What explains the intensification and diversification of Brazil´s agricultural production and exports from 1990 to 2012?

Carlos José Caetano Bacha

Leandro Vinicio de Carvalho

University of São Paulo - Brazil

Objective• This paper aims to provide an account of the evolution of

Brazilian agriculture and agribusiness in the period from 1990 to 2012, paying particular attention to the growth and diversification of exports and attempting to quantify the main determinants of this.

• Specifically, the paper aims to:

a) Analyse the changes in Brazilian agriculture during this period, mainly relating to production and farming areas;

b) Examine Brazilian agricultural policies to demonstrate the ways in which policy has been market-oriented;

c) Run an econometric supply model of agricultural and agro-processed export products, in order to quantify their main determinants.

Hypothesis• Our hypothesis is that Brazil does not have a predetermined ‘model’

calibrated for success in international agricultural markets. Rather, the country has adopted a responsive and flexible approach. Agricultural policies have been altered in response to constraints in both domestic and international markets, but also in order to seize opportunities arising in these markets. Additionally, Brazilian policy has been tailored to take advantage of available arable land and the country’s propitious climate for agriculture.

• Market-oriented agricultural policies such as rural credit, minimum prices, agricultural insurance, agricultural research and rural extension have been in action since the 1970s (although their functioning has fluctuated according to domestic and international constraints). Their main goal has been to stimulate tradable production, and these policies have allowed farmers to occupy new arable areas in order to produce what both domestic and international markets have demanded.

Methodology and dataset• The data is organized into tables and graphs to allow an

overview of the evolution in Brazilian agriculture and agribusiness during 1990-2012.

• An econometric supply model is run to determine the main variables that have influenced exports of agricultural and agro-processed products.

• The dataset was collected from the Brazilian Institute of Geography and Statistics (IBGE), the Ministry of Development, Industry and Foreign Trade (MDIC) and from the Food and Agriculture Organization (FAO). These three sources offer different information for the same variables, leading us to use them in different ways.

𝑙𝑜�𝐸𝑋�� = � + �1𝑙𝑜�𝑇�� + �2�� + �3𝑙𝑜���� + �4𝑙𝑜�𝑊𝐺𝐷�� + �4� + �� (3)

Considering the main 63 crops (including sugarcane), agriculture production summed up 384 million tons in 1990, 485 millions tons in 2000 and reached 966 million tons in 2012. Crop production has almost triplicated.

Results

Total meat production was 5.17 million tons in 1990, jumped to 10.33 million tons in 2000 and reached 22.35 million tons in 2012. From 1990 thru 2012, meat production has multiplied by 5.5 times.

Brazil´s exports of agricultural and agro-processed products jumped from US$ 10 billion in 1990 to almost US$ 88 billion in 2011 (they have multiplied by eight in twenty years). A larger increase of Brazil´s agricultural and agro-processed exports has taken place since 2000.

Simultaneously, Brazil´s market share in world agricultural exports has increased (from 2.4% in 1990 to 5.6% in 2011), and EU´s and USA´s shares have decreased.

What explain Brazilian agriculture boom?

1) available unexploited arable land, especially inside the new frontier opened during the 1970s, 1980s and 1990s in the Centre-West region and during the 21st century in Cerrado areas bordering the states of Maranhão, Piauí, Tocantins and Bahia (called MATOPIBA or BAMATOPI);

2) modern technology generated by EMBRAPA, public university, state-funded agricultural research institute and private-funded organizations;

3) state-funded market-oriented agricultural policies;

4) international markets available for Brazilian production and the role of agribusiness multinational companies;

5) market-oriented farmers both into the family and non-family farming.

Table 2 – Regional concentration indicators for agriculture (values in percentages related to total Brazil) Region Year Gross

value of Production

Total farming

area

Temporary cropland

Permanent cropland

Herd size Tractors cows pork poultries

North

1970 3.08 7.88 1.86 1.66 2.17 2.88 3.58 0.68 1985 3.98 12.06 3.18 6.90 4.19 7.10 3.77 1.03 1995/96 4.11 11.76 2.92 9.35 7.88 7.16 3.55 1.31 2006 3.74 12.27 3.76 15.16 14.72 4.32 1.84 2.06

Tocantins

1985 0.73 4.63 1.42 0.55 2.81 1.30 0.49 0.78 1995/96 0.75 4.74 0.71 0.30 3.41 0.78 0.33 0.99 2006 0.53 4.33 1.11 0.86 3.54 0.81 0.32 1.21

Northeast

1970 18.33 25.26 24.40 49.82 17.57 22.51 17.00 4.39 1985 24.55 17.04 23.87 42.95 17.49 25.83 17.95 6.27 1995/96 14.74 14.05 22.47 35.13 14.92 22.86 14.40 6.90 2006 19.76 22.91 24.15 30.24 14.76 12.63 8.59 7.60

