Brazil’s farmers, backed by a pugnacious diplomatic and legal campaign by business and political leaders such as Mr Amorim, are similarly turning the world of agricultural trade on its head. The European Union this week proposed deep cuts in the price it guarantees its own sugar farmers.
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Brazil is yielding farms that can feed the world
By Alan Beattie
Published: June 22 2005 20:25 | Last updated: June 22 2005 20:25
A tapestry hangs on the wall in the capacious office of Celso Amorim, Brazil’s foreign minister. Based on a chart drawn by a 15th-century Italian explorer, it shows an inverted map of the world – the southern hemisphere is on top.
Brazil’s farmers, backed by a pugnacious diplomatic and legal campaign by business and political leaders such as Mr Amorim, are similarly turning the world of agricultural trade on its head. The European Union this week proposed deep cuts in the price it guarantees its own sugar farmers. The US is due by the end of next week to announce reduced support for cotton growers. Both retreats follow actions initiated by Brazil at the World Trade Organisation.
While farm products are a small part of the picture – 10 per cent of global merchandise trade – the vast numbers of farmers among the WTO’s largely developing-country membership, combined with the highly contentious issue of rich nations’ agricultural subsidies, make Brazil a pivotal nation in the future of world trade.
Brazil is to agriculture what India is to business offshoring and China to manufacturing: a powerhouse whose size and efficiency few competitors can match. Despite facing one of the highest agricultural tariffs in the western hemisphere – an average 30 per cent is levied by the nations that import its produce – the country is the world’s largest or second largest exporter of sugar, soyabeans, orange juice, coffee, tobacco and beef and is rapidly building a strong position in products such as cotton, chicken and pork.
Brazil has the largest agricultural trade surplus in the world – $34bn or 5 per cent of national income last year, an amount that was singlehandedly responsible for putting the country’s overall net trade in surplus. For a country struggling to pay down its large debt burden, agricultural export earnings have been a godsend. Carlo Lovatelli, head of the Brazil Agribusiness Association, says: “Our aims are to consolidate Brazil as one of the world’s top agricultural exporters, expand further in areas like cotton and continue to demand access.”
There is certainly scope for expansion. On top of its 62m hectares (153m acres) of arable land, Brazil has an estimated 170m hectares more in potential – about the same as the entire US cropland currently under cultivation.
The land along Brazil’s coast has been farmed for generations. But the future for Brazilian farms lies inland, in places such as the vast central state of Mato Grosso. As recently as 30 years ago, thousands of square miles of thinly populated cerrado, or savannah, spread from the Bolivian border to the south to the Amazon basin in the north. Now the state’s plateaux have been invaded by vast emerald fields of cotton and soyabean plants and occasional stands of eucalyptus trees grown for pulp. The resemblance to US prairie states invites a comparison invoked frequently by Mato Grosso’s large-scale farmers, many of them relatively new arrivals from elsewhere in Brazil or overseas. “What is happening here now is what happened in the American Midwest of the 1800s,” says Chris Ward, a New Zealander who has farmed in Mato Grosso for 20 years. “People came here not to stand still but to win.”
Much of Brazil’s soil is in fact rather poor in nutrients, requiring heavy fertilisation: one local saying has it that its only function is to hold the crops upright. But the country has a near-perfect climate, especially in the central area – months of soaking rain in the southern summers, followed by dry, warm winters. It also has a huge river system, low land prices and a big reserve of cheap labour arising from large inequities of landholding and income among its 180m population.
These traditional advantages have combined with rising investment and government support for technology in recent years to create fearsomely efficient farms. In sugar, for example, estimates by Brazil’s national sugarcane institute suggest that, while the production costs of its main export rivals have remained around $250 a tonne for a decade, average costs in Brazil have fallen by more than one-third to $158 a tonne. It has doubled its share of world sugar exports to more than one-third in the last 10 years. With increasing international interest in sugar-based ethanol as a clean biofuel for engines, output is projected to increase by another 25 per cent in the next five years.
The production of soyabeans, Brazil’s biggest export and an important feedstuff for pigs and chickens, has grown even more quickly amid a rapid globalisation of the soyabean market. The recent legalisation of genetically modified soya in Brazil – farmers say the industry was riddled with GM seeds smuggled in from Argentina in any case – is likely to mean further gains in output and profitability.
