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Brazil’s agri sector grows as GDP contracts further

The agri sector is bucking the country's overall economic crisis and there are large discounts available, but there is still plenty of fiscal and political risk.

Brazil’s 263.6 billion reais ($69.48 billion; €69.48 billion) agriculture sector grew by 1.8 percent in 2015 as the rest of the country’s economy foundered.

The country’s GDP contracted by 3.8 percent to 5.9 trillion reais, according to numbers released by the Brazilian Institute of Geography and Statistics.

Agriculture exports can be competitive and profitable, benefiting from a weak and weakening currency, even though commodity prices are falling, financing options are increasingly scarce and domestic consumption is declining.

“I think the real will depreciate more, so […] the opportunities [in agriculture] are going to be interesting,” Alberto Ramos, managing director of global investment research at Goldman Sachs told Agri Investor in February, adding that the sector had a unique competitive advantage and growth prospects from technological innovation.

However, political instability is also a risk to investors. The economy has suffered from high unemployment and inflation, while a corruption scandal involving the country’s state-owned oil company has weakened the ruling Workers’ Party.

Investment advisor Roberto Vitón warned Agri Investor that while agricultural investments in Brazil could yield rewards, prospective investors would be wise to wait for a bottom to the economic crisis and some political stability before putting down their money.

“We see Brazil right now as a buyer’s market. You can get huge discounts if you are willing to invest in local farmland or local companies,” he said. “Investors have time to assess an entry strategy in the country. We don’t see any urgency to do so.”