The report provides:

• an overview of Brazil's agricultural imports, exports, consumption and production between 2006 and 2011
• an overview of Brazilian government programs and regulations relating to agricultural production and exports
• an analysis of the growth of Brazilian agribusiness firms and their impact on global supply chains
• a description of competitive factors affecting Brazil's agricultural sector, and
• special focus chapters surveying the soybean, grains, poultry, beef and pork sectors, with an emphasis on important third-country markets where US and Brazilian exports directly compete.

The study also uses economic modelling to analyse the effects of the removal of tariff preferences within the Mercosul customs union, of which Brazil is a member, on US agricultural exports, as well as the effects of certain non-tariff measures (NTMs) in third-country markets on both Brazilian and US exports.

Brazil's agricultural exports have grown rapidly since 2000, coinciding with the increase in global demand for food and animal feed over the last decade. Exports are concentrated in a few major commodities, with soybeans, soybean meal and oil, sugar and coffee accounting for more than 50 per cent of Brazil's total agricultural exports between 2006 and 2011, and poultry and beef accounting for an additional 19 per cent.

The report's findings suggest that low on-farm production costs have helped to make Brazil a competitive exporter of soybeans, grains and meats in recent years, despite significant challenges, such as inadequate transportation infrastructure, high interest rates, currency appreciation, and burdensome labour laws and tax structures.

Brazilian exports are likely to grow more slowly in the current environment, particularly if rising domestic demand siphons Brazilian agricultural supplies from third-country markets. Nonetheless, Brazilian agricultural production and exports have the potential to continue growing significantly; large areas of untapped agricultural land remain, and research and development programmes will likely foster improvements in production practices and yields in many agricultural sectors.

Overviews by Market Sector

Soybeans

Soybeans remain the backbone of Brazil's agricultural economy, fuelling export-led growth since the 1990s. Brazilian soybeans and soybean products (meal and oil) are currently cost-competitive with those produced anywhere in the world, including the United States, the world's largest producer. Advantages for the Brazilian soybean sector include significant areas of under-utilized arable land, a tropical climate which encourages double-cropping, government resources devoted to agricultural research, private sector seed research, and capital investments in farming that boost productivity.

Soybeans are the engine of growth for Brazil's entire agricultural sector. In the tropical Center-West region, opportunities for double-cropping encourage corn, sorghum, and cotton planting in the second season. Added supplies of soybeans and feed grains in Brazil's domestic market have kept costs globally competitive for Brazil's poultry and pork sectors and have increased agricultural exports.

For the most part, soybeans from Brazil and the United States are highly substitutable commodities. However, direct competition between the two countries in third-country markets is limited, as large increases in global demand over the last five years, particularly from China, have generally outstripped soybean supplies from both countries. In addition, complementary harvest seasons in Brazil and the United States allow China and other importing nations to buy freshly harvested soybeans from each in turn during most of the year. A decline in future demand for soybeans without a corresponding decline in production, however, could result in higher levels of direct competition between the United States and Brazil in third-country markets.

US soybean exports to Japan face little competition from Brazilian product, since the golden colour of US soybeans is considered more desirable for certain food-grade applications than the reddish colour of Brazilian soybeans. In the EU-27, however, Brazil's current ability to provide conventional (non-genetically modified, or non-GM) soybeans and traceability at a reasonable cost gives it a competitive advantage over the United States.

Nonetheless, the Brazilian soybean sector faces important disadvantages, which may curb its growth prospects in the future. Problems include soil with poor nutrients that requires large volumes of imported fertilizer to maintain yields; poor transportation infrastructure in areas of Brazil where additional expansion of soybean production would be most likely; high capital costs, which tend to restrict investment in new storage facilities; and a complex tax system that discourages exports of value-added oil and meal. These factors have raised delivered costs of Brazilian soybeans in the last several years.

Brazil's transportation inefficiencies alone now generally offset the soybean industry's farm production cost advantage over the United States. Whether Brazil can continue its rapid expansion of soybean production and exports depends largely on the ability of state and federal governments to improve railroads, roads, waterways and ports, as well as to maintain a business environment conducive to private investment.

Grains

Brazil is a major global producer, consumer and trader of cereal grains. Corn (maize) is by far Brazil's most important grain crop, accounting for 78 per cent of Brazil's grain production and 85 per cent of its grain exports on average between marketing year 2006/07 and 2010/11. Although the Brazilian corn industry does not have the same scale and efficiencies as the United States, it has become an important secondary supplier in the international market. Wheat is also produced in large quantities, accounting for six per cent of Brazil's grain production and eight per cent of its grain exports over the same time period. Brazil's wheat exports are typically lower in quality than those of the United States, and are more likely to compete with corn or other feed grains in third-country markets.

As the most heavily exported grains in Brazil, corn and wheat are the focus of this report. Brazilian farmers do produce other grains, such as rice, sorghum, barley, rye and oats but these products are sold primarily on the domestic market and the industries are generally not as export-orientated.

Given Brazil's natural endowments and available land, there is potential for expanding the production of rice, sorghum, barley, rye and oats as technologies improve and better infrastructure aids in the development of integrated domestic and international markets. But because of strong demand for grains within Brazil, only corn and wheat are likely to compete for sales in global export markets in the foreseeable future.

