European Flour Milling Association

September 2013

Understanding the Brazil agribusiness:what are the drivers, the issues and theperspectives?

PwC

Agenda

2

1. Brazilian agribusiness overview 3

2. Key value chains 9

3. Key inputs 19

4. SWOT Analysis 24

5.PwC Brazil Agribusiness Center ofExcellence

27

Brazilian agribusiness overview

3

PwC

Agribusiness in BrazilBrazilian economy strengths

• Brazil is the fifth most populous country in theworld, after China, India, the USA andIndonesia.

• According to the agencies Standard & Poor'sand Fitch, the Brazilian investment grade isBBB with a stable outlook.

• In 2012, with the devaluation of the realagainst the dollar, Brazil was considered the7th largest economy in the world. In 2013 thecountry might return to the 6th position.

• The unemployment rate in the country inDecember 2012 was 4.6%, the lowest everrecorded.

4Source: Ministry of Finance (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

PwC

7265

76

95 96

12 10 13 17 1760 55

6077 79

2008 2009 2010 2011 2012

Exports Imports Agribusiness balance

Brazilian agribusiness trade balanceUS$ billion

5Source: CEPEA-USP/CNA (2013) and MDIC/SECEX/MAPA (2012). Adapted by PwC Agribusiness Research & Knowledge Center.

487

458

483

504

543

400

420

440

460

480

500

520

540

560

2008 2009 2010 2011 2012

Evolution of Brazilian agribusiness GDPUS$ billion (average exchange rate 1 USD = R$ 1.82)

CAGR: 3%

Agribusiness in BrazilKey numbers and indicators

Main destinations of Brazilian agricultural exports

Ranking PaísValue

US$ billion%

1st China 18 19

2nd USA 7 7

3rd Netherlands 6 6

4th Japan 4 4

5th Germany 3 3

• Agribusiness accounts for 22% of the country’s GDP andis the key driver of the Brazilian trade balance surplus,representing 40% of total exports.

• In 2012, Agribusiness created about 16 million jobswhich represents 37% of total jobs created in Brazil.

CAGR: 7% 9% 7%

PwC

Agribusiness in BrazilAn international comparison of land use

6Source: FAO (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

World land use - 2011Million hectares

*The agricultural area is the sum of areas in pastures and crops (permanent and temporary).

1,638

933 915851

418

297 274194

58 26

215

519411

275187 180 148 103

41 11

Russia China UnitedStates

Brazil EuropeanUnion

India Argentina Mexico Ukraine NewZealand

Total Area Agricultural Area*

PwC

Agribusiness in BrazilLand use in Brazil

7Source: EMBRAPA (2009). Adapted by PwC Agribusiness Research & Knowledge Center.

Amazon Rainforest

Pantanal

Savanna“Cerrado”

Caatinga

Tropic of Capricorn

Pampas

AtlanticForest

• Currently there are about 100 millionhectares available for agricultureand livestock use, where:

65 million hectares suitable forgrowing / expansion for variousagricultural uses;

35 million hectares suitable forgrowing / expansion used for grazing(low and medium agriculturalpotential).

PwC

Agribusiness in BrazilLand use in Brazil

8Source: IBGE, IBAMA, INCRA, FUNAI and CNA (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

Land use in Brazil(million hectares)

Crops 60

Pastures 159

Forests (95% natural) 98

Others (planted forests, etc.) 13

Total Agriculture & Livestock 330

Conserving areas 124

Indigenous lands 110

Urban areas & infrastructure 2

Governamental vacant properties (Incra) 150

Other uses (Army and Navy lands, etc) 136

Total Brazil 851

28%

11%

14%13%0,2%

18%

16%

Agricultural production areas - private land

Native vegetation in rural properties

Conserving areas

Indigenous lands

Urban areas & infrastructure

Governamental vacant properties

Other uses: Navy, Army, etc

Land use in Brazil

• 61% of Brazilian territory consists of preserved nativevegetation, which represents around 520 millionhectares.

Key value chains

9

PwC

0.9

2.5

2.6

2.6

3.3

6.5

6.7

9.1

15

15.7

26.1

0.9

2.6

2.2

2.8

2.9

8.7

2.1

9.6

16.5

15.8

24.1

Fruits (including nuts)

Juices

Fibers and textiles

Leather, leather goods and furskins

Tobacco and its products

Coffee

Cereals, flour and preparations

Forest products

Sugarcane complex

Meat

Soybean complex

2011 2012

Key value chainsMain products exported by Brazil

10Source: MAPA / MDIC / SECEX (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

US$ billion

PwC 11Source: USDA (2013), F.O. Licht (2012), UNICA (2012). Adapted by PwC Agribusiness Research & Knowledge Center.