Centre-West

1970 7.46 27.78 8.69 1.80 21.96 7.96 5.67 6.23 1985 9.75 26.44 16.12 2.39 28.21 8.36 4.63 12.96 1995/96 14.40 30.69 18.48 3.27 33.17 8.10 5.93 14.27 2006 13.79 31.46 23.84 6.13 33.52 11.76 12.05 15.53

Southeast

1970 37.31 23.63 28.61 27.22 34.17 18.39 41.46 49.75 1985 38.47 19.53 23.17 38.10 27.91 18.39 33.52 35.92 1995/96 34.59 18.12 21.38 43.37 23.49 16.17 36.54 34.84 2006 33.34 16.44 18.94 34.78 19.85 16.78 31.20 31.30

South

1970 33.81 15.45 36.43 19.50 24.12 48.26 32.29 38.95 1985 30.03 12.79 32.24 9.11 19.39 39.02 39.63 43.04 1995/96 31.41 12.54 34.04 8.58 17.13 44.93 39.25 41.69 2006 28.83 12.59 28.21 12.83 13.61 53.71 45.99 42.28

Source: Agricultural Censuses of Brazil – several years.

New agricultural frontiers have been exploited, such as, Centre-West during the 1970´s thru 1990´s, and BAMAPITO during the 2000s.

Table 1 - Use of land in Brazil – year of 2010 Land use Area (million hectares) Share of Brazil´s territory Arable land 157.2 18.5% With permanent crops(a) 6.3 0.74% With temporary crops(a) 59.1 6.94% With planted forests(b) 6.5 0.76% Available to plant 85.3 10.02% Pastures(c) 158.8 18.7% Area occupied with native forests and conservation units (d)

509.0 59.8%

Conservation units 133.0 15.6% Indigenous land 108.0 12.7% legal reserve and permanent preservation areas inside the farms

268.0 31.5%

Urban areas, roads, power plants and other construction(d)

26.0 3.1%

BRAZILIAN TERRITORY 851 100%

Brazil still has available arable land to double its crop production without affecting conservation areas.

Arable land

Agricultural research network

Embrapa Soybeans in Cerrado areas and cattle

Coopersucar, former Federal-funded Sugar and Alcohol Institute (IAA) and the São Paulo state-funded public universities

Sugarcane

Campinas´s Agronomy Institute (IAC) and Federal-supported Brazilian Institute of Coffee (IBC)

Coffee

Rio Grande do Sul´s Rice Institute (IRGA) rice

Embrapa is one among a huge network doing agricultural research in Brazil; despite this agency has an important role to coordinate a large range of crop and livestock researches

There is a strong relationship among research centres and public universities forming a research network.

20001985

1965: SNCR

1973/74: Research

(EMBRAPA)Rural extension

(EMBRATER)Rural insurance

(PROAGRO)

1994: new amendment of PROAGRO and emergence of

CPR Física

CPR Financeira

was launched

2006: PEPRO (new minimum price programme)

2004: New mechanisms of rural loansCDAWACDCALCACRAPROP (minimum price)

1997: new minimum prices mechanism (PEP andCOVPA)

1991: amendment

of PROAGRO

1964: Rural Worker Statue (ETR) and Land Statue

Rural credit

From 1964 to 1986: Brazil was run by military governments which

established policies and programs with grants to foreign-market oriented

farming

From 1987 thru 1999, democratic governments

focused on reducing public deficits and cut down

resources to traditional agricultural policies as well

as private support was pursued for market-oriented

farming

From 2000 thru 2013, left wing parties increased their influence on Governments, which reduced grants to

non-family farming and created new programs to support family farming, despite the coverage of these programs is limited. Several ministries have taken care

of agriculture, specially MAPA and MDA. However, they continue to support market-oriented policies

2003: subvention to rural insurance and PPA were created

1990: shutdown of federal agricultural-supported bureau , such as IBC, IAA, Embrater and others.

1996: Kandir´s Law and PRONAF

MDA was established on November, 25th, 1999.

Law 11,326, issued on July 24th, 2006, know as Family Farming Law

2012/13 – Two agricultural plans (MDA versus MAPA)

1967 thru 1986: AGF and EGF minimum price policies were predominantly allowed to tradable agricultural products

International markets available for Brazilian production and the role of agribusiness multinational

companies

Table 3 – Brazil´s destination of agricultural and agro-processed exports – selected years

Region or country

Exported value (agricultural and agroprocessed products) – US$ thousand) 2000 thru 2011 Growth

rate (1) 1997 2000 2007 2011

European Union 9,510,405 0.51 7,924,958 0.50 20.047.032 0.41 23.360.653 0.27 294.77%

Latin America 1,963,529 0.11 1,990,036 0.12 4.073.300 0.08 7.258.953 0.08 364.76%

