Economic effects of the drought in Brazil

 


Brazil is facing the worst drought ever recorded since the beginning of the current historical series in 1950. According to an index that measures the amount of rainwater and plant evapotranspiration, the current situation exceeds the droughts of 1998 and 2015/2016.

Data from Cemaden (National Center for Natural Disaster Monitoring and Alerts), cited by the Brazilian press, shows that this year's drought problem extends to five million square kilometers, 58% of the national territory and 500,000 more than in 2015. Since Cemadem's data goes back to 1950, some of the country's most severe droughts are not included in the comparison, such as the one recorded in the late 1870s that left hundreds of thousands of dead.

Although the 2024 data is only from April, low precipitation and stress on vegetation, a fire risk factor, show that Brazil is on track for increasingly drier years.

The impact was already felt in agriculture a few months ago and is still being felt as it begins to spread.

On the other hand, the logistics and transportation sector has sounded the alarm in regions that depend on river flows, such as the North. In Manaus and other cities, there may be shortages of products.

The Amazon River, which bathes the city of Manaus, is expected to become unnavigable for ships next week and is expected to worsen in September. The effects of the drought in the Amazon are being felt immediately due to the reduced transfer of moisture through the so-called "flying rivers". The population is stocking up on food and at the same time facing the soot from the fires floating in the air. There is also a shortage of drinking water.

At the same time, the cost of electricity is expected to rise throughout the country as more expensive and polluting thermal power plants are activated to compensate for the almost dry hydroelectric plants. Hydroelectric plants across the country are feeling the lack of rainfall, both in the north and in the center-south, where most of the plants are concentrated. To compensate for the lower energy production, thermal power plants will be activated, and the price of the electricity bill will increase.

The result will be inflation.

The southern winter is traditionally drier in states such as Paraná, São Paulo and Minas Gerais, but this time it is worse. In São Paulo, for example, a series of fires last month highlighted how agriculture is directly affected by the dry weather. Fire damage is estimated to have cost the state's agribusiness $360 million. Sugarcane plantations were particularly affected, as shown below. The fires reached 480 thousand hectares in 8,049 rural properties.

What we are seeing may seem natural in Brazil, with or without Lula at the helm, but there is an additional factor related to climate change, which is one of many extreme cases with serious implications for any economy. Climate change is now inevitable, and what remains is to adapt to its effects, especially in the commodity sector.



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