Agriculture - Harvest 2012/13 World production (%) World exports (%)

Soybean 31 38

Corn 9 22

Coffee 34 26

Sugar 22 45

Ethanol 21 38

Orange juice 57 81

Livestock - Year 2012 World production (%) World exports (%)

Beef 16 19

Pork 3 9

Poultry 15 35

1

1

1

3

2

4

1

2

1

1

1

1

2

4

1

3 1

Key value chainsBrazil is one of the key players in many agribusiness chains

1 2 3 Brazil's position in world rankings4

2

PwC

48 47 50 51 53

137 149 163 166184

0

50

100

150

200

2008/09 2009/10 2010/11 2011/12 2012/13*

Area (million hectares) Production (million tons)

12Source: CONAB (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

Grain production and planted area

Key value chainsGrain complex overview

Grain production by stateHarvest 2012/13*

Item% of grain total

production% of total

planted area

Soybean 45% 52%

Corn 42% 29%

Rice 7% 5%

Wheat 2% 4%

Beans 2% 6%

Cottonseed 1% 2%

Others 1% 2%

Key grains by production and total area

*projection

CAGR:

3% 8%

24%

20%

15%

10%

7%

24% MT

PR

RS

GO

MS

Others

PwC Source: CONAB (2013). Adapted by PwC Agribusiness Research & Knowledge Center. 13

Million tons

Harvest 2012/13*

Main producing states

Frontier land (MAPITOBA)

• MAPITOBA (States of Maranhão,Piauí, Tocantins and Bahia) is themain expansion region for grains;considered the last agriculturalfrontier of the country.

• Some of the factors attractinginvestors are lower land prices andavailability at scale.

Region 2006/07 2012/13*

North 2 3

Northeast 7 8

Midwest 33 40

Southeast 12 11

South 44 39

Production is moving to the Central BrazilGrain production by region (%)

*projection

Key value chainsGrain overview

27

7,1

3

3,4

44

13

1210,9

8

6

27

4

2

6

37

28

18

PwC 14

Soybean, soybean meal and oil productionMillion tons

Source: CONAB (2013) and ABIOVE (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

Main producing states – 2012/13*% in Brazilian production

57

6975

66

82

2327 29 26

30

6 7 7 7 8

0

10

20

30

40

50

60

70

80

90

2008/09 2009/10 2010/11 2011/12 2012/13*

Soybean Soybean meal Soybean oil

49%

44%

7%Exports

Processing

Seeds, storage andothers

Destination of Brazilian soybean – 2012/13*

• The Brazilian soybean production is stronglyfocused in exports, but the main exportedproduct is still the one with lower value-added: soybean.

Key value chainsSoybean overview

29%

19%

15%

11%

7%

28%

17%17%

10%7%

0%

5%

10%

15%

20%

25%

30%

35%

MT PR RS GO MS

Production Area

CAGR: 9% CAGR: 7% CAGR: 8%

*projection

PwC Source: CONAB (2013) and ABIMILHO (2011). Adapted by PwC Agribusiness Research & Knowledge Center.

Brazilian corn productionMillion tons

75% 71% 68%66% 61% 62% 64%

36%

• The 2nd harvest or “safrinha”, occurs after the soybean harvest.

Main producing states – 2012/13*% in Brazilian production

Destination of Brazilian corn

37%

18%

6%4%

7%3%

4%

2% 18%

Poultry

Swine

Cattle

Other animals

Industrial consumption

Human consumption

Other uses

Losses/seeds

Exports

Animal feed consumes65% of the corn produced

in Brazil.

Key value chainsCorn overview

15

24%22%

9% 9% 9%

19%22%

7% 8%9%

0%

5%

10%

15%

20%

25%

30%

PR MT GO MG MS

Production Area68% 61% 66% 62% 45%

32%39% 34%

38%55%

-

10

20

30

40

50

60

70

80

90

2008/09 2009/10 2010/11 2011/12 2012/13*

1st harvest 2nd harvest

7873

5756

51

CAGR: 11%

*projection

PwC 16Source: CONAB (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

• New technologies(irrigation andcrowding) andtransgenic seedincreased cottonyield during thelast decades.

