Page 1

OVERVIEW THE BRAZILIAN AGRIBUSINESS

BRAZIL: THE WORLD’S “SUPERMARKET”

O J U A R

A S O L R

CA CARLOS ARAUJO

1


São Paulo, Brazil, 2014

Graphic Design and Layout - Jeferson Tornisielo Translation - Antonio Bianchi Author of the article - Carlos Eduardo Gonçalves Araujo (ceduardo@mackensie.com.br / 55 19 3434 0134) Copyright - The partial or total reproduction of articles in this publication is permitted only with prior permission. Opinions expressed by interviewees or in signed articles are not the responsibility of CARLOS EDUARDO GONÇALVES ARAUJO and do not necessarily express his opinion.


OVERVIEW THE BRAZILIAN AGRIBUSINESS Brazil: The World’s “Supermarket” São Paulo, Brazil, 2014

Carlos Araujo


Carlos Araujo SUMMARY Executive with high academic level and strong backgound as Controller and CFO in Agribusiness, with full responsibility for the planning and leadership of the Corporate Finance. Executive “hands on” in global management in Brazil and US. .Expertise in cost management and operations planning at sugar cane industry. ACADEMIC BACKGROUND • Ph.D Production Engineer - Decision Making and Quantitative Modeling (in course) Universidade Metodista de Piracicaba; • MBA in Finance - IBMEC Business School; • Post graduated in Business Economy; • Escola de Economia, Finanças e Administração de São Paulo • Bachelor´s Degree in Economy, Planning and Economic Programming; • Faculdade de Tecnologia de Rio Claro INTERNATIONAL COURSES AND SPECIALIZATION • Finance – Stern Business School - New York University • Strategic Operations - Harvard Business School • Agribusiness - Harvard Business School • International Controller - USGAAP - Integração • International Trade - Universidade de São Paulo - USP • Business Management - Fundação Getúlio Vargas - FGV • Macroeconomy - Fundação Getúlio Vargas – FGV EXECUTIVE INTERNACIONAL TI Automotive – Controller – British Company Unifrax Brazil – Financial Manager - Controller - South América – USA Company ABC Group - Financial Manager – Canadian Company PROJECTS • Usaciga, Usina São Domingos, Odebrecht Agroindustrial, Usina Agreste, Dedini, SLC Agricola, Fermentec. • Invited Professor ESALQ-USP and PECEGE – ESALQ –USP. • Author of book: Costs Management- Productivity, Profit, Costs • Author of more 20 articles on agribusiness published.


MENU content

page

INTRODUCTION 1) LAND – AN ABUNDANT AND FERTILE RESOURCE FOR AGRICULTURAL PRODUCTION 2) SOYBEAN

9

3) CORN 4) SUGARCANE 5) MACHINERY AND AGRICULTURAL IMPLEMENTS 6) FERTILIZERS 7) CONCLUSION 8) REFERENCES

17 21

10 13

24 25 26 27


6

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


ABSTRACT In this review, I present an overview of the agribusiness growth in Brazil, a forecast of agricultural production in the period 2014-2023, as well as the challenges faced by the sector. I will give estimates of the following products: soybeans, corn, and sugarcane. I will also show the potential of arable lands in Brazil that are not yet explored, and maintain that these lands can be used profitably and sustainably. The growth of agribusiness in Brazil enabled the country to overcome the global crisis of 2007, underpinning the economic growth of recent years. Nevertheless, Brazil must develop a movement for reconstruction of the country with relevant investments in infrastructure (roads, ports, and airports) to optimize our exports. We also need silos for storing our growing agricultural production. Moreover, I will address the increased use of fertilizers and the massive use of agricultural mechanization that led Brazil to become a major global player in agriculture. I will present an economic analysis on production costs of ethanol from sugarcane vs. corn. The projections are based on Brazil’s macroeconomic variables such as GDP, inflation and exchange rate defined in the Government’s projections. An issue of high relevance for the Brazilian agribusiness that will be addressed in this review is the management process.

