ShareRIO DE JANEIRO: As drought and floods wreak havoc across Brazil, farmers are feeling the effects of the climate emergency but despite poor harvests and rotting crops, they are fighting to protect their right to fell more trees and convert grasslands. The southern Rio Grande do Sul state offers a clear example of the damage wrought by consecutive disasters: after prolonged droughts, analysts were predicting a record soybean harvest this year but instead the area was hit by devastating floods in June.
Around 170 people were killed and half a million people were driven from their homes. The floods also wiped out crops, with farmers predicting a drop of up to 15 percent in the soybean harvest in the world’s top grower. “I now have debt from the droughts and from last year’s crop,” said Graziele de Camargo, a soy and wheat producer in Sao Sepe municipality who had invested heavily to try to make up for previous losses.
“But I haven’t reaped anything,” said Camargo, a leader of the SOS Agro movement, which is seeking financial help from the government to cope with the effects of the climate crisis.
Farmers are also under pressure in Brazil’s midwest, a grains powerhouse, and in the north where drought has damaged crops while wildfires have also raged. And they are bracing for more fires over the coming months. Last year’s drought was the most severe on record in the Amazon. River levels fell sharply, disrupting shipments of grain for export. Brazil’s food supply agency Conab now says grain production will likely fall by 7 percent in 2023/24, a downward revision from its initial forecast of a 1 percent fall. Climate change cost the agricultural sector 240 billion reais ($44.3 billion) between 2020 and 2023, according to analysis of government data carried out by Eduardo Monteiro, leading researcher on climate risk at the agricultural research agency Embrapa.
That’s 2.5 times more than in the previous four years but farmers in the world’s seventh largest emitter of greenhouse gases are often reluctant to discuss climate change, Monteiro said.
“In many agribusiness strongholds”, he said, farmers see climate change as an excuse to promote “conservationist practices”. And even though she has seen the effects of the climate emergency herself, Camargo does not believe the farming sector needs to change.
“Many say that ‘agro’ is responsible for climate change but this is a normal change. Eighty years ago there have been floods, it is part of a global cycle.” Scientists said climate change made the flooding in Rio Grande do Sul twice as likely to happen and they warn that climate change, deforestation, fires and other human impacts are pushing the Amazon to a “tipping point” that could turn it into a drier environment resembling a savannah. But Marcelo Bertoni, president of the Federation of Cattle Ranching and Agriculture in the Mato Grosso do Sul state, said that weather extremes were a normal part of farmers’ business.
“I am not a climate change denier”, he said, but “society has always been through cycles of droughts and floods ... fires will always exist.”
“Farmers are used to losses and gains, and with all that is happening we are still the biggest (soybean) producers in the world.” Around 76 percent of Brazil’s emissions are caused by ranching and the conversion of forests and other wild spaces to farmland, according to a 2022 assessment from the Greenhouse Gas Emissions and Removals Estimation System. When forests are cut down, the planet-heating carbon stored in their trees is released into the atmosphere if they rot or are burned, contributing to global warming.
But farmers are pushing back against calls to rein in deforestation and land conversion. They say that Brazil’s 2012 Forest Code guarantees their right to cut down trees on sections of their properties.
Many farmers are also undeterred by international efforts to stop deforestation, such as the European Union’s Regulation on Deforestation Free Products (EUDR), which will bar agricultural products produced on recently deforested land from entering the bloc from December. Such bans “come from American and European (environmental) foundations, and we don’t even sell to them,” said Luis Marasca Fuchs, vice president of the Rio Grande do Sul section of Aprosoja, the association of soybean growers. “Our markets are much more in China and the Middle East,” he said.
Crops and pastures now cover 33 percent of Brazil’s territory, according to data from MapBiomas, a collaboration between universities, non-profits and technology firms, and this area is expanding, legally and illegally. Under the Forest Code, about 85 million hectares (around 210 million acres) within private properties could be legally deforested, according to analysis from the Forest Code Observatory.
Last year, lawmakers with ties to agribusiness championed and passed a bill limiting Indigenous land claims, which may free up further areas for conversion to farmland. Brazil’s Supreme Court is expected to decide if the law is constitutional, but there is still no date for a ruling. And now pro-farming legislators are trying to change the constitution to bypass an eventual ruling by the country’s top court. And there are more threats to nature on the horizon.