Mercosur 1,446,968 0.08 1,219,979 0.08 1.350.035 0.03 2.131.241 0.02 174.69%

Africa 879,530 0.05 602,373 0.04 3.710.998 0.08 8.622.317 0.10 1.431.39%

Asia 3,520,056 0.19 2,739,096 0.17 10.753.981 0.22 29.103.904 0.33 1.062.54%

Middle East 1,066,914 0.06 938,519 0.06 4,651,884 0.09 8,557,519 0.10 911.81%

EUA 2,211,691 0.12 2,334,404 0.15 5.234.300 0.11 6.377.538 0.07 273.20%

Japan 1,182,081 0.06 920,490 0.06 1.679.897 0.03 3.426.046 0.04 372.20%

China 704,354 0.04 560,055 0.04 4.605.886 0.09 15.892.832 0.18 2,837.73%

Russia 686,088 0.04 411,381 0.03 10,477 0.0002 4,023,495 0.05 978.04%

India 55,145 0.003 86,119 0.01 21,669 0.0004 391,390 0.004 454.48%

Total exported (2) 18,649,278 15,966,235 49,269,996,000 87,650,130 548.97%

Large agribusiness multinational companies have an important role in financing, buying and exporting the Brazil´s agricultural production, as well as industrializing them.

New markets: Africa, Asia and Middle-East, with special attention to China

Family versus non-family farming: market-oriented

• What is family farming?• According to Law 11,326, issued on July 24th,

2006, family farming property needs to fulfill simulstaneously with:

• 1st) total farming area needs to be at most 4 fiscal modes,

• 2nd) to employ at most two salaried workers;• 3rd) the farmer needs to earns income only from

farming.

Table 4 – Distribution of agricultural gross production according ranks – family versus non-family farmers Annual agricultural production revenue Share of family farming

agricultural revenue Share of non-family farming agricultural

revenue More than zero less than R$ 2.5 thousand per year 3.1 0.2 From R$ 2.5 thousand to less than R$ 10 thousand per year 9.1 0.7 From R$ 10 thousand to less than R$ 25 thousand per year 13.9 1.6 From R$ 25 thousand to less than R$ 50 thousand per year 14.2 2.5 From R$ 50 thousand to less than R$ 100 thousand per year 13.2 4.2 From R$ 100 thousand to less than R$ 500 thousand per year 23.1 18.7 R$ 500 thousand or more per year 23.5 72.1

Family farming is not equal to poverty.

Table 5 – Importance of family and non-family farming into the main agricultural products and their share that is sold into the market (values in percentages) Product Share quantity produced by Share of the production sold into the market

Family farming Non-family farming Family farming Non-family farming Beans 70.8 29.2 50.3 87.0 Coffee 38 62 91.2 89.1 Corn 45.6 54.4 49.0 88.9 Cotton 2.3 97.7 98.3 76.4 Orange 16.4 83.6 99.8 99.9 Milk 57.6 42.4 90.2 92.2 Soybeans 14 86. 96.3 98.9 Rice 33.1 66.9 51.2 92.2 Wheat 21.2 78.8 94.8 94.5 Source: Brazil´s 2006 Agricultural Census.

Family farming is market-oriented as well as non-family farming.

Agricultural and agro-processed exportsAgro-processed products have been responsible for almost two thirds of total agro-based exports. At first glance, the evolution of agro-processed exports is similar to that of agricultural exports. However, some differences appear, particularly in 1997, 2009 and 2011 when for instance agricultural product exports increased more than agro-processed product exports, or when the former was stable despite the later decreasing.

As seen in Figure 8, the HHI index for agro-processed exports decreased from 0.44 in 1991 to 0.26 in 2011, while for agricultural exports in the same period the index increased from 0.41 to 0.46. Notably, the diversification is higher for agro-processed product exports than for agricultural product exports.

Supply equation of exports

𝑙𝑜�𝐸𝑋�� = � + �1𝑙𝑜�𝑇�� + �2�� + �3𝑙𝑜���� + �4𝑙𝑜�𝑊𝐺𝐷�� + �4� + �� (3)

We run:

Chart 3: explanatory variables used in Equation (3)

Explanatory variable Description Source

Brazil´s agricultural and agro-processed exports

EXPt Agricultural, forest, agro-processed exports

have been added (US$ million) FAO

Total agricultural production TPt Index of Brazil´s agricultural production,

2002 = 100 IBGE

Exchange rate et Purchasing power of Real in relation to the 16 major Brazilian partners´ currencies. An

index with 2005 = 100 IPEA

International Price Index PIt Index of agricultural and agro-processed product prices. Calculated by dividing value of exports over quantity exported

FAO

World GDP WGDPt Sum of all countries’ GDP (US$ million). World Bank

Supply equation of exportsTable 5 – results from equation (1) run by using the ordinary least squares method (OLS) and the generalized least squares method (GLS)

