Brazilian agriculture is well diversified, and the country is largely self-sufficient in food production. Even so, Brazil imports a significant amount of agricultural products, including frozen foods, wheat, malt, maize, rice and pulses.
Brazil is a member of the regional trade group Mercado Comun del Sur, or MERCOSUR, whose other members are Argentina, Uruguay and Paraguay. Countries within MERCOSUR enjoy duty-free access for most agricultural products, while a Common External Tariff is applied to non-MERCOSUR imports.
The tariff puts agricultural products from other areas at a competitive disadvantage, particularly bulk commodities such as wheat and coarse grains. The tariff for wheat is 12.5%, while maize and sorghum face a 10.5% tariff.
Brazil maintains agricultural support prices for many commodities. The wheat minimum price was raised by 9.75% for 2001 to R225 per tonne for type 1 wheat to encourage greater domestic wheat production, thereby reducing dependence on imports.
Brazil also offers an array of other domestic agricultural programs, including options contracts on wheat, maize and rice. The government, through its agency CONAB, offers a futures price, normally between harvest periods, for purchase of 27 tonnes of eligible products from growers, which enables them to lock in a selling price.
The government also operates an acquisition program, buying commodities at the minimum price, as well as a Subsidy Auction Program known as PEP. Under PEP, the government pays the difference between the prevailing market price and the minimum price of the product. Only wheat, corn, and rubber have been eligible for this program so far.
Domestic subsidies also include a rural credit system offering various instruments to support agricultural production and farm income. The instruments include subsidized interest rates, and the programs target both producers and processors.
In the first quarter of 2001, Brazil faced a minor outbreak of foot and mouth disease. The government undertook decisive action to prevent further contamination, including mass vaccinations to contain and eliminate the threat.
This year, Brazil has been struggling with a national energy shortage, forcing the government to implement a mandatory 20% cut in residential and commercial energy use. Brazil is almost completely dependent upon hydro-electricity; because of recent droughts and the lack of investment in this sector, generators are operating at minimum levels.
Key sectors of the economy, such as soybean crushing plants and wheat flour mills, have experienced these energy cuts, resulting in diminished efficiency. The government aims to privatize the energy sector to create additional energy sources over the next 20 years.
Another issue important to Brazilian agriculture is transportation. Improvements in the past 10 years or so have been impressive, but further advances are planned.
Trucks have been and still remain the dominant mode used to move inputs from port and interior origins to production areas and, conversely, commodities out to processors and export points. Traditionally, road quality was very poor.
The recent privatization of major roads in several states has led to improved pavement, but at a high cost in road tolls, which increases truckers’ costs. This has also affected routes used, as truckers try to bypass the toll roads.
At the same time, the design of trucks and trailers used in Brazil has changed. From the traditional single 27-tonne straight-bed trailer, truckers are increasingly using a double trailer arrangement that can carry close to 40 tonnes.
Investment in other modes is increasing as privatization of the railroads continues, as well as in waterways. The government has an impressive strategic plan for further development of the transportation infrastructure, although costs of realizing the plan are significant. Thus, the government is setting priorities and seeking private sector participation.
WHEAT AND FLOUR MILLING. Nearly all of Brazil’s wheat is grown in the three southern-most states, with Parana the largest producer. Wheat is a winter crop and competes with second-crop maize.
The Brazilian government aims to encourage greater domestic wheat production to reduce imports, but some observers think a significant increase in Brazilian wheat production will be difficult.
A recent private research institute study noted that the cost of wheat production in Rio Grande do Sul, the second-largest producing state, is double that in Argentina and the United States and has been rising. Furthermore, Brazil does not enjoy a favorable climate for wheat production, and crops are often affected by droughts or floods.
Brazilian wheat consumption is forecast to rise by 2% in 2001, continuing a trend of steady increases over the past 40 years. As the economy strengthens and incomes rise, Brazilian consumers are shifting from rice and other starches to wheat-based products.
