AGRICULTURE-BRAZIL: Output Down, Exports Up

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Aug 2 2005 (IPS) - Brazil’s agricultural boom seems to have lost steam this year, with a 5.7 percent decrease in grain production and a significant drop in revenues, although exports have continued to rise.

This year’s harvest of cereals, legumes and oilseeds will amount to around 112.4 million tons, according to the latest Ministry of Agriculture projections. In 2004, output totalled 119 million tons, which reflected a 43.5 percent increase compared with the year 2000.

Even worse, total revenues in the sector will be down 14.6 percent from last year, based on forecasts of 11.7 billion dollars in revenues made by the National Agriculture and Stockbreeding Confederation (CAN).

Before planting season began near the end of last year, it had been predicted that agricultural production would grow by around 10 percent in Brazil, which has become one of the world’s major agro-export powers.

But these expectations were dashed by a severe drought in southern Brazil and falling world market prices for some of the country’s crops.

Nevertheless, according to Homero Pereira, vice president of the CNA, the factor that has done the most damage to the sector is the Brazilian government’s "mistaken" monetary policy of high interest rates and the overvaluation of the real, the local currency.

Last year, farmers had to purchase or finance imported inputs like fertilisers and herbicides when the exchange rate stood at 3.10 reals to the dollar, and now they will have to sell their crops abroad at a rate of less than 2.50 to one, Pereira told IPS.

This 20 percent difference translates into high production costs combined with low sales revenues as a result of both the unfavourable exchange rate and a depressed world market, he noted.

This situation has had a direct impact on export agribusiness, especially soy farmers. Pereira heads up the large-scale farmers in the midwestern state of Mato Grosso, the country’s leading soy producing region.

The drought affecting the southern state of Rio Grande do Sul caused major losses in the local soy-growing industry, but this fact alone cannot account for the 18.2 percent drop in this year’s harvest. From 61.4 million tons in 2004, Brazil’s soy production is expected to fall to 50.2 million tons this year.

Farmers who grow corn, beans, rice and wheat for the domestic market are also suffering the effects of the government’s economic policies, such as the loss of buying power on the part of the local population, Pereira maintained.

Faced with the difficulties created by this combination of factors – the rise in the real, the drought and low world market prices – the large-scale producers represented by the CNA organised a "tractor march" last month, with around 20,000 farmers descending on Brasilia on 2,000 tractors and other farm vehicles.

Their calls for assistance led to government promises of an additional three billion reals (1.2 billion dollars) in credits, the restructuring of current debts, and mechanisms to provide insurance coverage.

As far as Pereira is concerned, this aid package is "insufficient," but will at least allow farmers to overcome the current slump.

Agriculture is "a special activity all over the world," subject to uncontrollable factors like climate and price fluctuations, which makes some form of insurance crucial, he said.

In Brazil, he added, agriculture is the "most competitive" sector of the economy and largely responsible for the country’s large trade surplus.

The sowing season for next year’s crops will begin in October, but it will be hampered by the fact that farmers are in debt and thus unable to expand their investments. In Mato Grosso, the area planted in soy will shrink by 10 percent, producers predict.

The most that can be hoped for is a return to last year’s total grain output of 119 million tons, said Pereira, although Agriculture Minister Roberto Rodrigues is more optimistic, and has forecast production of 125 million tons.

A small amount of aid to the sector at the beginning of the year would have prevented a great many losses that are now inevitable, the minister acknowledged.

But in spite of everything, agricultural exports continued to grow during the first half of this year, totalling 20.2 billion dollars, which is 9.2 percent more than during the same period last year.

However, in the first half of 2004, exports were up a whopping 35.8 percent over the previous year.

The heavy losses in soy, Brazil’s leading export crop, have been compensated by an increase in exports of meat, sugar cane alcohol, sugar, coffee and orange juice.

The southern state of Sao Paulo reaped the benefits as the leading exporter of sugar cane derivatives and citrus fruits, a fact that further heightened regional inequalities, since it is already the country’s wealthiest state.