Article: Latin American agchem sector coping with first Covid wave but wary of a second

Jose Perdomo, president, CropLife Latin America and Javier Fernandez, regulatory affairs adviser, CropLife Latin America talk to Crop Science reporter, Robert Birkett

Robert Birkett: What lockdown measures are in place to combat the Covid-19 pandemic, where and since when?

Jose Perdomo: When the pandemic hit Latin America in March, most governments in the region - almost all - decreed sectors including healthcare and agriculture as key priority sectors. This allowed the agriculture industry to remain open in a way others would not. And that included everything that supports agriculture as a national strategic authority. They are still operating as that.

Javier Fernandez: Emergency decrees made agriculture a critical industry, limiting transport restrictions, allowing farmers to work in the fields. The lockdown has even elevated agriculture in people's perceptions. For example, in Costa Rica, the tourism economy has been severely hit while agriculture has continued supplying.

JP: A lot of city folks are realising the importance of farmer efforts, with local produce replacing imports as the airports have shut and no imports are arriving. Farmers are resilient and finding ways to cope.

RB: In what ways are these decrees designating agriculture as critical helping the industry cope?

JP: Well for example, in Guatemala, we have a curfew that runs 6pm to 5am. There are no people out, no cars, and no deliveries. The only vehicles allowed to transport goods are those for pharmaceuticals, food, agricultural inputs, … everyone else is in lockdown. Critical services can work outside of these rules.

Some of the companies began to put employees back in offices in July, others not until the end of year. Manufacturing facilities have not stopped during the period. They are just under stricter working conditions for safety such as social distancing.

RB:Latin American has a large dependence on agrochemical imports, principally from China, which was the first country impacted by la severe lockdown hitting manufacturers and distributors. What impact did that have on the agrochemical sector in Latin America?

JP: Towards the end of last year, certain market movements influenced suppliers to stock up for the 2020 season. Companies sometimes overstock in order to make their purchase and supply numbers, and in this instance, it worked to their advantage. It looks as though the 2019 market grew by 6% for our [associate] companies, and maybe 3% for all. Suppliers are concerned about the second semester if there are restrictions on imports. But as agriculture is designated as a critical sector it should have preferential treatment for imports, so any problems should be delayed. And stocks did not go as low in 2019 as normal.

JF: I was curious whether the loss of imports from China would lead to fewer counterfeit products as our experience is that many such products are sourced from China, or more as counterfeiters take advantage of the fall in trade. When Covid started, I tested the hypothesis on the former, but from this unofficial poll surveying our members found that it was the latter and counterfeit trade rose. As inventories fall, trading in counterfeit products may rise based on the conversations I have had.

JP: The world has changed, perhaps more than we have yet realised. We still live on what we had going into 2020. But things will get tougher in the next 6-12 months as supply chains weaken and the supply of ais manufactured in China that formulators need dry up. Companies are good at planning ahead and that may help, but smaller companies that may not be planning two years ahead like larger ones do will get hit.

JF: All our airlines have shut down in Central America. And we're a big agricultural exporter, and most airlines are not making it out. So fresh produce, or flowers from Colombia will suffer. There may be more sea freight, but with seasonal products, it is going to get harder to get exports out to their markets.

JP: I think it is easy to switch suppliers, if necessary, as substitute products are available. But credit risks for growers to buy products will rise in 2021 as uncertainty deepens, raising costs or reducing access.

RB:What measures is the sector and farmers demanding of regulators?

JP: Nothing new other than regulatory issues that we face in different countries, such as in Mexico where the Ministry of the Environment is trying to rule on products via a heavy use of the precautionary principle rather than on science. They are restricting imports on products [glyphosate]. Besides addressing those things, and the problems our exporters face with maximum residue limits in Europe, forcing farmers to realign, there is no specific action sought beyond what has already been taken.

RB:The agrochemical market in Latin America bucked the global trend in 2019, and continued a rebound after a multi-year slump. What are the reported trends since the turn of the year?

JP: It is difficult to forecast with the Covid disruption, but initial readings that large export crops such as soybeans and maize are holding up and China is absorbing some of that. And there was good production in Paraguay, Bolivia, Brazil and Argentina. We expect that there will be an expansion in area, especially in Brazil with potential for more pastureland. Apparently, cotton and sugar cane were boosted by low price for oil. We believe the world will still need the food Latin America produces. At the end of 2020, we expect agriculture will still be strong and probably learning to become more resilient in a new environment.

RB:What is happening to prices? And what is driving this?

JP: Currency devaluations are being suffered across the region, particularly Argentina, Brazil and to some extent Mexico. This will boost exports, but farmers will have higher costs, too. So, growers will put up with higher prices if they have export crops.

RB:The US/China trade war has reportedly benefited South American trade with China. How would you describe this benefit? How much has it boosted agrochemicals, and what sectors, in Latin America?

JP: Over last 5 years, China has been investing in Latin America, into Venezuela, Ecuador and Guatemala. China sees Latin America as strategic and is investing for the long term. The Chinese wanted to buy 4 m ha in Brazil but were stopped for fear of colonisation. Some trade deals have focused on Asian countries, with the US exit from Pacific trade deal, opening a path of leadership with China in our direction.