CARLOS ARAUJO

7


8

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


INTRODUCTION: The theory created by Thomas Robert Malthus (1766-1834), English economist and demographer, who earned the name “Malthusianism”, was the first theory to relate population growth with hunger that states population growth in geometric progression and food supply growth in arithmetic progression. The rapid expansion of population, climate changes, land degradation, and water resources should make the world more vulnerable to food insecurity, with the risk of not being able to feed the entire population until 2050, according to FAO (UN Agency for Food and Agriculture). In the next four decades, the world population must jump from 7 to 9 billion people and to feed them, an additional production of 1 billion tons of grain and 200 million tons of meat per year will be needed. Therefore, a study of projections of the Brazilian agribusiness addressing the main commodities (soybean, corn and sugarcane) was developed. For the projections, we used a methodology that consists of an analysis of historical series using statistical techniques to analyze time series classified as Exponential Smoothing, Box and Jenkins (ARIMA) and State Space. Firstly, the growth of agricultural production in Brazil is based on productivity growth, followed by the expansion of new agricultural frontiers – MAPITOBA (the states of Maranhão, Piauí, Tocantins and Bahia) and on the replacement of grazing areas, which will continue to have a significant growth to meet the global demand for meat. This growth is based on the total productivity of the factors (land, climate, labor, etc), according to recent studies of Fuglie, k., Wang, Sun, Ball, V., 2012. This study shows that the total productivity of the factors has increased more than 4.0% annually over the past few years. The results reveal greater increase in agricultural production than expansion of planted areas. Projections show that during 2013-2023, grain production may grow between 20.7- 34.3%, while cropped areas are expected to expand between 8.2-21%. This projection shows a typical example of productivity increase. The estimates until 2022/2023 indicate that the total planted area should increase from 68 million hectares in 2013 to 75.5 million, in 2023, an increase of 8.6 million hectares. This area expansion is mostly applied to soybean crops, more than 6.7 million hectares, and sugarcane, more than 2.2 million. The expansion of areas cropped with soybean and sugarcane is attributed to the incorporation of new areas and also to the replacement of other crops. Corn will have an area expansion of around 1.0 million hectares. The most significant area losses should occur for rice, beans, coffee and wheat. Corn is an activity with high potential of productivity; therefore, the production increase is achieved mainly through productivity gains. Brazil will have a significant growth in commodities exports in the next years. Moreover, the domestic market continues to be an important factor for agricultural growth due to the increase of household income observed in the last decade in Brazil. In 2022/2023, 51.0% of soybean production should be allocated to the domestic market, and 67.0% of corn production will be consumed domestically. There will be, thus, a double pressure to boost the Brazilian production, the growth of the domestic market and exports. Currently, 52.0% of soybean and 66.7% of corn produced are allocated to domestic consumption. There is a significant trend of Brazil’s increasing participation in the world trade of soybean, mainly, and Brazil’s share of soybean exports in 2022/2023 should reach 44.2% in global terms. Brazil will also keep its leadership position as the world’s largest sugar exporter.

CARLOS ARAUJO

9


1) Land – An Abundant and Fertile Resource for Agricultural Production Due to the performance of agriculture in recent decades, agricultural production in Brazil has kept a growth average rate of 4%, leading international agencies (FAO, WORLD BANK) to place Brazil as the largest food producer in the next decade. This confirms the significant growth potential for agricultural production in Brazil, due to a favorable climate that allows two or more crops per year, large arable areas to be explored, water availability, which begins to be a problem for some countries, and the high technology used by producers and agroindustry to meet a growing global demand for food. For some of the world’s leading producers, an increase of agricultural production does not depend only on resources or technology. Land availability is starting to pose a problem, and in countries like India, the limit has already been reached and others such as China, in addition to this limitation, shortage of water for agriculture is another hindrance. In Brazil, despite the problems of infrastructure and logistics in some traditional agricultural regions and new agricultural frontiers, it is estimated that there are 176 million hectares of arable land still available for agriculture. It means that Brazil can three-fold its current production of grains, jumping from 180 million tons to around 330 million tons. This volume, however, may be even greater, considering that 30% of 240 million hectares currently used for pastures can be incorporated to agricultural production. Agricultural production needs to grow more than the population increase in the world, particularly in Brazil. It needs to reach a rate of 1.5% per year to soften hunger and generate jobs and income to the population.

