Agribusiness News September 2024 – Sector Focus: Brazil’s Agricultural Sector

Brazil is an agricultural giant. The environmental cost of this productive success is, however, widely considered too high. The European Union Deforestation Regulation (EUDR), which comes into effect at the start of 2025, appears designed specifically with Brazil in mind. So, is Brazil a flawed agri-powerhouse?

Cornucopia

Between 2000 and 2020 overall Brazilian agricultural output doubled, thanks in large part to a trebling of livestock production. Whilst still an important producer of tropical products like coffee and sugar juice, most of the industry’s growth since the turn of the century has come from soybeans, poultry, beef, cotton and corn (maize).

Brazil produces more than half of global trade in soybeans. And is the biggest beef exporter in the world with an annual export of 2.05mt forecast for 2024; despite the Brazilians themselves eating 80% of total beef produced.

High productivity explains the growth of Brazilian agriculture.  The country averaged 2.3% growth in total factor productivity per year over the period 2010-19, well above the global average of 1.7%. UK agriculture recorded zero productivity growth for the same decade according to the OECD.

Brazil’s stellar performance is in large part due to its geography, with land and water plentiful. It is certainly not thanks to generous government support which is very low. Most support is channelled through preferential interest rates and insurance. Critically, the Brazilian government has long invested in a world class research and knowledge transfer system run by EMBRAPA.

Double cropping is a good example of rapid adoption of best practice driving growth. Planting maize in the same year after soybeans helped Brazil produce 112mt of corn in 2023, double the tonnage harvested in 2018. By 2032 a Brazilian corn crop of 177mt is predicted.

Is the UK an important export market for Brazil?

‘No, but…’ is maybe a fair assessment. Brazil is the third largest agri-food exporter after the EU and USA. China is its star market. In 2021, China took 70% of Brazil’s total soybean exports, and half (1.15mt) of Brazilian beef exports last year.

Nevertheless, any market of nearly 70m reasonably affluent people that imports nearly 40% of its food needs, will interest the Brazilians. In 2022, the UK imported 786,140t of soyabean meal equivalent from Brazil (just under a third of the total imported). To the end of July this year the UK has imported 55,000t of poultrymeat and 14,360t of beef, mostly corned beef, from Brazil.

The growing presence of Brazilian meat processors here, is perhaps a sign of future intent. The biggest meat processor in the world, JBS, owns both Moy Park (poultry) and Pilgrim’s (pork and lamb), itself Brazilian owned. Taking over a rival to further integrate into UK meat supply chains seems an obvious strategy. Brazil does not feature near the top of the new UK government’s list for trade deals. Yet with a population of over 200m, Brazil offers a big export market for UK service industries. It is clear what Brazil will want as part of any deal.

Making future Brazilian growth sustainable

The world needs a lot more food and Brazil is well placed to provide much of it. The USDA estimates that an extra 20m hectares of Brazilian land will be brought into crop production by 2031.

There are, of course, factors constraining such potential expansion. The cerrado, a vast area of natural grasslands, covering a quarter of Brazil will supply much of the new land. But it is inland and getting crop (and meat produced from those crops) to export ports will be a big problem given the poor road system. The country also currently imports 85% of its fertiliser requirement so expansion will depend on cost and availability of key nutrients.

Yet the biggest issue overshadowing future growth is environmental damage, especially that caused by habitat loss. The EUDR seems a direct response to the clearing of Amazon rain forest for agriculture. Big western processors and retailers are also supporting initiatives to drive sustainable practices. The UK Roundtable on Sustainable Soya was set up in 2018 specifically to reduce UK soya imports sourced from land conversion in Brazil and Argentina.

The message is getting through, and the new Brazilian government is redoubling efforts to reduce the conversion of the Amazon forest and cerrado savannah to food production. Credit and insurance come with greater environmental conditions. Agricultural land zoning has been tightened. And by disseminating best practice, for example, the aim is to lift the productivity of Brazilian cattle farming to that achieved in western countries.

These efforts to improve the sustainability of Brazilian agriculture are being noticed. A recent article in The Grocer detailed the big efforts of the Brazilian meat industry to improve environmental and welfare standards. Worryingly, it noted that our own standards leave much room for improvement.
Kev Bevan, 07368 825877