Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops
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Agriculture in Brazil and Argentina: Developments and Prospects for Major Field Crops. Randall D. Schnepf, Erik Dohlman, and Christine Bolling. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture, Agriculture and Trade Report. WRS-01-3. Abstract Recent increases in international competitiveness by Argentine and Brazilian grain and oilseed producers could foreshadow continued gains on the strength of abun- dant undeveloped agricultural resources, increasing market orientation, and expanding global trade liberalization. Economic and policy reform coupled with agricultural research developments drove the dramatic growth surge of the 1990s. Infrastructure development, livestock sector dynamics, and macroeconomic stability in each country will determine the speed and intensity of further growth. Keywords: Brazil, Argentina, soybeans, corn, wheat, agriculture, policy, infrastructure, production costs Acknowledgments The authors thank Mark Ash, Praveen Dixit, Joy Harwood, Demcey Johnson, William Kost, Dale Leuck, William McBride, Greg Pompelli, and Jim Stout of the Economic Research Service; Carol Goodloe of the Office of the Chief Economist; Gerald Bange, Keith Menzie and Shayle Shagam of the World Agricultural Outlook Board; David Mergen, Marc Lower, and Eric Wenberg of the Foreign Agricultural Service; Ricardo Krajewski of the Agricultural Marketing Service; Peter Riley, Phil Sronce, and Jerry Norton of the Farm Service Agency; Chris de Brey of The Sulphur Institute; Steve Fuller of Texas A&M University; and Edward G. Schuh of the Hubert H. Humphrey Institute of Public Affairs for their timely reviews and helpful suggestions. Special thanks are extended to Dale Simms, for editorial assistance, and Wynnice Pointer-Napper for design assistance. The authors would also like to extend special thanks to the many individuals in USDA’s Foreign Agricultural Service, particularly Paul Provance and Rao Achutuni of FAS’s Production Estimates and Crop Assessment Division, who provided invaluable data and crop intelligence information. We appreciate the various members of FAS’s foreign service and host-country nationals working in the Attache missions in Argentina and Brazil, whose timely and informative reports were instrumental in providing an initial basis for understanding the agricultural sectors in those two countries. Cover Photo: Soybean field in Mato Grosso by Rao Achutuni, FAS, USDA. 1800 M Street, NW Washington, DC 20036-5831 November 2001 Contents Foreword . .iv Executive Summary . .v Chapter 1. Introduction . .1 Chapter 2. A Comparison of Economic and Agricultural Settings . .4 Introduction . .4 Agriculture’s Economic Role Differs Sharply . .4 Abundant Land Base Strikes a Common Theme . .4 The United States and Argentina Have Temperate Climates; Brazil Is More Tropical . .6 Hemisphere Location Results in Counterseasonal Crop Pattern and Supply Availability . .8 U.S. Growing Season Generally Shorter . .9 Brazil’s Climate is Generally Milder and Wetter . .10 Argentina and U.S. Soil Fertility Superior to Brazil’s Center-West . .12 Box Story: Brazil’s Cerrado Land Potential . .12 U.S. Infrastructure Vastly More Developed . .13 Chapter 3. Soybeans, Agriculture, and Policy in Argentina . .15 Introduction . .15 Argentina’s Soybean Sector Starts Late, But Grows Rapidly . .15 Menem Government Initiates Substantial Reforms in 1991 . .19 Box Story: High International Commodity Prices in 1996 Boosted Producer Incentives . .21 Box Story: Declining Longrun Trend of Field Crop Abandonment in Argentina . .26 Recent Infrastructure Developments Spur Competitiveness . .26 Other Agricultural Sectors Remain Vital to Soybean Prospects . .28 Argentina’s Post-Reform Economy… Losing Stability? . .33 Chapter 4. Soybeans, Agriculture, and Policy in Brazil . .35 Introduction . .35 Brazil’s Soybean Sector Grows with Strong Government Support . .36 Cardoso Launches Brazil’s “Real Plan” . .43 Brazil’s Infrastructure Development Holds the Key to Agriculture’s Future . .47 Other Agricultural Sectors are Vital to Soybean Prospects . .49 ii u Agriculture in Brazil and Argentina / WRS-01-3 Economic Research Service/USDA Chapter 5. Soybean Production Costs and Export Competitiveness in the United States, Brazil, and Argentina . .53 Introduction . .53 Methodology Behind the Cost Comparisons . .53 Box Story: Why Compare Costs? . .54 Soybean Production Cost Structure Favors Argentina and Brazil . .55 Conclusion: Argentina Appears Most Competitive . .60 Chapter 6. Outlook and Issues Confronting Future Development . .61 Introduction . .61 Major Factors Governing the Longrun Outlook. .61 Box Story: USDA’s Longrun Baseline Projections . .67 Conclusions . .69 References . .71 List of