inflation is an issue that directly affects an administration’s approval ratings, and Lula’s popularity has already stumbled in recent months. Amid a frail relationship with Congress, the president can’t afford to have voters turning their backs on him.

Quick catch-up

A Supreme Court panel will today analyze whether to accept charges against Congresswoman Carla Zambelli. She was accused of hiring an infamous hacker to break into the Brazilian Judiciary’s systems. 

• Ms. Zambelli’s relationship with the hacker was first revealed by The Brazilian Report, in an article that recently won the Digiday Media Awards for Best Story.

The country’s top electoral court will resume today the trial that could unseat Senator Sergio Moro, who is accused of illegal campaign funding. A state electoral court found him not guilty in April.

A new resolution by the National Water Agency sets criteria for Brazil to make access to drinkable water and sewage systems universal. By December 2033, 90 percent of homes must be linked to a sewage system and 99 percent to water networks.

The Tourism Ministry earmarked BRL 100 million for public works set to implement, modernize, or expand tourism ventures in Pará ahead of next year’s UN Climate Conference, to be held in its state capital, Belém.

Researchers with the U.S. Department of Agriculture compared factors affecting the competitiveness of Brazilian and American soybean exports. On average, production costs per acre in Brazil were 22.5 percent lower than U.S. costs from 2010 to 2022.

Eight cities in Santa Catarina, a state neighboring the flood-affected Rio Grande do Sul, have declared a state of emergency after massive rainfall over the weekend. Almost 1,000 people have been displaced so far.

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