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FOCUS ON BRAZILAgricultural Production and Trade

February 5, 2006

Presentation OutlineImportance of Brazilian Agriculture

Recent Ag. Expansion

Commodity Specific Production/Trade

Limitations to Ag. Expansion

U.S. vs. Brazil Competitiveness

The Foreign Agricultural Service of the U.S. Department of AgricultureTwo Mission Level Goals:

–Expand U.S. Agricultural Export Opportunities

–Help alleviate world hunger and food insecurity

South America Profile

10.76-9481,0881403,30013284Ecuador

6.33-3613801912,6003176Uruguay

0.50-333634,6006407Paraguay

7.75-2,8012,9251249,90016757Chile

15.441871993864,80025912Venezuela

2.66-3761242,40091,099Bolivia

14.21-6151,2125976,300421,139Colombia

11.03-1434523095,200281,285Peru

1.79-7378077011,200392,767Argentina

1.55-3,0903,6122287,6001848,512Brazil

Exports per Capita($)

Surplus-DeficitAg Trade($Millon)

U.S. Ag Imports($Million)

U.S. Ag Exports($Million)

GDP per Capita($)

Pop.(millions)

Area(000 Sq. M)

Source: USDA BICO Incl Ag, Forest & Fishery Products CY2004

Importance of Agriculture in Brazil

13% of the GDP (29% Agribusiness)

37% of the Labor Force

Agriculture = 42% of Total Exports!

2005 Agricultural Trade Surplus of $38.2 Billion

TRADE BALANCE (US$ BILLION)

-30

-20

-10

0

10

20

30

40

80 82 84 86 88 90 92 94 96 98 00 02 04

N0-AGRIBUSINESS AGRIBUSINESS TOTAL

Source: MARA

Balance of Agricultural Trade Between the United States and Brazil (FY2005)

133Other1043Other228Total3,612Total

4Hides & Skins1055Sugar105Tree Nuts977Lobster95Fruit/Vegetable Juice896Cocoa86Planting Seeds7107Snack Foods77Sugars/Bev. Bases6164Fruit/Vegetable Juices68Snack Foods5181Tobacco59Dairy Products4185Red Meats Prep./Preserved410Eggs & Products3205Proc. Fruits/Vegetables320Feeds & Fodders2440Raw Coffee221Cotton11,059Forest Products1

$MillionCommodity$MillionCommodityBrazil's Exports to the U.S. U.S. Exports to Brazil

World Ranking of Agricultural Commodities Produced in BrazilProducts 2005* Ranking Million Metric TonsSugar 1st 28.2Oranges 1st 16.6Coffee 1st 2.2Tobacco 2nd 0.8Soybeans 2nd 51.0Beef 2nd 8.4Poultry 3rd 9.1Corn 3rd 35.0Cotton 5th 1.3

*2004/05 Crop YearSource: USDA/PS&D Online

Brazilian Agricultural Exports

0 20 40 60 80 100

Tobacco

Coffee

Beef

Sugar

Soybeans

Poultry

Orange Juice

Percentage of Total World Trade (Rank)

( 1 )

( 2 )

( 1 )

( 1 )

( 1 )

( 1 )

( 1 )




Limitation to Ag. Expansion


Source: BUNGE

National Land Use and Crop Area StatisticsNational Land Use and Crop Area StatisticsBRAZIL: Land Utilization Statistics

Million Percent ofHectares Total Area

1) Total Forest Area 444.0 52

2) Total Remaining Cerrado Area 140.0 17

3) Total Pasture Area 177.0 21

4) Total Agricultural Area 44.0 5

5) Total Non-Arable & Other Area 42.9 5

Total Land Area 847.9 100

Source:1- UNEP World Conservation Monitoring Program, Cambridge, UK2- EMBRAPA Cerrados Research Center, Brasilia, Brazil 20023, 4- IBGE 1995-1996 Agricultural Census

Brazil = 44.0 Million Hectares (5%)USA = 174.0 Million Hectares (19%)