By no means everything is in the farmers’ favour. They face high interest rates, a rising currency and, for many, tortuous journeys along thousands of kilometres of rutted roads for their produce to reach the coastal ports.
Carlos Augustin, the owner of a 30,000-hectare cotton and soyabean farm in the heart of Mato Grosso, says that Brazilian cotton farmers can achieve a yield as good as or better than their American counterparts, while adding: “You may have lower land and machinery prices on one side but you have higher freight, travel and finance costs on the other.” These extra burdens, he reckons, lose him 9-15 cents of the 60 cents a pound his cotton gets on world markets, bringing it perilously close to the break-even price.
If Brazil’s government succeeds in bringing down interest rates through its fiscal stringency, and finds enough money to update infrastructure, its farmers will be even more competitive.
However good its productivity, no country, certainly not one as populous as Brazil, is going to become rich growing and exporting nothing but basic commodities – especially since their prices tend to be in long-term relative decline. Even Mato Grosso’s astonishing rise in output has left it contributing a little over 1 per cent to national income. But Brazil is also beginning to move up the value chain.
Osler Desouzart, a former executive in the chicken industry and now with OD Consulting, which advises poultry exporters, says: “There is no money in producing animal protein. But there is lots of money in marketing and distributing animal products.”
In Europe, the destination for one-third of Brazil’s chicken exports, many food companies have sourced from and invested in Brazilian production. More and more of the value added in the production chain is going to Brazil, helped by an unusual EU tariff structure that imposes import taxes of around 75 per cent on raw chicken but only about 10 per cent on cooked or processed chicken. The chicken tikka masala that is sold in UK supermarkets often has its spices added on site in Brazil before being deep-frozen and shipped.
Brazil’s traditional commodity exports and its newer value-added produce are creating tensions around the world. As has happened with Chinese manufactured goods and particularly textiles, the rapid rise of a low-cost competitor raises cries of unfair competition from elsewhere. In a study of Brazil’s trade policy published late last year, the WTO concluded that government support to agriculture was modest. But that is not the view of its embattled competitors, particularly those in the rich countries.
Luther Markwart, chairman of the American Sugar Alliance, says that, contrary to the WTO’s assessment, Brazil’s success is based on unfair competition. “Brazil used subsidies, a government-run ethanol programme and appallingly low labour and environmental standards to become the world’s largest sugar producer,” he says. Mr Markwart reckons that Brazilian regulatory backing for ethanol – all cars in Brazil run on either pure ethanol or an ethanol-petrol mixture – is worth about $1bn a year.
In Europe, farmers have similar complaints. Peter Bradnock, chief executive of the British Poultry Council, says that lower Brazilian environmental and labour standards contribute to its poultry being about half the price of that produced in Europe. “Technologically we can raise chickens as well as they can,” he says. “But they are lower cost, and a part of that reflects the regulatory standards within which we have to operate.”
Mr Bradnock says that officials and regulators in countries such as Brazil and Thailand have an “export vocation”: they will do everything they can, he maintains, to ensure that regulation does not get in the way of pumping out yet more exports.
But he admits it is almost impossible to argue that these advantages violate WTO rules. Complaints about unfair competition meanwhile go unheeded by the strong Brazilian political consensus in favour of expanding farm trade.
Nowhere is the alliance between politics and agribusiness more evident than in Mato Grosso, where a clique of large farmers and politicians dominates the state. Mato Grosso’s governor is Blairo Maggi, scion of Maggi Group, a large agribusiness. In the face of criticism that farming in such areas benefits only the rich, Mr Maggi argues that Mato Grosso has no alternative to the model of big farms that pump out cheap commodities.
“Small properties in Mato Grosso do not have economic viability,” he says. “This has to be a scale economy, like the automotive industry. You cannot plant corn, soyabeans or cotton without large properties that can be competitive on the world market. Globalisation has occurred in world farming.”
He sees no objection to investment in Brazilian farming by multinationals such as Cargill, from whom many Brazilian farmers borrow money to buy their inputs. He stresses the vast acreage that is still “available for production without destroying the Amazon”.
