Although the United States is often described as the world’s lone superpower, former Secretary of State Colin Powell described Brazil as “an agricultural superpower” during a visit last October.
Farm sales abroad account for 40% of Brazil’s total exports, but what Brazil sends may surprise you. Long known for products such as sugar and coffee, Brazilian farmers have diversified the crops they grow. Brazil is now the world’s largest exporter of beef, chickens, orange juice, sugar, coffee and tobacco.
American farmers are beginning to take notice. In the past six months, delegations from the American Farm Bureau and the National Farmers Union have traveled to Brazil to assess the competition. Some American and European farmers are even choosing to buy land in Brazil and start producing there.
Ron Gaskill, director of Congressional Relations for International Trade at the American Farm Bureau in Washington, says Brazil’s temperate climate and vast tracts of unused, arable land make the country a very attractive place to set up production. According to Mr. Gaskill, American farmers see great opportunity in Brazil as well as certain competitive threats.
“I would say more than concerned that members of the American Farm Bureau and the agricultural community of the United States are interested in what’s going on in Brazil," he says. "Brazil has come onto the world scene as this new entity and it is flexing some muscle. And unlike a lot of other developing nations Brazil has the muscle to flex.”
One way Brazil has flexed its muscle is by challenging U.S. and European Union farm subsidies, which they say hurt producers in developing countries. The World Trade Organization has ruled in favor of Brazil’s challenge to U.S. cotton subsidies and E.U. sugar subsidies, although both cases are on appeal.
European and American farmers increasingly rely on government subsidies to compete with Brazil. If the WTO rulings stand, Brazilian farmers are likely to make further gains.
“I think if you look at present trends, it makes it very likely that Brazil will pass the United States as the largest food exporterl,” says G. Edward Schuh, director of the Center for International Economic Policy at the University of Minnesota. Mr. Schuh says there are several factors behind Brazil’s farm boom, including an overhaul of its basic economic policies and improvements in infrastructure.
“The third thing in the case of Brazil is that their investment in agricultural research – and it was very significant -- has begun to pay off," he says. "And a lot of this increase in output that they’re getting is coming because they’ve learned how to use tropical soils. This is the first country in the world that has learned how to use the tropical soils, which in Brazil’s case are called the cerrados.”
Brazil’s tropical savannah is larger than the American grain belt, but for years many thought the land was not suited to farming. However, advances in agricultural research, including soil enrichment techniques, make it highly productive.
Many of the new Brazilian farming techniques are the product of the Brazilian Enterprise for Agricultural and Livestock Research, or Embrapa. Pedro De Camargo, Brazil’s former Secretary of Agriculture Production and Trade, says Embrapa’s research has been invaluable. He also credits the Brazilian government for taking other steps to improve farmers’ competitiveness.
“I think in the past 15 years Brazil corrected some major errors it used to make," he says. "For example, we had an export tax. So it made us less competitive. No developed country has an export tax. Brazil had one and eliminated it.”
According to Mr. De Camargo, while Brazil has corrected a lot of structural errors, work remains to be done in strengthening the country’s infrastructure and reforming the tax system.
“We have a lot to be done on infrastructure. We started, let’s say, with our ports. We haven’t even started on roads," he says. "There is a lot to do. We still have a tax structure that is very inefficient. Our tax burden is high and inefficient. We have to improve the way we tax our economy. We still have extremely high interest rates, which is a burden on local production. We have to improve our interest rates. There are many points we can improve and I believe will improve in the future.”
American and European farmers are betting on that.