JF: The trade war has direct influence on soybeans and Argentina and Brazil are beneficiaries. Long-term contracts don't vary in the short term. China is too far away for fruit and vegetables, especially with air freight grounded. Mexican President Amlo [Lopes Obrador] made his first visit to Washington last week and seemed friendly to discuss and agree USMCA [United States-Mexico-Canada Agreement - the new NAFTA]. Canada was in dispute on aluminium and so didn't make it. The US got some Mexican concessions on immigration and labour. We may see change of tone in Mexico getting some certainty with the US with this new deal seen as a victory. USMCA is NAFTA 2.0 and came into force last week [two weeks ago at time of going to press].

RB: With these long-term contracts, would Latin America's benefit from the trade war be long term even with a change in US politics?

JP: I believe so. Americans have not paid too much attention to South America other than problems with immigration or drugs. But China has focused far more on Latin America, and it sees us as a good opportunity as the region develops further. Regardless what happens in the US, China will invest in Latin America. China can be a key player if the US does not have a clear policy towards helping and developing its neighbours.

RB: In the latter half of last year, the trading bloc Andean community's (Comunidad Andina) approved adoption of the classification and labelling of pesticides under the GHS (Globally Harmonised System of classification and labelling). What measures were adopted?

JP: It happened, finally. The "Manual Tecnico" on GHS for labelling has been approved for all of the Andean member states (Colombia, Ecuador, Peru, Bolivia).

JF: The Andean trading bloc norms are binding, unlike in Central American where agreements to harmonise seem to allow states to adopt measures only as they see fit. Technical Manual 2075 is ground-breaking, introducing GHS. It allows a five-year transition to adoption for each country. From the Mexican experience, the transition is not that easy, changing labels and getting rid of inventories can be costly. It adds to language, the use of pictograms to labels, but brings a toll on the cost side. So, the five-year transition is helpful.

It is also challenging for regulators to switch models, but what I have liked about the Andean process has been the collaboration of public and private sectors and of stakeholders. They will also include domestic MRLs and risk assessments. One of the issues of controversy among states was CMR [carcinogenic, mutagenic and reprotoxic] labelling, of carcinogenicity producing various views. I think regulators got carried away with IARC categorisation as carcinogenic, but they decided that that would be an element of the regulatory decision making, but that if companies could demonstrate with evidence that a product was unlikely to be carcinogenic, they would not label it as such - the EPA approach. So, companies can contract out the CMR of their product.

RB: What commitment has been made equivalence registration system and which countries are therefore adopting it?

JF: This triggered passion and did not make the harmonised legislation, regulators leaving it for a later date, a second stage. At present, countries can adopt equivalence on a state-by-state basis as they want.

RB: The CropLife annual report mentions work onincorporating of registration by equivalence in Chile. What happened there?

JF: There was movement on regulating agrochemical approvals in Chile with Resolution 5057. There was a lack of understanding of what to use as a reference profile for a registration. A working group including SAG [the Ministry of Agriculture's agricultural and cattle service] and industry last year came to agree terms - the UN FAO approach - that when there is more than one approved product, the registration with the most complete data package will serve as the reference profile for an equivalence-based approval. Their challenge was that they were in transition from a formulation only type of registration to one on actives, and cascading to formulation. The old system created a critical mass of profiles, and confusion on what was available to use as reference. But common ground has been found.

JP: We also worked with Uruguay. The country has lagged on regulations, but new governments have moved towards a more transparent system. We believe Uruguay will harmonise more with other countries on regulations.

JF: Uruguay has had an outdated 1960s style regulatory system on formulations. It is cautious about rivers, water contamination and causing problems with Argentina. I believe it has atrazine [herbicide] concerns in the past. Now a regulatory overhaul is in the offing. An FAO consultant from Chile assessed the system, and has been demanding environmental risk assessments, which I expect will be the start of a regulatory overhaul.

RB: How significant is biological crop protection in Latin America, and in which countries is adoption by growers and regulation advancing most noticeably?

JP: Some 18% of global market in biologicals is in Lat America. Biologicals account for 4-5% of Argentina and Chile's crop protection markets. Perhaps 2-3% in Paraguay and Uruguay. Brazil is likely much higher. But it is a sector that needs up-to-date regulations, with many products being "homemade", in which the regulatory sphere is rather loose. R&D companies have bio offerings. But in Latin America, about 50% of farmers are smallholders and they are often the last to get such technologies, but the other 50% will be adopting, especially as part of IPM.

JF: Not many countries have regulations in place. We are concerned of overkill [on forthcoming regulations] such as "what is applicable to agrochemicals, let's use that for biologicals". We are trying to strike a balance between no regulations and overkill. It remains in its infancy, but it is an attractive option for growers on perceived safety and MRL hurdles.

JP: CropLife Brasil is trying to bring together work on being an agrochemical industry association and one that integrates biologicals. Meanwhile, digital agriculture is everywhere. We [CropLife Latin America] are creating our own app to allow farmers to get remote training. We have noticed that farmers are increasingly using smartphones for receiving news.

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This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.