Brazil's rise as farming giant has a price tag

By Jerry Hirsch and Henry Chu

RONDONOPOLIS, Brazil, Posted August 31, 2005 (L.A. Times, 8/22/05 via CropChoice): This Amazon nation's drive to become the world's breadbasket hinges on farmers such as Carlos Augustin, who grows cotton and soy in an area that would cover more than half of the San Fernando Valley.

Augustin's giant agricultural complex houses a cotton gin, dormitories for 300 migrant laborers and a $3-million fleet of cotton harvesters.

Such complexes are designed with one goal: to outproduce rivals from Australia to America. The strategy appears to be working.

In the last five years, Augustin and other large farm owners have turned their nation into an agricultural superpower, making it the world's biggest exporter of many agricultural products.

The South American nation now supplies sugar for Nigeria's bakeries, chicken for Hong Kong's restaurants, tobacco for Germany's smokers and coffee for Japan.

Growing staples for the world Agricultural products make Brazil a key player worldwide

Brazil exported $27.6 billion in agricultural products last year and imported goods worth $3.2 billion. That agricultural trade surplus of $24.4 billion was the biggest in the world and is crucial to Brazil's efforts to pay foreign debts and keep its economy humming.

"Agribusiness is a matter of survival for Brazil," said Carlo Lovatelli, president of the Brazilian Association of Agribusiness in Sao Paulo.

Brazil's focus on creating large farms to grow crops for export is not without cost. Many smaller farmers are being pushed out of business. And some Brazilians worry that the country is focusing too much on commodities such as cotton and oilseeds for the global market, rather than the "foodstuffs that can actually be consumed by the local people," said Vicente Puhl, a leader of a coalition of social organizations.

The agricultural boom also is responsible for much of the deforestation occurring in the environmentally sensitive Amazon region.

Government officials acknowledge that loggers, ranchers and farmers gobbled up 10,088 square miles of Amazon rain forest in the 12-month period ending last August, an area about the size of Massachusetts.

"Their ambition is destroying nature," said Jose Tadao, a representative of Brazil's Landless Workers Movement and an advocate for small-scale farming.

Environmental groups such as Greenpeace are fighting the expansion into the rain forest.

Others are arguing that deforestation could ultimately limit Brazilian agriculture. Paulo Moutinho, research coordinator for the Amazon Institute of Environmental Studies, believes the deforestation could eventually change Brazil's - and Earth's - climate, reducing rainfall and the supply of water for irrigation.

Almost half of the deforestation is occurring north of where Augustin farms, in the state of Mato Grosso, the center of Brazil's agricultural expansion. In June, Greenpeace bestowed its "Golden Chainsaw" award, for the Brazilian voted most responsible for Amazon destruction, on Blairo Maggi, the state's governor and owner of a farming concern that controls nearly 500,000 acres of soy, cotton and corn plantings. Earlier this year, Maggi's environmental chief was arrested by Brazilian authorities investigating the relationship between government officials and loggers.

Maggi, the world's largest soy producer, defends the nation's emphasis on large agribusiness. "Small properties in Mato Grosso don't have economic viability," Maggi said during a recent meeting with foreign journalists. "You can only survive if you have large volume."

Brazil has always been rich in land and water, the two key ingredients for farming, but it took a confluence of events to turn the nation into an agricultural power. It began with a change in economic policy in the 1990s, repealing a tax that made most agricultural exports a losing proposition, said Agriculture Minister Roberto Rodriguez.

Import duties on farm equipment, seeds and fertilizer also were slashed. Farmers now pay a 14% tariff compared with 20% in 1998. And when the Brazilian currency, the real, was devalued in 1999, the export market zoomed. Agriculture accounted for about 31% of the nation's gross domestic product last year.

"What really explains the growth of Brazilian agriculture is entrepreneurship, good science, access to good land and good weather," said Mario Jales, senior researcher at ICONE, a Sao Paulo think tank.

