Frost and drought afflict world’s breakfast-maker Brazil
No country on Earth puts more breakfasts on kitchen tables than Brazil.
The farms that dot the vast plains and highlands that rise above the Atlantic coast produce four-fifths of the world’s orange juice exports, half of its sugar exports, a third of coffee exports and a third of the soya and maize used to feed egg-laying hens and other livestock.
So when the region’s crops were scorched and then frozen in 2021 by a devastating one-two punch fuelled by climate change — the worst drought in a century followed by an unprecedented Antarctic front that repeatedly coated the land in thick frost — global commodity markets shook.
The cost of Arabica beans soared 30% over a six-day stretch in late July, orange juice jumped 20% in three weeks and sugar hit a four-year high in August.
The price spikes are contributing to a surge in international food inflation — a UN index has jumped 33% over the past 12 months — that is deepening financial hardship in the pandemic and forcing millions of lower-income families to scale back grocery purchases globally. The episode is sending an ominous warning of what is to come as scientists anticipate rising global temperatures and declining soil humidity will increasingly wreak havoc on farm lands in Brazil — and much of the rest of the world.
“It’s a vicious cycle,” says Marcelo Seluchi, a meteorologist at Brazil’s Natural Disaster Monitoring and Alert Centre. “There is no rain because there is no humidity, and there is no humidity because there is no rain.” Deforestation of the Amazon, which ranchers are clearing to raise cattle and plant crops, is playing a big role, he says. By his calculation, Brazil has not had a normal rainy season since 2010.
“It’s been a very peculiar year,” he says. “Floods in Germany and China, and there’s a very serious drought problem in Brazil.”
There is also drought across the border in Argentina and in Chile, Canada, Madagascar, Mexico and Russia. The US has been cleaved in two this northern hemisphere summer: the west has been ravaged by record heatwaves, forest fires and a drought so severe that, like in Brazil, giant lakes and rivers are drying up and straining hydroelectric power; the east, meanwhile, has been drenched by record-setting tropical storms and deadly floods.
“The world is on a very dangerous path,” Seluchi says.
It’s been a very peculiar year. Floods in Germany and China, and there’s a very serious drought problem in BrazilMarcelo Seluchi, meteorologist
All of this, according to a recent study published in the Journal of Environmental Economics and Management, will lead to a 10% decline in crop yields over the next three decades, a period in which the global population is expected to grow more than one-fifth.
The destruction wrought in Brazil provides a glimpse of that future. Between the drought and the frost, crops on about 1.5-million square kilometres of land have been damaged — an area the size of Peru. The coffee losses are the most stunning: as much as 590-million kilogrammes of beans destroyed, enough to brew every single cup that Americans drink over a four-month period.
This has triggered a frantic rush among the world’s biggest coffee retailers — companies such as Starbucks and Nestle — to secure supplies.
“These guys are scrambling pretty hard,” says Jack Scoville, a trader at commodities broker Price Futures Group in Chicago. Starbucks said it always buys months in advance, and Mark Schneider, Nestle’s CEO, told investors on a July conference call that the company protected its finances by purchasing hedging contracts that stretch into early 2022.
Scoville, though, warned that successfully locking in prices is not the same as getting enough coffee over the long term. Brazil’s poor harvest will roil the market for years, he predicts. He is seeing buyers who normally get all of their beans from Brazil and Vietnam suddenly turn elsewhere to try to make up for shortfalls.
That is exactly the situation that Bader Olabi, a roaster in Istanbul, finds himself in. He is hunting for new suppliers in Colombia, India and Africa to replace the 100 containers of beans he gets from Brazil annually. He knows it won’t be easy to convince customers that those coffees are just as good. In Turkey, Olabi says, “Brazilian coffee is the best.”
Brazil is now predicting its coffee crop will shrink by more than 25% in 2021.
Bloomberg News. More stories like this are available on bloomberg.com
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