Severe Drought in Brasil and its Effect on Global Market

Brasil has recently faced one of the closest elections in years reflecting on a divided nation, with Dilma Rousseff coming out on top. It has been experiencing an economic flat-lining and high inflation rates, and now the worst drought Brasil has seen in 80 years in Sao Paulo according to Reuters.

A man standing on cracked ground takes a picture of the Atibainha dam as it dries up due to a prolonged drought in Nazare Paulista, Sao Paulo state, October 17, 2014. REUTERS-Nacho Doce
A man standing on cracked ground takes a picture of the Atibainha dam as it dries up due to a prolonged drought in Nazare Paulista, Sao Paulo state, October 17, 2014. REUTERS/Nacho Doce

Sao Paulo is South America’s biggest metropolitan city and the drought now threatens the water supply of the city and its people.

The drought however is also effecting the global economy, as the biggest coffee producer in the world has had to cut down its exports, causing prices to rise.

“Money managers cut their net-long position in arabica coffee for the first time in four weeks. Futures in New Yorktumbled 9.1 percent last week, the most since May,” reported Bloomberg’s Hedge Fund Report.

Fortunately, within the past week showers have returned back to Sao Paulo. The continued rains will help replenish nutrients to the soil and will help Brasil to catch up.

On the otherhand, with the depletion of coffee exports from Brasil, it has led the global market to invest elsewhere. Elsewhere being Colombia, the second largest arabica coffee exporter. Since 2013, exports of this specific type of coffee have grown by 23%, reported Bloomberg.

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