The Climate Observatory, a network of Brazilian environmental NGOs, found that there were 25 bills and three proposed constitutional amendments that could expand what is considered legal deforestation, including in the Amazon, if passed. Under current rules, private properties in the Amazon biome must protect the natural vegetation on 80 percent of their land but a new bill would reduce that threshold to 50 percent in municipalities where half of the territory is already protected as natural reserves. In a written response to questions from the Thomson Reuters Foundation, the Parliamentary Agricultural Front, the most powerful Congressional caucus, said the bill seeks a “balance between environmental conservation and economic development in the Amazon region”. — Reuters
The group, whose members account for about half of the lower house and two-thirds of Senate seats, said it recognized the “undeniable reality” of climate change but added that “the environmentalist caucus exploits human disaster” to get more attention.—Reuters
KAKAMIGAHARA, Japan: For much of its 72 years, Hitoshi Fujita’s company was just another mom-and-pop business grinding out metal parts. Then it did something unusual for a small Japanese manufacturer: it expanded, buying two neighboring firms in the last decade. If more small companies don’t follow suit, Fujita says, the country that transformed global manufacturing in the 20th century is looking at a dim future. Years of faltering growth and population decline left many of Japan’s small and medium-sized firms squeaking by on state help and almost-free funding. These companies, which account for around seven out of 10 jobs, now face a shake-up as pandemic-era support dwindles and interest rates rise for the first time in 17 years.
Japan’s government is willing to let more underperforming companies fail, three senior government officials told Reuters, a previously unreported acknowledgment that they said reflects an urgent need to replace sclerotic businesses with those able to deliver growth. While the officials did not expect such change to occur quickly, they described the shift in thinking as a clear departure for a country that has typically sought to avoid bankruptcies and protect existing jobs at the cost of productivity.
The move will help Japan channel workers and investment to its most productive companies in a tight labor market, boosting wages, said the officials, granted anonymity to discuss a sensitive issue.
To be sure, the government expects the change to come via mergers and acquisitions, rather than large-scale bankruptcies and lay-offs, one of the people said. The government has help centers to advise small businesses on M&A. This rethink of Japan’s traditional approach to business faces several hurdles, not least the social contract that has governed the postwar economy, according to interviews with 20 people, including five government officials, bankers, industry experts and three business owners. “Many owners of small manufacturers are from the generation before me and tend to manage their business as engineers,” said the 46-year-old Fujita, who runs Sakai Seisakusyo in Kakamigahara, central Japan. “They don’t really have applicable skills when it comes to buying another company.”
Fujita’s firm makes parts for faucets and semiconductors, and he wants to expand more into higher-value components. In a written response to questions, Japan’s Ministry of Economy, Trade and Industry said it would continue to support small and medium-sized enterprises (SMEs) with funding and other measures, adding that companies needed to boost their earning power through investment and increased productivity. It said bankruptcies were now “on a slight upward trend” and had returned to pre-pandemic levels, while workers were changing jobs for better conditions, including higher wages. “We will continue to closely monitor the situation to ensure bankruptcies do not increase at an inappropriate level that would cause the unemployment rate to rise,” it said.
Zombie problem
Some 251,000 companies were “zombies” last year, meaning their profits didn’t cover interest payments over an extended period, according to research firm Teikoku Databank, the highest in more than a decade. The vast majority had 300 or fewer employees. Under government measures released in March, banks are encouraged to help turn around weak companies instead of continuing to prop them up with loans. The measures don’t directly mention zombies or “economic metabolism,” a term policymakers use to refer to stronger companies replacing weaker ones.
When asked if more companies would be allowed to fail, one of the senior officials said, “Yes, that is correct.” But the government “cannot say that explicitly” as it would risk a public backlash that would be unwelcome for the ruling party, the official added. “By stealth, we are doing this, gradually doing this,” the official said. “Japan’s future will be bleak if we cannot raise productivity.”
Japan ranks below the OECD average for annual wages and per capita GDP. The latter, a barometer of labor productivity, shows Japan at $33,834, behind France and Italy. Still, there are limits to how much creative destruction Japan can stomach. In some rural areas, underperforming businesses remain essential to communities, a fourth official said. The government is careful not to be seen as “abandoning” support for small companies, said Tatsuro Oya of law firm Ohe Tanaka and Oya, who has experience restructuring small companies.
“They are trying to ease the pain as much as possible through the safety net of redirecting workers to growing companies,” he said. Prime Minister Fumio Kishida has pressured companies to boost pay. They delivered the biggest increase in three decades this year, averaging 5.1 percent, with smaller ones averaging 4.5 percent, according to the Rengo union group, although that doesn’t reflect wages at many non-unionized small companies.
‘Zero-zero’
SMEs shouldn’t be recipients of “welfare policies,” said Akira Amari, an influential lawmaker from the ruling Liberal Democratic Party. The aim is to help them increase productivity, profits and wages, so they can pay taxes, he said in an interview. Japan spent 63.2 trillion yen, or about $400 billion, on SME support in the pandemic, according to a 2022 finance ministry report, with around $267 billion disbursed as “zero-zero” loans, which required zero collateral and had zero-interest-payment grace periods.
Bankruptcies have surged as the loans came due. Almost 5,000 companies went under between January and June, the highest first-half tally in a decade, according to Teikoku Databank. Bankruptcies jumped by a third last year.
Amari said repeated M&A would allow smaller companies to expand into higher-margin industries, and allow employees to learn new skills. “We do not want medium-sized enterprises to remain medium-sized, they should aim to become large,” he said. Fujita’s company in Kakamigahara made its most recent acquisition in 2020, buying a maker of auto and medical parts. — Reuters
