How important is reputation in international agribusiness trade?

In the process of purchasing a new product, whether online or in a store, we often turn to reviews from other consumers to help us form our own opinion about the item in question. A similar process occurs when a company hires a new employee, with the manager often asking for references from places where they have worked to help make the most appropriate choice. These everyday situations show us how important reputation – of a product, a company, or a person – is in the decision-making process. Does the issue of reputation extend to the international market for agro-industrial products? Can reputation cause a country to buy more products from one country and less from another?

The measurement and evaluation of the impact of reputation on international trade in agro-industrial products is still a little-explored research area in Brazil. However, preliminary evidence suggests that reputation is a crucial factor in trade relations between countries and should therefore be the object of attention.

Reputation in the international trade of agro-industrial goods can act as an ally, generating a competitive advantage, or as an obstacle, constituting a “de facto” trade barrier and therefore restricting trade.

If we consider the positive aspect of reputation, environmental signals act as a strategic tool to secure consumer markets. A company can reap trade benefits from the moment it is internationally recognized as a sustainable producer. This statement is more and more evident in recent times, also for countries. The Brazilian market, in order to conquer this public and adapt to requirements of demanding markets, has sought to achieve certifications of sustainable chains and green labels in production.

Certifications, especially those related to sustainability, were initially promoted by the timber sector, imposing a social responsibility in the management of forests, but have also reached the sugar-energy sector, the coffee and soy production chain, and even other agricultural products such as beef. It is worth mentioning that to achieve certification, adjustments can begin in the initial processes of the production chains, in the choice of the inputs that will be used, so that they cause transformations and deep adjustments in the production systems, to other production chains.

On the other hand, environmental image can also be a barrier to trade. The pressure for increasingly sustainable products is not a new phenomenon, having been described by scholars as eco-protectionism at the end of the 20th century. Relevant markets such as Europe and North America are putting pressure on Brazilian producers to deliver environmentally friendly goods, in addition to the demand for sustainability throughout the production chain already mentioned. Eventually, this demand moved beyond political discourse and into practical action. In 2006, following pressure from organized civil society and the international market, the Soy Working Group (GTS), made up of companies associated with Abiove, Anec, and civil society organizations, signed the so-called Soy Moratorium. This initiative aims to ensure that soy produced in the Amazon biome is deforestation-free. The soy moratorium illustrates this movement to reconcile large-scale agricultural production with responsibility for environmental sustainability. Another recent episode illustrates this movement when, in 2021, a Scandinavian fund managing about EUR 237 billion restricted three Brazilian giants involved in international trade of agricultural commodities under the justification of environmental protection, citing issues related to deforestation.

In this scenario, an important debate has arisen about the legitimacy of environmental measures as trade policy instruments. The key element is the boundary between legitimate environmental protection and commercial protectionism. Brazil and some other agricultural exporters claim that (European) countries are using an environmental discourse to create a trade barrier. Due to the non-tariff nature of this behavior, environmental protectionism in trade is too complex to be detected and quantified. At this point, the reputational barrier becomes a challenge for the World Trade Organization (WTO), which is responsible for resolving disputes between countries in international trade. In addition to this challenging context, no agreement within the WTO specifically addresses this environment-trade interface.

Considering this discussion, reputation currently plays a key role in the trade of agro-industrial products. When it comes to Brazil and the relevance of this sector to the Brazilian trade agenda, it is necessary to put this issue on the radar, either to anticipate market movements, to envision a competitive advantage, or to neutralize threats.