The Potential Impacts of the Port of Salvador Improvements on the Brazilian Cotton Exporting Industry
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THE POTENTIAL IMPACTS OF THE PORT OF SALVADOR IMPROVEMENTS ON THE BRAZILIAN COTTON EXPORTING INDUSTRY Rafael de Farias Costa (AgriLogic Consulting) Ecio de Farias Costa (UFPE) Resumo: Abstract: A spatial price equilibrium model of the international cotton sector was used to analyze the impacts of the Port of Salvador improvements on the Brazilian cotton industry and world cotton trade. By the end of 2012, the port of Salvador is expected to have undergone relevant improvements in its facilities and physical structure. As a result of these improvements, the port of Salvador is expected to become more competitive and attract ocean shipping companies which are willing to export products directly to Asian importing markets. Scenarios with different reduction in export cost for the port of Salvador were examined. For all scenarios, the new direct ocean shipping lines were found to be important for the cotton exporters in Brazil, especially for the producers in the state of Bahia. As the ocean shipping carriers introduce their new shipping lines, the analysis indicated a shift in Brazil cotton export flows from the port of Santos to the port of Salvador as well as an increase in exports and producer revenues. In addition, results suggested that the state of Bahia would have the potential of becoming the largest cotton exporting state in Brazil. Resumo: Um modelo de equilíbrio preço espacial do mercado internacional do algodão foi utilizado para analisar os impactos dos investimentos na infraestrutura do porto de Salvador na indústria algodoeira brasileira e no comércio mundial do algodão. Até o final de 2012, o porto de Salvador deverá ter concluído melhorias relevantes em suas instalações e estrutura física. Como resultado desses investimentos, espera-se que o porto se torne mais competitivo em relação a outros portos brasileiros e atraia empresas de transporte marítimos que estariam dispostas a exportar produtos diretamente para países importadores na Ásia. Diferentes cenários com reduções no custo de exportação do porto de Salvador foram propostos e analisados. Em todos eles, as novas linhas diretas de transporte marítimos mostraram-se bem importantes para os produtores brasileiros, especialmente para os exportadores baianos. A análise realizada também indicou que poderá ocorrer uma mudança no fluxo das exportações de algodão baiana para o porto de Salvador, ao invés do escoamento pelo porto de Santos. E que os produtores baianos ganhariam na forma de aumento das exportações e em receita de produtor. Além disso, os resultados sugerem que o estado da Bahia poderia se tornar o maior exportador de algodão do Brasil. 1 Introduction Cotton Industry in Brazil In the 18 th century , cotton was introduced in Brazil in the Northeastern region of the country. As the Southeastern region of the country started to industrialize in late 1800’s, the textile industry followed and eventually cotton cultivation was solidified in the states of São Paulo and Paraná. In the early 1980’s, the states of São Paulo and Paraná was shown to represent the majority of the Brazilian production (Figure 1). Figure 1. Historical series of cotton production by state and region, 1976/1977 – 2011/12 Source: Companhia Nacional de Abastecimento (CONAB /MAPA 2011a). However, from 1984 /85 to 1996/97, national cotton production decreased substantially from nearly 1 ,000 to 300 thousand metric tons (Figure 1). According to Buainain and Batalha (2007), the principal factors for the decline were: (i) the boll weevil, especially in the Northeast; (ii) high production costs; (iii) low international prices; and (iv) less expensive cotton imports. Under these circumstances, cotton cultivation migrated to the Cerrado 1 regi on, more specifically to the states of Mato Grosso, Goiás, Mato Grosso do Sul and western region of the state of Bahia. The expansion of cotton production in the Cerrado was strongly affected by the following factors: (i) large scale production; (ii) advan ced technology with respect to planting and harvesting; (iii) local government support regarding research and development; and (iv), although small, investment in transportation infrastructure in these portions of the Cerrado (Buainain and Batalha 2007). As noted in Figure 1, in the 1997/98 marketing year, cotton production for the state of Mato Grosso began to rise significantly. By 2000/01, the production share by the state of Mato Grosso reached 57 percent ( 534 thousand metric tons ) of the Brazilian production (938 thousand metric tons ). Three years later, the state of Bahia started to play a major role by increasing its cotton production to 317 thousand metric tons, which is almost five times the level of 2000/01 harvest . In 2009/10, these two states represented more than 80 percent ( 990 thousand metric tons ) of the Brazilian production ( 1,194 thousand metric tons ), with the state of Mato Grosso accounting for nearly 50 percent (583 thousand metric tons ). The remaining 1 The Cerrado area is comprised of a large heterogeneous tropical savanna which occupies more than 2 million hectares, approximately 20 percent of the land area in Brazil. It includes areas from the Amazon complex, most of the Central-West of Brazil, and part of Southe ast and Northeast of Brazil. 