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Brazil Agribusiness Report Q1 2009
Business Monitor International, Nov 2008, Pages: 58
The Brazil Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Brazil's agribusiness service.
Brazil is rapidly emerging as a giant of world agriculture, exporting large quantities of sugar, corn coffee and meat, among other commodities. In the new Brazil Agribusiness Report for Q109, we examine Brazil's path to becoming an agricultural superpower.
Agriculture and associated industries are hugely important to the Brazilian economy. According to the US Department of Agriculture (USDA), agricultural production accounts for about 10% of Brazilian GDP. If this is widened to include the processing and distribution sectors, then the share of GDP jumps to 28% and the combined sectors employ 37% of the labour force.
The growth of agriculture as a major export earner really started in the mid-1980s as the government liberalised the sector and removed export tariffs and quotas. In the 1990s, as the economy stabilised and hyperinflation was brought under control, the government reduced its role in directing agriculture and privatised state enterprises. This, together with government support and the depreciation of the Real, allowed production for export to take off. Brazil is now among the world's leading food exporters across a diversified range of segments, and we forecast its share of world food exports to keep on growing through our forecast period, driven by improving yields and expansion of agricultural land. Indeed, the already vast area of land used for agriculture is expanding at about 4.5% per year, one of the fastest rates in the world. Among the star performers over our forecast period to 2012 will be corn, with production growth forecast at 61%; poultry, with growth of 41%; pork and beef, with growth of 31% and 30%, respectively; and sugar, with growth of 42%. Brazil will be either the leading exporter or among the top few leading exporters for all these products.
On the demand front, too, the future is bright, as the rising disposable incomes of Brazil's large population of more than 190mn allow them to spend more on food products. The spread of modern retail out from the richer southern coastal towns into the less developed North and North East will also encourage greater spending on food.
There are, however, still areas that need improving if these forecasts are to be fulfilled. Brazil's infrastructure away from the main population centres is often atrocious, hindering the transportation of goods to markets. This also adds large extra costs to Brazilian produce, reducing its competitiveness on the export market. Farming practices and hygiene standards are often low by international standards, and disease outbreaks are fairly common. Quality regulation can also be a problem, as was shown by the 'milk fraud' of late 2007 when it came to light that a number of dairy co-operatives had diluted their milk with water and caustic soda. The Real – the depreciation of which after it was free floated in 1999 helped the development of the agricultural export industry - has been on an appreciatory trend since 2004, and its strength is now beginning to hurt exports. It is also unlikely that the rapid expansion of agricultural land can continue without coming into conflict with conservation and environmental groups, particularly if it eats away more of the Amazon rainforest. If the industry does not act responsibly to find a compromise with these groups, it could see its expansion checked by government action.
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