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S&P Global — 28 May 2024

Daily Update: May 28, 2024

Flooding in Brazil’s Rio Grande do Sul Takes a Broad Toll

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By Nathan Hunt

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The Brazilian province of Rio Grande do Sul is considered a backwater. Lacking the heavy industry, mining or megacities of São Paolo, Rio de Janeiro or Minas Gerais, the major output of this southernmost province is rice and other agricultural products. When heavy rains in early May caused widespread flooding in the region, Brazil’s dependence on the agricultural output of Rio Grande do Sul became clear. 

In the provincial capital of Porto Alegre, rains in May have raised floodwaters and submerged highways, railways and airports, disrupting transportation. Although evacuations have reduced the impact on human lives, the disruptions to transportation and communications infrastructure continue to limit the amount of information available on the extent of the damage. 

Under normal conditions, Rio Grande do Sul is responsible for a sizable amount of Brazil’s agricultural output. The province accounts for 69% of the country’s rice production, 12.9% of dairy production and 8.6% of soybean production. Because of the timing of the rains, most of the harvest was completed, but persistent flooding has prevented goods from reaching the Port of Rio Grande for export and distribution.

The Taquari Valley, which has experienced particularly heavy flooding, is responsible for 20% of total chicken production in Rio Grande do Sul. The Poultry Organization of Rio Grande do Sul estimates the total loss to chicken farming to be 182.9 million reais, or about $35.5 million. 

Because of the floods’ impact on rice crops, the government in Brasilia has allowed the tariff-free import of rice to prevent shortages of the Brazilian staple. Rice producers have opposed the one-time exemption, insisting that talk of shortages is premature since 85%-90% of Rio Grande do Sul's rice was harvested prior to the floods. Brazil has extensive tariffs on a wide range of foreign products designed to protect domestic industries.

S&P Global Ratings believes that the impact of the flooding on profit, property and residential insurance will be mitigated because catastrophe and flood insurance are atypical in the country. However, the floods could weigh on the financial performance of Brazilian banks due to losses on agricultural loans.

Today is Tuesday, May 28, 2024, and here is today’s essential intelligence.

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