Political inexperience will likely slow agricultural reforms promised by populist governments that have assumed power in Latin America, though productivity will probably improve nonetheless, according to the authors of a Fitch Solutions report.
The independent research and forecasting unit of the ratings agency described how economic and political factors conspired to support the election of anti-establishment governments in Latin America last year, including those of President Jair Bolsonaro in Brazil, Mexico’s President Andres Manuel Lopez-Obrador and President Ivan Duque of Colombia.
Rural and agribusiness communities played a pivotal role in these elections and agricultural reform is likely to dominate political discourse within those countries during the next few years, according to the report.
While pressure from the political right is likely to lead to increases in soybean, grain and livestock production for Brazil and Argentina, the report said, agricultural reforms benefiting smallholders advocated for by the political left in Colombia and Mexico will probably face macroeconomic obstacles.
“[President Andres Manuel Lopez-Obrador] is saying they are going to be 100 percent self-sufficient. Brazil is saying it’s going to boom,” Ifan Burgos Davies, a Fitch commodities analyst and one of the report’s authors, told Agri Investor. “We’re saying that it’s not going to be as strong as you would expect given the rhetoric in these governments, but that is not to say there isn’t going to be modest growth in Mexico and strong growth in Brazil.”
Fitch Solutions senior analyst for agribusiness Cole Martin told Agri Investor that after campaigning on fiery rhetoric targeting big business, anti-establishment governments in Brazil, Mexico and Colombia have since focused more on social issues while pursuing de-regulatory and tax initiatives that support large agribusinesses.
Martin said it is important for investors to keep in mind that many of the outsiders assuming leadership in Latin America have little political experience and are likely to face significant challenges in pushing their proposals through often divided and powerful legislative branches.
“It’s relatively complicated to try and pass major legislation,” said Martin. “The ability for these upstart, populist, inexperienced leaders to actually get legislation through the legislatures and to ultimately sign them is a little bit more difficult than would be the case in a parliamentary system.”
In response, Martin said, Fitch expects future policy proposals from governments like Bolsonaro’s in Brazil to be less ambitious and more reactive during the years ahead. That caution could extend to the agricultural elements of Duque’s peace treaty negotiations with FARC rebels in Colombia and efforts by Lopez-Obrador to protect domestic producers from an influx of ag imports from the US, the report said.
Corruption is a prominent issue across Latin America, Martin said, and the fact many of the upstart governments elected in 2018 have since seen their anti-corruption plans stall after entering office demonstrates the slowing momentum for larger reforms. Both the Mexican and Colombian governments have faced internal resistance to proposed anti-corruption reforms that raise questions about the viability of initiatives in other policy areas, Martin added.
“The failure to tackle corruption issues, at least temporarily, is making the business environment in Latin America less attractive than it otherwise would be,” Martins said.