The Fertilizer for Food Sweet Deal Between Brazilians and Arabs
Brazil currently imports 70% of the fertilizers it consumes, especially potassium (90%), phosphates and nitrogen compounds. Arab countries, in turn, import 90% of the foodstuffs required to meet their populations' needs. Each side has what the other side needs.
In order to solve this equation, Brazil is negotiating, with Arab producer countries, tariff preference and regular export deals for commodities - beef, chicken meat, soy, coffee and fruit - in exchange for fertilizers, which would be regularly supplied by that region of the world.
Such regular exports would take place in addition to what the Arabs already buy from Brazil, and prices would be lower than those in the international market. The same would happen with regard to additional imports, by Brazil, of fertilizers manufactured in the Arab world.
This operation, the 21st Century Barter, is presumably being discussed by the Lula administration with Morocco, Algeria, Tunisia, Syria, Jordan, Saudi Arabia and United Arab Emirates. These are the world's leading producer countries of raw material for fertilizer manufacturing.
Exchange relations are regarded, both by Brazil and the Arab countries, as extremely important and complementary for both sides. The Arabs will have a regular, trustworthy source of foodstuffs at their disposal, and Brazil, on the other hand, will count on a stable, regular supplier of fertilizers in the short, medium and long term.
Should the operation come to fruition, the forecast is for the country to be able to partly reduce its expenditure on fertilizer imports. That, in turn, will certainly contribute to reduce food prices in the country. It is worth noting that fertilizers, depending on the product, account for 15% to 30% of production costs for Brazilian farmers.
For the market, Barter 21 is a clear indicator that relations between developing countries have evolved. They are already capable of analyzing the areas in which one economy complements another, and seeking solutions that do not depend on the mood of wealthy nations - whose only goal is to export their products to developing countries, while imposing tariff barriers on whatever they import from what they call the Third World.
Checkmate
Besides the agreement with the Arabs, Brazil wants to increase its domestic production of fertilizers. In order to pressure the private initiative towards investing, the minister of Agriculture, Reinhold Stephanes, has moved a pawn on the board.
First off, he explained that the fertilizer costs, along with the growing demand, constitutes the main contributing factor to rising food prices, which are driving inflation up. Then, he put his message across: he stated that as fertilizers currently answer to almost 40% of total production cost and have become cause for concern, the government might intervene in the sector.
"In principle, we want our mines to be explored. However, (the Brazilian state-owned oil company) Petrobras will obviously need to step in if necessary. And if that is the case, then we are going to act as well. We might even transfer control of some sectors back to the government," said Stephanes.
Coincidentally or not, private enterprises have begun to announce investment aimed at increasing fertilizer production. In late May, for example, the mighty Bunge informed that it will inject 3.2 billion Brazilian reais (US$ 1.9 billion) into four new projects for expanding phosphorus supply to the domestic market.
In one of these projects, at a potassium nitrate mine located in the municipality of Patrocínio (southeastern Brazilian state of Minas Gerais), the multinational corporation should invest 2 billion reais (US$ 1.2 billion). Vale do Rio Doce has also announced investment in the sector.
Petrobras plans to build new fertilizer manufacturing units in the country as a response to strong demand for the product, and should get back to tendering the potassium reserves it owns in the Amazon, and for which it did not find buyers in previous attempts. By 2010, the state-owned enterprise should invest in a factory of nitrogen-based fertilizers.
Pole Position
Even before the minister issued his warning, 15 agricultural cooperatives in the Union and Organization of Cooperatives of the State of Paraná (Ocepar) were already discussing the implementation of a fertilizer mixing plant in the city of Paranaguá (South Brazil), where the second largest port in Brazil is located.
The location is strategic and logistical, as the same truck that transports soy to the port can drive back carrying fertilizers. This will reduce transport costs and, consequently, the final cost of agricultural production.
Presently, agricultural cooperatives in the state of Paraná import 1.8 million tons of the 2 million they consume annually. Just to give an idea, the fertilizer market in the state of Paraná, which answers to nearly 25% of national grain production, has an annual turnover of approximately US$ 2 billion.
This year, the combined foreign net assets of the Gulf Cooperation Council (GCC) member states - Saudi Arabia, Kuwait, Qatar, United Arab Emirates, Bahrain and Oman - should total US$ 2 trillion, representing growth of US$ 200 billion over last year, according to a report disclosed recently by the Institute for International Finance (IIF), based in Washington D.C.
By 2012, the GCC's total foreign assets should reach almost US$ 7 trillion, according to another survey conducted by consultancy firm McKinsey, also based in the United States.
Financial System
A significant share of that amount should be poured into the international financial system and direct investment in the United States, Europe and Asia. Nevertheless, the Arab region should receive more funds than ever before. Egypt, Jordan, Syria, Lebanon, Morocco and Tunisia should be the main beneficiaries, as well as the banking, telecommunications, real estate, tourism, construction and infrastructure sectors.
Assuming an average price of US$ 50 per barrel of oil, McKinsey claims that the six GCC member states should invest US$ 1.5 trillion abroad until 2012, the equivalent to approximately US$ 1 billion per day. By 2020, according to a report published by the Global Institute at McKinsey, the value may total US$ 3.5 trillion, increasing the region's total foreign wealth to US$ 8.3 trillion.
"If oil were to average US$ 70 a barrel, the outflows would rise to an average of about US$ 628 billion a year, implying new petrodollar investments of nearly US$ 2 billion a day," predicts the survey by McKinsey.
Even if oil prices declined to $30 a barrel, the GCC's foreign assets would reach some US$ 4.8 trillion by 2012. In a worst case scenario, the consultants add, even if the GCC states never invested another dollar abroad, the returns on their existing foreign assets would produce $1.6 trillion by 2022, making the GCC, along with China, one of the world's largest sources of surplus capital.
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