Russia vs. Ukraine: What Can Affect Brazil

As expected, the war in Ukraine can significantly affect Brazilian foreign trade, even though the trade flow with Russia is not significant. Despite being the ninth most populous country on the planet, Russia ranks only 36th on the list of nations that receive the most Brazilian products. In 2021, Russia imported $1.7 billion worth of goods from Brazil, primarily related to the agricultural sector (soy and meat). On the other hand, it is the sixth-largest country that exports products to Brazil, with $5.7 billion in 2021, according to data from the Ministry of Industry, Foreign Trade, and Services (MDIC).

However, the sector of concern is related to chemical fertilizers and fertilizers, accounting for over 60% of all Brazil’s purchases from Russia. Russia is the world’s leading supplier of these inputs. This sector is so important that it was the reason why the Brazilian president, even in the face of Russia’s imminent declaration of war on Ukraine, visited Moscow. This action may now be interpreted as a challenge to the countries of the North Atlantic Treaty Organization (NATO) and the European Union (EU), Brazil’s most important partners in the context of foreign trade.

Today, Russia is Brazil’s leading trading partner in the fertilizer sector, accounting for 23% of our imports, especially of monoammonium phosphate, potassium, and urea. To reduce this dependence, there is a prospect that a Russian company may reactivate a fertilizer plant in Mato Grosso do Sul. Nevertheless, the expectation for 2023 is that Brazil may double its import volume from Russia, provided there are no negative developments in the Ukraine war, such as sanctions from NATO, the EU, and even the United States.

Initially, the current crisis may have a positive impact only on a sector of agriculture. Ukraine is the fourth-largest exporter of corn in the world, and if the expected sanctions take place, European countries will be forced to seek grain in other markets, including Brazil. Currently, Russia and Ukraine account for one-fifth of global corn exports (18%). The same could happen in other segments: both countries account for one-third of global wheat exports (28%) and 80% of global sunflower oil exports.

However, these potential benefits will not outweigh the losses that may arise from this crisis. If aggressions and retaliations persist, logistics and freight costs may increase, with direct impacts on foreign trade, particularly affecting the industrial inputs that Brazil typically imports from Eastern Europe. Not to mention that the rise in commodity prices may worsen. It’s important to remember that Brazil produces soybeans, but it depends on fertilizers from Russia and other countries to prepare the soil and increase planting productivity.

We must also not forget that the world was already dealing with problems caused by the coronavirus (COVID-19) pandemic, and for the second half of 2022, the end of the container crisis was expected. However, if the conflict escalates and involves other nations, the global logistics chain and shipping may be further affected. For now, there is much uncertainty about the outcomes of the war, but the hope is that leaders will sit down at the negotiation table to seek a peaceful solution. What favors this expectation is that foreign trade is widespread, contributing to the fact that retaliatory measures are not taken hastily.

It’s worth noting that EU countries rely heavily on gas imported from Russia, and any disruption in this trade flow would significantly affect the lives of their populations. Therefore, predictions are that if any productive sanctions come from Europe and the United States, they will be mild, more for positioning. In any case, we cannot avoid foreseeing a global slowdown with repercussions on the Brazilian economy. Tougher times are ahead.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the Manager of Environmental, Social, and Corporate Governance (ESG) at the Fiorde Group, consisting of Fiorde International Logistics, FTA Transport, Warehouses, and Barter International Trade. Email: lianalourenco@fiorde.com.br. Website: fiorde.com.br.

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