10

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


Brazil needs a real managerial revolution of its agribusiness production chains for an optimization in the use of production factors such as land, labor, machinery and agricultural implements, technology, and capital. The use of professional and technical assistance aimed at the use of new agricultural and industrial technologies coupled with modern agribusiness management software such as PIMS, national market leader for the planning and control of industrial operations, becomes an essential tool for an efficient and effective decisionmaking process. Agriculture has been constantly criticized by public policies; however, it allows increases in production, through productivity gains and the incorporation of areas of environmental sustainability, supplying enough food with quality to Brazilians, generating increase in exports and contributing to the Brazilian trade balance. In 2010, the Brazilian agribusiness accounted for 35% of the GDP. Currently, it accounts for 23%, generates 37% of the jobs and is the largest source of foreign currency in the country. The Brazilian agribusiness moves quickly to consolidate its position in the global market because of its rapid expansion. A relevant factor for Brazil to meet the global demand for food and energy is its fresh water reserves. Brazil has one of the largest, most diverse and extensive river networks around the world. The largest country in Latin America has the world’s largest fresh water reserves and has the highest water potential on Earth; about 13% of all fresh water of the planet is in the Brazilian territory.

EVALUATION OF PLANTED AREAS (Millions /ha)

47 43 38

1985/1986

1990/1991

68

50

38

2000/2001

2008/2009

2010/2011

2012/2013

Source: CONAB

Arable lands in Brazil in 2023 238 Million /ha - grains and pastures

CARLOS ARAUJO 26%

GRAINS

11


Arable lands in Brazil in 2023 238 Million /ha - grains and pastures

26%

GRAINS PASTURES AND OTHER CULTURES

74%

Source: CONAB

Grains Productions (Million/tons)

185

144 124

119

114

125

133

150

161

166

134

97

58

Year: 90/91

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

Source: CONAB

12

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


Grains Productions (Million/tons)

185

144 124

119

125

114

133

150

161

166

134

97

58

Year: 90/91

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

2) Soybean In the world, soybean is the main oil grain produced and its production is concentrated in Brazil, the USA, Argentina and China. Only after palm, soybean is the second source of raw material for cooking oil production. Its relevance is attributed to the fact that it is the main source of vegetable proteins used in feed formulation, essential for the meat production chain. Evolution of soybean production in Brazil (million/ha) 90.02 81.00 75.31

59%

57.17

38.43

48%

13.21

1985/1986

41%

15.39

1990/1991

2000/2001

2008/2009

2010/2011

2011/2012

2013/2014

Source: CONAB CARLOS ARAUJO

13


In 2012/2013, Brazil produced 73 million tons of soybean accounting for 31% of the world production and the 2022/2023 crop is estimated to amount 99 million tons. The potential of the Brazilian agriculture with abundant land and water allows Brazil to expand its production and consolidate as the world leader in food and energy supply. The discovery and exploration of shale gas in the United States and in Brazil will lead to a reduction in the short-term of biodiesel production from soybean. The average productivity of the 2013 crop was 3.4 tons per hectare. The average estimated - Productivity productivity for the next years is Soybeans 3.3 tons per hectare. - Kg/ha 3,400

Soybeans - Productivity - Kg/ha 2,751

2,629 2,751

3,115

3,400

3,115

24 % 4

2,629

24 % 4

5

74 %

1,369

5

74 %

1,580

1,580

1,369

1985/1986

1985/1986

1990/1991

1990/1991

2000/2001

2000/2001

2008/2009

2010/2011

2008/2009

2011/2012

2010/2011

2011/2012

Source: CONAB The average productivity of the 2013 crop was 3.4 tons per hectare. The average estimated productivity for the next years is 3.3 tons per hectare. The estimated soybean production for 2023 is 99.2 million tons. This volume represents an increase of 34% compared to the 2013 crop. Nevertheless, it is below the growth observed in the last 10 years in Brazil of 66.0% (Conab, 2013). Soybean Forecast - Effective Production - Million/tons

Projections of soybean planted area expansion show that the area should move from 27.7 EFFECTIVE PRODUCTION FORECAST 99,2 million ha in 2013 to 34.4 million in 2023, an increase of 6.7 million ha. 95,4 97,3 84,1 85,5

