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ECONOMIC & COMMERCIAL REPORT

Number 03 | January 2013 Embassy of India Brasília

Agriculture


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Economic and Commercial Report


Index Editorial Board Economic and Commercial Report Number 01 November 2012

Published by Embassy of India Brasília SHIS QL 08 conjunto 08 casa 01 - Lago Sul Brasília-DF

04 Brazilian Economy 12 Focus Story: REal-ity Check 14 2012 at a Glance

Editor: Raj Srivastava Texts: Yatin Patel Layout: Hadassah Levyski

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BRAZILIAN ECONOMY

T

New highway auctions in Brazil

he first phase of the auction for some

(DF/GO/MG) 1,177 Km; 6) BR163/262/267

7,500 Km of federal highways (seven

(MS) 1,423 Km; and 7) BR163 (MT) 822 Km.

parcels)

for

private

concessions

Another auction is planned for April for 5,700

(toll roads) will be held on 30th January. Six

Km of federal highways. This auction will also

competing groups : CCR, Odebrecht, Invepar,

have some “new rules” - the bidders must have

Ecovias, Triunfo and Acciona. Some “new rules”

net assets of between R$ 40 million and R$ 870

will be part of this process: 1) if the lines of

million depending on the parcel – to impede that

vehicles at toll stations exceed 200 meters or

mid-sized firms assume several concessions.

if takes longer than 15 minutes to go through

The case in point was in 2007 when the Spanish

a toll station – these toll stations would have

firm OHL (alone and not in a consortium) won

to be “opened” (no tolls collected). The seven

five of the seven concessions up for bid and

parcels are 1) BR101 (Bahia) 772 Km; 2) BR262

was unable to perform the needed investments

(MG/ES) 377 Km; 3) BR50 (MG/GO) 426 Km; and had to “sell out” to a larger firm - Abertis.  4) BR153 (GO/TO) 814 Km; 5) BR060/153/262

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BRAZILIAN ECONOMY

11th Round of Oil & Gas Blocks Auctions

B

razilian

Agency

responsible

for

was published on 11th January – 120 days

auctioning of oil/gas blocks (ANP) now

before the auction is to take place. Of these

plans to hold its 11th round of auction

blocks, 87 are on-shore and 85 are off-shore.

for 172 blocks of oil/gas exploration in mid-May

The last auction was in 2008 and the same “local

2012. To this end, a detailed map of these areas

content” rules will apply in this 11th round. 

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BRAZILIAN ECONOMY

Amazon Starts Brazil Operations

A

mazon.comAmazon.com

and

R$299 (US$140), ending months of speculation

Google Inc both opened their digital

that it could arrive by acquiring a major

bookstores in Brazil on Dec. 6,

competitor. Brazil’s biggest bookstore chain,

hot on the heels of e-book offerings by local

Saraiva, is trying to sell its online busi¬ness.

booksellers in a fast-growing online retail market.

In Brazil, the Kindle will take on Samsung

The simultaneous introduction of the

and Apple tablets that often cost as much as

two

services

wide-open

twice their U.S. retail prices due to import tariffs,

nature of Brazil’s US$12 billion e-commerce

steep taxes and inflated local produc¬tion costs..

market. a

highlighted

Low

swelling

Internet

middle

the

Inc

penetration

class

have

and

spurred

bets on strong growth for years to come. Amazon will begin selling its Kindle e-book reader in Brazil in coming weeks for

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The offer

rival

e-books

computers Google’s

and

Google and

Play

service

will

movie

rentals

on

mobile

Android

devices

operating

running system.


BRAZILIAN ECONOMY

Bullet Train

T

he government released the terms for a

Total

Sept. 19 auction in which a concession

at R$7.7 billion (US$3.7 billion) with the

to operate a bullet train running from

government’s

Campinas to São Paulo to Rio de Janeiro will be sold. The

Development

Bank

(BNDES) providing 70% of the financing.

the group that will construct the track with costs

supplying the technology and the equipment.

estimated at R$27 billion (US$13 billion).

to

operate

capture

estimated

train,

concession

will

National

been

A second auction will be held to choose

I

bidder

have

a

40-year

winning

investments

the

Spain’s OHL Sells Brazil Assets

The Spanish logistics firm OHL sold its

Abertis-Brookfield

assets in Brazil and Chile to Spain’s

the Span¬ish firm holds a 51% stake. 

Abertis

and

Canada’s

joint

venture

in

which

Brookfield.

