Agriculture Is Brazils One Bright

Spot
Record soybean crop leads strong farm performances to make
sector the only one growing in country mired in recession and
political uncertainty

Soybeans being harvested in February at a farm near Itapetininga, Brazil. This years
yield is expected to break records. Photo: Paulo Fridman/Bloomberg News
By Jeffrey T. Lewis
April 8, 2016 7:12 p.m. ET

SO PAULOA deep recession, political chaos and a Zika virus epidemic have brought
Brazil low, but the country is still a world-beater in one respect: agriculture.
Brazils crop agency, Conab, said Thursday it expects a record soybean crop this year
and a corn crop close to a record. The countrys farmers look set to produce record
crops of coffee and sugar cane as well this year, while cattle ranchers and chicken and
hog farmers foresee reaching new heights for exports.
Given the outlook that Brazils economy will contract by 3.7% this year, after shrinking
at its fastest pace in 35 years in 2015, the countrys bountiful harvests, plentiful
chickens and fattened cows are a rare bright spot.

Agriculture was the only sector of Brazils economy to expand last year, by 1.8%, while
overall gross domestic product shrank 3.8%.
The whole world has to eat and Brazil makes its living from agriculture, said
Edimilson Calegari, head of the Cooabriel coffee cooperative in the southeastern state
of Espirito Santo. Our farms and ranches are what have kept our economy going
during these bad years.
The Brazilian currencys steep drop last yeara 30% slide against the dollarboosted
exports and more than made up for declines in commodities prices. That has helped
generate foreign-currency reserves and reduce Brazils current-account deficit.
Forecasts of Brazilian bumper crops this year might normally be expected to depress
global commodity prices, leading to smaller incomes for farmers in South Americas
largest nation.
But so far prices for soybeans, sugar and Arabica coffee have all headed higher this
year, due to a variety of factors including weather concerns in other commodity
producing nations.
Brazils currency has made gains against the dollar recently; it is up about 10% since
Jan. 22. But with an eye to helping exporters, the nations central bank has been
intervening in the currency market, with the goal, traders say, of keeping the real from
strengthening much beyond 3.60 to the dollar.
That is good news for Brazilian farmers, whose products continue to undercut their
counterparts in the U.S. and Europe.
Brazil became a lot more competitive last year because of the weaker real, and that
really pushed exports up and boosted farmers incomes, said Natlia Orlovicin, an
analyst at INTL FCStone.
Agriculture offers a rare example of a Brazilian sector that is globally competitive. The
countrys largely inefficient manufacturers are still heavily protected by tariffs and
import taxes, but the government took the opposite approach with agriculture.

Starting in the 1990s, it reduced subsidies and eliminated export taxes while
increasing investment in agricultural research. Farmers responded with a rapid
expansion of the area under cultivation and a burst of investment that made them
among the most productive and efficient producers in the world.
Agricultures clout in Brazils economy was highlighted this year when the government
of President Dilma Rousseff floated a proposal to reimpose a tax on agricultural
exports to help close a massive budget gap.
The countrys influential agricultural lobby, the CNA, quickly condemned the proposal.
The groups former president, rancher and current Agriculture Minister Katia Abreu,
also joined in to criticize the move, which appears to have died a quiet death.
Just a few years ago, when commodities prices were high and China was vacuuming
up Brazils iron ore by the boatload, that commodity was Brazils export king. The value
of the countrys iron-ore sales abroad reached a record $41.8 billion in 2011, but
plummeted to $14.1 billion last year.
Meanwhile, the value of soybean and soybean-product exports went from $23.9 billion
in 2011 to $31.3 billion in 2014. Even as sales retreated to $27.9 billion last year,
soybeans still dethroned iron ore as the countrys most valuable export.
Soy products are the locomotive of Brazils agricultural sector, said Endrigo Dalcin,
president of soy-growers association Aprosoja Mato Grosso. Its what saved our trade
balance last year, and this year I think were going to set a new record for exports.
While agriculture remains a bright spot in Brazils economy, plenty of challenges
remain. Among the biggest are inadequate roads, a dearth of rail lines and strapped
ports, hampering the flow of farm products to market.
The cost of moving soy from the grain belt in Brazils the interior state of Mato Grosso
to the port of Santos in So Paulo state is close to four times what it costs a farmer in
Illinois to get his soy crop to New Orleans, according to Aprosoja Mato Grosso.
While the weak real is spurring exports, the government hasnt done enough to help
the agriculture sector and the rest of the economy, said Mario Lanznaster, 75, who
raises hogs and sells about 36,000 each year from his farms around Chapec, in the
state of Santa Catarina.
He would like the government to build a rail line to help bring corn grown deep in the
countrys interior to hog and chicken farmers in his state on the coast south of So
Paulo. That would cut the cost of feed, he said, and help make pork even cheaper, in
Brazil and abroad.
Theres no doubt that the weak real helps us, makes us more competitive, he said.
But Brazilians have to eat too. We need to get the economy going again, create more
jobs so people here can eat more and better.

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