Tables . .75 List of Figures . .76 Economic Research Service/USDA Agriculture in Brazil and Argentina / WRS-01-3 u iii Foreword Since the mid-1990s, Argentina and Brazil have made enormous gains in agricul- tural output, particularly for soybeans. According to USDA data, their combined exports of soybeans and soybean products now exceed U.S. exports. But the data fail to tell the circumstances behind the production surge, and give no indication of its future potential. In the past, USDA’s international focus has generally favored monitoring current and potential U.S. export markets, rather than export competi- tors. Distance and language have further encumbered the acquisition of informa- tion on agricultural developments in Argentina and Brazil. The past several years have seen sensational media accounts of vast resource poten- tial in Brazil. U.S. travelers to central Brazil report soybean fields that span the horizon, endless acres of inexpensive virgin soil, and boundless water resources. This report attempts to demystify these claims and clarify the circumstances behind the agricultural boom in Argentina and Brazil. To this end, USDA’s official data are supplemented by data from the U.N.’s Food and Agriculture Organization, the International Monetary Fund, the World Bank, and official data from various Argentine and Brazilian government ministries. Based on a detailed description of the agricultural sectors and their underlying resource bases, this report also assesses the conditions likely to influence future agricultural growth in Argentina and Brazil. The intention is to lay a foundation and foster the further study of agricultural developments in Argentina and Brazil, particularly as they affect the U.S. farm sector and the government programs that support it. iv u Agriculture in Brazil and Argentina / WRS-01-3 Economic Research Service/USDA Executive Summary The United States has been the world’s leading exporter of corn, soybeans, and wheat for the past 40 years, but Argentina and Brazil have made great inroads in recent years. Since 1990, Argentina and Brazil have sharply increased agricultural output and have gained global market share for several major commodities, partic- ularly soybeans, often at the expense of the United States. ◆ Since 1990, soybean production has more than doubled in Argentina and Brazil. Argentina’s wheat and corn production is up 75 and 105 percent, and Brazil’s corn production has increased by 40 percent. In contrast, soybean and corn production in the United States have expanded by about 42 and 25 percent during the same period, while wheat production has declined. ◆ Soybean production in Argentina and Brazil has expanded faster than domestic use, contributing to rising exports and growth in global market share. Com- bined soybean-and-product exports (in soybean equivalents) for the two coun- tries is expected to account for nearly 50 percent of world trade in 2001, up from 40 percent during 1989-91, and easily surpassing the United States’ 35- percent share. During the same period, Argentina’s average shares of global corn and wheat trade have more than doubled to 13 and 10 percent, respec- tively. Even more striking is the dramatic reversal in Brazil’s corn trade, switching from average net imports of almost 1 million tons per year during the 1990s to projected net exports of nearly 3.7 million tons in 2000/01. The dramatic growth in production and trade has caused policymakers and market participants to consider its origins, sustainability, and potential for future expan- sion. Increased South American supplies have no doubt contributed to the low international commodity prices of recent years, which have squeezed market returns to U.S. producers and prompted large government payments. South American field crop output will clearly have an ongoing influence on U.S. farm exports, prices, incomes, budgetary outlays, and program options. This report presents research by the Economic Research Service (ERS) on the factors underlying the recent surge in agricultural production in Argentina and Brazil, and evaluates the prospects for future area and yield growth. Among its findings: ◆ Economic and political reforms undertaken by Argentina and Brazil during the early and mid-1990s underpinned their surge in agricultural output. The reforms contributed to greater market orientation and a more stable macroeco- nomic environment for investment and decisionmaking. Previously, both coun- tries had long histories of economic instability involving hyperinflation, over- valued exchange rates, and frequent currency realignments. The agricultural sectors of both countries were also subject to pervasive policy intervention that ultimately promoted other sectors at the expense of agriculture. Export taxes and quotas were used