Starting in 2007, OHL has captured

operating concessions for five federal highways and four state highways in the state of São Paulo, totaling 3,226 kilometers (2,004 miles). These will now be controlled by the

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BRAZILIAN ECONOMY

P

Airports of Rio and Belo Horizonte to be Privatized

resident Dilma Rousseff on Dec.

State company Infraero will have a 49%

20 announced that airports in Rio

stake in the new airport operators, the same

de Janeiro and Belo Horizonte will

condition that was established for the February

be privatized at a September 2013 auction.

privatizations despite Infraero’s poor reputa¬tion

“International airports

are

experience

good

shows

business,”

that as the current operator of Brazil’s largest airports.

Rousseff

Civil Aviation Minister Wagner Bittencourt

said, recall¬ing that last February, 20-year

said the new operators will have to invest US$5.7

concessions were granted to manage three

billion through the life of their concessions: US$3.3

airports, two in São Paulo and one in Brasília.

billion for Rio’s Tom Jobim airport and US$2.4

Rousseff said Thursday that any private

billion for Belo Horizonte’s Confins airport. The

entities participating in the September auctions

rules for the public tender will be announced inApril.

will have to include at least one international partner “with experience in running an airport

Bittencourt

also

announced

that

the

government is creating a new state company,

handling at least 35 million passengers a year.” Infraero Serviços, whose function will be to develop This operator must have “at least a

regional airports. In an initial phase, the government

25% stake” in the consortium. Companies

plans to invest US$3.6 billion to modernize

with majority stakes in the operations of the

270 small airports. The longer term objective

three airports already privatized will not be

is to upgrade 689 public airports, he added.

allowed to take part in next year’s auction.

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BRAZILIAN ECONOMY

Seven Countries Now Ban Brazil Beef

T

aiwan, South Korea, Saudi Arabia and

China

Pereira, Secretary for Animal and Plant Health,

and South Africa who had already

after a meeting at the World Organization forAnimal

an¬nounced

Egypt

joined

suspensions

of

Japan,

“March is the deadline,” said Enio Marques

imports

after Health (OIE) headquarters in Paris on Friday.

it was learned that a cow in the southern

Brazilian officials have insisted that the

state of Paraná in 2010 had died with the

disease never appeared in the cow but the country’s

protein believed to cause mad cow disease.

delay in reporting the case has raised suspicions.

Government

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The seven countries that have suspended

warned these countries that they have until

imports account for 15% of Brazil’s beef exports

March to lift their bans or else Brazil will file a

but in the case of Egypt, the suspension applied

complaint at the World Trade Organization.

only to beef from Paraná, responsible for a small

According

portion of Egypt’s beef imports from Brazil.

to

officials

Agriculture

on

Ministry

Dec.

officials,

these countries have no grounds for their bans.

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BRAZILIAN ECONOMY

A

Only 39% of Brazilians Have Financial Investments

ccording

have

conducted

the total reached 52% but for classes C and

by the Federal University of Minas

D it dropped to 29%. Among persons with

Gerais,

investments, the preferred investment was savings

financial

to

a

only

survey

39%

investments

of of

Brazilians any

kind.

accounts, accounting for 27% of the total.

For the higher income classes A and B,

Brazil Ranks 69th in Corruption Survey

T

ransparency

Dec.

impossible to compare the results with past years.

5 released its annual perception of

Among Latin American nations, Brail trailed

corruption

International

among

176

on

countries.

Chile, Uruguay, Puerto Rico, Costa Rica and

Brazil was ranked 69th, an apparent

Cuba. Among the BRICS nations, Brazil and

improvement from its 73rd position in 2011. But

South Africa were tied with the best rankings.

this year TI altered its methodology, making it

Education Investments Were 5.3% of GDP in 2011

A

ccording to the Ministry of Education,

its goal of investments equal to 10% of

the public sector in 2011 invested an

GDP by 2022 set by the National Education

amount equal to 5.3% of gross domestic

Plan.