Brazilian cotton productionMillion tons

StateArea

(thousandha)

Productionlint

(thousand t)

Yieldlint

(ton/ha)

Productioncottonseed(thousand t)

Yieldcottonseed

(ton/ha)

MT 464 673 1.5 1,075 2.3

BA 274 368 1.4 576 2.1

GO 46 76 1.7 119 2.6

MS 40 61 1.6 98 2.5

MG 20 29 1.5 45 2.3

• Cotton production hasbeen gainingprominence due to theproduction of biodieselfrom the seed and theuse of linter (fiber thatsurrounds the seed) inthe pulp & paper andelectronics industries .

Main producing statesHarvest 2012/13*

*projection

Key value chainsCotton overview

1.2 1.2

1.9 1.9

1.3

1.9 1.8

3.2 3.0

2.0

0

1

2

3

4

2008/09 2009/2010 2010/11 2011/12 2012/13*

Lint Cottonseed

2%

1%

CAGR:

PwC

HarvestPlanted area(million ha)

Productivity(tons/ha)

2008/09 7.1 81

2009/10 7.5 81

2010/11 8.1 77

2011/12 8.3 67

2012/13 8.0 69

17Source: CONAB (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

Brazilian sugarcane production - by product mixMillion tons

55%

45%

57%

43%

47%

53%

43%

57%

45%

54%

46%

50%

50%

• Sugarcane is the second largestsource of energy in the country,accounting for 16% of all energyconsumed in Brazil.

• The ethanol market, favorable inthe last harvests, has led the mills tosupply less sugarcane to sugarproduction. This scenario is veryvolatile and highly dependent ongovernment policies.

Brazilian ethanol and sugar production Evolution of sugarcane productivity and planted area

Key value chainsSugarcane overview

43% 44% 46% 50% 50%

57%56% 54% 50%

0

100

200

300

400

500

600

700

2008/09 2009/10 2010/11 2011/12 2012/13

Sugar Ethanol

571 612 625571

50%

CAGR: 6%

589

26 31 31 32 38

27 28 2823 24

0

10

20

30

40

50

2008/09 2009/10 2010/11 2011/12 2012/13

Sugar (million tons) Ethanol (billion liters)

CAGR: 5% CAGR:-3%CAGR: 5% CAGR: -4%

PwC 18Source: CONAB (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

StatesPlanted area(thousand

ha)

Sugarcaneproduction

(million tons)

% in Brazilianproduction

SP 4,370 331 56

GO 678 53 9

MG 743 51 9

PR 611 40 7

MS 481 37 6

AL 464 24 4

Main producing States – 2012/13

Sugar production by State – 2012/13

Ethanol production by State – 2012/13

Production mix by Region

Region / Product Sugar Ethanol

North-Northeast 58% 42%

Mid-South 49% 51%

Key value chainsSugarcane overview

61%9%

8%

6%

5%5%

3% 3%SP

MG

PR

AL

GO

MS

PE

Others

52%

13%

9%

8%

6%

4%2%

6%

SP

GO

MG

MS

PR

MT

AL

Others

Key inputs

19

PwC

6% 6% 6% 5%8% 8% 9%

12% 12% 12%9%

6%

J F M A M J J A S O N D

20Source: ANDA (2013) and Heringer (2012). Adapted by PwC Agribusiness Research & Knowledge Center.

Seasonality in fertilizers sales by month• Fertilizer sales occur in the

2nd semester, before grainplanting begins.

• Brazil is very dependent on fertilizer imports, which causesthe production costs of crops to be linked to internationalprices of minerals and oil, and to be influenced by theexchange rate.

Main inputsFertilizers

34%

16%14%6%

3%

27%

Fertilizers consumption by crop

Soybean

Corn

Sugarcane

Coffee

Reforestation

Others

Fertilizer production and importsMillion tons

9 8 9 10 10

1511

1520 20

22 2225

28 30

2008 2009 2010 2011 2012

Production Imports Deliveries to customers

CAGR: 2% 6% 7%

PwC 21

47%

9%

13%

9%

5%

3%

2%13%

Soybean

Corn

Sugarcane

Cotton

Coffee

Bean

Orange

Others

1.3 1.11.5

2.02.3

2008 2009 2010 2011 2012

Agrichemicals importsUS$ Billion

CAGR: 16%

Agrichemicals commercialization by cropValue

7 7 78

10

2008 2009 2010 2011 2012

Agrichemicals salesUS$ Billion

CAGR: 8%

Main inputsAgrichemicals

• In 2012 the sector had revenues 14% higher than in 2011,totaling US$ 9.7 billion.

