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Drought Hurts Brazil’s Economy, Helps Commodities

 

Published Thu, Feb 19, 2015  |  , Senior Correspondent

Drought Hurts Brazil's Economy, but Helps Commodities

São Paulo, Brazil was once nicknamed Cidade da Garoa, or the city of drizzle.

But that name hasn’t fit in years. The city of 20 million people is now the epicenter of Brazil’s worst drought since the 1930s.

The drought is a threat not only to the many agriculture commodities grown in the country, but also to Brazil’s economy.

The drought situation in Brazil is perilous.
São Paulo, the world’s 12th biggest city and Brazil’s economic center, gets its water from two reservoir networks – the Cantareira and the Alto Tiete. The reservoirs are nearly depleted at 6% and 15% capacity, respectively. And that’s after the “peak” of this year’s rainy season.

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And while the country did get some rain recently, it is unlikely to put much of a dent into the reservoir capacity deficit.
The country’s southeastern states of Rio de Janiero, Minas Gerais, and Espírito Santo, have been affected too. Already, 71% of São Paulo’s residents and 36% of all Brazilians have faced problems with the water supply this year.
And it’s going to get worse…
Just a few short months ago, the central Brazilian government said water rationing wasn’t necessary.
But now, it says that it’s likely that the country’s three largest metropolitan areas – São Paulo, Rio de Janeiro, and Belo Horizonte, which includes more than 40 million people – will face some rationing.
Those cities are joining 93 other cities in Brazil that have already instituted some water rationing.
Water utility Sabesp (SBS) predicts it may have to implement a drastic rationing plan, with five days every week of NO water access in the affected regions of the country!
But wait, it gets worse…

You see, Brazil gets about 70% of its electricity from hydroelectric dams. And as the water runs lower, less power will be generated.

In Brazil’s southeast and central heartland, the main hydroelectric reservoirs are at a mere 17% capacity. That could mean electricity rationing is just around the corner, too…

During a less severe drought in 2001, the government ordered a 20% cut in electric consumption.

The overall effect of electricity rationing on the Brazilian economy, which is already on the ropes, may be drastic, as the affected region accounts for 60% of the country’s GDP.

Brazil’s once-robust economy was already forecast to post zero growth in 2015. Now, the effects of water and electric rationing may lop 1% to 2% off of that, throwing the economy into a recession.

Inflation, already at 7%, could climb, too, as both Brazil’s citizens and companies face higher costs for basic necessities.

A negative GDP is obviously bad news for holders of individual Brazilian stocks or exchange-traded funds that invest in a basket of Brazilian stocks, such as the iShares MSCI Brazil Capped ETF(EWZ).

But it’s not all bad news…

The drought it expected to push the price of certain commodities way up.

As I’ve detailed before, the output of some crops, such as Arabica coffee, will definitely be hit. In 2014, Brazil’s drought caused Arabica coffee prices to spike around 50%, while other commodities were falling in price.

This year coffee outputs will be affected once again. In the coffee-growing region of Minas Gerais, the government has already asked that water usage be cut by 30%. This is bad news since that region alone accounts for 50% of Brazil’s coffee production.

The yield this year for Arabica coffee is expected to be about 40 million, 132-pound bags at best. That would be down 12% from 2014. And last year’s smaller crop already left the country’s inventory of coffee at levels not seen in a decade.

The Brazilian drought is sure to impact the world’s biggest producer of sugar cane, too. Especially since roughly 90% of the country’s sugar is grown in the drought-stricken regions.

Already, the drought lowered Brazil’s sugar exports to a six-year low. According to RCMA Group, the ongoing drought may knock off about 10% of the country’s sugar output. This will likely cause the global sugar industry’s first supply deficit in five years and raise prices.

Soybeans will also be affected. Brazil is now the world’s biggest producer of soybeans, and forecasts of a harvest of 95 million tons is being downgraded rapidly to just 89 million tons.

