Climate revolt: how fires, drought and floods affect GDP

01The climate events that are sweeping across Brazil from north to south have raised a number of discussions. Socially, it is a tragedy; from an environmental perspective, the losses are irreversible. But what about the economy? How do the fires in São Paulo and the Pantanal, the drought in the Amazon, and the floods in Rio Grande do Sul affect Brazilian growth?

In a conservative analysis of the This Is MoneyOxfam estimated losses of between 0.6 and 0.8 percentage points of GDP depending on the severity of the tragedies and the public’s ability to repair them by 2024. And the economic effects are varied:

+Number of people arrested for fires in São Paulo rises to ten

• They immediately affect the price of basic food products, increase insurance costs worth billions, harm industries and inhibit sales.

• In the medium term, they require more spending on public health, emergency income transfers and the construction of new housing.

• In the long term, and here with an inestimable value and still unpredictable results, there is the cost of what science calls the great filter. A future event, with no viable measurement, that can prevent a species from continuing to exist.

But before such large-scale changes can be made, it is necessary to calculate what is happening here and now. The fires in São Paulo, part of the Central-West and North regions will have a direct impact on the Brazilian economy. According to the governor of the state of São Paulo, Tarcisio de Freitas, the initial estimated cost of repairs to the affected areas is over R$1 billion.

“What happened is devastating. We are ready to provide support to agribusiness. We will do the math, pick up the pieces and, together with producers and entities, join hands to overcome this moment together,” he said.

In the wave of fires in São Paulo that occurred between the 18th and 28th alone, 30 investigations were opened, including those involving arson, facilitation or collusion. Although four people have already been arrested, there are still no formal charges regarding the crimes.

After putting out the fire, it is necessary to see the trail of the tragedy. And this directly involves agribusiness. The crops with the most notable impacts at this time are rice (whose harvest had already been damaged after the floods in Rio Grande do Sul), beans and milk, and in a more lasting way than just a bad harvest.

According to Gustavo Defendi, managing partner of Real Cestas, a company that sells basic necessities on a large scale, rampant deforestation and uncontrolled fires negatively affect soil fertility, water availability and climate balance, affecting production costs.

“At this rate, we run the risk of facing serious problems in the production of essential foods, which directly affects the prices and availability of basic food items,” he warns.

Recovery of affected areas estimated at more than R$1 billion by the São Paulo government

In São Paulo alone, August historically has around 900 fire outbreaks, according to INPE. However, this year, approximately 3,500 fire outbreaks have been recorded in the period so far, with 2,200 of them occurring between August 23 and 25.

The state government estimates that 60 thousand hectares of land were burned. Samuel Isaak, XP’s commodities analyst, stated during XP’s Morning Call that, despite the focus on São Paulo, it is still difficult to measure the impact of the harvest throughout Brazil.

“We need to identify how much of these burned areas will not be harvested in time,” he says. Furthermore, the expert continues, “this burning ends up reducing the potential for sugar that can be used as ethanol or refined product. After burning, it loses some of its quality for sugar production and ends up producing more ethanol.”

Pantanal

Also with a direct impact from the climate, natural events in the Pantanal are 40% more intense this year. This means fires, drought, loss of fauna and flora and direct effects on the climate of the rest of the country. According to Filippe Lemos Maia Santos, a Brazilian scientist who is part of the World Weather Attribution (WWA) studies, there are still more problems ahead.

“This year’s Pantanal fires have the potential to become the worst ever. Even hotter conditions are expected throughout this month and the coming months, and there is a significant threat that the fires could burn more than three million hectares,” he said.

71%
how much did the burned area in Patanal grow in June 2024 compared to June 2023
20%
This is how much Rio Grande do Sul’s GDP is expected to shrink in 2024 during the worst environmental crisis in its history

The Brazilian Pantanal, the world’s largest tropical wetland, is estimated to have burned 440,000 hectares in June alone, breaking the June 2023 record of 257,000 hectares and the historical average for the month of June of 8,300 hectares. The peak of the fire season occurs in August and September.

According to Roop Singh, Head of Urban and Attribution at the Red Cross Red Crescent Climate Centre, the outlook is devastating. “The Pantanal faces a future in flames. The climate conditions that drive wildfires will continue to accelerate until the world stops burning fossil fuels and reaches net zero emissions.

North to South

The fires in S
ão Paulo will impact the state’s production of rice, beans, milk and sugar, with consequences for food prices.

In the wettest state in Brazil, another sad situation. The Amazon River Basin is facing a severe drought and some regions may experience historic lows. According to projections by the Brazilian Geological Survey (SGB), there is a 65% chance that the Solimões River will reach its lowest level ever recorded in Tabatinga (AM), below the 2010 mark of -86 cm.

The Rio Negro, in Manaus, has a 16% chance of falling below its historic low. “Climatology indicates that the rainfall forecasts are not favorable. Therefore, we consider the advance of the descents until October to calculate the probability”, says André Martinelli, hydrology and territorial management manager at SUREG-AM.

According to the Amazonas State government, 287,000 people have been affected by droughts and 20 municipalities are in a state of emergency. In parallel with the drought crisis, Amazonas is facing a worrying increase in the number of fires. According to the National Institute for Space Research (INPE), 7,130 fires were recorded last Saturday (24), an increase of 30% compared to the same period last year.

The floods that have changed the landscape of Rio Grande do Sul will also take their toll. Although the economy has responded nationwide, with accumulated growth of 1.4% in June, according to estimates by the Central Bank, the situation in the state is different. With costs estimated at R$20 billion and a 20% reduction in the state’s GDP, the situation is critical.

According to the governor of Rio Grande do Sul, Eduardo Leite, the impacts are not yet fully measurable, and the local economy will remain shaken for a few more years. “A few weeks are capable of changing the trajectory of an entire state.” And this statement, say scientists of the great filter theory, is what explains the great extinctions.