How the impacts of initiatives such From Farm to Fork and Food Systems Summit Action Track 5 (AT5) can impact Brazilian Crop input dealers

I believe that many people from the Ministry of Agriculture, the Federal Government, Universities and trade associations are following these themes, but in a recent discussion where Andav (National Association of Distributors of Agricultural and Veterinary Inputs), ARA (Agricultural Retailers Association),  Canada (Canadian Association of Agri-Retailers) and Australia (AgLink Australia Pty Ltd) class associations were present and I have the opportunity to attend, several points were raised and this discussion bring me to think and led me to make some questions such as:

• Are Crop input distributors aware of these discussions? 

• Are distributors being involved in these discussions?

• What needs to be done to minimize the impacts of these discussions? 

• What will be the impacts for the distribution system and also for the customers (Farmers).

Initiatives such as from farm to fork which aim for a fair, healthy, and environmentally friendly food system while understandable and ideologically correct are capable of causing huge economic impacts if not well-discussed. 

They call for restrictions on the use of certain agricultural inputs in production, as well as in the construction of integrated production and risk management systems for food systems in the European Union by 2030.

The proposal commits itself to use the European Commission's trade policies and other international efforts to promote a vision of sustainability in agriculture, which may have implications beyond the countries of the European Union and in our case, reach Brazilian agriculture in full.  

We know very well how the countries use this subterfuge to punish competitiveness and all countries need to be attentive and seated at the discussion tables to minimize and manage the risks.

As part of a broader European Union Green Agreement, these political initiatives would require: 

• Reductions in the use of fertilizers (20%)

• Reduction in the use of crop protection products (50%), antimicrobials (50%), and the removal of existing agricultural land from agricultural use (10%) by 2030 compared to 2020 levels. 

These targeted reductions in agricultural inputs can impact food prices in at least three ways:

1. Production costs may increase as farmers substitute other inputs for labor. 

2. Agricultural production may decrease as a result of using less input. 

3. Prices on the international market may increase due to the tightening of available supply and the inelastic demand for food. These rising costs can affect consumers' budgets and ultimately reduce the world's Gross Domestic Product (GDP) and, consequently increase the number of people with food insecurity in the most vulnerable regions of the world. 

To assess the potential effects of the proposed policies, the USDA economic research service (ERS) investigated three scenarios for the USA and which are perfectly suited for Brazil:

Scenario 1: “The European Union imposes the mandatory reduction only in the EU countries”. 

Scenario 2: (Intermediate scenario), trading partners that depend on agricultural and food exports to the EU also obey the same input restrictions and impose restrictions on food imports from countries that are not in compliance. 

Scenario 3: (Global scenario), the measures are adopted on a global scale.  

In agricultural activity, farmers use land, labor, capital (such as tractors and other machines), and other inputs, such as seeds, fertilizers, and pesticides. To compensate for reductions in inputs, other inputs, such as labor, can be used as substitutes. 

New practices and new management can be used as alternative methods to control weeds and pests and can contribute to the reduction of inputs, but these changes can greatly increase production costs and impact production. 

The graph below shows the estimated reduction in agricultural production based on different implementation scenarios in three regions: the EU, the United States and the entire world. 

Source: https://www.ers.usda.gov/amber-waves/2021/march/farm-to-fork-initiative-to-restrict-european-union-agricultural-inputs-may-increase-food-prices-further-global-food-insecurity/ 

In the scenario with only the European Union adopting the measures, the EU's agricultural production would fall by 12%, as indicated in the graph above. The reductions in the EU would translate into a worldwide reduction in the production of 1%. In the United States, the production of certain commodities could increase, but it would be almost entirely offset by the reduction in production in other commodities, with less than 0.5% of total agricultural growth. 

The same effect would occur in the intermediate scenario, in which US agricultural production would generally remain stable, but with greater impacts on global production. 

In the scenario of global adoption of EU input reduction strategies, volumes of agricultural and food production worldwide may fall by up to 11%. The United States could witness a 9% reduction in food and agricultural production in this scenario. 

As for prices, the graph below shows the estimated increase in food and agricultural prices based on different implementation scenarios in three regions: EU, the United States, and the whole world.

Source: https://www.ers.usda.gov/amber-waves/2021/march/farm-to-fork-initiative-to-restrict-european-union-agricultural-inputs-may-increase-food-prices-further-global-food-insecurity/ 

A decline in agricultural production would result in a narrowing of the market availability of agricultural products, leading to price increases that ultimately affect consumers' budgets. ERS modeling shows that a reduction imposed by the EU on agricultural inputs would have the most immediate effect in the EU, where food prices are projected to rise 17% in this scenario (see graph above). 