87,7 89,6

91,5 93,5

79,6

73,5 Soybean Forecast - Effective Production - Million/tons 67,1

EFFECTIVE PRODUCTION 61,7 49,0 36,1

45,3

46,8

50,2

53,4 53,7

FORECAST

51,6

39,7

84,1 85,5

91,5 93,5

87,7 89,6

95,4 97,3

99,2

79,6 73,5 67,1

14,8

61,7 49,0 Years: 90/91 36,1

00/01

45,3

53,4 53,7 51,6 50,2 46,802/03 03/04 04/05 05/06 06/07 07/08

01/02

08/09

09/10

10/11

11/12

13/14

14/15

15/16

16/17

17/18

18/19

19/20

20/21

21/22

22/23

39,7

14,8

Years: 90/91

00/01

01/02

02/03

03/04

04/05 05/06

06/07

07/08 08/09

09/10

10/11

11/12

13/14

14/15

15/16

16/17

17/18

18/19

19/20

20/21

21/22

22/23

Source : CONAB

14

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


The expansion of soybean production in Brazil will be linked to a combination of area expansion and productivity gains. In terms of production costs, the cost in the Rondonópolis region (Mato Grosso State), an increase of 27% considering a productivity of 2,500 kg/ha. The chart below shows the cost variation in the evaluated period. The cost of soybean seeds rose 17%, while the costs of fertilizers (macro and micronutrients) increased R$ 24% in the period. Costs of workforce moved up significantly in farming operations reaching 154%, due to the need for more applications of pesticides, which demanded more people working in the fields. (In this cost item, it was necessary greater herbicide application depending on the infestation of pests (caterpillars). SOYBEAN - PRODUCTION COST - Rondonópolis - MS

Cost management based on planning and on the standard cost methodology confers several points to effective The crop that is starting the harvesting may have negative Croop -cost US$/ reduction. ha 2013/2014 profit margins in reals (Brazilian currency); however, the devaluation of real toward the US dollar may grant gains to the grower. 225.43 1. Seeds, Fertilizers, etc SOYBEAN - PRODUCTION COST - Rondonópolis - MS 2. Machinery 32.29 A. Operations Cost 257.73 - US$/ ha 2013/2014 3.Croop Expenses 88.45 B. Variable Cost SOYBEAN - PRODUCTION COST346.17 - Rondonópolis C. Fixed Cost 97.58 225.43 1. Seeds, Fertilizers, etc 443.75 TOTAL Costs 2. Machinery 32.29 2013/2014 Croop - US$/ ha A. Operations Cost 257.73 3. Expenses 88.45 B. Variable Cost 346.17 C. Fixed Cost 97.58 225.43 1. Seeds, Fertilizers, etc 443.75 TOTAL Costs

- MS

2. Machinery 32.29 A. Operations Cost 257.73 3. Expenses 88.45 B. VARIABLE VariablePRODUCTION Cost COSTS OF SOYBEAN 346.17 PRODUCTION – C. Fixed Cost 97.58 568,96 443.75 US$/ha TOTAL Costs

productivity 2,500 kg/ha

518,50

Source: IMEA

473,86 VARIABLE PRODUCTION461,15 COSTS OF SOYBEAN PRODUCTION – productivity 2,500 kg/ha 432,65 568,96

US$/ha

518,50

473,86 461,15 432,65 106,98

92,19

74,27

105,81 69,71 VARIABLE PRODUCTION COSTS OF SOYBEAN PRODUCTION – productivity 2,500 kg/ha 2009/2010

