— Brazil’s government is preparing for the possibility of a cash crunch amid a boom in agro-food stocks, agriculture stocks and other commodities that helped boost its economy by $100 billion in the second quarter.
Brazil’s president has warned the country’s economy will shrink in 2018, and the government has said it is planning to cut subsidies to farmers by up to 50 percent in 2018 and 2019, raising concerns about an even deeper recession.
“The country is in a very tough situation, in which we are going through an adjustment period,” President Michel Temer said at a news conference in Sao Paulo on Wednesday.
Temer added that the country will take measures to reduce agricultural subsidies to improve its competitiveness in a globalized market.
Temers government says the country is on track to achieve the growth target of 3.7 percent in 2019.
But critics of the government say it is underestimating the impact of the boom on the agricultural sector, especially because of a $100-billion food price hike in May and a massive increase in the price of soybeans and other staple crops.
The price increase, coupled with the economic contraction, have caused a sharp drop in food prices in Brazil, which has been the biggest exporter of soybean and corn to the U.S. In June, Brazil had to slash prices for the world’s biggest soybean export to feed the country and feed a massive food shortage in the U,S.
Temeria said he is seeking help from the World Bank to help manage the impact on the agriculture sector.
He also pledged to increase taxes on agribusinesses to help pay for the subsidies.
Temercer, who took office last month, has promised to implement measures to make Brazil’s agribu-food industry more competitive, but critics of his government say the measures haven’t happened yet.
“We have to see how they are going to go,” said Luis Pereira, a senior research fellow at the Brazil-based Centre for Economics and Business Research.
Pereira noted that some agribucos are still paying the price for the boom.
“You can say that the price increases will not go down but you can also say that they will go up, because the farmers will have to pay more money,” Pereira said.
Brazil is the world champion in agribuzos and the second largest producer of soy.
Brazil has been a major exporter and consumer of soy products to the United States, Europe and Asia, while also growing a large amount of its own soybeans.
The World Bank, the U