Record floods in RS could increase prices of foods such as rice and dairy products

The tragedy caused by the rains in Rio Grande do Sul could have an impact on the prices of important products for Brazilians, such as rice and dairy, warn experts, who are still awaiting more information on the extent of the calamity to estimate potential effects on inflation rates.
The state accounts for 70% of national rice production, a product that has the greatest weight in the group’s subitem “food at home” of the IPCA consumer inflation index. It is also an important producer of meat and dairy products.
A source from IBGE, responsible for calculating the index, highlighted that, in the case of rice, a large part of the crop has already been harvested, but the concern is with the flow, as roads and bridges were heavily damaged by the rains, leaving several regions isolated. “The part that is stored in isolated areas could affect inflation,” said the source.
For now, monitoring carried out by Cepea (Center for Advanced Studies in Applied Economics), from USP, shows a slight increase in the price of rice in the state, according to data up to last Monday (6). On that day, the value of the bag, including shipping, was 106.74 reais, compared to 105.98 reais on the previous Monday, April 29th.
Among commodities, Rio Grande do Sul also stands out in the production of soybeans and corn, products that have a more indirect influence on retail inflation, such as animal feed components. In this case, the initial assessment is that demand can be met by production from other regions of the country.
Still, André Braz, economist at Fundação Getulio Vargas (FGV), highlights that these products can have an impact on inflation for producers.
“In our case, where we measure wholesale prices, the impact will be greater because the corn, soybean and rice crops were not all harvested, so there will be some effect on inflation,” he said.
On Monday, the Brazilian Animal Protein Association (ABPA) reported that there are ten poultry and pork meat processing units in RS paralyzed or having difficulty operating due to the impossibility of processing inputs or transporting employees, and warned of the risk of shortages in the state.
Carla Argenta, chief economist at CM Capital, assesses that the main focus of concern is the milk and dairy industry. “There may be a loss because the logistics to distribute milk to other states cease, and this may have a more significant impact (on the IPCA),” she stated.
At the Ministry of Finance, a source said that it is not yet possible to complete an analysis at this time because the problems in the state are still developing, making it difficult to accurately estimate production bottlenecks and flow of products that could generate price pressure.
According to the source, the initial analysis that the government is preparing to measure the impact of the disaster will focus on the impact on food inflation. In a preliminary assessment, she stated that the pressure on prices in the country should not be great, but that it is necessary to evaluate it over time.
Argenta also raised the question of how IBGE, responsible for collecting data and publishing IPCA numbers, will carry out this work in the state, amid the chaos generated by the rains.
“Porto Alegre has a weight of almost 9% in the indicator. The way in which this data will be collected can have a more significant impact than the variation itself. There is no guidebook for how to proceed in situations like this,” she said.