568,96

2010/2011

2011/2012 1. Seeds, Fertilizers, etc

106,98

92,19

2012/2013

2013/2014

2. Machinery

US$/ha

518,50

74,27

105,81 69,71

Source: IMEA 2009/2010

2010/2011

2011/2012

1. Seeds, Fertilizers, etc 461,15

2012/2013

2013/2014

2. Machinery

432,65

CARLOS ARAUJO

15

473,86


Soybeans-Variable Costs US$/ acre Machinery

Seed, Fertilizers, etc

Soybeans-Variable Costs US$/ acre 202,85

Machinery

202,85 126,06

Seed, Fertilizers, 180,89 etc 155,65

180,89

154,00

163,44 156,52

155,65

154,00

163,44 156,52

107,58 126,06

55,80

46,76

80,70 57,70

48,50

46,76

84,70

80,70

72,70

107,58

84,70

80,70

72,70 55,80

2007

2008

2009

80,70 2010

57,70

2012

2011

2013

2014

48,50 Source: Iwoa State University – Ag. Decision Maker 2007

2008

2009

2010

2012

2011

2013

2014

Soybean -Total Costs % US$/acre 15%

Soybean -Total Costs % US$/acre 15%

52%

28%

52%

28%

5% Machinery

Seed, Fertilizers, etc

Labor

Land

5% Machinery

Seed, Fertilizers, etc

Labor

Land

Source : Iowa State University – Ag. Decision Maker

16

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


3) Corn The increase of corn production and the expansion of the corn market must be analyzed, preferably, from the perspective of the production chains or agroindustrial systems. Corn is raw material for the production of a hundred products, however, the production chain of swine and poultry consume approximately 70% of all the corn produced in the world and between 70-80% of the corn production in Brazil. Thus, for a better approach of the corn market, it is important to analyze data on corn production as well as corn production costs. Corn prices have a direct impact on other productive chains of agribusiness. The expansion of soybean planted areas led to an expansion of corn production to a commercial scale placing Brazil as one of the major players in the world. The corn planted area from the 2010/2011 to the 2013/2014 crop increased 1.62 thousand ha, generating 81 million tons of corn. Corn production in Brazil in 2013 amounted 81 million tons, and the 2022/23 crop is estimated to reach 92 million tons. Brazil accounts for slightly more than 9% of the world corn supply, and the production of around 81 million tons in the 2012/2013 crop meant an increase of 72% compared to ten years ago. In the same period, about 2.7 million ha were incorporated for corn cultivation, totaling 15.9 million ha. Much of that increase is due to the winter (second) corn crop, planted between January-February, after the harvesting of the first soybean crop.

CARLOS ARAUJO

17


Corn Planted Areas (million/ha) 15,82

15,42

14,76 13,00

13,80

12,97

Corn Planted Areas (million/ha) 15,82

15,42

2012/2013

2013/2014

14,76 13,00

13,80

12,97

1985/1986

2000/2001

2010/2011

2008/2009

Source: CONAB

The production technology that allowed two crops in the same area in the same agricultural year gained great importance in recent years and reduced the areas required for the summer (first) crop, being a decisive factor for a change in the strategy in the corn market. The winter crop (second corn crop) has produced greater volumes and allowed the cultivation 1985/1986 2012/2013 2013/2014 of soybeans to expand during the first-2008/2009 crop, without2010/2011 compromising the supply of both products. CORN2000/2001 FORECAST EFFECTIVE PRODUCTION - Million/tons The combination of soybean in the EFFECTIVE first crop with corn FORECAST in the second crop proved to be an PRODUCTION excellent choice in terms of profitability for the grower and soil management. 90,4 92,0

88,7 Although the winter crop has grown significantly in recent years and83,8 gained 85,5 87,1importance in the 82,2 80,6 composition of the national supply, it still runs a risk81once it is planted at the end of rainy season 79 79,0 and a change in the rain volume may compromise 73 production. It is worth mentioning that all estimates for corn production are based on regular conditions, without considering risks of crop failures. 59 57

51

51

53

47 CORN FORECAST - EFFECTIVE PRODUCTION - Million/tons 43 42

42

35

EFFECTIVE PRODUCTION

35

FORECAST

24 81

79

79,0

80,6 82,2

83,8 85,5 87,1

92,0 88,7 90,4

73

90/91

00/01 01/02

02/03

03/04

04/05

05/06 06/07

59

51

47 42

07/08

51

09/10

10/11

11/12

12/13

13/14

14/15

15/16

16/17

17/18

18/19

19/20

20/21

21/22

22/23

10/11

11/12

12/13

13/14

14/15

15/16

16/17

17/18

18/19

19/20

20/21

21/22

22/23

57

53

43

42 35

08/09

35

24

90/91

00/01 01/02

02/03

03/04

04/05

05/06 06/07

07/08

08/09

09/10

Source: Conab

18

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


Production costs Similar to the soybean culture, agricultural inputs and workforce mostly affected corn production costs. The policy of raises to the minimum wage in Brazil along with market expansion contributed to a boost of the job market showing significant increases in the total cost of workforce.

