Brazil set to benefit — and suffer — as a result of the war on Ukraine

Like all the world’s other trading nations, Brazil has been affected seriously by the war in Ukraine. The majority of this impact is positive, but there will also be major negative effects.

One of those sectors to be damaged most seriously, is agribusiness. Brazil’s exports of agribusiness goods, such as soya beans and meal, maize, coffee, sugar and the three meats, (beef, pork & chicken), are expected to earn Brazil $265 billion this year, 65% more than in 2021. Soya exports are expected to earn $6.098 billion this year, compared with $2.073 last year. Meat earnings are expected to earn $3.404 billion this year, compared with $2.428 last year. The export of forest products, coffee and cereals, are all expected to be double this year compared to last year’s figures. The export of all Brazil’s farm goods are expected to earn $1.936 billion this year, compared with $938 billion in 2021 year. Russia is the world’s largest exporter of wheat, of which Ukraine is also a major exporter, as it is of maize and oilseeds.

Because of sanctions, which mean that Russia and Ukraine will have great difficulty in exporting their farm produce, prices of all these goods have risen sharply. This will allow Brazil to be one of the countries most able to export more. Russian ships are also being seriously affected by sanctions, and many are unable to leave port. Some alternatives have been found, but these are six times more expensive than the usual routes. Major world shipping lines, such as Maersk and M.S.C. have suspended services to and from Russia, and the measures have together caused the number of ships serving Russia to be halved.

Metals, both ferrous and non-ferrous, have been greatly affected by the conflict. The price of nickel, a metal used in making car batteries, and of which Russia is a major producer and exporter, has shot to an all time record of $100 million per tonne in recent weeks. The price of iron ore, of which Russia is also a major producer and exporter, rose to a record $160 a tonne in recent weeks. Russia and Ukraine are also major producers of high value iron ore pellets. The prices of steel, of which Russia is also a major producer, making 75mt (million tonnes), have also risen greatly. Ukraine also exports 21mt of steel. Russia is now the US’s leading supplier of steel, while Brazil is in second place. With spare capacity of 35–40% at its mills, Brazil is in a very good position to replace Russia as a supplier of steel to countries cut off from supplies of Russian steel. The price of aluminium has also risen sharply, and many halted smelters are expected to re-open.

Brazil is also a leading importer of fertilizer, which will cost the country $100 millions to buy this year, double last year’s cost. Brazil imported 41mt of fertilizer this year, much of it from Eastern Europe. Russia exports 23% of the fertilizer the world imports.

As a leading exporter of crude oil, Brazil will be able to increase its exports. The US government has already asked Brazil to do so. This will be difficult to achieve in the short term. But Brazil’s state-owned ‘Petrobras’ oil company, has agreed to postpone maintenance of rigs. Brazil was able to increase its production of crude oil by 17% last year, as well as adding 22% more gas to output. Because of refinery restrictions,Brazil has to import 30% of the diesel and LPG it uses. In recent days, the price of diesel and gasoline have been raised by 19%. Because diesel is a major component in the cost of trucking, this has led to the prices of all goods increasing — to such an extent that there have been protests by consumers. Eight per cent of the refined products Brazil imports come from Russia. As far as the EU is concerned, 90% of the gas and 25% of the crude is imported. Most refineries in Russia have been forced to cease activities.

IMPACT ON COUNTRIES’ ECONOMIES The war is having a big impact on consumers. With the oil price touching $150 a barrel in late March, and with gas prices up 51% in the past year, the average US family is having to spend $800 more in fuel bills this year. Similar figures apply to families in the EU. The impact of these record high prices, has caused inflation to soar. It is likely to reach 7% this year in the US. Despite the high cost of crude, 80% of all Americans approve of the ban on oil imports from Russia. Unemployment is expected to reach 12% in the US, causing interest rates to rise to 12.5%.

As world leaders apply a series of sanctions on Russians, the impact within the country has been substantial. The Ruble has lost 70% of its value since the start of the invasion of Ukraine. Russia’s GDP is expected to fall by 25% this year, while inflation has reached 66% so far this year as well. Some 200 international companies have halted activities in Russia in recent months. Consultancy firms such as Deloitte, KPMG, Price Waterhouse and EY, which between them look after the business of leading Russian state owned companies, such as Gazprom, Luckoil, Rosneft, Russia’s Central Bank, the VTB bank, Pwaz, Polyus and Phosbank, have halted their activities in the country. Between them the consultancies earned $216 million for their operations in Russia last year. Other leading brands to leave include American Express, Visa, Disney, Netflix, Exxon Mobil & Shell. Rolls Royce, Airbus and Boeing have also shut up shop. McDonalds has shut its network of 847 outlets. Starbucks, Pepsi Cola, Unilever and Ford, have all departed. These measures mean rich Russians cant get cash from machines, travel abroad (Aeroflot can’t operate) so can’t maintain their aircraft. Rich owners of yachts can’t use them. The measures are designed to weaken the oligarchs’ support for Vladimir Putin and his war. Patrick Knight