• Insecticides, herbicides and fungicides sales account for95% of Brazilian agrichemicals market.

• The production of agrichemicals is highly concentrated andmany multinationals are present in the sector.

• Factors such as lack of incentives in R&D and delays in theregistration of new national products encourage imports.

• The participation of generic agrichemicals is quitesignificant.

Source: SINDAG (2013) and ABIFINA (2012) Adapted by PwC Agribusiness Research & Knowledge Center.

PwC 22Source: CÉLERES (2011). Adapted by PwC Agribusiness Research & Knowledge Center.

Participation of genetically modified seedsproduction by culture

Harvest 2012/13

89%

50%76%

11%

50%24%

Soybean Cotton Corn*

GM Conventional

*Sum of 1st and 2nd harvest

Area planted with geneticallymodified seeds by crop

Millions of hectares

Rate of adoption of genetically modified seeds byregion – 2012/13*

% of area planted with the crop in the region

Region Soybean Corn Cotton

North 65 13 100

Northeast 83 32 59

Midwest 89 98 45

Southeast 88 92 33

South 92 90 0

CAGR

Corn: 86%

Soybean: 14%

Cotton: 11%

Main inputsGenetically modified seeds (GMO)

*Estimate

0.4 1

14

0.6

12

24

0

5

10

15

20

25

30

Cotton Corn Soybean

2008/09 2012/13*

PwC 23

Average prices of agricultural land in Brazil by stateUS$/ha*

Land prices in BrazilUS$/ha*

Source: AGRIANUAL (2013). Adapted by PwC Agribusiness Research & Knowledge Center.

Region Average Maximum Minimum

South 25,294 1,176

Southeast 6,839 24,118 294

Midwest 3,307 12,941 165

Northeast 1,822 9,118 35

North 1,219 6,765 53

Brazil 4,069 25,294 35

*in May / June 2012US$ 1 = R$ 1.7

Main inputsLand in Brazil

MAAverage: 1,102Maximum: 5,412Minimum: 223

BAAverage: 2,236Maximum: 9,118Mínimum: 71

PRAverage: 7,675Maximum: 17,647Minimum: 1,176

GO e DFAverage: 4,330Maximum: 12,941Minimum: 588

ESAverage: 5,845Maximum: 11,765Minimum: 559

MTAverage: 2,515Maximum: 10,588Minimum: 282

MSAverage: 3,600Maximum: 11,470Minimum: 165

MGAverage: 4,455Maximum: 13,529Minimum: 294

PAAverage: 958Maximum: 3,000Minimum: 82

RJAverage: 3,748Maximum: 7,647Minimum: 941

PIAverage: 711Maximum: 3,941Minimum: 59

TOAverage: 1,964Maximum: 5,882Minimum: 224

SPAverage: 10,382Maximum: 24,118Minimum: 1,765

SCAverage: 9,535Maximum: 25,294Minimum: 1,471

ROAverage: 2,276Maximum: 6,765Minimum: 188

RSAverage: 7,371Maximum: 22,353Minimum: 2,059

PA

TO

MA

BAMT

GO

MSMG

ESSP

PR

SC

RS

RJ

PI

AM

ROAC

CERN

PE

RR AP

PB

SEAL

SWOT analysis

24

PwC

Strengths

• Agribusiness is responsible for 22% of GDP and37% of exports, contributing to the trade balancesurplus.

• World leader in the production of manycommodities.

• Diversified agriculture (high productivity).

• Favorable production variables: available land,water, soil, variety of biomes.

• Agricultural production with low level ofsubsidies.

• Support of public and private internationallyrenowned R&D institutions.

• Solid legislation guarantees right of property andintellectual property rights (trademarks andpatents).

• Strong and world leading multinationals alreadyoperating in the country.

25

Weaknesses

• Reliance on imported inputs, mainly fertilizers.

• Limited access and excessive bureaucracy toagricultural financing and insurance options.

