April 19, 2012

Pork Producers in Southern Brazil Face Multitude of Problems

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Pork producers in Rio Grande do Sul in southern Brazil are facing a multitude of problems including: a Russian embargo on their products, newly imposed restrictions on exporting pork to Argentina, declining domestic pork prices, a drought reduced corn crop, high grain prices, and the high cost of bringing in corn from other Brazilian states to feed their hogs.

In June of last year, the Russian government surprised Brazilian pork producers by imposing an embargo on pork exports to Russia from nearly all the pork processing facilities in Brazil. Only four processing facilities, two in the state of Santa Catarina, and one in Goias and Minas Gerais, are currently authorized to export pork to Russia. None of those facilities are in Rio Grande do Sul in spite of the fact that the state was the major Brazilian supplier of pork for the Russian market. Brazilian officials continue to negotiate with their Russian counterparts trying to overcome what Russian officials feel is sub-standard sanitary practices at these various facilities. Until the embargo was instituted, Russia was the number one destination for Brazilian pork exports.

The Argentine government is now causing additional problems for Brazilian pork producers. In February, the Argentine government instituted a program of issuing import licenses for Brazilian food products including pork, but no licenses have yet been issued. During 2011, Brazil exported an average of 3,500 tons of pork per month to Argentina, but that has now fallen to less than 500 tons per month (an 87% reduction from last year). The Argentine government said they would start issuing licenses for a quota of 3,000 tons per month, but there was no indication when that quota system would begin. Brazil is the fourth largest producer and exporter of pork in the world and until the recent restrictions, 9% of Brazil's pork exports went to Argentina.

In the meantime, pork producers are confronting a 42% reduction in corn production in the state due to the severe drought that hit this growing season. According to the Syndicate of Pork Producing Industries of Rio Grande do Sul (Sips), the domestic demand for corn in the state is 5.6 to 5.7 million tons per year, but the total corn production in the state is estimated at only 3 million tons this growing season. As a result, 2.5 million tons of corn will have to be brought in from other regions of Brazil, principally the state of Mato Grosso.

There are no railroads that connect Mato Grosso and Rio Grande do Sul so all that corn will have to be brought in by truck at very high transportation costs. The cost of producing pork in the state is traditionally been 10% higher than in other states of Brazil due mainly to the cost of transporting in corn and those costs are expected to increase further in 2012.