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Brazil: Still in Growth Mode

Despite a world recession, Brazilian agriculture has been growing at a brisk 4.5% each year - a fact the country's agricultural leader was happy to discuss during a recent conversation updating Brazil's Ag prospects for 2010.

"We are perfectly capable of continuing to grow in the future, and what’s more important, to grow without felling any tree in the so-called Amazon biome," says Ag Minister Reinhold Stephanes in a recent phone interview. "We can continue to grow in technological terms, by productivity. And it’s important to emphasize that in all agricultural crop and grain-growing areas, Brazil uses less than 6% of its national territory."

It's difficult, even for Americans, to realize how big Brazil is. Soybeans are grown on only 2% of the total Brazilian land mass, even though the country is a major exporter. Sugarcane, another major export and biofuel crop, uses less than 1% of total area. You can fit 16 countries the size of England inside the largest Brazilian state of Amazonas.

Here are a few excerpts from the discussion with Minister Stephanes:

Farm Futures: Does Brazil have plans to export sugarcane ethanol to the United States based on the EPA's updated renewable fuels standard? It will require 36 billion gallons of renewable fuel by year 2022.

Stephanes: The good side of that issue is that Brazil has the best raw materials to produce alcohol in the world -sugarcane. We’re getting more and more, taller and thicker, sugarcane which is different from a plant that produces two ears of corn. Our climate is very suitable for growing sugarcane, and we can produce alcohol for less than half the price of American alcohol.

Considering that Brazil is self-sufficient in oil, more than half of Brazilian vehicles run on alcohol, because it’s cheaper than gasoline. So it’s an issue of competition and production costs.

The U.S. imposes a very high exporting tax on Brazil. It’s about 100%, and this is not good. We do understand that the U.S. needs to protect its corn production, but if the market is ever opened, of course, Brazil will certainly be capable of having a share of the U.S. market, which will always be the largest market in the world.

FF: How do you envision areas in the Cerrado region being developed, considering the reform of your forestry laws?

Stephanes: The Cerrado is basically the largest and only area to be expanded, from the standpoint of sustainability. Of course, bear in mind that 35% of each area that’s explored needs to be preserved. And the margins of rivers and creeks need to be preserved.

We currently have approximately 123 million acres of area still available, which corresponds to the entire grain production area in Brazil today. But we believe that within 10 or 15 years we’ll need less than 25 million acres of that area considering that we want to grow based on productivity.

FF: Is Brazil's potential to expand its agriculture hindered by policies of the government, specifically the environmental department?

Stephanes: We have two issues. First we have the areas settled 50 to 200 years ago by Europeans in Brazil. And the other is the expansion areas, people who moved into the Amazon forest. But we so far have used less than 20% of the Amazon forest. It’s important to recall that Brazil still has 50% of its original forest standing.

We have no problems to reach zero percent deforestation in the Amazon. There are two important actions going on in this regard. We’ve had an agreement for four years that soy growing will not fell a single tree in the Amazon biome. That’s inspected by NGOs (Non Government Organizations). In the livestock sector, another program was introduced to achieve zero deforestation in the Amazon biome within two years, where all the farms are monitored by satellite. And those who fell a single tree or who go against the agreement will be punished and will lose their production and their right to the forest.

FF: What is the country's strategy for cattle production?

Stephanes: Our political strategy is to reduce area for cattle and increase grain area, especially in areas already consolidated for that purpose. We have large areas where irrigation can be easily introduced or expanded. We have several areas like the Cerrado (Savanna) where grain production can be increased without damaging the environment.

FF: Is Brazilian agriculture still hampered by logistical issues?

Stephanes: We have some port, road and storage problems in the central western region, the main area of Ag expansion in the last 20 years and where we have the largest production of corn, soybeans and beef. In exporting terms, this area is far from the sea.

To give you a better idea how this impacts farmers, people producing 60-kilo sacks of corn in the south can get about $12 each; but the producer in Mato Grosso in West central Brazil will get less than half that value because of the costs of transportation.

FF: How will the current dispute over cotton between Brazil and the U.S. impact trade?

Stephanes: The U.S. subsidizes cotton exports, which jeopardizing Brazil's cotton production, because we are also a big cotton producer. Like Brazil, the U.S. is also part of WTO. Countries must respect the decisions of WTO, something the U.S. has failed to do. They lost from the very beginning.

Brazil was investing large amounts of money to prevent our farmers from losing their markets, but we did lose part of that market due to American subsidies.

Of course, we understand every country has internal political issues. Brazil is not willing to go into a trade war with the U.S. But the U.S. at least needs to indicate its willingness to discuss the matter. We don’t expect negative consequences over this dispute because we've been careful to think about the products we import from the U.S.

FF: Will the Brazilian government subsidize Brazilian corn exports, due to its bumper corn crop?

Stephanes: There is no subsidy for corn production. In the case of central region corn production where people have troubles with transportation and storage, the government helps those producers, but we are not large exporters of corn. The subsidy, in terms of transportation, is more for the domestic market, to level the playing field with southern producers.

Most of the poultry and swine is produced in south of Brazil, where the corn has a certain price; for corn produced far away from the coast, we had to help producers with transport costs to level prices with producers in the south.

FF: Is Brazil building its fertilizer production capabilities?

Stephanes: Brazil is a large importer of fertilizers. In the case of potassium, we import 91%. And we know that there are basically four countries in the world that hold potassium mines, and only two companies trading that potassium, which makes us very vulnerable.

As for phosphorus, we import 50%. We import phosphorus from Morocco, for example. It crosses the entire Atlantic Ocean. Then in our port, we place the products in our trucks, and then take them up some 1,800 miles to the north of Mato Grosso.

We do have phosphorus quarries or mines that have not yet been exploited in the state of Mato Grosso. Also, according to major potassium producers in the world, we have in the state of Amazonas the third largest potassium deposit in the world. Part of that has already been surveyed and measured, but the other part still remains to be exploited and surveyed. We also have a large amount of potassium along the Brazilian coast, which still needs to be surveyed. Anyway, the government has decided to implement a self-sufficiency program within the next 10 years.

FF: What is the outlook for Brazil's beef exports?

Stephanes: Brazil is a major exporter of beef. This year the exporting of beef is expected to grow by 20%. Our concern is that Brazil might not have enough cattle to meet world demand in the coming years.

Brazil's largest market for export is the European Union. Due to traceability issues three years ago, exports were reduced; now that market is recovering. Right now there is a European audit completing its work on Brazil traceability. They’ve informed us that they are very pleased to see the evolution and the quality of sanitary health services in Brazil in recent years. In Europe, we are recovering a market that we used to have before.