Agr

opro

cess

ed e

xpor

ts

Coefficients -26.41764* 0.945757** -0.082116* 0.050732 ns 1.594243* Standard deviation 1.193903 0.505315 0.144928 0.144232 0,147778 t-statistic -22.12713 1.871618 -0,566601 0.351735 10.78811 F-statistic 509.2316* Durbin-Watson = 1.381537 VIF = 7.58ns Breusch-Godfrey (chi2) = 1.344ns R2 = 0.990258 White test (F) = 1.751888 ns

Tot

al a

gro-

base

d ex

port

s

Coefficients -28.22800* 1.285355* 0.080861ns 0.191643ns 1.564041* Standard deviation 0.901602 0.433108 0.139098 0.116260 0.112789 t-statistic -31.30873 2.967749 0.581326 1.648408 13.86698 F-statistic 735.9119* Durbin-Watson = 1.679515 VIF = 6.64ns Breusch-Godfrey (chi2) = 0.229ns R2 = 0.993242 White test (F) = 0.3961ns

Source: results from the research. Note: * 1% significant, ** 5% significant, *** 10% significant.

constant lnTP lne lnPI lnWGDP

Agr

icul

tura

l ex

port

s (u

sing

OL

S) Coefficients -35.83536 1.802589*** 0.272786 ns 0.207186 ns 1.694405*

Standard deviation 2.726899 0.937143 0.313899 0.168377 0.199155 t-statistic -13.14144 1.923494 0.869021 1.230487 8.507962 F-statistic = 177.3856* Durbin-Watson = 1.719434 VIF = 5.29ns Breusch-Godfrey (chi2) = 0.130 ns R2 = 0.972434 White test (F) = 3.961930**

Agr

icul

tura

l ex

port

s (u

sing

GL

S) Coefficients -35.83536 1.802590*** 0.272786 ns 0.207186 ns 1.694405*

Standard deviation 3.012747 0.860401 0.285142 0.169827 0.205233 t-statistic -11.89458 2.095058 0.956667 1.219984 8.256024 F-statistic = 177.3856* Durbin-Watson = 1.719434 VIF = 5.29ns Breusch-Godfrey (chi2) = 0.130 ns R2 = 0.972434

According to Table 5, total production (TP), international prices (PI) and World GDP (WGDP) display the expected signals even though only TP and WGDP coefficients are statistically significant. The exchange rate coefficient has the expected signal for agricultural and total agro-based product exports, but the coefficients were not statistically significant in any equation.

ConclusionFrom 1990-2012, a huge increase in both crop and livestock production took place. In 1990, the quantity produced of the 63 major crops was 384 million tonnes, rising to 485 million tonnes by 2000 and reaching 966 million tons by 2012. In the same years, meat production was 5.17, 10.3 and 22.3 thousand tons respectively.

This increase in production is due to several primary factors:

1.market-oriented agricultural policies, but with higher subsidies to family farms;

2.the presence of agricultural frontiers and business farmers, especially the soybean farmers who have migrated within Brazil;

3.the presence of large domestic and foreign companies who have guaranteed the purchase of Brazilian agricultural products, thereby financing a large share of business farmers as well as agricultural exports;

4.an agricultural technology network encompassing federal and state-funded bureaux, universities, private organizations and companies.

• Since 1990, and particularly during the 2000s, Brazil has experienced very high growth in agricultural and agro-industrial exports, which rose from US$ 10 billion in 1990 to US$ 16 billion in 2000 and had shot up to US$ 88 billion by 2011. Simultaneously, Brazil´s share of the worldwide food supply market increased from 2.4% in 1990 to 2.9 % by 2000, and to 5.6% by 2011.

• Several factors can explain this growth; in particular, increasing domestic production, the growth of world consumption, and changes in the exchange rate have been key. Also relevant, although not of the same importance, are changes in international prices. According to the econometric model run in this study, the main determinant of Brazil´s agricultural and agro-industrial export growth has been the increase in world GDP (with an elasticity of 1.56, meaning that each 1% increase in world GDP implied a 1.56% increase in Brazilian exports of agricultural and agro-industrial products). The second most important determinant was the increase in domestic production, with an elasticity of 1.29.

Conclusion

Basing on the fact that Brazilian Centre-West and MATOPIBA areas have similar eco-climatic features as savannahs have into the African continent, the Brazilian experience in boosting both its agriculture and agribusiness would generate some lessons to be followed by some African countries, such as:

1)these countries should create friendly and trusty economic and political environment for large multinational agricultural companies (which are nowadays essential for achieving exports of agricultural products),

2)Create a domestic research network (especially linked with universities)

3)Adopt market-oriented agricultural policies which grant subsidies parsimoniously for less capitalized farmers.

Conclusion