Brazil exporters face 'real' challenge
By Thomas Russell -- Furniture Today, February 6, 2005
High Point — The ongoing strengthening of the Brazilian real against the U.S. dollar is the latest challenge facing Brazilian companies exporting furniture to the United States, and could result in price increases on Brazilian-made product.
The real was valued at 2.605 per U.S. dollar as of Feb. 1, compared to an average of 3.102 for May 2004. That's about a 19% swing in favor of Brazil's currency.
The strengthening of the real makes goods coming to the United States from Brazil relatively more expensive, and hurts Brazilian companies competing against such low-cost countries as China, whose currency is pegged to the U.S. dollar and thus doesn't fluctuate.
"For (Brazil's) exporters, this is a major, major disaster," said Eduardo Herscovitz, president of International Furniture, which helps furniture factories in Brazil export product.
Up to now, he said, many factories have been able to bear the brunt of the currency squeeze, thanks in part to financial reserves built up over the years. Others haven't raised prices because they've expected the situation to stabilize. Herscovitz doesn't believe that will happen soon.
Some of the factories he represents expect to raise prices 10% to 15% by June. Others have not hiked prices so far, but could before too long.
"The currency situation is not exactly in our favor here," said Luiz Begazo, president of Colonial Brazil, a manufacturer that ships high-end case goods to the United States. "The (U.S.) dollar has been very weak here.... It's dropping on an almost daily basis. For exporters, this is terrible."
For now, he said, his company has absorbed the hit and avoided price increases. "Our business has a very strong margin," Begazo said. "It's not a comfortable position, but we'll deal with it.... We're in it for the long haul."
Linon Home Décor Products, which imports case goods from Brazil, also has avoided price hikes. John Michaelides, vice president of sales, said Linon is watching the currency situation closely. "We have a 30-person office down there, and people we know are going to do the right thing for our business," he said. "Our business is very strong in Brazil."
But not every company will be able to absorb the currency hit, said Larry Geller, president of case goods importer Brazil Furniture. Most factories, he said, can deal with a 2% to 3% fluctuation, but when it gets higher than 10%, it's another story.
"Factories are now looking for increases in prices, and it could have a negative effect as far as Brazil is concerned," Geller said.
The currency swing is just one of the difficulties Brazil has faced in the past 12 to 18 months. In addition to price hikes for raw materials, a shortage of shipping containers led container prices on Brazilian routes to nearly double in 2004, according to logistics experts.
But many who have done business in Brazil are confident that successful investors in Brazil's furniture industry will stay committed and ride out the currency situation.
In the first six months of 2004, the latest statistics available, Brazil was the ninth-largest furniture exporter to the United States, with an estimated $201.1 million in shipments, up 43% from the first six months of 2003.
