American interests are paying close attention to such moves. With an expanding infrastructure, Brazil has arrived as a player on the world stage. That's especially true on the agriculture front, where Brazil's presence is impacting global trade and policy matters. David Miller reports.
Roberto Rodrigues is the Brazilian Agriculture Minister.
Roberto Rogriques, Brazilian Minister of Agriculture : "Infrastructure storage and irrigation are also being contemplated at this moment. And some specific programs, such as fruit production and biodiesel, are going to have their budgets increased. Beyond that, the idea is to work with interest rates that are compatible with the Brazilian producers' reality. The government has been defending a reduction in costs to improve our competitive edge."
This year, for the first time in history, South American farmers harvested a soybean crop larger than the United States; much of that from Brazil. The USDA estimates Brazil will surpass the United States in exports with almost 36.5-million metric tons of soy products. The work firmly places the South American super power in the number one slot.
Doug Jackson, a regular market analyst on Market to Market, and a broker with the cooperative F.C. Stone, has been watching Brazil for several years. His take on the loss of the top spot in soybeans is more significant than just being number two.
Doug Jackson, F. C. Stone: "...the world is starting to understand that the U.S. will take on a less significant aspect of the price determination situation. Now, interestingly, of course, the world trade's basis Chicago futures which are obviously dollar denominated... is still an influence on those Chicago futures prices."
This year, Brazil grew its grain crop on nearly 100 million acres. But Brazilian agriculture officials estimate there are almost 500 million acres available for development as crop or pasture land. All this development can take place without ever touching the Amazon rain forest. At the current growth rate of 3% to 5% a year, it could be more than 75 years before all the land is developed, but there is most likely a limit to how much land can be developed before over supply is detrimental to price.
The ground being cleared for production is cerrados or pasture land. But the question remains how much land can be placed under cultivation before Brazil suffers the same land value collapse that struck the U.S. in the 1980s.
Brazil has no direct agricultural subsidies though the government will purchase grain at a minimum price that is far below the market. Even so, there are other governmental policies that work to the economic advantage of larger farmers. Despite that, plans are being drawn up to help smaller producers.
One acre of cleared cerrados can be purchased for around $500, at least one-quarter the price of the most fertile ground in the Midwest. Once the land is cleared, Brazilian farmers enjoy production costs estimated to be 40% lower than those in the U.S. grain belt. That grain belt will easily fit into the areas where most of the expansion is occurring.
Another competitive edge for the country is a claim to a GMO free soy crop. Until a recent court decision lifted the ban on Roundup Ready soybeans, it was illegal to grow GMOs anywhere in Brazil. Even so, there is mounting evidence that large portions of the beans grown in southern states were predominately biotech varieties.
Meanwhile, the goverment is working on a request from President Lula da Silva to create a law that requires the labeling of all transgenic products. In what appears to be a win for growers, the Brazilian Congress is seriously considering setting the threshold for labeling at 4%. Ironically, the EU, a major importer of Brazilian beans, has a 1% tolerance.
Doug Jackson, F.C. Stone: "It's not clear to me exactly what's going to happen there, very long term the argument probably could be made that Brazil must go GMO to remain competitive in terms of cost of production. ...but the cost of production aspect, of course, would still be working in favor of GMO over a period of time."
Not all of the grain is exported. A certain percentage is used to feed an ever increasing number of livestock. The USDA estimates Brazil has the largest cattle herd in the world at 161-million head but Brazilian officials put that number closer to 180-million. The number eclipses even the United States which has 96-million. And hog stocks, at 33-million, have increased to slightly more than half the U.S. production.
Exports of finished meat products are increasing as well. Brazilian agriculture officials claim it is now cheaper for Brazilian producers to raise, process and ship beef to European Union countries and with poultry...
Doug Jackson, F.C. Stone: "Brazil now capturing a large part of the Canadian poultry market because they can produce it and ship it there cheaper than we can out of the United States."
Despite a rocky world economy, as well as various market forces, Rodrigues is optimistic about the future of Brazilian agriculture.
Roberto Rodrigues, Brazilian Minister of Agriculture: "Today it is very clear that in the next ten years, from 15 to 20 percent of these areas for cattle feeding will be converted for agriculture as technology for fertilization and irrigation improves. The amplification and improvement in infrastructure will make the transformation process easier, increasing our competitiveness substantially."
While Rodrigues looks forward to a bright future for the farmers of Brazil, Jackson sees a major change in the role how of raw commodity agriculture will be conducted in the United States and the world.
Doug Jackson, F.C. Stone: "I think the United States is simply going to have to understand that we're going to be a smaller and smaller part of the puzzle. I think we've already implicitly given up or surrendered within our agricultural policy on the idea of being competitive in the export market. I think we've essentially thrown our hands up, said we can't be competitive, we're not going to be competitive."
For Market to Market, I'm David Miller.