At

the

current

pace,

investments

product in education.This was up from 5.1% in 2010. in ten years will total only 8% of GDP. The government, however, is far from

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2013

26 January

Happy Republic Day

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Agriculture in Brazil Agri-Gulliver in Lilliput

the agribusiness share reaching 23 percent. In

In the era of building the economic strength 2009, agriculture accounted for 19.3 percent on the pillar of Industrial production, Brazil´s of the labor force, or 19 million people, thus agricultural muscles bring quite an impressive strongly contributing to poverty reduction. diversity which is as pleasant as the one in the Agribusiness employment accounted for 2.7 Amazon jungle. Brazil ranks third among the percent of the labor force. world’s major agricultural exporters and fourth

It is no surprise that Brazil is today the

for food products. By cultivating agricultural world’s largest producer and exporter of a and oil resources, Brazil also ranks second wide range of products: soybean, coffee, cane worldwide for bioethanol production.

sugar, orange juice, meat and tobacco. In spite

This quasi-miracle has few important of weak governmental support to producers as factors in its base. Brazil has largest arable but compared with OECD countries, and a domestic yet to be utilized land reserve, strong exporting consumption that captures 79 percent of agricultural activities, radical economic reforms agricultural production, agribusiness accounts and an aggressive trade and influence policy. for over 38 percent of Brazil’s exports, and a Because of this, agriculture is still a driving $77.5 billion trade surplus in 2011, while the force of the Brazilian economy with 5.8 percent country was still a net importer of agricultural of GDP (against 2 percent in France), and with goods in the 1970s. In fact, agriculture has been

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stability through currency flows on one hand, and development of single-crop farming, and on the other, its contribution to energy together with man-made enhancement of soils security with bioethanol development.

through pastureland expansion and irrigation,

FOCUS STORY

a strong factor in the country’s macroeconomic country’s inland regions. The specialization

A significant expansion of credit and the have bolstered economic growth. Today, five simplification of the tax system, combined with commodities (soybean, sugar, meat, corn and a social policy for the underprivileged sections milk) account for 68 percent of the total national of the population under the Lula presidency agricultural production value, with soybean and (2003-10) strongly helped companies, spurred related products making up 38.7 percent of investment and boosted domestic consumption. Brazilian agribusiness exports. It is interesting Still

impacted

by

financial

crises, to note the factors which is turning Brazil into

agriculture’s growth has accelerated starting Gulliver when rest of the world is Lilliput as it is in 2003, partly thanks to a productivity model struggling to gain agri-productivity. based on high mechanization, improved concentration and significant labor force

social conflicts linked to land overcrowding

Policy changes

and colonization of new production areas,

Agricultural policy goals and programs

reserves. Encouraged to move away from

investment in agricultural research boosted in Brazil have changed significantly. The crop productivity by over 151 percent in 30 period between the mid 1960s to early 1980s years.

was characterized by massive government

In the framework of the ambitious intervention in agricultural commodity markets Growth Acceleration Program (PAC) launched primarily by means of subsidized rural credit in 2007, followed by a second program and price support mechanisms, including phase, investments in infrastructure should government purchases and storage of excess also advance agriculture, which has been supply. At that time, the agricultural sector in long penalized in terms of logistics in the Brazil was in general not competitive (except

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in tropical products such as coffee and sugar), poverty. This shift in agricultural policy goals is and was characterized by highly skewed reflected in government expenditures in a new distributions of farm income and land ownership focus area called the “agrarian organization”. with large, unproductive landholdings known Agrarian organization programs are primarily as “latifundios.” It was in the 1960s and 1970s related to land reform. Approximately 500,000 that the country started to urbanize as many new family farms were settled in expropriated rural poor migrated to large cities. During this land. In addition to land reform, the government period, agricultural policy had the objective adopted a set of policies targeted to “family of promoting food security of an increasingly agriculture” in 1995 - known as PRONAF urban population, while compensating the including subsidized credit lines, capacity agricultural sector for the anti-export bias of the building, research, and extension services. import substitution model that was common in developing countries at the time.

Interestingly

enough,

the

Brazilian

government created a new ministry in 2000 to

The debt crisis of the late 1980s forced run programs targeted to family farms and land the

Brazilian

government

to

decrease reform - the Ministry of Agrarian Development

support to farmers. But significant changes (MDA). Brazil is probably the only country in in agricultural policy goals were introduced in the world with two ministries of agriculture. 1995, which shifted priority to land reform and This reflects a supposed duality of farming in family farming in an attempt to alleviate rural the country - related to the skewed distribution of rural income and land ownership - and the misleading perception that agribusiness development necessarily leads to small farmer exclusion. According to the 1995 Census of Agriculture, farms with less than 10 hectares (24.7 acres) represent 49.7% of all farms in the country and hold 2.2% of all landholdings. With more than 500 hectares (1,235 acres), the largest farms represent only 2.2% of all farms, but own 56.5% of all landholdings. Federal government expenditures on agrarian organization programs increased from 6% in the Sarney administration to 45%

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Lula administration which started showing results.

