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The Evolution of Agricultural Policies and Agribusiness Development in Brazil Fabio R 2nd Quarter 2006 • 21(2) A publication of the CHOICES American Agricultural The magazine of food, farm, and resource issues Economics Association The Evolution of Agricultural Policies and Agribusiness Development in Brazil Fabio R. Chaddad and Marcos S. Jank JEL Classification: Q18, O54, O13, Q15 In the late 1980s, Brazil started to adopt liberal and mar- agriculture between 1948 and 2002 (Gasques et al., 2004). ket-oriented policies, which significantly impacted the Other factors also contributed to the competitiveness and performance of its food and agricultural (henceforth agri- growth of the agrifood sector in Brazil, such as relative food) sector. The agrifood sector is now among the most macroeconomic stability after 1994 and the significant dynamic in the Brazilian economy. Grain production dou- reductions in government intervention and trade barriers bled from 58 to 120 million metric tons (MT) and meat (Jank, Nassar, & Tachinardi, 2004). production surged from 7.5 to 20.7 million MT between Despite these favorable developments and the avail- 1990 and 2005. The agrifood economy generated R$534 ability of labor and natural resources, agrifood growth in billion (US$183 billion) in 2004, which is equivalent to Brazil faces significant internal and external constraints. In 30% of the country’s GDP. In addition, it represented the external environment, trade barriers and subsidies to 35% of total employment and 40% of total exports in domestic producers and exporters, especially in developed 2004. countries, significantly impact Brazilian agrifood exports. Agricultural production growth and agribusiness As a result, Brazil adopted a more aggressive position in development in Brazil are largely dependent on exports, international trade negotiations at the World Trade Orga- which account for 31% of agricultural production. Total nization (WTO), bringing three high-profile dispute cases agricultural exports more than doubled from US$13-32 against developed countries and taking leadership in the billion in the 1990-2005 period. Brazil is now the world’s formation of a coalition of developing countries known as third agrifood exporter – following the European Union the G-20. (EU) and the United States (US) – and surpassed the US In the domestic arena, agricultural producers in Brazil as the country with the largest surplus in agricultural face uncertainties related to exchange rate volatility, the trade, with US$29 billion in 2005. lack of clearly defined property rights to land, the regula- The growing competitiveness of the Brazilian agrifood tory framework concerning research and marketing of sector is attributed to a number of factors, including genetically modified organisms (GMOs), poor infrastruc- investments in tropical agricultural research and availabil- ture causing logistical bottlenecks, and the decline in gov- ity of agricultural credit, which caused significant produc- ernment spending in important areas such as food safety, tivity gains since the 1970s. The technologies that made animal and plant health inspection, agricultural extension, the expansion into the cerrado region in the Brazilian Cen- irrigation, and other traditional agricultural policy instru- tral-West – in soils that are distinctly inferior to those in ments. The recent reemergence of foot-and-mouth dis- Argentina, the US Corn Belt and Southern Brazil – ease, which led more than 50 countries to close their bor- resulted from public investments in agricultural research. ders to beef exports from Brazil, is one recent example of The average annual growth rate of total factor productivity the policy challenges to the development of the Brazilian in Brazilian agriculture was estimated at 3.3% for the agrifood economy. This article discusses the evolution of period 1975-2002 and at 5.7% between 1998 and 2002, agricultural policies in Brazil and how they impact the which are above the 1.8% growth rate achieved by US competitiveness of the agrifood sector. ©1999–2006 CHOICES. All rights reserved. Articles may be reproduced or electronically distributed as long as attribution to Choices and the American Agricultural Economics Association is maintained. Choices subscriptions are free and can be obtained through http://www.choicesmagazine.org. 2nd Quarter 2006 • 21(2) CHOICES 85 Table 1. The evolution of agricultural policy in Brazil. 