New Dilemmas

For nearly two decades, the price of Brazilian agricultural goods has been on the rise—not only burdening household budgets, but also generating inflationary pressures and contributing to economic instability.1For all intents and purposes, we will use the terms “agricultural product prices” and “food prices” interchangeably here, although we recognize that not all agricultural production is intended for food, and a significant portion of commodities do not go directly to the consumer’s table. Over this period, the rising cost of food has become a site of controversy that has fueled dissatisfaction with the cost of living and distrust in public institutions. Yet its causes, which are tied to global commodity trends rather than local demand, are neglected in public discourse. As a major exporter of agricultural goods, Brazil’s domestic food markets are fundamentally linked to international ones. Fluctuations in the latter—whether driven by supply shocks, changes in demand patterns, climate change, or inter-state conflict—therefore reverberate throughout the Brazilian economy, affecting the entire production chain, from basic crops to processed foods. 

Three factors have aggravated food price volatility since the 2010s. The first is currency depreciation. Brazil’s exchange rate is a critical variable that mediates the interaction between national and international prices. When it depreciates, this amplifies the effect of rising global food prices by increasing the cost of importing necessary inputs and goods. Second, price shocks have grown more profound as an increasing share of Brazil’s arable land has been channeled away from crops for domestic consumption and towards commodities sensitive to global market fluctuations. And finally, repeated financial crises at global level have driven speculative behavior in commodity markets and disrupted trade flows, triggering dramatic and unpredictable price swings.

Food price inflation, exchange rate fluctuations, crop substitutions, and global financial crises: these factors are tied together in a complex web of relations. Understanding them is essential not only for mitigating food price issues in the short run, but for building a more resilient food system in the years to come. 

Brazilian Agriculture in a Global Market

In Brazil, the price of food has been a recurrent cause of social unrest and political conflict. Vulnerable populations often suffer from hunger and live in a state of more or less permanent anxiety about where to find their next meal—with mass protests an inevitable result. Figure 1 depicts Brazilians’ interest in the topic of food inflation since 2004, demonstrating both its persistent prominence and the increased attention it receives in times of crisis, such as 2008 and 2020. 

A closer look at agricultural price trends helps explain why national interest in the issue has been increasing since the late 2000s. Figure 2 shows that, since 2008, the food price index (“IPCA de alimentos”) has grown at a faster rate than the total Extended Consumer Price Index (IPCA). This means that food price inflation is outpacing average price increases for other goods and services: housing, transportation, education, health, clothing, social care. Moreover, since food accounts for 21.7% of the overall index, it constitutes one of the core reasons for the rise in the IPCA.

Why are food prices rising so rapidly in a country that prides itself on being the “breadbasket of the world”? The rapid pace and variable nature of producing unprocessed food prices, compared to industrialized ones, suggests that agricultural conditions are in large part responsible. Rising land, input, and capital prices directly contribute to higher production costs which translate to higher prices. This trend is exacerbated by demographic growth and increased purchasing power, as growing demand for food comes up against rigid agricultural supply. The problem is also deepened by the impact of climate change, with severe droughts and excessive rainfall hampering productivity and making supply more unpredictable.

Still, such domestic factors are not enough in themselves to explain Brazil’s increased agricultural prices. It is also relevant that since the mid-2000s, global price indices for major agricultural commodities have been steadily on the rise. Prevailing analyses suggest that population growth, rising global incomes, and the embrace of biofuels have increased rates of global demand, while higher production costs, climate change, and reduced investment in agricultural R&D have served to constrain supply. 

At the same time, the rapid economic development of countries such as China and India over the last two decades has had a significant effect on food prices. In keeping with Merrill Bennett’s 1941 findings, rising incomes set in motion a shift away from grains and starches and towards more diversified diets with higher protein and nutrient intakes. These changing consumption patterns place additional pressure on food prices, reinforcing the upward trend.

Figure 4 shows that these global headwinds have a direct impact on agricultural prices in Brazil. The price index of the Food and Agriculture Organization of the United Nations (FAO) follows a trajectory closely resembling that of the IPCA: a similarity that stems from the deep integration of Brazilian food markets into global markets. Economic and financial crises, geopolitical tension, extreme weather, pandemics, and technological advances—both in agriculture and the logistics of global value chains—thus have acute effects on the Brazilian population. Recent salient examples are the 2008 crash, the droughts in Australia in 2008 and 2019 and in Russia in 2010, the floods in the United States in 2008 and 2019, Covid-19 and its disruption of supply chains, and the conflict in Ukraine since 2022: all of which were registered in Brazilian supermarkets and grocery stores. 

