Insight: Spies, satellites, subpoenas: soy buyers play hardball with Brazilian farmers

CJ CheilJedang

03/05/2021 12:00

By Ana Mano
    SAO PAULO, May 3 (Reuters) - Global grains merchants are
using satellites and spies to surveil Brazil's soybean heartland
and deploying an army of lawyers to ensure farmers deliver
promised crops instead of finding a different buyer at prices
that have doubled since deals were made.
    At stake are billions of dollars and the sanctity of crop
contracts in Brazil, the world's top soy exporter accounting for
roughly 50% of the global trade. 
    Soybeans have rallied to an eight-year high and Brazil soy
exports have soared in particular, especially to China, which
needs feed to rebuild a pig herd devastated by African Swine
Fever.
    If farmers deliver, traders make the profits. If farmers can
break their deals, they could double their income.
    The disputes have tested a somewhat informal business
culture in rural Brazil. Farmers say traders are demanding
delivery even when no contracts were signed. There are cases
when only a verbal agreement was struck on Whatsapp. Other
commitments were made over the phone or by email.
    Those deals are much less appealing to farmers now, as
prices soared 71% from May 2020, when many were closed.  
    Traders say farmers should honor their agreements, and
lobbyists for top grains merchants such as
Archer-Daniels-Midland Co  ADM.N , Bunge Ltd  BG.N , Cargill Inc
and Louis Dreyfus Co (LDC) detailed to Reuters the tactics they
are using to keep farmers to their word.
    Nancy Franco, a lawyer who represents all major trading
companies and has been overseeing dozens of lawsuits against
farmers reneging on contracts worth millions, said the number of
cases against soy farmers skyrocketed to 40 this season from
"two or three" in recent years after growers threatened to
renege on contracts or asked for higher prices.
     "This year traders are a lot more proactive," said Franco,
who declined to discuss specific cases.
    The last wave of Brazilian farmer delivery defaults came in
2003 and 2004,  when soybean rust disease devastated crops. This
year, traders say force majeure clauses apply to a tiny number
of farmers, with most looking to cash in on high prices. Traders
say trust in the integrity of contracts sustains Brazil's $45
billion soybean industry, from input and machinery sales to crop
financing. 
    Yet farmers have accused buyers of harassing them and
violating their privacy to ensure soy deliveries. 
    In a March police report seen by Reuters, a farmer in Goiás
alleged intimidation from a contractor hired by Gavilon do
Brasil, saying it was filming his farm without permission and
claiming rights to his crop, 12,000 tonnes of soy worth almost
$7 million at current prices, according to court filings related
to the dispute.  
    U.S.-based Gavilon told Reuters its contract with the Goiás
farmer was legal and binding. It said the soy rally created
challenges in Brazil, where it was able to enforce fulfillment
of most disputed contracts and get the soybeans it had
negotiated for.
    Last year, Brazilian soybean farmers sold an unprecedented
volume of crops before planting a seed, as prices seemed
attractive. Soon, dwindling supplies spurred an even bigger
rally.  urn:newsml:reuters.com:*:nL1N2IK1Z6.
    Traders arrange to buy soybeans in advance to secure
supplies and fix purchase prices. Trades are hedged, and
commitments to process or export are tied to these contracts. 
    Sources at trading firms and their lawyers said tough
tactics are needed to enforce contracts, formal or informal.   
Farmers insist that a washout clause gives them the right to
exit contracts without paying fines of 30% to 50% of the spot
price of the soybeans committed.
    "We do not admit calling this contractual non-compliance,
this is a contractual resolution," said Wellington Andrade,
executive director of grower group Aprosoja, in an interview.
    "If we hadn't organized, the supply chain would be
disrupted," said Alessandro Reis, COO of CJ Selecta, the local
unit of South Korean group CJ Cheiljedang  097950.KS . 
    The CJ group bought 4 million tonnes of soybeans in Brazil
this season to process and resell to international clients like
Unilever  UNc.S  and Norwegian salmon producers. CJ Selecta had
about 2,000 active Brazilian soybean contracts and more than 400
farms under surveillance, Reis said, to ensure farmers do not
take soy to warehouses owned by another company that pays more.
    In February, after watching one grower in Minas Gerais
state, CJ Selecta secured a court order to ensure delivery of
3,600 tonnes of soybeans. Court documents show the farmer
committed soy to CJ Selecta in May 2020 at between 90 and 95
reais ($17.48) per bag, but later sought a better deal. 
    
    WHATSAPP CHATS
    Using evidence from WhatsApp messages, Marcus Reis, a lawyer
for Brazilian grain buyer Agrobom, obtained a court order to
seize thousands of bags of soy from producers seeking to
renegotiate prices. Agrobom had contracts to sell soybeans to
Bunge and could not afford to buy soy on the spot market if the
farmer defaulted, Reis said. 
    Courts have mostly sided with trading companies, but farmers
argue that informal contract talks should not be legally
binding. 
    "There was this WhatsApp chat in February last year with my
client trying to sell the soy," said Nelson Barduco, who defends
grower Marcelo Rezende, one of the farmers sued by Agrobom. He
said the farmer later rejected a formal contract.  
    Agrobom told Reuters a simple "okay" from a farmer is a real
commitment, especially when parties have done business before.
Barduco said his client had to accept 80 reais per bag of soy
worth double the amount, otherwise the court case could drag on
while the soy sat in a storage facility.   
    Rezende and other farmers named in lawsuits declined to
speak to Reuters.
    Two farmers in Mato Grosso, speaking on condition of
anonymity, confirmed some growers broke their contracts. One
farmer said rains disrupted harvesting in Brazil's top farm
state. The other knew farmers who deliberately delivered product
to new buyers, causing embarrassment to the local farming
community. 
    A source close to China's state-run trading house Cofco
 CNCOF.UL , who requested anonymity, said defaults are up by
"two or three times" from prior seasons. The company invested in
monitoring and satellite technology "knowing this season would
be challenging," the person said.
    Cofco did not respond to request for comment. 
    Abiove, an association representing oilseeds crushers and
traders, in February announced creation of a database allowing
members to share information on farmers and certain details
about contracts. This angered farmers.
    Abiove said the database is legal and managed by a third
party. Combined with surveillance efforts, it helped keep
defaults below 1% of contracts, said André Nassar, Abiove's
president, adding a similar tool could be used to monitor
Brazil's corn growers. 
    Abiove members Bunge and LDC declined to comment. Cargill's
president in Brazil, Paulo Sousa, admitted default concerns this
year but said cases are "isolated." ADM did not respond to a
request for comment.
    Aprosoja criticized the sharing of information from private
contracts, saying it may breach data protection laws.
    "Obviously this monitoring system will serve to blacklist a
farmer when he decides to re-discuss the contract," Andrade
said.   
     

($1 = 5.4352 reais)

 (Reporting by Ana Mano and additional reporting by Roberto
Samora in São Paulo; Editing by Brad Haynes, Caroline Stauffer
and David Gregorio)
 ((ana.mano@thomsonreuters.com; Tel: +55-11-5644-7704; Mob:
+55-119-4470-4529; Reuters Messaging:
ana.mano.thomsonreuters.com@reuters.net))