Correlation between the South states in Brazil supports price downfall, while inputs squeeze farmers spread

Cow Milk Butter

Uruguay

Caio Alves

Published Oct 28, 2020

After four months on the rise, the price of milk paid to the producer in Rio Grande do Sul is expected to fall 5.18% in October compared to the previous month, according to Conseleite. The forecast is that the average reference value will fall from R$ 1.6327 to R$ 1.5482. Despite the reduction, the values remain at levels above those practiced in previous years, mainly driven by the high costs in the field and inputs to the industry. Not to mention that producers have to manage the fact milk has the same taxation as designer clothes for example.

The sector's fear the impact of price retraction against the rising of input costs. In addition to cattle feed, there are several other items with rates being readjusted routinely, such as packaging and medicines. The lack of essential items to maintain production, as producers reported difficulties in acquiring basic products such as corn for example coupled with the effects of last summer's drought, hence narrowing producers margins.

In consumer markets the reduction of emergency aid due to Covid-19 scenario from R$ 600 to R$ 300 already presented negative effects on the demand, in addition to the increase of dairy imports.

According to Guerra (VP of Conseleite), purchases of imported milk went from 10,000 tonnes a month average, before the pandemic, to an astonishing 23,000 tonnes in September. "We were in a meeting with the Ministry of Agriculture and asked for the issue to be monitored because imports are coming with more force", he warns.

Guerra signaled that the high price in the domestic market made imported products more competitive despite the exchange rate appreciation. With greater scale by property, Argentina and Uruguay, for example, have been able to reduce costs.