As the worst drought in Brazil for 80 years continues, certain commodities are certain to get a boost, even as the economy becomes sluggish.

And “the chase” continues,

Tim Maverick

Make Your Instameet About Water!

Vietnam’s Mekong Delta had been hit by its worst drought in 90 years caused by the El Nino weather patterns and hydroelectric dams. Based on reports, nearly 140,000 hectares of the Mekong Delta in Vietnam are bone dry and contaminated by salt water, as brine from the sea pushes up the delta’s channels. People in affected regions are growing desperate to find water for basic needs and huge amount of the crops for the coming harvest in Vietnam’s Mekong Delta, which produces about half of the country’s rice, have been spoiled.

Vietnam’s Mekong Delta is suffering from its worst drought in nearly a century, and the effects have been devastating. Experts claim that the drought is caused in part by this year’s El Niño, one of the worst on record.

El Niño is characterized by unusually warm ocean temperatures in the Equatorial Pacific, as opposed to La Niña, which is characterized by unusually cold ocean temperatures in the Equatorial Pacific, according to the U.S. National Oceanic and Atmospheric Administration (NOAA). An El Niño effects weather patterns around the globe, often with destructive consequences.

NOAA also said that April “was record warm for the month, rounding out one full year of record-breaking monthly temperatures for the globe,the longest such balmy streak in the 137-year record, which dates back to 1880.”

 

Nguyen Van Tinh, deputy head of the hydraulics department under Vietnam’s Ministry of Agriculture, told AFP in March that the water level of the Mekong River had gone down to its lowest level since 1926, leading to the worst drought and salinization there.

A Bloomberg report said last month that the drought is also compounding a Southeast Asia water shortage along the 3,000-mile Mekong River that runs from Tibet to Thailand to the South China Sea, as climate change and too many dams erode livelihoods for thousands of farmers. Water shortages have also hampered agriculture in nearby Cambodia, Laos, Thailand and Myanmar.

The impact of this year’s drought on Vietnam has been and continues to be overwhelming for the Southeast Asian nation of 90 million people, which is still largely an agricultural society. Vietnam’s economic growth in the first quarter of the year dropped to 5.6% year-on-year as its agricultural output dropped due to the drought. First quarter GDP growth for the same period in 2015 was 6.17%.

Capital Economics claims that this year’s drought could also lead to a serious reduction in exports of major goods produced in the region, including rice, seafood, and coffee.

How The Water Crisis Is Hurting Family Farmers In California

03/22/2016 04:39 pm ET | Updated Mar 24, 2016 Sarah Grossman Editorial Fellow, The Huffington Post   The global water crisis has hit home in California — and is hurting small farmers. California’s Central Valley produces more than half of America’s produce, “Life After Water,” a new award-winning interactive video from Verse, points out. But after […]

California Continues To Drastically Cut Water Usage Amid Severe Drought

08/27/2015 02:16 pm ET | Updated Aug 27, 2015

By Rory Carroll

SAN FRANCISCO (Reuters) – Drought-stricken California cut urban water use statewide by 31.3 percent during July, exceeding a government mandate to reduce consumption by 25 percent for a second consecutive month, the State Water Resources Control Board said on Thursday.

July’s water savings moved the state 228,940 acre-feet (74.6 billion gallons) closer to the goal of saving 1.2 million acre-feet of water by February 2016, the target set by California Governor Jerry Brown’s executive order in April.The regulation requires more than 400 water suppliers in cities and towns statewide to provide monthly water use reports to the State Water Board. The regulation is primarily focused on reducing outdoor irrigation by residents and does not apply to industrial or agricultural operations.“Californians’ response to the severity of the drought this summer is now in high gear and shows that they get that we are in the drought of our lives,” said Felicia Marcus, chair of the State Water Resources Control Board.

“This isn’t your mother’s drought or your grandmother’s drought, this is the drought of the century,” she said.

