Under the effect of the serious water crisis faced by Brazil, the price of residential electricity has already accumulated an increase of 10.6% in 2021 and 21% in 12 months until August, according to data from the IBGE (Brazilian Institute of Geography and Statistics).
Brazilians have already felt this high when paying the electricity bill in recent months. But the increase in the price of electricity is hitting another, more unusual place: the price of the chicken we buy at the supermarket.
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According to data from Apas (Associação Paulista de Supermercados), released first-hand to BBC News Brasil, chicken was 8.6% more expensive in supermarkets in São Paulo only in August. Since January, the accumulated increase is 21.42% and, in 12 months, 40.44%.
With that, the chicken surpasses in price increase the beef, which had a high of 0.15% in August and of 36% in the accumulated of 12 months.
And the increase in costs also comes to chicken eggs, with an increase of 1.46% in August and more than 20% in 12 months.
“The case of chicken exemplifies the domino effect caused by the increases in the tariff flag, since electricity is essential for raising poultry”, explains Diego Pereira, an economist at Apas.
The most expensive banner on electricity bills has already been readjusted by 127% since December 2020, with the additional charge going from R$ 6.24 per 100 kWh (kilowatt-hour) at the end of last year, to R$ 14, 20 in September this year.
Created in 2015, the tariff flag system aims to indicate to consumers that hydroelectric reservoirs are at a low ebb and that it is necessary to activate thermoelectric plants, which produce more expensive energy. In addition, the additional amount paid by users serves to pay for this more costly generation.
“The chicken industry uses electricity 24 hours a day, to speed up the process of ripening the birds for slaughter and egg production”, explains the economist. “So this increase in energy prices as a result of the activation of thermoelectric plants is being passed on to the entire chain.”
Brazil has the highest inflation for a month of August in 21 years
According to Pereira, the successive readjustments of the energy banner from July onwards were added to another effect that had already been impacting the price of poultry and its derivatives since the beginning of the year: the global rise in commodities, particularly corn and soybeans, feed ingredients used in feeding chicks, chickens and hens.
“Soybeans and corn make up about 70% of animal feed,” explains the analyst, adding that producers have also been affected by the rise in the price of fuel used in food transportation.
And there is more bad news ahead: the rise in chicken prices will not stop, as the banner was readjusted again in September, an impact not yet captured by the Apas data, which last only until August. “We are waiting for a new readjustment, which is already contracted as a result of these energy tariff adjustments that we have been following”, says the economist.
Thus, the protein that usually serves as an alternative for Brazilians at times when beef becomes more expensive should also become increasingly prohibitive.
An alternative is pork, which, unlike chicken and beef, registered a drop in prices of 1.61% in August and 6.76% in this year, according to data from Apas, referring to prices practiced in supermarkets in São Paulo.
Two other essential products in the Brazilian basic food basket stood out in high prices in August: coffee (+8.05% in the month and +25% in 12 months) and sugar (+2.48% and +47%, on the same bases).
“This year’s sugarcane harvest is 4.3% smaller than last year’s and the frosts affected approximately 30% of the cultivation in the State of São Paulo, the largest Brazilian producer”, highlights Pereira.
“The coffee harvest, on the other hand, should be 22.6% smaller compared to 2020, forcing the use of private stocks. The smaller harvest, which was already forecast by the market, was impacted by the frost and called the alert for future prices, already that the peak of the harvest was in July,” he says.
Frost damages the coffee harvest and the value of the grain is expected to rise, says Apas
According to Dieese (Inter-Union Department of Statistics and Socioeconomic Studies), the average cost of the basic food basket increased in 13 of the 17 cities surveyed in August. The biggest increases were registered in Campo Grande (3.48%), Belo Horizonte (2.45%) and Brasília (2.10%). In São Paulo, the increase was 1.56%.
The most expensive basket in August was that of Porto Alegre (BRL 664.67), followed by Florianópolis (BRL 659.00), São Paulo (BRL 650.50) and Rio de Janeiro (BRL 634.18 ). Considering the average of the 17 capitals analyzed, the cost of the basic food basket represented in August 55.9% of the minimum wage. In São Paulo, this percentage reached 63.9%.
The political crisis and the price of food
The outlook for food prices is not favorable for three main reasons.
The first is the water crisis, which has proved to be more severe than initially predicted by the government and has already compromised harvests of products that will supply supermarkets next year.
The second is that there is no prospect of agricultural commodities returning to a much lower price level than the current one.
“Since March 2020, with the coronavirus crisis, several countries carried out monetary expansion, which contributed to the overvaluation of these commodities”, explains Pereira.
Monetary expansion is an instrument used by governments to stimulate the economy in times of crisis, for example, by lowering interest rates or buying bonds on the market to stimulate the circulation of money, with a positive effect on consumption and investment.
The recovery of world economies – particularly China – with the containment of the pandemic and the advance of vaccination also contributed to greater demand for commodities and higher prices.
“In March 2020, the soybean sack was worth around R$ 94 and today it is around R$ 170”, says Pereira. “And China has already signaled that it is in the process of restoring stocks of all its commodities, so we are going to suffer a little from this impact.”
Finally, the constant political crisis tends to keep the real devalued against the dollar. And a devalued real contributes to more exports, which, despite helping GDP (Gross Domestic Product) growth, reduces the supply of products on the domestic market and, consequently, also pressures food prices.
On Thursday (9/9), the IBGE released the IPCA (Broad National Consumer Price Index) for August. The country’s official inflation rose 0.87% in the month, above expectations by analysts and the biggest increase for August in 21 years.
As a result, several economists revised upward their inflation expectations for the year, such as Bank of America, which increased its forecast for the IPCA in 2021 from 7.75% to 8%, and MCM Consultores, which adjusted its estimate from 7.8% to 8.2%. The target for inflation this year is 3.75%.