Brazil's leading presidential candidates promise to reduce the country's fertilizer import dependency, but may differ on how to reach the goal.
Join Camila Dias, Argus Brazil Country Manager, and Gisele Augusto, reporter for Argus Brazil Grains and Fertilizers, as they talk about how each of the two candidates will approach the fertilizer sector and the path they may take.
CD: Hello and welcome to ‘Market Talks’- a series of podcasts presented by Argus addressing the events impacting commodities and the energy sector in Brazil and the world. My name is Camila Dias, Argus Brazil Country Manager. In today's episode, I’ll chat with Gisele Augusto, reporter for the Argus Brazil Grains and Fertilizer publication, about the perspectives for the Brazilian fertilizer market, as the presidential elections approach. Welcome, Gisele.
GA: Hi, Camila, thank you. It is a pleasure to be here.
CD: Gisele, Brazil launched the national fertilizer plan in March, aiming to reduce its international dependence. Is the market already evaluating how this issue will be addressed in the next four years, once the new president is defined?
GA: Camila, the two leading candidates in the polls have some common goals regarding the fertilizer subject, but it is also possible to identify some divergences. Let's first analyze the scenario in which the current leader of the presidential polls, the former leftist president Luis Inácio Lula da Silva, is elected. If that happens, market participants expect that the current fertilizer plan released earlier this year will be maintained. The change, though, would be in the path to be taken to achieve the proposed goals and targets, through adaptations and reformulations. While the current plan, launched by Brazil’s current president and right-wing candidate Jair Bolsonaro, relies on attracting foreign investment to increase fertilizer production in Brazil and on Petrobras’ permanent absence on the fertilizer sector, it is expected that a Lula government will incentivize national production based on other mechanisms, possibly betting on the role of state-owned companies in the fertilizer sector. The leftist candidate even openly mentions in his government plan that he is against the privatization of Petrobras.
CD: The candidate in question was president of Brazil from 2003 to 2010. How was the fertilizer subject handled during his prior government?
GA: During Lula’s second mandate, from 2007 to 2010, he considered launching a national fertilizer plan. It was the first move regarding fertilizers after the agricultural boom of the 1990s, when Brazilian grain exports increased, and the use of fertilizers advanced in the country. The policies at the time was favorable for inputs imports, which contribute increase international . In 2008, the global economy was going through a crisis, which doubled and even tripled the price of fertilizers, which consequently raised the price of food and inflation in Brazil. Against this backdrop, the then-president discussed a fertilizer plan to reduce Brazil’s dependence on imported fertilizers from 75pc to 25pc, highlighting the fact that most of the world’s supply was concentrated in few companies. In addition, Lula asked for a study by the National Bank for Economic and Social Development (BNDES) in partnership with the development ministry, state-owned Petrobras and private sector companies, to accelerate investment in projects that would focus on raising domestic fertilizer production. One of the government's premises was to increase Petrobras' production and include mining company Vale in the input’s production.
CD: You mentioned that candidate Lula aimed to use Petrobras as a major fertilizer producer during his government. How is the company positioned in the fertilizers market today?
GA: Starting in the Temer’s administration in 2016 and extending into Bolsonaro's, whose government began in 2019, Petrobras announced a 2021-25 strategic plan, which aims to exit the fertilizer sector, among other goals. The company leased two of its fertilizer units, one in Sergipe state and one in Bahia state, at the end of 2019 as part of a 10-year deal with Brazilian petrochemical company . A third nitrogen fertilizer unit, in Mato Grosso do Sul state, is in process of being sold. Earlier this year, Petrobras agreed to sell the facility to the Russian producer Acron, but the deal was cancelled because Acron did not meet certain legal requirements. A new process is already underway, with the addition of 34 mining and research rights in the Amazon basin. Among the possible interested parties for the unit are and Norwegian fertilizer producer Yara.
CD: You mentioned Petrobras' nitrogen fertilizer units. If they turn to domestic fertilizer production, what would be the effect on Brazil’s international dependence and where would the gas used as raw material come from?
GA: With the three units operating at full capacity, Brazil would be able to largely reduce its international dependence on nitrogen-based fertilizers, but self-sufficiency would still be far from reality. As for gas, about 80pc of what is taken from our basins is re-injected. Market participants believe that improved logistics and developed gas usage infrastructure would allow extraction in Brazilian basis to meet demand.
CD: What other measures can we observe in the Bolsonaro government, a candidate who appears in second place in the electoral polls?
GA: Well Camila, the current president has been following the definitions of the national fertilizer plan, which seeks to reduce Brazil's dependence on fertilizers to 40pc by 2050. The expectation is that, if re-elected, Bolsonaro will stick to the plan and the approaches considered so far. The conservative president is an advocate of private capital raise investments in this sector. In addition, the so-called fertilizer diplomacy should be maintained. Bolsonaro and his ministers have been traveling to important fertilizer supplying countries such as Iran, Morocco, Oman, Saudi Arabia, Canada, and Algeria. However, it is important to note that this procedure may also be maintained if Lula is elected, since the candidate's government plan states that he will rescue Brazil from "diplomatic isolation". Although Bolsonaro is maintaining an agenda of diplomatic meetings in the fertilizer sector, the president's international policy is questioned, especially in relation to environmental commitments and management.
CD: What about the market, Gisele? How has the sector positioned itself in relation to the elections?
GA: What we’ve heard from participants involved with the fertilizer sector’s development is that the market has not expressed concerns about any of the possible scenarios, be it reelection or a passing of the baton. First, because the National Fertilizer Plan is a state plan and not related to any specific government, as the Minister of Agriculture himself emphasized during the project’s launch. Instead, the sector is concerned with the pre-electoral period, which generates a lack of legal security. For example, taxes and duties are changed quickly and without anticipation, which makes it difficult for the market to predict anything.
CD: Thank you very much, Gisele.
This and other episodes of our podcast are available on the Argus website at www.argusmedia.com. Visit the page to follow the events that affect global commodity markets and understand their developments in Brazil and in Latin America. We'll be back soon with another edition of “Market Talks”. See you soon!