FAS

BRAZIL POTENTIAL LAND

ONLY CERRADO

Source: ABIOVE

0

50

100

150

200

250

USA BRAZIL

Mill

ion

Hec

tare

s

Current Total Crop Acreage Potential AcreageSource: USDA/FAS

44

210

174

Total Cropland Comparison

10%

4%83%1%

1%2%

Soybean Summer Corn RiceCotton Summer Beans SugarcaneCoffee Cocoa Beans CitrusTree Nuts Pasture

Scope of Potential Agricultural ExpansionScope of Potential Agricultural Expansion

Source: USDA/FAS

BRAZIL: Ag Land Distribution

Pasture

Soy

FAS

Brazilian Productivity Gains Outpacing Crop Area Expansion

38 38 36 39 38 37 36 35 37 38 37 41 44 47 49 46

5868 68

76 8174 79 77

82 83

100 97

123 119 114125

0

20

40

60

80

100

120

140

1990/91

1991/92

1992/93

1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

2005/06

Production (million tons)

Area (million hectares)

0

20

40

60

80

100

Perc

enta

ge

Raw Cotton Rice Corn Soybeans Wheat

Average Productivity Growth(1990/91 and 2004/05)

Data Source: CONAB/MAPA

184%

Government Credit Programs (2006)• R$44.4 Billion in Credit Lines or US$19.3 billion

– Production & Marketing Credit = R$33.2 billion ‐Up 15% From Last Year

– Credit for Investment = R$11.2 Billion – Up 5%– Common Interest Rate for Programs is 8.75% but Some Programs Are Up to 12.7%

• Free Market Rate for Farmers is 16‐20%• Average for General Business is 35%• Consumer Credit is 84%

Amazon Deforestation Also a Factor Amazon Deforestation Also a Factor

Vast majority converted into rangeland for commercial cattle production Deforestation is continuing at a rate of over 2.0 million hectares per yearNew rangeland provides opportunity for future field-crop cultivation

Nearly 30 million hectares of tropical forest have been cleared since 1988

Deforestation 2002/2003Deforestation 2002/2003

Deforestation prior to 2002Deforestation prior to 2002

The Legal Amazon:

Source: INPE/PRODES

Deforestation Monitoring

FAS

Soybean Expansion Soybean Expansion –– Regional PerspectiveRegional Perspective

Soybean area increased 14.5 million hectares or 170 percent since 1980

Expansion occurred in existing producing states as well as in “new” territories

Greatest growth occurred in the Center-West and Northeast, transformingthem into the predominant soybean region in Brazil

Source: USDA; IBGE

FAS

1980/81

16

84

2005/06

6337

1990/91

2971

ຶຶTraditional Southern States ຶ Rest of Brazil




Limitation to Ag. Expansion


Brazilian and U.S. Soybean Production(1,000 Tons)

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

95/96 97/98 99/00 01/02 03/04 05/06

BrazilU.S.

Brazilian and U.S. Soybean Exports

0

5000

10000

15000

20000

25000

30000

35000

95/96 97/98 99/00 01/02 03/04 05/06

BrazilU.S.

Others10%

China8%

Argen. 17%

U.S.40%

Brazil24%

25

30

35

40

45

2001 2002 2003 2004 2005 2006

ConsumptionProduction

Corn Production and Use

3000

4000

5000

6000

7000

8000

9000

10000

Thou

sand

Ton

s (M

illed

)

1999/01 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Production Imports

Rice Production and Imports

Wheat Production and Imports

0

2000

4000

6000

8000

10000

12000

Thou

sand

Ton

s (M

illed

)

