EDITOR’S NOTE — U.S. agriculture continues to cast a wary eye on the country of Brazil, where the rapid expansion of row-crop acreage and low production costs could affect commodity markets in the near future. Texas A&M University Agricultural Economist Mark Waller, who has visited and studied Brazil, offered his assessment on the current and future impacts of Brazilian agriculture on the United States at the 2004 Southern Region Agricultural Outlook Conference held recently in Atlanta.
Brazil has expanded its crop production greatly in recent years, but the expansion is nothing compared to what it could have been, says Mark Waller, agricultural economist with Texas A&M University.
“Brazil still has a lot of potential to expand further, and it is a low-cost competitor,” says Waller. “We not only think about Brazil from the standpoint of soybean production, but also cotton, corn, sugar and livestock. They are a huge producer of several commodities.”
Brazil is generally thought of as having an “opposite” growing season from the United States, he says, but that’s no longer true.
“There is a counter-seasonal effect in the southern part of Brazil. But, if you look more towards the center, where much of the crop acreage is expanding, it becomes more of a tropical production season. If you have irrigation in the central part of the country, you can produce year-round,” says Waller.
From an area standpoint, Brazil is about the fifth largest country in the world, he says. “It’s a country with a lot of land area, and a lot of land area that can be used for agricultural purposes. They’re the number two soybean producer in the world, with almost 28 percent of the world’s production. In addition, they’re number three in corn production, number seven in cotton production, number nine in rice, number one in coffee and number one in sugar.”
Brazil also has the largest commercial cattle herd in the world, and its poultry and pork enterprises are expanding rapidly, he continues.
“They have the world’s largest commercial cattle herd, and that cattle herd basically is grass fed. They don’t have much in the way of feed lots. They have a lot of permanent pastureland, and a lot of that can be converted fairly easily to agricultural row-crop production. So, there’s a tremendous amount of potential in pastureland, without even talking about breaking out virgin land that hasn’t been farmed or the rain forests,” says Waller.
Changes have occurred over the past several years that have helped move Brazil to its current position in agricultural production, he says. In the 1960s, the capitol was moved from the coast to the interior of the country to encourage growth. “They did this largely because a lot of the country was very sparsely inhabited, and people weren’t moving to the interior. The thinking was that if they moved the capitol to the interior of the country, people and businesses would follow, and maybe the interior of the country would develop.”
From the 1960s through the 1980s, Brazil made some choices that hindered agricultural production, says Waller. There were inflationary problems during the 1980s, with the inflation rate rising at times to 1,000 percent per year.
“Some of that actually was positive for the producing sector because with regulated or subsidized interest rates from the government, they had negative inflation rates that ran as high as 40 or 50 percent in some years. But, they also had import and export taxes that hindered the expansion of the agricultural sector.”
Moving into the 1990s, the Brazilian government began doing something about their inflation and market problems, says Waller.
“They came out with the Real Plan in 1994, changing their currency and trying to get inflation under control. And they’ve moved a long way towards that goal. They’ve tried to move to a market-oriented system by reducing their import and export taxes, and that has contributed to the expansion we’ve seen in the agricultural sector. As the government’s policies became more beneficial towards agriculture, we saw a lot more expansion in that area.”
In 1997, there were currency crises around the world, beginning in Southeast Asia, spreading to Russia, and then to South America, where Brazil and Argentina were affected, says the economist.
“This crisis had a significant impact on Brazil and on Brazil’s agriculture. Brazil became more competitive in the export market during this time, and they’ve continued to be competitive.”
In comparing agricultural production costs between Brazil and the United States in the late 1990s, there is a difference but it’s not a huge difference, says Waller.
“The United States still looks fairly competitive. Both Brazil and Argentina have lower costs, but they are not as much lower as they appear when you look at the cost structure. The reason for this is that they have such high marketing costs, especially when you get into that Mato-Grosso area of Brazil, where you’re 1,500 kilometers from the coast.”
Mato-Grosso, he explains, is in the central-western part of Brazil where much of the development and acreage expansion is occurring. “Almost everything moves out of there by truck, and it takes a lot of expense to move crops out. Those costs were coming down over time, and a lot of improvements were being made. But a lot of the improvements still haven’t occurred, and producers in the Mato-Grosso area will tell you that they still have huge cost problems, and that they haven’t solved many of those issues.”