• Low storage capacity in farms.

• Inadequate logistics and transports infrastructureas a result of decades of low investments.

• Critical shortage of human capital leading toincreased costs.

• Complex and inefficient tax structure.

• Lack of public policies.

• High levels of informal labor.

• Sanitary problems in the livestock sector.

• Conflicts between farmers, indigenous and socialmovements.

Agribusiness in BrazilSWOT Analysis

Source: PwC Agribusiness Research & Knowledge Center.

PwC 26

Agribusiness in BrazilSWOT Analysis

Opportunities

• States of Maranhão, Piauí, Tocantins and Bahiaemerge as the last agricultural frontier land.

• New consumer market & trends: productdifferentiation looking at health & wellness,convenience, value add and nutritional value

• Consolidation and internationalization ofcompanies.

• Vertical integration: companies looking to controlvalue chain upstream.

• Privatization of roads, ports and modal terminals.

• New agricultural technologies: harvestmechanization, irrigation, seeds varieties,agrochemicals and others making productionviable in areas previously non conducive toagriculture.

• Adoption of improved agricultural practices toincrease production efficiency.

• Fall in poverty and inequality in the last decade.

Threats

• Volatile exchange rate in comparison to developedcountries.

• High interest rates driving farmers to high levelsof debt.

• Non-tariff barriers in international trade.

• New environmental legislation underimplementation.

• Restriction on land purchases by foreign entities.

• Increased land and inputs prices.

• Environmental movements with strong politicaltrend.

• Variation vulnerability to agricultural prices in theinternational market.

• Increased requirements and market standards,raising production costs.

Source: PwC Agribusiness Research & Knowledge Center.

PwC Brazil Agribusiness Center ofExcellence

27

PwC

PwC Agribusiness in BrazilPwC Brazil Agribusiness Center of Excellence (C.o.E.)

PwC BrazilAgribusiness Centerof Excellence

28

• PwC has been, for almost 40 years,geographically present in the northwest regionof São Paulo.

• Through its office in Ribeirão Preto, PwC isnotoriously known for its expertise in serving theagribusiness sector.

• Believing in the agribusiness potential, PwC hasexpanded its activities in this industry, andlaunched in 2007 the PwC BrazilAgribusiness Center of Excellence.

• PwC clients throughout Brazil have since beenserved by our CoE and a professional teamskilled and savvy on major issues and tendenciesof the sector.

• PwC has differentiated itself in the market byadding value through technical, market andindustry expert knowledge.

The Center of Excellence is responsiblefor disseminating knowledge to otherindustries, offices and countries.

South

Midwest

Southeast

Northeast

North

PwC Brazil Agribusiness Center of ExcellencePwC Agribusiness Research & Knowledge Center

29

Soluções

R&KC

ProposalSupport

Businessdevelopment

support

Thoughtleadership

Learning &Development

Knowledgemanagement

Projectsupport

• The PwC Brazil Agribusiness Center ofExcellence has, as a differential, anintelligence center: AgribusinessResearch & Knowledge Center(R&KC).

• The R&KC is responsible for trackingand analyzing data and trends, helpingour team to perform their work withour clients with great quality andefficiency.

• The R&KC is also able to providemarket intelligence services andsupport our professionals in evaluatinginvestment options in the agribusinessindustry.

PwC

CoECoE

Source: PwC Agribusiness Research and Knowledge Center.

Canada

United States

Mexico

India

Australia

China

South Africa

Russia

KazakhstanNetherlands

United Kingdon

France

Indonesia

Malaysia

East ClusterCentral ClusterWest Cluster

New Zealand

Egypt

Rep. of Sudan

Equador

Colombia

Peru

Uruguay

Chile

Argentina

Paraguay

JapanSpain

PwC Brazil Agribusiness Center of Excellence is a benchmark and relationshippromoter with other countries.

PwC Agribusiness around the world

30

Angola

Switzerland

Un. Arab Emirates

SingaporeSaudi Arabia

PwC

www.pwc.com/br

© 2013 PricewaterhouseCoopers Brasil Ltda. All rights reserved. In this document, “PwC” refers toPricewaterhouseCoopers Brasil Ltda., which is a member firm of PricewaterhouseCoopers, each member firm of

which is a separate legal entity.

Contact:

José Rezende

+55 (11) 3674-3694

jose.rezende@br.pwc.com

Thank you…