Brazilian agriculture, which accounts for 11% of G.D.P., is gradually adapting to a more open market, bringing increased competition. Liberalizations and a more stable economy are expected eventually to stimulate productivity, marketing efficiency and investment in infrastructure.
Agricultural policy. Developments in agricultural policy have tended to parallel those in the overall economy, where, in response to declining growth, rampant inflation and unserviceable debt, the government in 1990 began a series of reforms to privatize and liberalize the economy.
In the agricultural sector, one of the first reform steps involved deregulating flour milling and disbanding the Brazilian Wheat Board, the government monopoly agency controlling wheat imports and prices. By 1992, wheat and flour markets were free of direct government involvement.
Government influence over markets was cut back further in early 1995, when the Ministry of Agriculture began to withdraw from buying and selling commodities under price support programs. The government began to sell off its grain stocks through periodic auctions, and for the 1996-97 season, farmers no longer will have the option of paying off their price support loans with commodities rather than cash, thus preventing a renewed build-up of government stocks.
The policy change is expected to result in massive budgetary savings; in 1995, the 20 million tonnes of government stocks cost some U.S.$1.9 billion to warehouse and handle. The end of government stockholding also will eliminate problems and disputes over quality, shrinkage, disappearance and the like that resulted in more than 12,000 claims against warehouse operators and transportation companies in five years.
Another significant change for agriculture is Law 87, which went into effect in September 1996 and provides for the elimination of the state sales tax on primary and semi-manufactured exports. This tax varied depending on state and commodity and was a major detriment to the competitiveness of Brazilian products in world markets.
The elimination of the tax is expected to provide immediate benefit to primary producers. When the tax change was first announced, various agricultural sectors said they expected exports could increase during the first year by as much as 4%.
Brazilian agriculture remains hindered by high domestic interest rates, underdeveloped infrastructure and excessive port charges, but continued economic progress and investments should strengthen the sector. Various port projects already are under way to improve distribution and export efficiencies.
A major food processor and exporting company is investing more than U.S.$20 million to expand storage and handling capacity at Sao Francisco do Sul, which will enable the company to quintuple its annual soy product exports. Various projects in Brazil's interior are aimed at streamlining soybean and grain distribution.
Flour milling. Brazilian flour milling was deregulated in 1990, and initially the industry expanded. But consolidation is expected to become a dominant feature.
Brazil currently has 223 flour mills, all but one of which are members of ABITRIGO, the national flour milling association. Total annual milling capacity is 14.5 million tonnes, with actual flour production in 1995 put at 6.5 million tonnes.
Of the total mills, 20 have daily capacity of more than 500 tonnes, 21 have capacity of 300 to 500 tonnes, and 15 have capacity of 200 to 299 tonnes. Of the remaining mills, 121 — more than half of Brazil's total — have a daily capacity of fewer than 50 tonnes.
According to a study by Brazil's Institute of Applied Economics, the minimum-sized profitable mill is one with a daily capacity of 200 to 250 tonnes. Consequently, a large number of the small and medium flour mills face financial difficulties and are being acquired or leased by larger milling groups. (Please see September 1996 World Grain, page 31, for more information on the Brazilian study.) Vertical integration among flour millers and pasta, biscuit and bread producers also is developing, although integrated companies do not yet make up an important percentage of the flour market.
The majority of the country's mills, 170, are located in southern Brazil, in Rio Grande do Sul, Parana and Santa Catarina, while the region including Sao Paulo and Rio de Janeiro is home to 32 mills. The milling industry's wheat storage capacity is estimated at 1.2 million tonnes, with 600,000 tonnes of flour storage. Modernization is an on-going process as mills strive to compete.
Flour millers obtain 80% of wheat from neighboring Argentina, with imports arriving by vessel. The remaining grind consists of domestic soft, Canadian spring and U.S. hard red winter wheats.
The majority of production is bread flours, with non-semolina pasta flour and biscuit flour together accounting for 20% of the market. Flour is packaged in 1- and 5-kg paper and plastic bags, 50-kg plastic bags and 1,000-kg bags and is shipped by truck.
Until the industry was deregulated, mills were forbidden to promote or advertise their product, and rice and beans were the popular food staples. Brazil's flour consumption is expanding slowly, with annual per capita flour consumption estimated at a low 40 kg.
Feed and livestock. The feed and livestock industries have expanded significantly since the Plano Real reforms began. Much lower inflation and economic growth have raised consumers' purchasing power, particularly among lower income groups, sparking demand for meat and poultry products, and hence, animal feedstuffs. Brazil's wet and dry maize milling industry is the largest in South America, with an annual capacity of about 5.1 million tonnes.
Brazil is the world's second largest producer of broiler meat and its third largest exporter. The country has a modern, highly integrated production and processing system that relies on domestic and export markets.
Poultry meat production from 1994 to 1996 jumped by 21%. In 1996, production was up only modestly because of higher maize and protein meal prices; consumption was steady. Both production and consumption in 1997 are expected to increase by about 6% with the retreat of feed costs.
Longer term, the industry projects a 7% annual increase through 2003. Several companies have announced large investments over the next five years including projects in central Brazil near maize surplus areas.
The meat industry is similar to poultry in the predominance of highly integrated companies with their own feed, technical assistance, processing plants and distribution systems.