Modernization Fostered by rising incomes, urbanization, economic

liberalization,

and

access

to

competitive raw materials, multinational food

The Brazilian government created a new ministry in 2000 to run programs targeted to family farms and land reform - the Ministry of Agrarian Development (MDA).

FOCUS STORY

of total expenditures on farm programs in the

processors and retailers entered or increased their investments in the Brazilian market during controlled by two French supermarket chains the 1990s. Increased foreign direct investment (Casino and Carrefour) and one US-based (FDI) by large, private agribusinesses in Brazil company (Wal-Mart), with a combined market displaced domestic competitors, increased share of 39%. industry concentration, and eliminated many

Concomitant to these structural changes

medium and small companies. As a result, in the post-farm gate stages of the agrithe market share of multinational corporations food system, agricultural production also in the domestic food market increased. For modernized and became increasingly capital instance, Brazilian affiliates of multinational intensive and integrated with upstream and agri-food companies generated 137,000 jobs, downstream supply chain participants. Tightly almost US$5 billion in exports, and sales of coordinated agri-food supply chains have been US$17 billion in 2000. Given the total value developed by the private sector - in particular, of food industry shipments in Brazil of US$58 large multinational food processors, fast-food billion, the aggregate market share of foreign restaurant chains and retailers - to cater to companies reached 30% in 2000. Among the increasingly differentiated domestic and export top ten food processors in the country, eight are markets. It must be noted that farmers in Brazil multinational firms with foreign headquarters. are increasingly exposed to markets that are Recent official data show that FDI inflow in the much more demanding in terms of food quality Brazilian agri-food processing industry totaled and safety, more concentrated and vertically US$8.2 billion between 2001 and 2004. The coordinated, and more open to international top-three food retailers in the country are now competition. www.indianembassy.org.br

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Research in full throttle Agricultural research is not new in Brazil. It began to take shape in the mid-1970s, when government launched Embrapa, a research institute that now exports its expertise in tropical agriculture to countries in Africa and Asia. Over the last 10 years the arrival of the genetically modified grains and growing investment in farm mechanisation laid the groundwork for the current boom. Brazil’s agriculture fulfils the country’s needs in almost all sectors - with wheat being the only significant import. “The research in tropical agriculture in Brazil is really impressive. Productivity has been increasing a lot and the country is diversifying its output,” Says Dr Guilherme Dias, professor of rural economy in the University of Sao Paulo.But with domestic markets growing at a slower pace than the output, the only way for producers is to look abroad.

Rise of Machines A growing number of farms in Brazil are becoming mechanised. According to industry data, sales of farm machines in Brazil

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increased 52% in the first four months this year compared with the same period of 2009. The government has some programmes to boost the sales of tractors to small farmers and it seems to be going well. But lack of skill is still one issue to be solved. Cheap labour has played a great part in the development of Brazilian agriculture, but on the other side, a lack of qualified workers is hindering further growth. “The machinery we sell has quite a lot of technology on board. Sometimes it’s hard to find people with qualification to operate them,” says Walter van Halst, a reseller of farm machines in the town Ponta Grossa.

Tudo Bem Brazil shows a different way of striking a balance between farming and the environment. The country is accused of promoting agriculture by razing the Amazon forest. And it is true that there has been too much destructive farming there. But most of the revolution of the past 40 years has taken place in the cerrado, (Tropical savanna eco-region of Brazil) hundreds of miles away. Norman Borlaug, who is often called the father of the Green Revolution, said the best way to save the world’s imperiled ecosystems would be to grow so much food elsewhere that nobody would need to touch the natural wonders. Brazil shows that can be done.


FOCUS STORY www.indianembassy.org.br

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Renuka do Brasil

Renuka do Brasil is one of the 10 largest sugar/ethanol producing groups in Brazil, in business for more than 30 years. In the middle of 2010, Shree Renuka Sugars Limited acquired the controlling stake of the company. The installed milling capacity is of 10.5 million tons divided between Mill Madhu, in Promissao, and Mill Revati, in Brejo Alegre, both cities located in the state of Sao Paulo, the largest sugarcane producing region in the world. Among its principal products are: sugar, companies in Sao Paulo state in Southeast ethanol, bioelectricity, and yeast. Renuka Brazil. Facilities include two modern mills and do Brasil has an amply integrated structure, integrated co-generation capacity- Madhu controlling not just all the industrial processes, (Equipav, erstwhile) and Revati (Biopav, but also all the agricultural processes, such erstwhile). as planting, cultivation, harvesting, and cane transport.

