July 26, 2016 The Land of the Future

Volume 3 | Issue 2

Brazil is quickly becoming a force in the world’s agricultural community and it’s cerrado, the last frontier, offers a bounty of agricultura

In the 1950s when Frank Sinatra sang, “They’ve got an awful lot of coffee in Brazil,” he came close to describing the country’s agricultural base. Indeed, Brazil grew a lot of coffee, but other than food to feed its people, not much else. There was no notable change in this situation until the 1970s, when the nation’s agriculture began a dramatic transformation. Coffee lost its relative importance in the agricultural economy as production of other crops and live-stock enterprises rapidly expanded. By the middle of this decade the country had moved to first or second position in the world as a producer or exporter of not just coffee but also beef, sugar, soybeans, soybean meal, orange juice, broilers and ethanol. Brazil is now a world agricultural superpower.

The growth of Brazil’s agriculture over the past two to three decades is impressive, and there are no signs it will slow. Rather, the nation’s agricultural development is likely just getting underway. Within the next decade or so I expect Brazil to dominate global production and trade of all but a handful of internationally traded agricultural commodities.

Agricultural Transformation & Growth

Until the 1970s, Brazil achieved most of its farm output growth by opening new land rather than improving land productivity. Then land productivity began to improve with application of new technologies developed by EMBRAPA, the country’s newly established national agricultural research entity. The new technologies were important in growing farm output on existing land, but things didn’t really take off until some of these technologies were applied to “new” land in a geographical region known as the cerrado.

The cerrado is Brazil’s high plains, a vast savannah in the central-western area of the country (the cerrado is not rainforest) making up nearly a quarter of the nation’s land mass, an area as large as the United States east of the Mississippi, excluding the Florida peninsula. Until new technology broke the code on how and what to cultivate in this huge region, it was unpopulated and empty space. The code was essentially two-pronged: 1) soil fertility management techniques that overcame low fertility and high acidity of cerrado soils, and 2) a new type of soybean, a so-called tropical soybean, the first commercial crop adapted to the low latitudes of the cerrado.

With the application of new soil fertility management techniques and adapted varieties, soybean production spread across the more accessible cerrado areas like wildfire. Between 1980 and 2006, the growth rate of cerrado production of soybeans was greater than that of any crop in any world region in known history.

In a matter of a few years, the more accessible areas of the cerrado were transformed from wastelands to fields of plenty as millions of farmers and their families migrated to the region from the south of Brazil. Land was limitlessly abundant and cheap, a hectare (2.47 acres) selling for less than the price of a pack of cigarettes. Farmers sold their small farms in the south and used the sale proceeds to buy farms of hundreds or thousands of hectares in the cerrado. In less than a decade, the population of accessible areas of the cerrado grew by millions. Small settlements of a few dozen people transformed almost overnight into booming cidades de soja (soybean cities) with thriving markets, schools, medical clinics, pharmacies, farm supply stores and national and multinational soybean processors. It was a soybean-land rush constrained only by access and capital availability.

Today, the cerrado is Brazil’s most important soybean producing region and accounts for all of the 300 percent growth in national soybean output since 1980. About half of the country’s corn and 90 percent of its cotton is produced there.

In addition, the cerrado, mostly wasteland only 30 years ago, now accounts for nearly half of Brazil’s total agricultural GNP. It is the world’s last frontier, the world’s last massive land area yet unopened. A far greater portion of the cerrado would have been opened by now had Brazil’s capital markets been functional during the past several decades. They were not. From 1970 to 1994, the country’s annual inflation rates ranged in the double, triple and quadruple digits. Short-term interest rates were beyond belief by U.S. standards, and long term credit was unavailable at any price. Land purchases could not be financed through any institutional source, so sellers financed land on two-to-five-year terms. Inflation has been under control since 1994 and short-term interest rates are down, but no public or private financial entity extends long-term credit for land purchases. To a great extent, this explains why cerrado land prices are a fraction of the prices of good agricultural land in the United States or in Europe. Prime farmland in the U.S. corn belt is currently selling for about $6,000 per acre while equivalent farmland in Brazil’s cerrado is on the market at asking prices of about $850 per acre.

Brazil’s inefficient capital markets open land investment opportunities for investors with overseas access to capital. Brazil’s cerrado land is the cheapest highly productive land in the world, and for some it may be an attractive investment. But take money if you go.

The Future Is Here

For years, visitors and observers from the U.S. agricultural community – farmers, academics and the agricultural press – focused on the many negatives facing Brazil’s cerrado agriculture: poor roads and infrastructure, high transportation costs, distance to markets, perverse government policies, crop pests and diseases, poor soils, high interest rates, and lack of credit, among myriad other factors. All these factors would stifle future growth, they concluded. It didn’t happen. All those who projected future short- or long-term production of soybeans in the cerrado were remarkably consistent, but also consistently wrong; actual production always exceeded projected levels.

Brazilians used to joke that their country was the land of the future and always would be. In the cerrado, the future is arriving, but the opening and development of the cerrado is far from complete.

Various Brazilian public and private entities have analyzed the potential for expansion of cerrado agriculture and have come up with estimates ranging from 65 to 90 million hectares (160 to 220 million acres). In the mid 1990s, using various sources and “eyeball” estimates from extensive travel in the region, I estimated the expansion area at about 145 million hectares (360 million acres). In 2003, an analyst from USDA added in the potential area from conversion of cerrado pasture land to cropland and estimated the potential crop expansion area at 170 million hectares (410 million acres).

If the 2003 USDA estimate is valid, the area of potential cropland expansion in Brazil’s cerrado is nearly 140 percent greater than the U.S. land area currently devoted to all crops and 185 percent greater than the soybean production area of the entire world. By any of these measures, the potential for cropland expansion is astonishing!

Philip F. Warnken is president and founder of AgBrazil with experience in Brazil extending over 40 years. An authority on Brazilian agriculture, he writes frequently on the subject, and is the author of a recent book, The Development and Growth of the Soybean Industry in Brazil, published by Iowa State University Press.

AgBrazil is the serious investor and agribusiness link to exceptional profit and growth opportunities in Brazil’s agriculture frontier. AgBrazil provides investors and agribusinesses expert professional consulting and guidance to establish and operate profitable farms and agribusinesses in Brazil’s frontier.

Visit www.agbrazil.com.

Subscribe to Industry Today