Brazil is spending millions of dollars on research to transform arid cerrado, or savanna scrubland, into productive farmland. It is using the World Trade Organization and other international trade agreements to challenge U.S. and European subsidies and open up markets.

In a complaint brought by Brazil, the WTO ruled in June 2004 that U.S. subsidies to cotton farmers distorted world prices by encouraging overproduction. The U.S. lost an appeal in March. The Bush administration is now working with Congress to bring its farm policy into compliance with the WTO.

And in April, a WTO panel agreed with Brazil, Thailand and Australia that European Union nations illegally export subsidized sugar, driving down prices on world markets. Brazilian trade officials said they were considering taking similar action against U.S. soy subsidies.

Previously, South American nations viewed industrialization as the primary engine of economic development, said economist Mailson da Nobrega, a former finance minister.

But now, "if you look at Australia, New Zealand, Denmark, they are economic powers with strong agricultural sectors, and we can do the same," he said.

There is plenty of room to grow. Da Nobrega estimates that Brazil, which is the world's fifth- largest nation by landmass, is using only about a third of its arable real estate for farming.

And scale is the watchword here. Hundreds of farmers control vast tracts. The family of Adilton Sachetti, the mayor of Rondonopolis, farms more than 170,000 acres of cotton, soy and corn. By comparison, soy farmer Ron Heck is one of the larger growers in Perry, Iowa, but his entire farm is 3,600 acres. Most of the growers in Heck's region plant less than 3,000 acres.

"We produce a lot of soy, but none of us are on the scale of the Brazilian growers," Heck said in a telephone interview.

Some of Brazil's successes have adversely affected U.S. farmers. On Wednesday, the U.S. slapped tariffs of up to 60% on the price of orange juice concentrate imports from Brazil. The move came after Florida growers complained that Brazilian companies were selling concentrate below fair market values.

U.S. cotton growers are upset that Brazil's WTO win might cut their federal farm subsidies. And the only reason American soy producers haven't complained about the Brazilian government's low-interest loans and other support for its industry is that demand for soy is growing fast enough to absorb the output of both countries, some U.S. farmers say.

The boom is changing Brazilian agriculture.

Some Brazilian families have gained control of vast tracts of agricultural land, squeezing out thousands of other small growers. About 4.3 million Brazilians farm areas of 125 acres or less, said Luiz Vicente Facco, spokesman for the National Confederation for Agricultural Workers.

"The small producers do not have the scale" to participate in the global markets for soy, cotton and sugar, Facco said. And as they struggle to earn a living, "small farmers who are surrounded by large farms will be pressured to sell," he said.

Maggi, the soy mogul and governor of Mato Grosso, says he sees "little future" for small farmers unless Brazil begins providing subsidies, which is unlikely considering its WTO battle against U.S. and European Union farm payments.

Even large farming operations face hurdles in competing against producers in the United States who have the advantage of better infrastructure, access to credit, and modern technology.

"They have improved over in Brazil, but our yields are still better and we can compete on quality," said Cannon Michael, co-owner of Bowles Farming Co., which farms 6,000 acres of cotton near Los Banos, Calif.

Lovatelli of the Brazilian Assn. of Agribusiness agrees that "bad infrastructure" could limit Brazil's growth. "The moment we have to take our crops to the port, we have problems," he said.

The cost of transporting corn to the port, for example, can consume as much as 25% of the value of the product. Brazil has about 100 million tons of agricultural storage capacity, about 40 million tons less than it needs to reduce loss from spoilage and to take the best advantage of price fluctuations, said economist Jose Vicente Caixeta of the University of Sao Paulo's agricultural school.

Unlike in California, where multilane highways whisk cotton and other farm products to the sophisticated port complex at Los Angeles harbor, it's not unusual for Brazilian farm commodities to travel 1,200 miles or more on uneven and heavily congested roads to reach the two main ports of Santos and Paranagua. Analysts say Brazil will have to surmount these problems to protect its gains.

"The potential ... to be realized is enormous," said Jales of the Sao Paulo think tank.

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