Agriculture is Brazil’s one and only bright spot
A record soybean crop leads a strong farm performances to make the sector the only one growing in a country mired in recession and political uncertainty.
A deep recession, political chaos and a Zika virus epidemic have taken Brazil to its knees but the country is still a world beater in one respect: Agriculture. Brazil’s crop agency, Conab, said it expects a record soybean crop this year with a corn crop close to a record also. The country’s farmers look to set record crops of coffee and sugar cane, as well, while cattle ranchers, chicken and hog farmers foresee new heights of export tonnages too.
Given the outlook that Brazil’s economy will contract by 3.7% this year, after shrinking at its fastest pace in 35 yrs in 2015, the country’s bountiful harvest, plentiful chickens and fattening cows are in a rare bright spot.
Agriculture was the only sector of Brazil’s economy to expand last year, by 1.8% while overall gross domestic product shrank 3.8%.
The whole world has to eat and Brazil makes its living from Agriculture, said Edimilson Calegari, general manager of the Cooabriel Coffee cooperative in southeast state of Espirito Santo. “Our farms and ranches are what have kept our economy going during these bad years.”
The Brazilian currency’s steep drop last year – a 30% slide against the USD, boosted exports and more than made up for the declines in commodities prices. That has helped generate foreign currency reserves and reduce Brazil’s current account deficit.
Forecasts of Brazilian bumper crops this year might normally be expected to depress global commodity prices, leading to smaller incomes for farmers in South America’s largest nation.
But so far prices of soybean, sugar and Arabica coffee have all headed higher this year, due to a variety of factors including weather concerns in other commodity producing nations.
Brazil’s currency which has made gains against the dollar recently, is up about 10% since January 22, but with an eye to helping exporters, the nation’s central bank has been intervening in the currency market with the goal, traders say, of keeping the Real from strengthening much beyond 3.60 to the dollar. This is good news for Brazilian farmers, whose products continue to undercut their counterparts in the US and Europe.
“Brazil became a lot more competitive last year because of the weaker Real, and that really pushed exports up and boosted farmers’ incomes”. said Natalia Orlovicin, an analyst at INTL FCStone.
Agriculture offers a rare example of a Brazilian sector that is global and competitive. The country’s largely inefficient manufactures are still heavily protected by tariffs and import taxes, but the government took the opposite approach with agriculture.
Starting in the 1990’s, it reduced subsidies and eliminated export taxes whilst increasing investment in agricultural research. Farmers responded with a rapid expansion of the area under cultivation and a burst of investment that made them among the most productive and efficient producers in the world.
Agriculture’s clout in Brazil’s economy was highlighted this year when the government of President Dilma Rousseff floated a proposal to reimpose a tax on agricultural exports to help close a massive budget gap.
The country’s influential agricultural lobby, the CNA, quickly condemned the proposal. The group’s former president, rancher and current Agriculture Minister Katia Abreu, also joined in to criticize the move, which appears to have died a quiet death.
Just a few years ago, when commodities prices were high and China was vacuuming up Brazil’s iron ore by the boatload, that commodity was Brazil’s export king. The value of the country’s iron ore sales abroad reached a record $41.8 billion in 2011 but plummeted to $14.1 billion last year.
Meanwhile, the value of soybean and soybean-product exports went from $23.9 billion in 2011 to $31.3 billion in 2014. Even as sales retreated to $27.9 billion last year, soybeans still dethroned iron ore as the country’s most valuable export.
“Soy products are the locomotive of Brazil’s agricultural sector”, said Endrigo Dalcin, president of soy growers association Aprosoja Mato Grosso. “It’s what saved our trade balance last year, and this year I think we’re going to set a new record for exports.”
While agriculture remains a bright spot in Brazil’s economy, plenty of challenges remain. Among the biggest are inadequate roads, a lack of rail lines and strapped ports, hampering the flow of farm products to market.
The cost of moving from the grain belt in Brazil’s interior state of Mato Grosso to the port of Santos in Sao Paulo state, is close to four times what it costs a farmer in Illinois to get his soy crop to New Orleans, according to Aprosoja Mato Grosso.
Mario Lanznaster, 75, a hog farmer in the state of Santa Catarina who raises hogs and sells about 36,000 each year from his farms around Chapeco, said he would like the government to build a rail line to help bring corn grown deep in the country’s interior to hog and chicken farmers in his state on the coast south of Sao Paulo. That would cut the cost of feed and help make pork even cheaper in Brazil and abroad. He said, “There’s no doubt that the weak Real helps us, makes us more competitive, but Brazilians have to eat too. We need to get the economy going again, create more jobs so people here can eat better.”
The Wall Street Journal