Agribusiness accounted for an impressive 24.8% of GDP last year, according to the Center for Advanced Studies in Applied Economics (Cepea/Esalq/USP) and the Confederation of Agriculture and Livestock of Brazil (CNA).
In addition, Brazil is one of the world’s leading exporters of agricultural products, one of the essential activities for the performance of the national economy. The country currently produces food for approximately 10% of the world’s population.
In addition, we need to highlight the socio-economic impact of this activity. The population employed in Brazilian agribusiness totaled 28.5 million people in the third quarter of 2023, according to Cepea and CNA.
Despite the extremely positive figures for the economy, agribusiness faces many challenges. Agriculture is an activity permeated by uncertainties, with climatic risks, cyclical and seasonal fluctuations in the prices of agricultural products and the volatility of currencies contributing to instability in producers’ incomes.
We’ll talk in detail about the challenges facing agribusiness below. Read on and check them out!
Main agribusiness challenges
- Climate risks
Today, the challenges facing agribusiness are even more acute due to climate change and phenomena such as global warming.
Climate change has caused a number of problems, including changes in rainfall patterns, an increase in the frequency and intensity of extreme weather events such as droughts and floods, as well as variations in temperatures that can affect crop growth and productivity.
According to a study commissioned by Bayer and conducted by global strategic communications company Kekst CNC, 71% of the farmers interviewed reported significant impacts of the phenomenon on their farms.
This study also revealed that producers have already experienced economic losses in the last two years as a result of climate change. On average, there has been a 15.7% reduction in income during this period, with one in six farmers reporting revenue losses of more than 25%.
- Price volatility
Price volatility is another major challenge for agribusiness. Fluctuations in agricultural commodity prices are influenced by various factors, such as variations in supply and demand, global economic conditions and trade policies.
Supply and demand determine prices in the agricultural market. Abundant harvests can lead to oversupply, putting downward pressure on prices, while limited supply can cause price increases.
In addition, changes in global demand, such as economic growth in importing countries or changes in consumer preferences, also affect prices.
These fluctuations can reduce profit margins, which directly affects producers’ profitability and financial stability. With lower prices, farmers may find it difficult to cover their production costs, for example.
- Production costs
Agricultural production costs are high. To give you an idea, the value of producing a crop is around R$800 billion in Brazil.
Essential inputs, such as fertilizers, pesticides and fuel, have a significant impact on expenses. In some cases, the costs of these inputs can represent up to 50% of the total value of production.
Another issue that has a direct impact on agribusiness costs is tax incentives. In this sense, the Tax Reform has raised some concerns for the sector, including the limitation of products in the basic food basket with a zero rate and the list of inputs that will not be exempt.
The definition of these points could have a direct impact on agribusiness costs.
- The need for investment in technology and innovation
The growing need to invest in cutting-edge technology to improve productivity and maintain farmers’ external competitiveness is also a challenge for agribusiness.
A survey by the University of Brasilia (UnB) recently revealed that more than 95% of rural producers use some kind of digital technology. Robotics, the Internet of Things (IoT), drones, remote sensing and Artificial Intelligence are just some of the tools with applications in agribusiness, which shows that the activity has entered the digital economy once and for all.
The big issue is that, in most cases, these technologies have a high initial investment and long-term maintenance costs.
- Difficulty in accessing rural credit
Not all financial institutions are interested in providing credit to all farmers, making competition for resources very fierce. This means that the credit limits available do not keep pace with the sector, mainly because of technical issues and risk for lenders.
If we take into account the inadequacy of the financial market’s compliance standards, which are not established for agribusiness and its particularities, it becomes even more evident that the sector lacks access to sources of finance.
In terms of economic relevance, the credit regulatory sector adopts typically industrial standards of analysis and concession for agribusiness, causing an additional difficulty in access to credit for producers who are not agribusinesses.
Legal aspects and legal intelligence in the face of the sector’s challenges
The agribusiness challenges mentioned in this material make it clear that there is a strong demand for financing. However, accessing these resources may not be easy.
To give you an idea of the situation, only 15.5% of producers had access to lines of financing according to Brazil’s latest Agricultural Census, carried out in 2017, which corroborates the need to improve the rural credit system.
The informality present in most agricultural businesses is one of the main obstacles to obtaining credit. In this sense, the legal structure, i.e. the transition from the status of an individual to a legal entity, opens doors to more opportunities for taking out credit in the financial system.
In order for farmers to migrate from an individual to a legal entity, they need to carry out an in-depth analysis of how their business works and map out the best options for their modality.
Legal aspects can intimidate farmers, given the country’s legal and regulatory complexities and the particularities of their agricultural enterprises. In this sense, having legal support helps simplify the process and ensures that it is carried out properly and efficiently.
Want to know more? In the guide “Rural credit: how canaccess be made easier for agricultural producers?”, you’ll learn about the possibilities that can help rural producers and agri-business owners overcome bureaucratic barriers and obtain credit more efficiently.