With EU prices rising and affecting its trade with the rest of the world a contagion effect would cause prices to rise in other regions as well. Food prices in the US may increase by 5%, while global food prices may increase by 9%. However, increases in food costs would be significant for most regions in a scenario where input restriction measures are adopted globally, with world food prices growing by 89%. For the United States, in this global scenario, food prices may rise 62%. Likewise, food prices in the EU may increase by 53%. 

As the EU is an important player in international agricultural trade, these proposed policies can also lead to a reduction in global trade. A reduction in agricultural production in the European Union and an increase in production costs could reduce its competitiveness in export markets in all three scenarios and increase agricultural imports from the EU if the EU did not impose additional trade restrictions. If similar policies are adopted by countries outside the EU, similar results may occur - Less agricultural production and higher prices. 

On the global stage, world agricultural trade may fall by 4%. The graph below shows the estimated reduction in GDP based on different implementation scenarios in three regions: the EU, the United States, and the entire world. 

Source: https://www.ers.usda.gov/amber-waves/2021/march/farm-to-fork-initiative-to-restrict-european-union-agricultural-inputs-may-increase-food-prices-further-global-food-insecurity/ 

The decrease in agricultural production, the reduction in trade volumes, and the projection of increases in the prices of food commodities can affect GDP in the EU and globally. A policy mandate imposed by the EU alone would reduce the EU's GDP by $ 71 billion (see graph above), but because of the side effects related to prices and trade, it would also decrease world GDP by $ 94 billion. 

However, GDP reductions could be more significant if input restrictions were adopted globally. GDP would fall by $ 133 billion in the EU and $ 1.1 trillion worldwide if the measures were implemented on a global scale. 

The impact on the US GDP would be relatively less than on the EU in all adoption scenarios, but Brazil can be severely impacted, as agriculture's dependence on GDP and world agricultural trade are much more relevant here  than in the USA. 

Another scenario explored by the USDA was about the increase in global food insecurity  

Food insecurity measured as the number of people who do not have access to a diet of at least 2,100 calories per day, increases significantly in the 76 low and middle-income countries studied in all scenarios. 

Increases in food commodity prices and decreases in income would cause more food insecurity than current USDA projections, particularly in Africa.

 In 2030, the number of people with food insecurity would increase by an additional 22 million in the case of exclusive adoption in the EU, as can be seen in the graph above. Under a global implementation of input reduction strategies, 185 million additional people would be unable to access the average calorie level needed to sustain an active and healthy lifestyle. 

Scenarios such as these designed mainly by Europeans can have a major impact on our agribusiness and especially to the distributors of crop inputs. The market for the distribution of crop inputs in Brazil today is approximately US$ 32 billion per year, measures such as those adopted globally can impact the market in the order of US$ 10 billion, not to mention the fact that the need for crop inputs in Brazilian agriculture as the use of fertilizers, chemicals, and other inputs is considerably higher than in temperate countries. 

We saw in this USDA study the gigantic impact that we will suffer only with the adoption of the From Farm to Fork initiatives, see below the guidelines proposed by the Food System Summit that happened now in April and will certainly severely impact production costs, and competitiveness of our agribusiness and consequently of the value of our input chain.

1. Guarantee access to safe and nutritious food for everyone (allowing all people to be nourished and healthy). 

2. Change to sustainable consumption patterns (promoting and creating demand for healthy products and sustainable diets, reducing waste) 

3. Stimulate sufficiently positive production (acting on climate change, reducing emissions and increasing carbon capture, regenerating and protecting critical ecosystems and reducing food loss and energy use) 

4. Promote livelihoods and equitable values of distribution (increase in income, risk distribution, expand inclusion, promote full and productive employment and decent work for all) 

5. Building resilience to vulnerabilities, shocks and stress (ensuring the continued functionality of healthy and sustainable food systems) 

All of these guidelines will generate impacts on the agribusiness chain as established by the European Union and if we are not prepared to argue and defend what is possible or not, the entire economic impact will be distributed among Dealers, Crop inputs industry and also for the  farmers.

Our provocation with this article is that everyone who works in the Agribusiness sector is aware of these protocols, as failure to do so may lead to guidelines that significantly impact our competitiveness. 

This article was adapted from: 

https://www.ers.usda.gov/amber-waves/2021/march/farm-to-fork-initiative-to-restrict-european-union-agricultural-inputs-may-increase-food-prices-further-global-food-insecurity/