Even the national administration of Luiz Inácio Lula da Silva, the president, which had long links with poor and landless farmers, has supported big agribusiness. Roberto Rodrigues, agriculture minister, is himself a farmer – though the horses, fenced fields and rolling countryside around his idyllic eco-friendly sugarcane farm in São Paulo state recall the verdancy of Virginia rather than the plains of the Midwest.
He speaks regretfully of the “social exclusion” that saw 200,000 small farmers leave the land in São Paulo following the liberalisation and concentration of agriculture in the early 1990s, points out that around one-fifth of the Brazilian government’s subsidised credit goes to small farmers and insists that the slow pace of land reform under Mr Lula da Silva’s government reflects a shortage of money, not a lack of political will.
But Mr Rodrigues has a strong ambition for agribusinesses to expand, in crops such as sugar. For him, the turning point was in attending the world agricultural expo in Tulare, California, in the mid-1990s and realising the potential for vast gains in productivity by mechanising agriculture. “Now, wherever you go in Brazil, we have our own agricultural shows,” he says. “I don’t want to sell litres of ethanol abroad – I want to sell rivers.”
Astute tactics highlight the role of the WTO
As the power of Brazil’s farmers has grown on world markets, so its politicians’ energetic lobbying against agricultural subsidies and protectionism in the rich world has paid dividends.
Nevertheless some accuse the Brazilians of overreaching themselves or of negotiating in their own interests rather than those of developing countries as a whole.
Particularly prominent are the two cases that Brazil successfully brought to the World Trade Organisation’s disputes panel. The panel ruled that subsidies for cotton in the US and sugar in Europe broke WTO rules and distorted world trade. These high-profile victories, the first to aim at rich countries’ farm subsidies, forced the issue up the international agenda.
Pedro de Camargo Neto, a combative former agriculture ministry official regarded as the progenitor of the sugar and cotton cases, says that the demonstration effect of the litigation was as important as the actual remedies ordered by the WTO. “I had this idea of using cases as a communication tool,” he says.
He chose cotton rather than soyabean because although Brazil has many more soyabean than cotton farmers, the damage from the US’s subsidy regime was much more obvious. “Then we wanted a case against Europe for balance, and chose sugar.”
Mr de Camargo Neto thinks that other countries should now pick up the baton: Uruguay could bring a case against the US rice support, for example, or Argentina against European dairy payments.
Few other developing countries have Brazil’s capacity to bring cases, which can be expensive and complex, to the WTO.
To overcome the bureaucracy of the process, Brazil set up a think-tank headed by Marcos Jank, a trade expert who headed Brazil’s agricultural negotiating team at the WTO ministerial meeting in Cancún, Mexico, in 2003. A team of dedicated Brazilian economists, help from sympathetic US academics and a high-powered US legal team helped bring victory.
Brazil’s leadership role goes beyond litigation. Just before the talks in Cancún, Brazil convened the Group of 20 poor countries to negotiate on agricultural issues within the WTO, and became one of the so-called “five interested parties” (along with the US, European Union, Australia and India) charged with pushing the talks along last year.
But there are suspicions that Brazil, by focusing so heavily on agricultural subsidies and market access in the rich countries, is pushing its own interests while ostensibly speaking on behalf of the developing world.
In particular, while the WTO cotton case may also benefit west African cotton producers by raising the world price, the sugar case may hurt African, Caribbean and Pacific (ACP) growers, which are granted special access to the high-price markets of Europe.
As Mr Jank says: “Brazil led the developing world with the cotton case, but with the sugar case a lot of the ACP countries were closer to Europe.”
Mr de Camargo Neto admits that litigation is a blunt tool: “We cannot solve all the problems of development with a trade case.”
Such concerns have not diminished Brazil’s enthusiasm for seeking to represent the developing world. Celso Amorim, the country’s influential foreign minister, says that divisions between developing countries “are invented by bureaucrats in Brussels”.
Brazil has tried to bridge divides by giving help to Caribbean sugar producers to build ethanol plants, softening the blow of falling export earnings from Europe.
“I don’t want to steal anybody’s show,” Mr Amorim says. “Brazil is not dictating the direction of the WTO negotiations. Everything we do is by consultation.”
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