Agribusiness poorly prepared for climate and geopolitical risks, study finds - Valor International

Climate change and geopolitical risks are at the center of concerns in Brazil’s agribusiness sector, and industry players themselves acknowledge they are poorly prepared to mitigate their potential impacts. A study by EY Brasil involving 52 companies across the agricultural supply chain found that climate remains the sector’s main concern, as it was in a 2022 survey. The main new source of concern is geopolitics, which was absent from the previous analysis.

Experts and industry leaders interviewed by Valor said there is insufficient investment in research aimed at adapting to climate events, strengthening the rural insurance system, and expanding forest conservation policies.

On geopolitical issues, they argue Brazil needs to anticipate potential sanctions, take a more proactive stance in building defenses and reciprocal measures, and diversify export markets to reduce dependence on China.

EY’s findings show that 79% of companies view climate risks as high or very high, and the issue is also the one for which the sector feels least prepared to respond. According to the consultancy, there is a significant gap between awareness of the problem and practical adaptation capacity.

“Brazil has made strong technological advances in precision agriculture and the adoption of genetics. However, our agricultural zoning system does not take into account the new climate risk map,” Otavio Lopes, EY’s agribusiness leader partner, told Valor. Agricultural zoning is a public policy tool designed to minimize climate risks and help producers identify the best planting periods.

Lopes noted that one out of every four soybean harvests in Rio Grande do Sul is lost, while Paraná records one loss for every six harvests. “These are highly significant numbers. Perhaps the problem is not linked to whether best agricultural practices are being adopted, but rather to reassessing zoning through the lens of these risks and climate cycles,” he said.

Marcelo Morandi, head of international relations at Embrapa, said climate-related challenges are not new and that the sector has been preparing for them in recent years. However, he acknowledged that major shortcomings still leave producers exposed, particularly the lack of rural insurance coverage. “We have worked over the years on more resilient production systems, with greater resistance to water stress and other extreme weather conditions, including soil cover and other techniques. But despite all these efforts, we are still learning from extreme events,” said Morandi.

“Investment in research is far below the pace required. In 50 years of tropical agriculture, we built a major system of cultivars, and now we need to make another leap because of climate change. But we no longer have another 50 years to do it,” he added.

Most farmers are aware of climate-related challenges, according to Ingo Plöger, president of the Brazilian Agribusiness Association (Abag). However, he said the severity and consequences of climate events can drive heavily indebted producers out of business, making the creation of a climate emergency fund and advances in rural insurance essential.

Regarding deforestation, one of the drivers of climate change, Plöger said that “we have legislation and we must comply with it,” referring to Brazil’s Forest Code. He added that “Brazil currently preserves two-thirds of its territory, and payments for environmental services have still not materialized.”

Paulo Barreto, a researcher at the Amazon Institute of People and the Environment (Imazon), said agribusiness adopts “contradictory” positions on climate issues. “Part of the sector understands that forests must be preserved, while another part still denies the problem, even while experiencing the impacts of droughts and heavy rains, which are reflected in production costs,” he said.

According to Barreto, some producers “work to weaken environmental policies that could mitigate climate effects while simultaneously seeking financial support to deal with climate-related losses.” In his view, agricultural policy should include forest restoration and forest conservation.

On the geopolitical front, the sector’s low level of preparedness stems from several factors, Lopes said. Among them are the “excessive concentration of markets” for exports and the heavy concentration of low value-added commodities. He also pointed to agribusiness’s strong dependence on “highways with bottlenecked logistics routes,” as well as a “storage deficit that limits producers’ ability to manage sales over time”.

Ruben Barbosa, former Brazilian ambassador to the United States, said there is a geopolitical trend toward trade barriers and tariffs in several regions of the world “that is not going to change,” making market diversification the only viable response. “What agribusiness needs to do is diversify. For products that no longer enter the U.S., or face threats of reduced access in Europe or China, the solution is to seek other markets. There is no alternative,” he said.

As trade disputes intensify, Brazil should take a firmer stance in adopting “reciprocity policies” in cases involving sanctions, according to Plöger of Abag. “You need to know how to play the game,” he said.

Leandro Gilio, a professor at Insper Agro Global and coordinator of the institution’s trade, geopolitics and food security area, argued that Brazil needs to be more proactive in negotiating global partnerships, both diplomatically and corporately. “It would be better to anticipate crises rather than constantly chasing their consequences,” he said.

(Camila Souza Ramos contributed reporting from São Paulo.)