Dozens of communities reduced water use more than 15 percent beyond their conservation standards in July, while just four missed their target. The four were the cities of Livingston, Hanford, Blythe and the Phelan Pinon Hills Community Services District.

The State Water Board has sent compliance orders to nine suppliers that missed their targets in either June or July. The board has not yet levied fines for non-compliance, preferring to work with those communities to help enhance their performance, officials said during a conference call with reporters.

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Water Scarcity Can Lower GDP by 6 Percent in Some Regions, Report Warns

Lack of water is not only a health issue for many regions of the world, it can have a huge economic impact, even lowering GDP by as much as 6 percent, according to a report issued today by the World Bank.

Factors like growing populations and climate change could reduce water availability in cities by as much as two-thirds by 2050, compared to 2015 levels, according to the report. Even rising incomes will cause further strain by creating a surge in water demand.

The effects will be far-reaching, even in regions in Central Africa and East Asia where it’s now abundant, unless governments respond. Countries like China and India could be among the nations that have a 6 percent drop in GDP by 2050 without efficient water policies, the report states. The impact is greatest in places where water’s already in short supply, such as the Middle East and the Sahel region in Africa, which includes countries already suffering from the effects of drought or war, such as Mali and Sudan.

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The report, “High and Dry: Climate Change, Water and the Economy,” explains that economic growth can be hampered by water-related losses in agriculture, health, income and property. In the next three decades, the global food system will require between 40 to 50 percent more water while municipal and industrial water demand will increase by 50 to 70 percent, according to a 2009 Water Resources Group report by the World Bank and business partners like McKinsey and Company and the Coca Cola Company.

PHOTO: The Estimated Effects of Water Scarcity on Gdp in Year 2050, under Two Policy Regimes

The World Bank researchers used economic modeling to find that bad water-management policies can exacerbate the effects of climate change, while better managing resources can neutralize them.

Among the policies that could offer solutions are advancing technologies to increase water supply, such as waste-water recycling and desalination. The most widely used method to increase water supply is water storage through dams, the report states. Better planning and incentives, such as water permit allocation, giving users the right to “sell” or “rent” water, is another idea, the report states.

Unfortunately, the poor will disproportionately feel the effects of water mismanagement, the report states. About 800 million people, or nearly 78 percent of the world’s poor, live in rural areas and rely on agriculture, livestock and fishing. More vulnerable communities are “likely to rely on rain-fed agriculture to feed their families, live on the most marginal lands which are more prone to floods, and are most at risk from contaminated water and inadequate sanitation,” the report states.

The report warns that water insecurity could multiply the risk of conflict, as droughts can cause a surge in food prices and exacerbate migration and already dangerous situations.

Maharashtra drought: Section 144 lifted from water crisis-hit Latur

DNA CORRESPONDENT | Mon, 11 Apr 2016-07:13am , dna

The Maharashtra government has lifted section 144 of CrPC in Latur, saying people were co-operating and the fights over water have stopped. Latur has been facing a severe water shortage this year. Section 144 prohibits unlawful assembly of five or more persons at a place.
District superintendent of police (Latur) Dr Dnyaneshwar Chavan told dna that the situation was under control. “Therefore, we decided to lift the earlier imposed section 144 of CrPC. Today, almost 70 tankers supplied water to Latur. We had imposed the section at the filling and distribution areas. The situation, however, is no longer alarming. People are co-operating with the government authority. They also understand that fighting with each other will not resolve the issue,” said Chavan.

 

He further said that they have decided to continue with the patrolling. “The news of the railway tanker supplying water to the area has also made a positive effect on the minds of the people. We are also controlling the tanker mafias,” he said.

Chavan said they have restricted the entry of vehicles that are trying to sell water in Latur and adjoining areas. “Our main priority is Latur city and rural. We are also working with the ward-level social workers and NGO groups to help us control the situation and distribute water properly. People have to use this water judiciously,” he added.

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