Production Cost - Corn - Rondon贸polis MS

Production MS Corn - US$/ Cost ha - Corn - Rondon贸polis 2013/2014 2013/2014 428.42 32.82 428.42 461.24 32.82 177.57 461.24 638.81 177.57 79.75 638.81 718.56 79.75 718.56

Corn - US$/ ha etc 1. Seeds, Fertilizers, 2. Machinery 1. Seeds, Fertilizers, A. Operations Cost etc 2. Expenses Machinery 3. A. Variable Operations Cost B. Cost 3. Expenses C. Fixed Cost B. Variable Cost TOTAL Costs C. Fixed Cost Source: IMEA TOTAL Costs

Corn Production Cost R$ /ha Variable Cost Fixed Cost Corn Production Cost R$ /ha

102 Bags 50 kg /ha

Variable Cost

102 Bags 50 kg /ha

Fixed1.497,49 Cost 1.497,49 1.469,26

1.329,85

1.117,72

1.469,26 1.117,72

1.129,28

1.329,85

1.129,28

128,09

151,13 126,45

128,09

183,42

117,39

151,13

183,42

117,39 126,45

Source: Conab

CARLOS ARAUJO

19


20

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


4) Sugarcane Sugarcane has become one of the major cultures of the Brazilian economy. Brazil is not only the world’s largest producer of sugarcane, but it also the world’s leading producer of sugar and ethanol and is increasingly conquering foreign markets with biofuels as alternative sources of energy and with cogeneration of electric power using sugarcane bagasse and straw. The national policy for sugarcane production is directed by the sustainable expansion of the culture, based on economic, environmental, and social criteria. The program “Agroecological Zoning of Sugarcane” (ZAEcana) regulates the planting of sugarcane, taking into account the environment and the economic potential of the region. The program is based on a thorough study and, then, areas suitable for sugarcane planting are defined in terms of climate, soil types, biomes and irrigation needs. The Brazilian sugar-ethanol sector is a reference to other producing countries. Sugarcane is produced in almost the entire country, and 60% of the total is in São Paulo State. Other producing areas are Paraná State, Triângulo Mineiro, in Minas Gerais State and Zona da Mata, in the Northeast of Brazil. World leader in ethanol production from sugarcane, Brazil has availability of arable land to expand sugarcane planted areas without compromising the production of other foods. We also human resource expertise, production technology and an effective distribution system besides knowledge of the entire production cycle of ethanol.

CARLOS ARAUJO

21


Sugarcane productivity (ton/ha) Center - Southern region 86,17 80,97 77,29 72,43

68,62

2006/2007

2007/2008

2008/2009

2009/2010

2010/2011

Source: CONAB

Sugarcane actual production / estimated production (million/tons) EFFECTIVE PRODUCTION

543 502

594

561

506

612

FORECAST

630

649

669

689

709

731

753

775

798

533 495

411 374

05/06 06/07

07/08

08/09 09/10

10/11

Source: CONAB

11/12

12/13

13/14

14/18

15/16

16/17

17/18

18/19

19/20

20/21 21/22

22/23

23/24

Production Cost - Sugarcane US$ 37.38 t/ha By Process

22

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”

42% 46%


Sugarcane Production Costs The production cost of Sugarcane grown significantly in recent years. The factors 07/08 impacted 08/09 09/10 production 10/11 11/12 12/13 13/14 14/18 15/16 16/17 b) 17/18 18/19 19/20 and 20/21agricultural 21/22 22/23 23/24 that most costs were: a) fertilizers; machinery equipment; c) labor. With wages policy of the government increased the minimum wage, impacting directly the production cost of of agricultural products.

05/06 06/07

Production Cost - Sugarcane US$ 37.38 t/ha By Process

42% 46%

12%

Planting

Maintenance

Harvesting

Source: MacKensie Agribusiness 1 US$ = R$ 2,30

Production Cost - Sugarcane US$ 37,38 t/ha Factors of Production 9%

48%

Machines Fertilizers Labor 43%

Source: MacKensie Agribusiness 1 US$ = R$ 2,30

Agricultural Machinery Machines Sold

CARLOS ARAUJO

94,032 83,704 81,513

23


Production Cost - Sugarcane US$ 37,38 t/ha Factors of Production 9%

48%

Machines Fertilizers Labor 43%

5) MACHINERY AND AGRICULTURAL IMPLEMENTS Mechanization is one of the important elements for the development of agriculture, closely associated to high productivity. In the last decade, the Program Moderfrota from BNDES (National Bank for Development) played a major role in grating support to the machinery industry. The credit supply was asymmetric, and we observe a positive correlation between disbursements of Moderfrota and the increase of machines sold. Agricultural Machinery Machines Sold 94,032 83,704 81,513