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Production Imports

Cotton Production SoarsWith Advances in Center-West

0

200

400

600

800

1000

1200

1400

Kgs

Lin

t

95/9

6

97/9

8

99/0

0

03/0

4

04/0

5

05/0

6

North & Northeast South and Southeast Center-West

Brazilian Meat Production

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

1965

1970

1975

1980

1985

1990

1995

2000

2006

1000

mt

Beef Pork Poultry

Brazilian Meat Exports

0

500

1000

1500

2000

2500

3000

1980

1985

1990

1995

2000

2006

1000

mt

Beef Poultry Pork

Meat Export Market Shares

Beef, Pork, & Poultry Exports

US19%

Others75%

Brazil6%

1998 2006

US21%

Others51%

Brazil28%

2004/05 Brazilian FCOJ Production & Exports

Brazil51%

Others9%

US40%

U.S.7% Others

10%

Brazil83%

World ExportsWorld Production

Brazilian Tobacco Production Brazilian Tobacco Production & Exports& Exports

0100200300400

500600700800

1999 2000 2001 2002 2003 2004 2005

TMT

Prod Exp

Brazilian Sugar Production & Exports- #1 sugar producer with 20% of world total#1 sugar exporter with 40% of world market

0

5

10

15

20

25

30

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/00

2000

/01

2001

/02

2002

/03

2003

/04

2004

/05

MM

T

Prod Exp

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

U.S

. $ P

er P

ound

Brazil Thailand U.S. DevelopingNations

Sugar Production Cost Comparison

Data Source: Institute for Agricultural Trade Policy

Brazilian Ethanol Production

0

2

4

6

8

10

12

14

16

18

Bill

ion

Lite

rs

00/01 01/02 02/03 03/04 04/05 05/06

Brazilian Ethanol Production03/04 production 16.6 billion liters - #1 producer

100% ethanol from sugar cane, uses 52% of domestic crop

Domestic "gasoline" is 25% ethanol

52% of new car sales in 05 were flex-fuel

Exports estimated at 600 million in 2003, 2.4 billion in 2004, and 2.5 billion in 2005

Brazilian Ethanol MarketMaximum capacity is for 55-60% of cane crop for ethanol

Total cane area forecast to increase 20% in 4 years

Limited processing capacity and environmental regs. Limit area expansion

Long-Term: Consumption needs outpace production

Brazilian Ethanol ExportsOnly 15% of the ethanol Production is exported

Top Markets are Japan, S. Korea, & Holland

Lower stocks and strong demand should lead to higher prices this year.

Increased exports not likely




Limitations on Ag. Expansion


Variety of factors could theoretically act to slow the rate of agricultural expansion or limit its extent.

Limitations To Future ExpansionLimitations To Future Expansion

- Currently Occurring

Examples of Limiting Factors:Faltering domestic economy

Institution of new agricultural export taxes

Lack of adequate transport infrastructure development

Significant slump in international agricultural commodity prices

Greater domestic prevalence of crop diseases or pests

Generation of surplus crop production substantially exceeding global demand

Foot and mouth disease-free status achieved, fueling increased meat exports

New environmental laws increasing restrictions on land conversion

Climate change substantially alters rainfall volume and distribution

FAS

Average Returns for Row Crops

-40-30

-20-10

010

20

3040

Perc

ent R

etur

n

Sorg

hum

Cor

n

Cotton

Soyb

eans

Rice

Whe

at

2004Returns2005Returns

Transport of Soybeans

0 10 20 30 40

Road

Railroad

Waterway

Average Cost (US$) to Transport Soybeans 1000 km

$13

$40

$25

U.S. and Brazilian Soybean Transportation to Port by Mode

Railroad28%

Waterway5%

Road67%

U.S. Brazil

Road12%

Waterway66%

Railroad22%

BRAZILIAN ROADSBR – 163 BETWEEN NOVA MUTUM AND LUCAS DO RIO VERDE-MT

Source: BUNGE

ROAD BETWEEN CAMPO NOVO DO PARECIS E SAPEZAL-MT

BRAZILIAN ROADS Source: BUNGE

-

0 , 2

0 , 4

0 , 6

0 , 8

1 , 0

1 , 2

1 , 4

1 , 6

1 , 8

7 6 7 8 8 0 8 2 8 4 8 6 8 8 9 0 9 2 9 4 9 6 9 8 0 0 0 2 0 4

ROAD TRANSPORT INVESTMENTS / GDP (%)

GOVERNMENT’S INVESTS

Source: MT

RAILROAD DENSITY KM/1000KM2

BRAZILIAN RAILROADS

BRAZIL 3,4 USA 29,8Source: BUNGE

ARRIVAL IN SANTOS Source: BUNGE

Infrastructure Challenges at AgroReservas

BRAZILIAN PRODUCERS INVESTED IN LAND EXPANSION AND THE USE OF TECHNOLOGY.

