Thais Cordero
Lawyer at Marcos Martins Advogados
With no sign of ending or at least easing, the war in Ukraine is having a considerable impact on sectors that are vital to the world economy. In the Brazilian market – even though it is geographically distant – the movement in agribusiness has been generating growing concern among national producers, given the possible lack of goods and import obstacles. Even in an unavoidably worrying scenario, we are facing a time when the sector is maturing, based on corporate procedures such as corporate reorganizations and protective measures as strategies for overcoming and continuing the business.
In an exclusive analysis of the effects of the war, we are witnessing a significant resumption of international trade flows, marked by the maintenance of the exchange rate as a reflection of the greater commercial activity of the countries. Export offers and demands have risen, with a focus on the commodities market and, in particular, agricultural products associated with food supply – a very strategic segment in the context of the pandemic. In a projection made by the World Bank, the international economic recovery went from a negative index of -8.3 in 2020, to a positive result of +8.3 in 2021, with still positive prospects for this year, stipulated for an average of +6.3.
The main losses for Brazilian agribusiness would be a reduction in harvests and the inability to meet its obligations at home and abroad, which would have a direct impact on revenue – with a reduction in cash flow due to low sales and non-compliance with contracts. In a wide range of attacks, the best protection for Brazilian agribusiness is prevention. It’s the ideal time to turn your attention to internal operations, looking for the best alternatives that can solidify the business in a healthy way and understanding the viable options for each case.
Many countries are already facing difficulties in meeting international demand for basic products for the national chain – a shortage that highlights the search for new businesses to serve the market. In this context, among the most recommended actions, corporate reorganization is one of the most beneficial – either by attracting investments or seeking agreements with other producers in order to minimize such impacts, in typical corporate reorganization procedures, such as mergers or incorporations.
In the specific case of renegotiating contracts, a thorough review of the instruments is essential and, for attracting investments, the certainty of internal compliance and operational regularity (certificates), guaranteeing security in attracting new contributions or obtaining credit on the market. If this strategy doesn’t prove possible, it’s important to check the business’s credit margin in order to renegotiate it with banks – an action that will also require, in addition to possible corporate measures, an accounting and financial study, in order to select the option that brings the expected or desired boost to the operation.
Exports are also a favorable option as a survival strategy to reduce the impact of the war on agribusiness. In December 2021, they even set a record, with around US$9.88 billion handled, according to data from the Secretariat for Trade and International Relations (SCRI) – an amount 36.5% higher than in 2020. The expected flow for this year is optimistic – but its adoption must be assessed on a case-by-case basis. Producers should analyze whether their business is ready to start an international operation, whether it has positive financial prospects and, above all, what they need to adapt in order to make such operations viable – both in an internal analysis and in obtaining licenses that allow them to export products or inputs to foreign markets.
The possible actions are recommended for farmers of all sizes and production lines – each with their own procedures and points of attention geared towards their niche and breadth of business.
In the midst of a worrying global outlook, investments in agribusiness will still be the main focus for this year. Renegotiations will be part of the strategies for maintaining healthy activities, and exports are also expected to grow as a result of the exchange rate. Joint actions combined with a review and possible restructuring of the business model could support a new look at the protective paths to be taken in this scenario of so many uncertainties.
Thais Cordero is a lawyer and head of the corporate area at Marcos Martins Advogados.
Marcos Martins Advogados:
Founded in 1983, Marcos Martins Advogados is highly regarded in the areas of Corporate, Tax, Labor and Business Law. Based on values such as commitment, ethics, integrity, transparency, responsibility and the constant specialization and improvement of its professionals, the firm positions itself as a true partner for its clients. https://www.marcosmartins.adv.br/pt
