Brazilian Agriculture to See Weak Recovery After Bad 1st Quarter

Dow Jones Newswires

The agricultural component of Brazil's gross domestic product, after diving 8.5% in the first quarter from a year earlier, should post better results in coming months but probably won't offer much help to the slowing Latin American economy.

The primary sector, which for the most part doesn't comprise downstream production of goods such as soybean oil, processed meat, cigarettes or refined sugar, accounted for 4.7% of Brazil's 4.143 trillion-real ($2.004 trillion) nominal GDP in 2011.

Economists at Santander said this week the weak number for agriculture in the first three months of the year--largely the result of a drought that hurt Brazil's all-important soybean crop--probably shaved about 0.5 percentage point off quarterly GDP growth. The Brazilian economy grew by a paltry 0.2% in the January-to-March period from the previous quarter.

"Although a permanent loss for average 2012 GDP, this event will not likely be repeated in future readings," Santander said in a report, cutting its outlook for Brazil's economic growth this year to 2.2% from 3.5% previously.

Carlos Kawall, chief economist at Banco J. Safra in Sao Paulo, said his team also believes the primary sector will improve.

"For the year we think agriculture will close with a 1% increase," Mr. Kawall said, while noting the segment is the most volatile component of GDP. "That would be the worst performance in many years, not counting 2009."

Brazil's economy, including its agricultural output, contracted in 2009 as global trade fell dramatically and the world economy badly slumped.

This year, by comparison, should be defined more by weather. And even though the biggest problem in that respect--the drought in southern grains-producing states--ran its course in the first quarter, experts say its effects may continue to weigh.

The Brazilian Institute of Geography and Statistics, or IBGE, factors less than 45% of the annual soybean harvest into the first quarter's GDP. The rest shows up mostly in April and May, meaning the estimated 12% drop in output of Brazil's most valuable agricultural product could partially offset higher production of other crops like coffee and corn during the second quarter.

The outlook for important crops harvested and calculated in GDP later in the year remains less certain. The IBGE's own estimates for sugarcane and orange production call for growth of 4.2% and 0.1% respectively. Though private forecasts vary widely, there are few that indicate faster growth--for either crop--than the IBGE sees.

Aside from crops, Brazil's agricultural GDP includes poultry and livestock raising, production of eggs and dairy products, fishing and forestry. But the IBGE doesn't produce its own forecasts for those goods, instead basing its estimates on data gathered through monthly or quarterly surveys of each industry.

Poultry association Ubabef expects 2012 chicken production to rise a modest 2%--down from last year's 6.9% increase--amid stagnating demand in Brazil and abroad. Pork-industry trade group Abipecs likewise sees pork production slowing to between 2% and 3% this year after growing 4.9% in 2011.

The situation for cattle is more optimistic, as big Brazilian meat packers such as JBS SA (JBSAY, JBSS3.BR) and Marfrig Alimentos (MRRTY, MRFG3.BR) have said they expect higher beef production volumes this year due to a cyclical expansion in ranchers' herds.

Daniela Rocha, an economist specializing in agriculture at the Getulio Vargas Foundation's Brazilian Institute of Economics, said it's too early to forecast a hard number for the primary sector's GDP in 2012. But she expects "a result well below last year," when agricultural output grew 3.9% and outpaced the broader economy.

Although the primary sector is by far the smallest component of GDP, a significant slowdown would likely show up in services and industry through spending by farm workers or manufacturing of processed foods, clothes or even biofuels.

"There can be lots of intertwined effects," said Neil Shearing, chief emerging-markets economist at London's Capital Economics.

Write to Paul Kiernan at paul.kiernan@dowjones.com

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