Always a promise
Natural resources, natural resources… Abundant soil and water and adequate climate; all of the factors helped to place Brazil as one of the main breadbaskets of the world. An extension of 851 million hectares places the neighboring country in the 5° place in the ranking of countries according to its surface. Nevertheless, it is the nature of the land that puts it as a great agricultural producer. According to MAPA (Ministry of Agriculture, Livestock and Food of Brazil), this extension is composed of 420 million hectares of the Amazon biome, 60 M ha covered by crops, 173 M ha covered by pastures and 6 M ha by forest plantations.
Fulfilling a promise
However, just in the span of the last 20 years, Brazil begins to take off and asserts itself as one of the world's leading breadbasket. The clearest measure of this phenomenon is the increase in Brazil real productivity and comparing 1960-2013 evolution of total factor productivity (TFP) with that of other countries or regions. The chart N° 1 shows the evolution of this variable according to the monitoring of the International Agricultural Productivity published by the USDA (US Department of Agriculture). Although there are several works on the subject with different approaches, it is preferable to take one that applies the same methodology for all countries and considers the production of all crops and livestock commodities.
Just take a look to Brazil and China evolution of TFP, opening the gap against a country like the USA; or to Argentina, which shows a development that is below the average for South America as a region.
The Brazilian agricultural sector went through several stages. In many of them, their agriculture was labeled as inefficient or slow in the incorporation of technology. This characterization was largely due to the greater emphasis of public policies on industrialization to the detriment of the rural sector. By the 1960s, Brazil began to recognize that low productivity and resistance to technological and political changes conspired against the growth and development of the Brazilian economy as a whole. It was followed by several phases of public intervention policies of dissimilar nature, with positive results for some products and negative for others. By the end of the 1990s, productivity gains had been recorded, albeit modest, so that policymakers perceived the need for deeper reforms.
In the present century, there was a radical change and innovation and efficiency were such that Brazil experienced the most pronounced growth of its real productivity, which far exceeded the mere processes of incorporation of new lands and work. Many argue that "the seed was sown" in the 1970s, when the implementation of strong – and relatively sustained – policies that favored agricultural research occurred. The core of these policies was in the affirmation of a national system of agricultural research, with a network of federal, state and academic research units, and whose center has been the Embrapa (Empresa Brasileira de Pesquisa Agropecuária). For some researchers, "the seed bore fruit" in the mid-1990s, when the appropriate institutional framework allowed the private sector to clear up uncertainty, invest and innovate. What do we mean by the right institutional framework? We refer to the one with economic stability, more predictable social and economic public policies and the removal of those public intervention measures of burdensome effect for the rural sector, which aimed more at macroeconomic objectives (control of the inflation or entry of currencies) than to the sectorial ones.
For the world, Brazil is indeed one of the largest breadbaskets in the international arena. While trade in all its products accounts for 1.4% of global trade, agriculture is around 7% of the world agricultural trade. The dependence of importers on certain Brazilian products can be verified with only observing table N° 1. Beyond the first places occupied in the world suppliers ranking of poultry, sugar, coffee or soya, it is striking the level of participation in the trade of those commodities. It is also noteworthy the increase experienced in the participation of the global trade of several of these products in the term of twenty years.
From de point of view of Brazil, 221 million tons of grain production, 43 million tons of fruit and 27 million tons of meat, contribute to a large extent that the agribusiness sector represents 21% of the nation's gross domestic product (GDP). According to calculations made by Conab (Companhia Nacional de Abastecimento) and ECE (Centro de Estudos Avançados em Economia Aplicada, Escola Superior de Agronomia “Luiz de Queiroz”, Universidad de San Pablo), 37% of the jobs respond directly and indirectly to this sector.
The growing relevance of the external market for Brazil's productive success is easily perceived by looking at the trade balance figures. Nearly 85 billion of US dollars exports belonged to the agribusiness sector during 2016 calendar year while Brazil’s total exports amounted to 185 billion dollars. On the other hand, the favorable agribusiness trade balance compensated the unfavourable trade balance of the remaining sectors. In 2016, the foreign trade balance was positive in 47.7 billion dollars, mostly thanks to the agribusiness positive trade balance of 71.3 billion dollars. This is easily appreciated in the graph N° 2.
There is no doubt that the increase of real productivity in Brazilian agricultural sector was encouraged by the greater external demand. But the higher international market prices alone are not enough to respond with increasing productivity. If it were so, Argentina would have experienced a similar phenomenon because it produces the same as Brazil and the strengths in natural resources are relatively equivalent. However, as can easily be seen in the graph N° 1, it did not happen. The keys are several, but they could focus on a major long-term commitment to technological research and innovation, and in an environment of macroeconomic and political stability, with the removal of intervention measures or trade barriers for the agribusiness sector, along with the implementation of other support measures (mostly devoted to risk management, insurance, financing, etc.).
Although Brazil is suffering the effects of an economic and political crisis in the more recent years, while the growth of international demand slowed down, the evolution of the neighboring country since the 1970s to the present allows to draw a few very interesting lessons. Although countries have substantial differences between each other, the idiosyncrasy being a no minor detail, it is worth investigating those who have succeeded where others do not.