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Brazil’s insertion in the Global Food Chain – Pedro A .Vieira e Elisio Contini

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by Pedro Abel Vieira e Elisio Contini

Predictions of the Food and Agriculture Organization of the United Nations (FAO) about the growing demand for food leaves no doubt about business opportunities and responsibility for Brazil. According to FAO, in the next 20 years the world population will grow around 25%, reaching the number of 9.5 billion people. Food consumption will increase 60%, the need for additional energy, 40% and water, 50%.

This scenario poses a great challenge for agriculture: increase food and energy production, as well as “produce water” and sequester carbon. Additionally, the global food market will be regionally disproportional. The growth in demand will be in Asia, where 60% of the world’s middle-class will live, while the potential demand will be in South America, the only region with enough natural resources to promptly supply this demand. It is estimated that Brazil will double its agricultural production, which presents an opportunity and great responsibility for the country.

The Brazilian agro-industry has the potential to meet the challenge of producing more food. Over the last 20 years, agricultural production and productivity have grown more than the world’s average. Brazil is the largest exporter of coffee, sugar, orange juice and meat (both bovine and chicken); the second largest exporter of corn and soy (grains, bran and oil); and an important exporter of pork and cotton. There are efforts form the Brazilian Government, class entities and the industry to significantly elevate the agro-industry exports, through competitivity of our products and removal of barriers imposed by countries who are potential buyers, who unfairly protect their internal markets.

Brazilian agriculture has been contributing to the preservation of natural resources and the environment, obeying the new benchmark established by the new Forestry Code (Figure 1). Over the last 25 years, grain production has grown around 90%, thanks to technological innovations introduced, and which take into account environmental restrictions; new land acquisition has only been 32%.

This tendency may grow with the adoption, by agricultural and livestock farmers, of “green” programs, such as: Low Carbon Agriculture (acronym in Portuguese ABC), which promotes the introduction of techniques like no-till farming, the use of microorganisms replacing chemical ones and “Carbon Neutral” livestock production systems; b) refining the Agro-Environmental Zoning, which proposes more “friendly” production systems to the environment and will reduce production and environmental costs; labeling foods, more strict; the Biosecurity National Policy, which aims at protecting biodiversity; c) Integrated Production, which fosters a boost in production, improving food quality and natural resources; and d) the prohibition of sugarcane burning after 2014.

The role that agriculture has for Brazilian society in generating wealth and well-being for both rural and urban population is undeniable. The sector has a great wealth multiplying capacity, due to both “background effects” (machine industry, feedstock) and “forward effects” (stock, agro-industry, transport, commerce). Even though agricultural production is only 5% of the Brazilian Gross Domestic Product (GDP), agro-business as a whole represents 23% of Brazilian GDP and 21% of formal employment, especially in regards to the services that the agricultural sector generates. In this wealth equation, the external market is one of the most important growth vectors in the agricultural sector. In 2015, agricultural exports were around US$ 74.5 billion, the equivalent of 39% of external Brazilian sales, contributing to the Brazilian Trade Balance surplus.

This performance is a result of a confluence of internal structural changes that began in the early 1970s and institutional reforms in the 1990s, mainly with the plan for controlling inflation, the Real Plan, and the balance in the currency exchange rate. In the agricultural sector, soil correction techniques, a variety in plant and livestock more adapted to the environment, and entrepreneurial farmers dominate the tropical agriculture and conquer the Savannahs (in Portuguese Cerrado). This revolution has been supported by public policies, such as implementing basic, although precarious, infrastructure, and an ingenious financial economic credit and commerce system. In an external scope, global economic changes, such as the emergence of China, have contributed heavily for the demand of our agro-business products.

Another driving force of these changes has been the development of a sophisticated economic system, led by foreign commerce. Recent data indicate that there has been a cooling down in agro-business dynamics in exports, however. In 2015, Brazil had 6.9% of the world agricultural commerce, estimated in US$ 1.1 trillion. It is estimated, for the next few years, that this participation will be reduced to 5.8%. It is important to highlight that Brazil is still competitive (concept that is applied to products whose insertion in the global market is over 1% of the total value of the goods in question) in only 42% of the agricultural products commercialized. This index in lower than China’s competitiveness (52%) and, mainly, lower than the European Union and the USA, both with 81% of their competitive exported agricultural products.

