Iowa Public Television

 

U.S. Farmer Investment Spurs Brazil Ag Growth

posted on June 3, 2005


Brazil's Agriculture Ministry IS expected to increase its farm budget by 10 to 15 percent. But there's concern in the Brazilian countryside that the increase won't be enough.

Brazil's farm economy, which in recent years has sustained the country's overall growth, has been stunted this year by drought and soaring production costs. In fact, soybean planting is expected to drop for the first time in 10 years when the next marketing cycle begins in September.

The cost of doing business is just one of the problems that's accompanied the rapid expansion of Brazilian agriculture. But expand they have ... to the point where Brazil now challenges the U.S. for international markets, especially in soybeans.

To counter that challenge, some American producers have found the best way to battle the competition is to buy the competition. Sara Frasher explains.

U.S. Farmer Investment Spurs Brazil Ag Growth David Kruse, Brazil Iowa Farms, LLC: "Well, the best soil surrounds Royal and that is where my family settled. My grandfather's farm is just down this gravel road. My great grandfather's farm is a century farm you can actually see off in the distance as well. This farm is my father's farm. This is where I grew up. My own farmstead is just a few miles away."

David Kruse is a fifth generation farmer in northwest Iowa. His wife is a fourth generation Iowa farmer.

Still, the Kruses sold 120 acres of their own land to help finance buying farmland --in Brazil. Along with 247 investors in their company, Brazil Iowa Farms, they bought over 11,000 tillable acres, and have an option to buy more for next season.

All that happened because of what David Kruse and his father-in-law saw on a visit to Brazil in December 2001.

David Kruse, Brazil Iowa Farms, LLC: "These planters were literally planting to the horizon just so they could turn around and get back to reload again. The impression of that scope of agriculture and the efficiencies, you don't have to turn around very often, let's put it that way, about how that works there."

Jane Kruse, Brazil Iowa Farms, LLC: "So when he came back I said, 'Alright Dad, now your impression of Brazil, is it the same as David's, what do you think?' And he looked at me and he said, 'You know Jane, they're just going to blow us away.'"

As David Kruse puts it, they decided to buy the competition.

Raising about 13 million dollars from individuals and entities with ties to agriculture, Brazil Iowa Farms now owns two tracts on the western side of a high plateau in the state of Bahia.

Rather than buy undeveloped Brazilian land, Brazil Iowa Farms paid about $750 an acre for land that already had been farmed. That is far less than the potential $4000 to $5000 an acre cost for Iowa land with the same productive capacity.

Starting in late November 2004, the first plantings went in: 7500 acres of cotton, 3700 acres of soybeans and, on rented ground, 2200 acres of corn.

The business plan is simple. While a number of variables can affect profit, Kruse says the key difference is the cost of money. Money costs Brazilian farmers more.

David Kruse, Brazil Iowa Farms, LLC: "The returns of a Brazilian farm operation are geared to actually make money on their higher cost of capital. So we have quite an advantage as Americans investing in their system with a lower cost of capital into their agriculture that generates a higher rate of return. And that puts us in a situation where we believe that an American owned farm in Brazil is going to be more competitive as far as return on a farm either in the United States, here, or a farm in Brazil that's domestically owned."

David Kruse calls it hybrid vigor. But it is not without risk.

There is the fluctuating exchange rate between the dollar and Brazil's currency. There are no government price supports in Brazil. There are the stories about theft and corruption in the country. And, it isn't the United States.

David Kruse, Brazil Iowa Farms, LLC: "Yes, I perceive that there's a number of risks. I don't perceive anything that I don't have the capability of managing."

Receptionist: "You guys didn't happen to get passports yesterday?"

The Kruses have several companies whose business is managing risk: futures and options trading, individualized risk management and crop insurance. David Kruse has a market advisory service, and provides analysis to DTN, newspapers and radio.

Jane Kruse, Brazil Iowa Farms, LLC: "We watch all of these commodity markets on a daily basis anyway. We watch the currency. So, it's probably something that the average farmer does not do on a daily basis."

Another important way to manage risk is to have people on the ground you trust - and keep in regular contact with them.

The Project Coordinator is the Kruse's son, Matthew Kruse.

The Project Developer is Tom Shanks, a farmer from New York State. Brazil Iowa Farm's first crop is his sixth in Brazil. Both men speak Portuguese.

They work in an agricultural business climate that while familiar looking in some respects is quite different. Brazil is a developing country. For example, there is no real commercial banking system as Americans would know it. And there aren't the consumer conveniences Americans would expect either.

It took Matthew Kruse a half-a-day, including a two-hour drive, just to restore his cell-phone service because he didn't receive the bill in the first place.

David Kruse, Brazil Iowa Farms, LLC: "The average Iowa farmer could not stand to farm in Brazil because the business culture would drive him absolutely nuts."

As to those who think that Brazilian investment is just too risky, or aiding the competition, David Kruse says it's just good business, a way to compete in global agriculture.

David Kruse, Brazil Iowa Farms, LLC: "If you've ever been there and you see what has happened there now and how things have developed in their agriculture you come back with a confidence that they are not going to stop this because this is their hope for the future. You know, this is what they are going to build their economy on and this is where wealth is going to be generated and they aren't going to go back at this point in time. I actually view the concern over Brazil as an opportunity because I'm hoping that it will hold other people back. And I take those advantages."

For Market to Market, I'm Sara Frasher.


Tags: agriculture Brazil crops farmers investing markets news oil rural South America trade