Export-driven growth 

Brazil has held a consistent trade surplus in agriculture for the past four decades. As a result, increases in global commodity prices encourage local producers to dedicate more and more land to planting. Soybean and corn, two key products for animal feed, illustrate the cyclical relationship between prices, export supply, and production structure. As we can see from Figures 5 and 6, both the land area dedicated to these crops and the volume of production have grown significantly over the last twenty years.

Between 2000 and 2020, the production of soybeans increased by 253.63% and the area dedicated to planting them by 175.8%. The expansion took place not only in the Central-West and South regions, where seedoil production is concentrated, but across other macro-regions of the country. In the northeastern Cerrado, productivity per hectare has already reached the levels of the two highest producing regions, thanks to growing mechanization, while in the Southeast soybeans have effectively competed for land with the historically powerful sugarcane sector.

Stimulated by grain and meat exports, corn production has meanwhile grown by 145% and the planted area by 61.2% between 2001 and 2020. The Midwest region was the main driver of this expansion, enabled by a large-scale, mechanized production model which is integrated into global grain and meat commodity chains. And yet, as the production of these animal feed products has skyrocketed, that of stable foods like rice and beans has stagnated. The land on which to cultivate them has contracted, as planting was discouraged by declining bean consumption and the difficulty of integrating rice into global commodity chains. 

Overall supply has not declined as a result of these changing incentives, since greater mechanization of production has led to substantial productivity gains. In the case of rice, for instance, greater concentration of production in the south of the country became a key factor in maintaining supply. Yet this spatial concentration of production also carries risks. If weather conditions in Rio Grande do Sul deteriorate, as they did during the floods of 2024, rice production can sharply decline and its price can be pushed up. The amount of land devoted to planting beans similarly plummeted between 2001 and 2020, with production tending downwards and productivity gains unable to offset the sharp reduction of the planted area. 

The comparison between soybeans and corn on the one hand, and rice and beans on the other, thus illustrates the immense power of foreign markets on Brazil’s agricultural sector. The structure of these markets has major implications for the availability of stable foods and the price at which they are sold domestically. 

Financialized production

Beyond foreign exchange markets, Brazil’s dependence on international commodities markets increases the power of global finance. Regardless of production, the value of both commodities and land appreciates purely through their ability to attract investment. Investment funds around the globe have begun to focus on natural resources and the agrifood sector. In 2005, only 43 funds were operating in this area; by 2023 the number had soared to 960. The price of agricultural commodities, especially on large specialized exchanges abroad, therefore represents a speculative bet on its future appreciation and ability to turn a profit. 

In times of major financial crises these problems intensify, as the gap between financial and productive value widens. To combat price rises in such circumstances, it is not enough to simply control “conventional” variables (such as supply and marketing structures, demand profiles, and so on); it is also necessary to identify the financial “triggers” that drive up costs, and develop measures to mitigate their impact. This means confronting the interests of investors and other financial market agents; but this, of course, is a significant political hurdle. 

In Brazil, this financialized framework for agriculture received a major boost in 2004, with the launch of so-called “agribusiness securities,” notably Agribusiness Receivables Certificates (CRA) and Agribusiness Letters of Credit (LCA), which became part of the structure of financial investment operations in the sector. The financial interests who have stood to benefit include a growing mass of small investors, attracted by tax exemptions and effective marketing campaigns. The LCA has also played an important role in the funding of the National Rural Credit System (SNCR) over the last 10 years, especially since 2021, when its share jumped from between 15% and 20% of total resources offered to over 40% (with this percentage reaching an astonishing 70% for medium and large producers). 

The growth of this financialized security, created with the explicit aim of bringing in more resources to finance agricultural production, is clearly based on expectations of gains in the value of such securities traded in specific circuits. This, in turn, may influence the formation of agricultural prices in the production chains where they operate. It may also, given the instability of the supply of credit associated with these securities, have the effect of weakening the resource base that structures rural credit policy, which is essential to guarantee supply in a given agricultural harvest.

In Brazil, then, agricultural food prices go far beyond questions of domestic supply and demand. The structural attachment to global markets calls for complex and innovative solutions that address the country’s exchange rate, guide decisions around crop planting and production, and regulate the degree of financialization, including the resumption of a more robust regulatory stock formation policy. Any serious attempt to address this longstanding dilemma will not succeed unless it grapples with these international factors. 

This is an edited version of an article first published in Revista Rosa