These comments suggest that Brazil needs to pays more attention to the foreign market in two aspects: i) diversifying its export and buyers agenda and/or ii) intensifying current products and exports. Where diversification is concerned, a study from the Secretariat of Intelligence and Macrostrategy of the Brazilian Agricultural Research Corporation (acronym in Portuguese Embrapa) has identified new potential products, in which Brazil already has some export competitivity, and which have a significant international market: beverages such as malt beer and wine; chocolate and other foods based on cocoa; assorted cereals and preparations; spices, especially pepper; fresh, dried or frozen fruit; aquaculture products; and other assorted products, such as preparation for broth and soup, animal food, non-fermented juice mixtures, manioc starch and palm, babassu and castor oil.

Where intensification is concerned, Brazil needs strategies to increase productivity in all production aspects and also add value to its primary products. In productivity, the technological path in adapting soil for agricultural production, especially in the Cerrado region, is a highlight. As an answer to this challenge, Embrapa has been proposing “new” technological paths, such as integrated systems, especially in regions with fringe environmental supply (soil and weather), and better harnessing of its water reserves through irrigation, in production systems that allow for “water production”.

Brazil has the means to contribute to the growing global demand for food, but “the current game is more complex and how this production needs to be sold is required”. It is important to point out that this game is not only played based on basic competencies: land availability, technology and know-how. It also involves the political aspect, which determines the rules of the game and the conditions to compete in the world market. Thus, the question posed is; is Brazil, in fact, ready, or at least getting ready, for the heavy political game of international commerce?

Besides geopolitics, it is up to Brazil to observe the complexity of the current production and consumption networks (Global Value Chains), each passing day more consumer-oriented. Over the past decades, branding has been a powerful market tool, creating a bond between consumers and producers. Brand omnipresence is beginning to lose strength with the growth of online societies where individuals are much more than consumers. Where food is concerned, besides the environmental and social consequences so in vogue, this omnipresence directly affects people’s health and growth. The Global Food Chain is facing an unprecedented challenge due to this change, and reputation is one of the keywords for its success. Understanding how the relationships are in the Global Food Chains is of the utmost importance for any country that has in its agricultural sector one of its main income generators. In Brazil’s case, besides understanding the many different chains, it also is necessary to predict which position the country holds in the Global Food Chain.

In spite of a few problems, there is no doubt that Brazil has developed the basic competencies to produce and export food. There is no certainty, however, of the country’s agricultural capability to occupy a prominent position in the Global Food Chain, since the Brazilian agriculture does not consistently invest in building a reputation. For instance: although the country has one of the most modern environmental protection legislations, the Forestry Code, which demands that the private sector preserve, at least, 20% of its forest area, the negative deforestation image is still strongly associated with Brazilian agriculture and livestock production.

Summing up, it is undeniable the relevant role that the Brazilian agro-business has as a strategic food source for humankind and for generating wealth for Brazilian society. Despite this importance, the dynamics in its exports have been cooling off, which leads to losing participation in the agricultural world commerce. Thus, it is of the utmost importance that Brazil increment its agricultural competitivity, with actions such as diversification in its exports agenda, gains in productivity and commercial promotion. Although these are necessary actions, they will not suffice if the country is not careful with its reputation, an issue that ties directly to science based production and its decoding for global society. Knowledge and decoding, these are the keys for Brazil to increment its reputation and for not disappointing global society as a strategic food source.

Pedro Abel Vieira, Researcher in the Secretariat of Intelligence and Macrostrategy of the Brazilian Agricultural Research Corporation (acronym in Portuguese Embrapa).

Elisio Contini, Head of the Secretariat of Intelligence and Macrostrategy of the Brazilian Agricultural Research Corporation (Embrapa).

This technical note was presented at a seminar on agriculture, technology and information (Iowa,  USA –  October 2017).