Brazil's Impact on Virginia Agriculture

Farm Business Management Update, December 2005/January 2006

By Tom Stanley (stanleyt@vt.edu), Extension Agent, Farm Business Management, Northwest District

This article is inspired by an article that recently appeared in The Economist (November 5, featuring "Special Report: Brazilian Agriculture, the harnessing of nature's bounty).

Brazil is the world's largest exporter of beef, coffee, orange juice and sugar, and it is closing fast on the leaders in soybeans, poultry, and pork. Unlike its competitors, Brazil is not running out of land. Agriculture occupies 60 million hectares (148 million acres) now; it could stretch out another 90 million hectares (222 million acres!) without touching the Amazon rainforest . . . Parts of Brazil have a climate and water resources that make it the equivalent of a vast open-air greenhouse with tremendous capabilities for producing high value fruit and vegetable crops. At the same time, Brazil's west central plains make it the world's lowest cost producer of soybeans and highly competitive in corn and other feed grains.

Brazil is an emerging agricultural superpower that will exert a growing influence on Virginia agriculture in the years ahead. The Economist identifies three things that will impact the rate at which Brazil's share of world markets will grow: the policies of the Brazilian government, the development of transportation and marketing infrastructure within Brazil, and international trade barriers that impact Brazilian agriculture exports.

In recent year's Brazilian policy has helped agriculture but Brazil still has many attributes of a third world economy. Brazil convulsed its way toward economic and social stability through the twentieth century with the 80's and 90's seeing significant economic development. Still, just 10% of the country's roads are paved, and there are no navigable rivers in the west central part of Brazil where much of the potentially arable land is located.

International agribusiness firms such as Cargill and Archer Daniels Midland have helped in the marketing of grains, and European conglomerates are involved in the distribution of dairy products. Brazilian agribusiness firms have grown significantly in recent years particularly in the poultry and beef sectors. Yet, weak law enforcement, poor market over-sight institutions, and unreliable contract compliance constitute the biggest internal challenges Brazil faces according to The Economist.

Incidentally, Brazil's cattle industry has recently suffered an outbreak of Foot and Mouth disease (FMD). Brazil has struggled to eradicate FMD and has elected to vaccinate animals rather than destroy animals suspected of exposure on farms and ranches.

External to Brazil are the challenges posed by barriers to trade and countries that subsidize their own agricultural production. The pulling-down of impediments to trade will help Brazil export more of its agricultural bounty. Trade barriers such as tariffs and import quotas will not quell Brazil's natural advantage in producing food. The growing prosperity of countries like China and India represents a vast reservoir of potential consumers. As the buying power of these consumers increases, market forces will exert a powerful pull for Brazilian agricultural products. What does this mean for the Virginia? In the past, Brazilian soybeans entering the U.S. through Norfolk effectively lowered the cost of feeding Virginia poultry and swine. Now, Brazil is quickly emerging as a serious competitor for international customers that buy U.S. (i.e. Virginia) poultry and pork. Trade barriers may protect certain sectors of U.S. agriculture, but these barriers will hinder our ability to sell our products to the foreign customers courted by Brazil. Brazil's growing position as "The" low-cost producer means that savvy marketing and attention to quality will be more important for Virginia agricultural products. Producers of undifferentiated bulk commodities may have difficulty competing with imports from Brazil. High quality, source verified beef cattle, fluid milk, and fresh vegetables all may find advantage over anything that Brazil could offer East Coast U.S. consumers. The face of the Virginia agriculture is rapidly changing. The market-savvy farmer who can control costs and effectively market a high quality product still has the potential to prosper in the years ahead.

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