Dollar challenges Brazil's agrochemical sector, which sees applications 5% higher this year

The agricultural area treated with agrochemicals in Brazil grew 7.3% in the first quarter, amid a record soybean harvest, but the strong United States (US) dollar that stimulates farmers' businesses also challenged the pesticide industry, said an association leader from the sector, one of the main crop lenders in the country.

The companies of the National Union of the Industry of Products for Plant Defense (Sindiveg) increased the financing of purchases of pesticides by Brazilian farmers by more than 30% in 2019, to nearly R$21 billion (US$3.9 billion), according to a survey commissioned by the entity.

The average payment term increased to 240 days, compared to 225 in the previous year, which are indicators that it should continue to grow in 2020 amid the surge in the US currency against the real of more than 35% in the year and the crisis of the coronavirus, which affects more cultures than others.

"The absolute value of dollar financing is expected to grow 5% compared to US$4 billion in 2019, but I think we will have problems and we will have to extend the term. This will generate a greater capital demand for industries," said the president of Sindiveg, Julio Borges Garcia, in a video interview.

"The average term will, unfortunately, go up, I am a little concerned about cultures that demand more terms," he added. This situation will also compel the Brazilian pesticide industry to seek more financing abroad to finance the production chain.

Even so, the sector that registered business with farmers valued at $13.7 billion in 2019 will continue to be a partner of Brazilian agriculture, which produces mainly products such as soy, corn, cotton, sugarcane and coffee for its customers.

"Many other sectors have abandoned customers ... for us, it is a matter of survival. Brazil is one of the countries that the sector finances most directly, and also has a large default rate, it is a challenge for the Brazilian market," he commented, adding that the growing judicial reorganization processes by farmers also deserve attention.

In the first quarter, the industry treated about 550 million hectares (the area is much larger than the total planted in Brazil because it is treated several times), compared to 512.7 million hectares, with soy accounting for 40% of the total treated area, followed by corn (34%), cotton (14%), sugarcane (4%) and coffee (2%), according to an exclusive survey by Sindiveg, ordered from consultancy Spark.

For 2020, Sindiveg projects an increase of 3% to 5% in the area treated with pesticides, with an impulse from grain crops, which are increasingly challenged with resistant pests and diseases, such as soybean rust, in addition to of bedbugs and whitefly. In corn, the challenges are with the caterpillar and suckers, such as leafhopper, which are also present in sugarcane.

Sugarcane and cotton, which have been most affected by the negative impacts of the coronavirus, as compared to other sectors, are of concern to the agrochemical industry since they claim to have the major customers.

Garcia also pointed out that farmers, in general, have not yet felt all the effects of the dollar's rise against the real, since most sales at the beginning of the year were made in Brazilian currency. Besides, agricultural commodity prices have risen more than the costs.

The 27 members of Sindiveg, coming from several Brazilian states, which represent approximately 40% of the pesticide market, generated 5,000 direct jobs in 2019, accounting for investments worth R$354 million and collection of more than R$.0.50 billion in taxes and fees.

The original Portuguese version of this report is from Notícias Agrícolas.