Argentina is Brazil’s primary wheat supplier. Argentina’s many advantages include proximity, lower transportation costs, shorter delivery times and protection from the MERCOSUR duty and a 25% merchant marine tax.
Earlier this year, Brazil’s government released new "Technical Rules on Wheat Identification and Quality." As of Jan. 1, 2002, imported wheat with more than 2% dockage and foreign material was to be classified as substandard and banned from entry.
The regulations were enacted largely because of complaints from ABITRIGO, the Brazilian flour millers association, and other wheat importers about high dockage and foreign material in Argentine wheat. Dockage in Argentine wheat, particularly from Upriver, generally ranges from 4% to 5%, although it can reach as high as 6%.
But last month, Brazil’s Agriculture Ministry decided to relax the rule based on complaints from Argentine exporters. The plan now is to set up a joint commission to work on a solution.
ABITRIGO represents virtually all the industrial flour millers in Brazil. The group has about 185 member mills, with annual wheat grinding capacities ranging from 586 tonnes at one small mill to 900,000 tonnes at the Moinho Pacifico Industria E Comercio mill in Sao Paulo, the country’s largest.
Twelve companies account for 56% of Brazil’s flour market, with the remaining 44% spread among more than 100 companies. Grupo Bunge, at 14%, accounts for the largest single share, followed by Grupo J. Macedo at 10% and Grupo Predileto (Penabranca) at 9%.
Flour production has increased fairly steadily in the past 15 years. Output in terms of flour in 2000 reached nearly 6.8 million tonnes, a record.
COARSE GRAINS AND FEED. Maize is produced in nearly every state in Brazil, although about 90% of production is concentrated in the Center-South region, with Parana as the largest producer.
Traditionally a net importer, Brazil emerged as a maize exporter in January 2001. The new export market is enabling Brazil to reduce its surplus, while offering an outlet to maintain higher maize production levels.
Brazil’s maize exports have been helped by cheap world prices and the weaker real, which has enabled Brazil to sell its maize increasingly cheaper in U.S. dollars terms. But the most significant factor in Brazil’s recent export success is the interest by maize importers to source non-GMO product, as Brazil currently prohibits commercial planting of GM crops.
Brazil’s export success may last only as long as excess supplies and low prices persist. But if Brazil is able to capture a premium for non-GM maize, its export presence may become long term, and production could increase further.
Because maize is the primary feed component, making up some 63% of manufactured feed, the poultry and swine sectors have become concerned that the export campaign could result in domestic maize shortages and high prices. The poultry sector uses about 59% of Brazil’s average annual manufactured feed output of 32.5 million tonnes, with the swine sector using about 29%.
OILSEEDS. The oilseed sector, particularly soybeans, is a critical component of the country’s agriculture. Soybean production has more than doubled in the past 20 years, reaching a projected record of 39 million tonnes in 2001-02.
The domestic crush industry, which processes cottonseed and other oilseeds in addition to soybeans, has expanded along with crop output. Total oilseed processing capacity is nearly 108 million tonnes a year, located predominantly in the southern states of Parana and Rio Grande do Sul. No new plants have been built recently, with the industry focusing on existing plant investments.
Biotechnology, specifically the use of genetically modified "Roundup Ready" soybeans, is a huge issue for this sector. The commercial use of GM soybean seed remains illegal throughout Brazil.
Activist organizations, led by Greenpeace and the Brazilian Consumer Defense Institute, won an injunction against the commercialization of GM soybeans in 1999. The issue still remains in court, but most observers think it probably will be resolved sometime in 2002.
Domestic producer opinions on GMOs differ. Although some think foreign buyers may pay a premium for non-GM soybeans, others are waiting to determine if the cost savings reported from Argentine competitors are valid. These reports have led to the use of contraband Argentine GM planting seed in Rio Grande do Sul.
Meanwhile, crushers, exporters and food processors indicate their interest is the desires of their customers. Brazil has no food labeling regulation for products containing GMOs.