On Farm 9,3 10% 231,5 43% 13,8 25%Out of Farm 86,6 90% 303,5 57% 41,8 75%Total 95,9 535,0 55,7Production 121,2 79% 366,7 146% 54,3 103%

Brasil 2004 EUA 2002 Argentina 2000

STORAGE CAPACITY

Source: BUNGE

Infrastructure Expansion & Improvements Trail Production Gains• Total rail track has not grown in the past 80 years.

• Over the past several years grain storage capacity has increased only 10 percent that of grain production.

• Transport cost to port for a ton of soybeans is 50 percent greater than the United States.

• The grain storage deficit is about 35 percent.• Current government investment in roads is only 0.1% of GDP compared to 1.8% in the 1970s.

Additional Challenges in Brazil

• High tax burden – greater than Germany• Complicated bureaucracy• Inconsistent judicial system • Corruption• Crime – homicide rate triple the U.S. rate• Property rights are not secure ‐MST• High Interest Rates

Agricultural Competitiveness Brazil vs. United States

0

1

2

3

4

5

6

Tons

per

Hec

tare

Cotton Wheat Soybeans Rice Corn

2002/03 to 2004/05 Average Yields

Brazil U.S.

Crop Yield ComparisonU.S. vs. Brazil

9.1 tons/hectare

0

1

2

3

4

5

6

7

8

9

Tons

per

Hec

tare

(200

1 to

200

3 A

vera

ge)

Brazil China Argentina EU U.S.

Corn Yield of Major Global Producers

Low Corn Yields in Brazil

Cost of Production for Row Crops

0

200

400

600

800

1000

1200

1400

U.S.$ C

ost P

er H

ectare

Cotton Rice Corn Soybeans Wheat

U.S. Costs

BrazilianCosts

U.S. Input Costs Generally Lower but Higher Land Rents

FOB Prices are Similar Due to High Brazilian Transport Costs

U.S. Corn Costs Higher but Yield is More than Double

0

500

1000

1500

2000

2500

3000

3500

4000

U.S

. $ P

er H

ecta

re

Pature Land Crop Land

Brazil U.S.

Crop Land Price ComparisonUnited States vs. Brazil

(2003)

Data Source: USDA and FGV-FGVDados

Average Farm SizeUnited States vs. Brazil

(2003 Post Estimate)

Data Source: USDA/NASS, Deral, and Post Estimate

0

500

1000

1500

2000

2500

3000

Acr

es

RGDS(Southern

Brazil)

Iowa Idaho Nebraska MatoGrossBrazil

1,200 Hectares

Ag. Land Prices Soar in Brazil but Drop Last Year Due to Low Commodity

Prices

-30

-5

20

45

70

95

120

% C

hang

e in

R$/

Hec

tare

SantaCaterina

MatoGrosso

Rio GrandeD.S.

MatoGrosso D.S.

Goias Parana

Source: Instituto FNP36-Month Change 12-Month Change

Transportation Cost Comparison for Soybeans

0 5 10 15 20 25

Brazil

Argentina

United States

Average Cost (US$) to Transport Soybeans to Port

$15.5

$23.5

$16.0

FAS Contacts in BrasiliaOffice of the Agricultural Counselor

American EmbassySES-Av. das Nações - Quadra 801

70403-900 Brasília, D.F., BrazilTel: 55-61-312-7101 - Fax: 55-61-312-7659

E-mail: [email protected]

U.S. Mailing Address:Unit 3500

APO AA 34030-3500

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