2 20 percent of the current Brazilian cotton production is mostly represented by the states of Goiás (8 percent) and Mato Grosso do Sul (5 percent), which are also part of the Cerrado area. For the forecast of 2010/11, although production has decreased for two years in a row, Mato Grosso is expected to continue as the number one producing state (934 thousand metric tons) followed by Bahia (633 thousand metric tons), Goiás (162 thousand metric tons), and Mato Grosso do Sul (89 thousand metric tons). Overall, these four states will account for approximately 93 percent of the Brazilian cotton production, which is forecasted to be 1,959 thousand metric tons in 2010/11, an all-time high. Concerning Brazilian cotton export value, according to the CONAB/MAPA (2011b), the cotton industry accounted for $1.59 billion, which represented 1.7 percent of Brazil’s total agricultural export sales ($94.9 billion) in 2011. Although this value is small when compared to other commodities (i.e. soybeans) 2, the cotton export sales almost doubled when compared to 2010 (from $0.82 to $1.59 billion). According to the SECEX/MDIC (2011), South Asia and Southeast Asia are large importers of Brazilian cotton. Based on the average of the 2009-2011 calendar years of Brazilian cotton exports, China, Indonesia and South Korea imported 135, 114, and 100 thousand metric tons, respectively, representing 59 percent of Brazil’s average total cotton exports (591.9 thousand bales). The remaining cotton exports are evenly distributed with most of the exports having final destinations in the Southern and Southeastern parts of Asia. The only exception is the European Union, which accounted for 3 percent (nearly 14 thousand metric tons) of the export market. Based on the data from SECEX/MDIC (2011), Brazil’s total cotton exports are disaggregated to state and region levels as shown in Table 1. Brazil’s total cotton exports rose from 418.4 thousand metric tons in 2007 to 758.3 thousand metric tons in 2011. In 2008, the total quantity exported by Brazil reached a record level, which, according to the FAS/USDA (2011), placed Brazil as the third largest cotton exporter in the world behind the U.S. (2,887.3 thousand metric tons) and Uzbekistan (653.2 thousand metric tons). Furthermore, for the 2011/12 market year, the Brazilian total exports are forecasted to be 830 thousand metric tons, which will represent almost the double of the exports recorded in the 2007 calendar year. Table 1. Cotton Exports by State/Region in Brazil (thousand metric tons), 2007 - 2011 State 2007 2008 2009 2010 2011 Mato Grosso 236.78 330.07 267.91 258.31 362.69 Bahia 127.72 127.33 154.35 178.51 304.32 Goiás 29.13 32.81 43.61 38.97 41.35 São Paulo 5.66 5.73 8.71 12.41 8.36 Mato Grosso do Sul 9.71 16.92 14.33 10.30 16.20 Maranhão 4.07 6.92 11.65 10.19 17.77 Minas Gerais 3.20 10.97 2.79 1.92 3.92 Subtotal 416.34 530.82 503.38 510.68 754.60 Rest of Brazil 2.07 2.11 1.52 1.81 3.73 Total 418.41 532.93 504.91 512.51 758.33 Source: SECEX/MDIC (2011). 2 In 2011, the soybean complex (oilseed, meal, and oil) export value was nearly $24 billion, which is equal to 25 percent of the Brazilian total agricultural export value (CONAB/MAPA 2011b). 3 Regarding the distribution of exports by state, from 2007 to 2011, the states of Mato Grosso, Bahia, and Goiás accounted for, on average, more than 90 percent of Brazil’s total quantity exported (Table 1). The state of Mato Grosso average exports for the analyzed period was 291.1 thousand metric tons, a 54 percent share of total exports (545.4 thousand metric tons). As for Bahia and Goiás, their participation with respect to the total exports was an average of 32 (178.4 thousand metric tons) and 7 (37.2 thousand metric tons) percent, respectively. With respect to the cotton consumption (domestic mill), the main input for textile manufacturing is cotton, followed by man-made fibers (synthetic polyester, etc.). Of the total textile production, cotton fiber represents approximately 80 percent of the input (ABIT 2011). In general for the period 2005 to 2009, the cotton consumption was somewhat evenly distributed between three regions: Northeast, Southeast, and South (Table 2). For the same period, the Northeast region was the leading cotton yarn producer representing on average 38.1 percent (422.7 thousand metric tons) of the Brazilian cotton consumption followed by the Southeast (33.2 percent) and the South (27.6 percent).