RdB has a crushing capacity of 44,400 TCD or 10.5 million tons/yr to produce sugar

SRSL acquired RdB from Grupo Equipav which is sold in domestic as well as export on July 7, 2010 and holds currently 59.4% markets. Distillery has a capacity of 4,000 equity stake.

klpd to produce both hydrous and anhydrous

RdB is one of the largest sugar/ethanol ethanol for Flex-fuel cars as well as industrial

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needs. RdB generates 221 MW of exportable Ivai on 19th March, 2010. power. Owned cane plantations at RdB cover 78,000 hectares of land.

RVdI has two mills – São Pedro do Ivaí (PR) and Cambuí (PR) – in the state of Parana

SRSL acquired 100% of Renuka Vale do with surrounding own cane plantations on

28,000 hectares of land.

RVdI has a crushing capacity of 15,120

Proximity to ethanol distributors and the TCD or 3.1 million tons/yr to produce sugar for port of Paranagua (551 km) along with the domestic as well as export markets. Distillery stake in logistics companies and a port terminal has a capacity of 1,310 klpd to produce both ensures lower logistics and export costs.

hydrous and anhydrous ethanol.

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Real-ity Ch eck The year that has just gone started with

of US dollars from the country. Government

some bright promises for currency speculators in

was not in mode of intervention as long as

Brasil as they were buying Brazilian real at 1.833

rates prevailed in the range of 2.0 to 2.10.

against USD and were thinking that happy days

“We will continue working for a weak real

are to be here forever. Unfortunately for them no

to boost competitiveness of Brazilian firms,”

story gets finished in January. On 27th December,

Mantega told a group of business people in an

2012 Real was at 2.04 against USD and those

event on 29th August, which was also attended

speculators lost their banquet, if we believe

by President Dilma Rousseff. Tough talk from

Mr. Guido Mantega, finance minister of Brasil.

government

officials

and

currency-market

Extremely cheap borrowing rates in USA intervention by the central bank then kept the real

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and Europe enabled speculators to borrow money

trading between BRL2.00 and BRL2.10, a range

at dirt cheap rate and they used to pump it into

that the market perceived as being “comfortable”

Brazil into government bonds which generally

for the government, from July through November.

had really high rates. From sky-high rate, it was

But when Brazil reported weaker-than-

impossible for the government to pump money

expected economic growth in the third quarter,

in the market to stimulate the flagging economy.

chatter that the government would consider a

This brought sky-fall for those who earned their

weaker informal trading band between BRL2.10

bread-butter and Ferraris from speculation.

and BRL2.15 caused the market to test the

Brazil responded by implementing targeted

central bank’s resolve amid a pickup in dollar

capital controls, while the Brazilian Central

outflows. The bank remained on the sidelines

Bank moved to slash interest rates--from an

until the currency approached BRL2.14, when

August 2011 high of 12.5% to a record-low

the bank sold dollars into the spot market

7.25% in October 2012 which triggered outflow

Some traders, however, said they believe the

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Economic and Commercial Report


“In 2013, monetary policy should remain stable” Reginaldo Galhardo

“But the foreign-exchange rate has turned into a way to lower inflation, not increase economic activity.” Mr. Galhardo said he expects the real to trade between BRL2.00 and BRL2.10 to start 2013, but warned that the market shouldn’t be surprised if the currency trades below BRL2.00. Theory of relativity seems cakewalk in

real’s year-end weakness raised concerns at the

comparison of predicting currency market of

central bank about a spillover of inflation into 2013.

Brazil. So if we take a leaf from book of Mr.

Inflation is expected to end 2012 at 5.7%, above the

Mantega, we have heard this from him. “The

government’s 4.5% target but within the tolerance

currency war is not over, but I can say that we

band of plus or minus two percentage points.

are better positioned and we reversed a trend

“In 2013, monetary policy should remain

that was bad for Brazil, avoiding the inflow of

stable,”

said

Reginaldo

Galhardo,

foreign-

speculative capital.” 2013 will be all rock and roll.

exchange manager at Sao Paulo’s Treviso.

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namaste

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ECR JAN 2013