62,812 48,818

50,154

35,012

2007

2008

2009

2010

2011

2012

2013

Source: ANFAVEA

24

FERTILIZERS Tons mil

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET” 28.326

29.537

29.130


Factors of Production 9%

48%

Machines Fertilizers Labor 43%

Agricultural Machinery Machines Sold 94,032 83,704 81,513

62,812 50,154

48,818 35,012

6) FERTILIZERS Fertilizer consumption in Brazil is concentrated in four main crops: soybean, corn, sugarcane and coffee. In 2012, these crops accounted for 74% of total fertilizer consumption in the country. Data from ANDA (National Agency for the Agricultural Development) show that in Brazil, fertilizer sales totaled 29.5 million tons in 2012. The increase in fertilizer consumption is a fundamental vector for increased The 2012 planted areas 2007 2008 2009 agricultural 2010 productivity. 2011 2013 and fertilizer application rates in Brazil have been expanding due to solid grain prices, transport improvements and suitable growth conditions (climate and soil). FERTILIZERS Tons mil 28.326 24.608 20.194

2005

29.537

29.130

2012

2013

24.516 22.429

22.470

20.981

2006

2007

2008

2009

2010

2011

Source: ANDA CARLOS ARAUJO

25


7) Conclusion The projections highlight that global agricultural production will have a continuous expansion in the next decade, however, at a slower pace compared to the previous ten years. Food consumption per capita is increasing, because of increased incomes of the population and the expansion of international trades. • The expansion of the global agricultural market is shifting increasingly to developing countries. It is expected that this trend accelerate in the next years, once investments in production capacities and infrastructure are changing the production center, mainly of major agricultural products, from developed countries to developing countries. • The fierce competition between many developing exporting countries and traditional exporting countries reflects their comparative advantages in many basic agricultural products. Meanwhile, new technologies, associated with the increasing globalization and integration of the supply chain of the agribusiness will continue to change trade flows for more processed products. However, it is expected that the projections for the production increase of commodities (basic agricultural products) remain below the actual potential, due to the persistence of high trade barriers, as well as regulatory controls linked to food safety and environmental concerns. • Energy prices are expected to remain strong, favoring agricultural production with low energy intensity and requiring low investment capital in facilities for biofuel production. Therefore, the expansion of ethanol production from corn in the United States will slow down the increasing export of corn of that country. Despite the strong ethanol production from sugarcane, Brazil is expected to continue to increase its share in the world sugar market. • Impacts on production related to weather conditions, trends in energy prices, investments in biofuel capacity, economic growth potential and further advances of agricultural policy are the major uncertainties affecting the prospects of agricultural markets in the world. The greatest uncertainty in this review is the result of the multilateral trade negotiations of the Doha Development Program. The prospects of world agricultural markets are highly dependent on economic developments in Brazil, China and India, three giants in the world of agriculture. History shows that humankind has been able to develop many technologies to overcome the constraints of production factors (land, water, workforce, technology, and capital). A new agricultural revolution is in process. It is difficult to foresee any technological revolution since the changes will be occurring in various sectors and progressively increase the synergies between different production techniques. Based on the abovementioned projections, we can conclude that Brazil, as a major world player of agricultural commodities, tends to strengthen unilateral relations with the United States to meet the global demand for food and energy.

26

OVERVIEW THE BRAZILIAN AGRIBUSINESS BRAZIL: THE WORLD’S “SUPERMARKET”


8) References: Conab Acompanhamento da Safra Brasileira – 1- SAFRA 2013/14,N.2 – Segundo Levantamento - Intenção de Plantio, Novembro/2013 Outlook FIESP 2023 – Projections for Brazilian Agribusiness IMEA – Boletim Semanal – Soja - 20 de dezembro de 2013, Número: 284 IMEA – Boletim Semanal – Milho - 10 de janeiro de 2014, Número: 285 Estimated Costs of Crops – Production in Iowas -2014 – Ag. Decision Maker – Iowa State University, file A1-20

CARLOS ARAUJO

27


Institutional support

Agribusiness

Overview the brazilian agribusiness brazil the worlds supermarket a