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Insights on Brazilian Ag

How are Brazilian farmers getting financed today, with tighter credit from the private sector? Will Brazil import more corn than last year? How has Argentina's drought impacted Brazilian beef production? In an exclusive interview, we went to Jose Gasques, the General Coordinator of Strategic Planning at Brazil's Ministry of Agriculture, Livestock and Supply for answers.

Farm Futures: Describe the pressure on Brazilian agriculture now, from ecological and rainforest advocates, in light of global warming concerns.

Gasques: Brazil already has economic and ecological zones for the whole country which tells producers where they can and cannot do business, and which kind of agriculture they can raise in that zone. Although we already had these zones for years, Brazil has been investing more on that because of climate change and global warming. We already invested in traceability of cattle; with traceability we can tell if a steer has been raised in a forested area. If it comes from the forested areas, they cannot be marketed.

Gasques: Last year we had less private financing in agriculture, but we are not sure about this year. Government financing for the next season is going to be higher than last year and will compensate for any loss from the private sector. We have had some negotiations on the debts of ag and we don't expect there to be any problems in financing farm debt.

The financing of agriculture has increased very much in the last 15 years, in both commercial and family agriculture. In soybean regions such as Mato Grosso, around 50% of production is financed from the private sector; the other 50% comes from the government and farmers' own money.

Brazilian farmers use more of their own money as capital than they did, say, in 2000. Since then we have had some good years in agriculture and incomes have increased. The farmers have more of their own resources.

FF: What is the potential for Brazil to import wheat from the U.S. due to the small Argentine crop?

Gasques: We do have potential to import wheat from the United States. We produce 6 million tons of wheat in Brazil for this year, but total consumption is 11 million tons, so we have 5.3 million tons that need to be imported.

FF: Will Brazil export corn?

Gasques: This year we are going to export 8 million tons of corn for this season, compared to 6.4 million tons last year.

FF: Describe how the Brazilian commodity support program works.

Gasques: There are two main programs - one of them is the minimum price program and the other is distribution of production. Last year we did not have many people using these because prices were high; if we have prices going lower, then the government might use these programs to stimulate production.

The minimum prices program is where the government buys production for a stated price even if the international price goes lower, similar to farm programs in the United States.

This distribution program is where the government pays a premium to the private sector to distribute production to different regions; it is not because of infrastructure problems, it is because some production in some regions are higher in one area and not another. Instead of the government buying the production, it gets transferred to another region.

FF: How much grain, oilseeds, cotton and other commodities does the Brazilian government own or control?

Gasques: None.

FF: Argentina is liquidating cattle due to drought. That has the potential to make Argentine beef supplies considerably tighter next year and prices to both producers and consumers considerably higher. Does Brazil expect similar developments in beef?

Gasques: This year Brazil will produce 10 million tons of beef. Production has increased in the last two years but it might not change much from now on. Even though prices might get higher next year, we likely will not change our production. In 2008 we exported 1.38 million tons of beef, a 14% decrease from 2007 numbers. We are not increasing beef production, but the value of the exports went up 20.4% because of higher prices. It is difficult to increase cattle production in such a short time; you need 18 months to have cattle ready for market.

FF: What is the current state of farmland values in the Cerrado (Brazil's tropical savannah ecoregion)? Does the government still have programs that encourage development?

Gasques: We do not have specific programs, but policies for ag and incentives for financing. These should stimulate people to develop lands. We do have one specific program, for example for family farms, which this year had 50% more resources than last year; the program will have 15 billion reals available for financing.

For next season we are going to have a specific program for credit to medium sized farms. For large scale commercial farms, BNDES (Banco National de Desenvolvimento Economico e Social, Brazil's bank for development and economic and social development) will have credit lines for farmers.

FF: What has been the impact of a strong real (Brazilian currency) and weak dollar on Brazilian farmers' ability to finance production?

Gasques: The exchange rate is 1.84 real for each dollar, which is a lower exchange rate than we had in 2004-05; when each dollar equaled 2 real, but farmers have already adjusted their production to the new reality. The productivity we have in Brazil is high and prices in international markets compensate the farmers, so that the exchange rate is not such a problem now.

Productivity has increased very much in the last few years. For example, total productivity has increased 3.7% each year for all production agriculture over the last 35 years (crops, livestock); that's bigger than the rate of the United States, which is, from 1975 to 2006, 1.95% per year production growth.

-- Mr. Gasques is the General Coordinator of Strategic Planning for the Brazilian Ministry of Agriculture, Livestock and Supply. Prior to this post, he was a technician with the Secretariat of Strategic Affairs for the Presidency of the Republic, and a Coordinator of Agriculture with Brazil's Institute for Applied Economic Research.