1965-1985 1985-1995 1995-2005 Proposed Agenda Macroeconomic - High inflation - Uncontrolled inflation and - Control of inflation - Low inflation conditions and policy - Controlled exchange rate low growth (stagflation) - Volatile exchange rate - Structural reforms and fiscal balance - High growth rate - Heterodox plans - High real interest rates - Less volatile exchange rate - Increased government - Debt crisis - Modest growth rate - Lower interest rates expenditures in farm policy - Land as real asset - Privatization - Sustained growth - Decreased government - Investments in infrastructure expenditures in farm policy Agricultural policy goals - Food security - Deregulation - Land reform programs - Competitiveness - Liberalization - Family farming and social - Sustainability (economic, social, and inclusion environmental) Price support and - Massive intervention: - Decreased intervention - Modest and selective intervention - Modest and selective intervention government storage public agencies, government - Agricultural commodity purchases and storage, price market deregulation controls - Commodity price support Rural credit - Government supply of - Decreased government - Credit lines targeted to family - Crop insurance credit financed by Treasury supply of credit farms (PRONAF) - Private instruments for agricultural (SNCR) - Interest rates less - Specific programs for investment finance - Negative real interest rates subsidized credit (BNDES) - Targeted credit lines to family farms - Agricultural credit crisis and debt - Credit cooperative development rescheduling Agricultural trade policy - Closed economy - Unilateral openness to - Aggressive policy against - Aggressive trade policies: negotiations, - High tariffs trade agricultural trade barriers litigations - Import Substitution model - International integration - WTO dispute panels - Increased emphasis on NTBs: technical, - Export taxes on primary (Mercosur) - Leadership in G-20 sanitary, and social barriers commodities - Elimination of export - Negotiation of regional - Conclusion of regional and bilateral taxes agreements (FTAA, EU-Mercosur) trade agreements Agricultural research and - High investment in public - Leveling-off of public - Crisis of public research and - Renewed public commitment to extension research (Embrapa, federal investment extension services agricultural R&D, including GMOs and state universities) - Increased role of public-private - Development of public partnerships extension service network - Intellectual property rights Social policies (family - Minimal - Initial stage - Ministry of Agrarian Development - Policy evaluation and monitoring farms and land reform) (Extraordinary Ministry of (MDA) - Retarget programs to different types of Land Reform) - Distributive programs: land family farms reform, “Bolsa Família,” rural - Farm cooperative development and retirement, PRONAF modernization The Evolution of Agricultural agricultural sector in Brazil was in rity of an increasingly urban popula- Policies in Brazil general not competitive (except in tion, while compensating the agricul- tropical products such as coffee and tural sector for the anti-export bias of Agricultural policy goals and pro- sugar), and was characterized by the import substitution model that grams in Brazil have changed signifi- highly skewed distributions of farm was common in developing countries cantly (Table 1). The period between income and land ownership with at the time. the mid 1960s to early 1980s was large, unproductive landholdings The debt crisis of the late 1980s characterized by massive government known as “latifundios.” It was in the forced the Brazilian government to intervention in agricultural commod- 1960s and 1970s that the country decrease support to farmers and to ity markets primarily by means of started to urbanize as many rural review agricultural policy goals. subsidized rural credit and price sup- poor migrated to large cities. During Economy-wide structural reforms port mechanisms, including govern- this period, agricultural policy had introduced in the early 1990s further ment purchases and storage of excess the objective of promoting food secu- decreased the distortion of agricul- supply (Figure 1). At that time, the 86 CHOICES 2nd Quarter 2006 • 21(2) 50% $250 "Massive" "Debt crisis" and "Low inflation" 45% intervention liberalization effects scenario 40% $200 35% 30% $150 25% 20% $100 15% 10% $50 5% 0% $0 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Price support: % of grain production supported Preferential credit support: US$ per ton of grain production Figure 1. Commodity price and preferential credit support in Brazil. Note: Before 1965, there was price support for coffee, sugar cane, milk, and grains. Source: Ministry of Agriculture, Livestock and Food Supply (MAPA), 2005. tural policy in Brazil by eliminating Government expenditures on 16 programs under the function export taxes and price controls, agriculture-related programs in Brazil “agrarian organization.”2 The perfor- deregulating and liberalizing com- have decreased over the last five presi- mance of many of these programs
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