Brazil is an Agricultural Powerhouse
Brazil is the world’s largest producer and exporter of sugar, coffee and orange juice, as well as the largest exporter of beef, soybeans and poultry. One in four grains consumed in the world is produced in Brazil. More than 5 of every 10 glasses of orange juice drunk around the world come from Brazilian oranges.
Brazil’s beef cattle herd is 8 times the size of Australia’s. Brazil’s rise to agricultural superpower status has been underpinned by rapidly increasing efficiency in the utilisation of production factors, particularly land and labour.
The country has emerged as one of the top global performers in agricultural Total Factor Productivity (TFP) growth, in part because of research that has led to better crop and livestock technologies and made possible the development of the Brazilian cerrado (savanna). This lessons of the transformation of this tropical region are particularly relevant for Australia as it contemplates the agricultural development of northern Australia. And new Brazilian technology in the sector is highly regarded. The country has more than 200 agricultural start-ups, two of which are ranked in Forbes 25 Most Innovative Global Agtech listing.
Brazil is an attractive agricultural investment destination because of this capability, and because it simply has a lot of arable land with reliable rainfall. At the 2017 Global Agricultural Investing Conference in New York, Brazil was named, along with Australia and North America (USA and Canada), as one of the most prospective agricultural investment destinations.
But given its agricultural might, it is not surprising that Brazil is not only a destination for agricultural FDI, it is increasingly a source of it. The stock of Brazilian agribusiness FDI abroad has grown, from a modest base, by a factor of 17 in the past ten years. Brazilian companies usually go first to neighbouring countries including Argentina, Paraguay and Bolivia, then perhaps to Africa, the USA and maybe Europe.
Until recently, with a few notable exceptions, that was usually as far as they have gotten. But Australia is also now in the sights of a number of companies, particularly those that want to participate in the Asian middle class consumer boom. The notion that Australia could be a logical entry point to Asia would be seemingly tenuous for Brazil, a country that already exports almost half of its agricultural produce to the region.
In fact in 2016 Brazil overtook Australia in exports of beef to China. But its access to Asian markets is hampered by sanitary and regulatory constraints. Brazil can’t sell its beef into three of Australia’s biggest markets in the region – Japan, Korea and Indonesia. And it gets only from 20% (in Thailand) to 80% (in China and the Philippines) of the price that Australia gets for a kilo of beef. So the entry point pitch resonates for Brazilian processors who want to sell a premium product to Asia.
You can only get the benefits of Australian access and branding for premium products by producing them in Australia. But selling beef to Asia is only part of the story. The opportunity exists across the protein and cropping production chains, not just for produce. Austrade in São Paulo has identified and is now working with 20 Brazilian companies that are in various stages of contemplating investment in the agribusiness sector in Australia. These are mostly mid-size companies that produce biopesticides, animal health and nutrition, fertilizers and crop protection products.
What is common about them? They believe they have developed world leading agricultural technology and expertise that can contribute to increased farm productivity, and that Australia is the right place to expand their global presence. They are right on both counts. Three Brazilian companies participated in the Northern Australia Investment Forum (NAIF) held in Cairns earlier this week at the invitation of Austrade.
Source: Part of an article written by Greg Wallis, Austrade Senior Trade Commissioner in Sao Paulo and was published on 22 November, 2017)