Poultry

Poultry is an important and growing industry in the Brazilian agricultural sector. In 2011, Brazil was the world's third leading producer of broiler meat, behind the United States and China, and the largest exporter. Brazil's broiler industry is highly export-orientated, with one-quarter of its production exported in 2011, compared with 18 per cent in the United States. However, the share of Brazilian production exported has fallen in recent years because of both growing domestic consumption and a weak global economy that has reduced poultry demand globally.

Export competitiveness in the poultry industry is affected by several factors, including cost of production, product differentiation, market access, transportation and exchange rates. Because the cost structure of Brazilian and US live-bird production is similar - largely because feed costs are closely linked to global corn and soybean prices - other factors have a greater influence on differences in export competitiveness between Brazil and the United States.

Brazil's export competitiveness in third-country markets is enhanced by its success in differentiating its poultry products based on the preferences of its customers, such as halal production to serve Middle Eastern markets. This allows Brazil to maintain a strong market share in countries which have very specific product requirements, such as Japan and Saudi Arabia. Brazil's product differentiation also limits direct competition between Brazil and the United States in most third-country markets because the United States primarily exports standard dark meat cuts.

Increases in Brazilian labour rates, high transportation costs and the appreciation of the real all threaten the competitiveness of Brazilian poultry in third-country markets. In the future, rising labour costs could reduce the ability of Brazilian producers to make specialized products cost-effectively. As explained in detail in the report, specialized products and packaging normally require more labour to produce than standard cuts. While customers who are less price-sensitive are more likely to continue to pay a premium for a specialized product, even as prices rise, at some point, escalating costs are likely to lower the overall export volumes of Brazil's broiler meat.

Beef

The Brazilian cattle herd is the world's second-largest, after India's. Brazil is also the world's second-largest producer of beef, after the United States, and the largest beef exporter. Brazil's extensive pasture-land and relatively low labour costs make it a competitive producer of grass-fed beef. Major export markets for beef in 2011 were Russia, the European Union (EU-27), Iran, Hong Kong and Egypt.

Relative to other major beef producers, such as the United States and the EU-27, Brazil exports a greater share of its production, but it also produces less beef for the size of its cattle herd. The limited use of feedlots and low investment by ranchers in fertilizers, seeds and lime to improve their pasture reduces productivity. However, the size of Brazil's cattle herd, together with ongoing efforts to improve genetics, pasture-land and management practices, suggest that Brazil has the potential to increase its beef production significantly.

The presence of diseases, most notably foot-and-mouth disease (FMD), restricts Brazil's opportunities for fresh and frozen beef exports, and limits competition between US and Brazilian beef in third-country markets. Fresh/chilled and frozen beef from Brazil are not eligible for import into Japan, Korea or North America. Other markets such as the EU-27 have imposed strict sanitary and traceability requirements on imports of beef from Brazil that have limited, and sometimes halted, imports from Brazil.

Most beef produced in Brazil is not closely substitutable with beef produced in the United States, lessening the competition between US and Brazilian beef in some export markets. Most beef produced in the United States is well-marbled, grain-fed beef from steers and heifers. By contrast, most beef from Brazil is from grass-fed animals and is more closely substitutable for US beef produced from culled dairy cows and breeding animals, which is likely to be less well marbled.

Differences in the type of beef produced and in the ability to meet sanitary requirements limit competition between US and Brazilian beef in third-country markets in the short run. However, in the long run, Brazil has the potential to improve its competitive position. While few cattle in Brazil are grain-fed now, Brazil is a major producer of grains, with the potential to expand.

Brazil is also making efforts to improve its disease status. The state of Santa Catarina has been recognized by the World Animal Health Organization (OIE) as FMD-free without vaccination, and five zones within Brazil have been recognized as FMD-free with vaccination. Brazil's Ministry of Agriculture, Livestock, and Supply (MAPA) plans to petition the OIE to recognize the entire country as FMD-free with vaccination in 2013. Any lifting of sanitary restrictions on Brazil's beef exports would increase global competition between US and Brazilian beef.

Pork

Brazil is the world's fourth-largest producer and fourth-largest exporter of pork. Brazil's commercial swine and pork producers are globally competitive, using modern, efficient methods and genetics. However, sanitary measures, predominantly those related to diseases such as foot-and-mouth disease (FMD), prohibit Brazil from exporting to many of the largest importing markets, including Japan, Mexico and Canada, the largest export markets for US pork. As a result of these sanitary restrictions, Brazil has confined its pork exports to a limited number of markets and has become heavily dependent on its largest export market, Russia. As Russia has increased its own pork production in recent years, it has proven to be an unreliable export market, and Brazil's total pork exports declined in volume during 2006–11.

Brazil is addressing the sanitary restrictions both by attempting to eradicate diseases such as FMD from the entire country and by having regions of the country recognized as being disease-free. If Brazil is successful in achieving access for its pork in markets that have traditionally been closed, exports are likely to increase rapidly, as many of Brazil's major pork producers are also major producers of poultry that have already established export markets and trading relationships.

Exports have not kept pace with increases in production during 2006–11. In 2011, Brazil's pork exports were equivalent to approximately 18 per cent of production, compared to 23 per cent in 2006. Brazil's main export markets for pork in 2011 were Russia, Hong Kong, Ukraine, Argentina and Angola.

Brazil is a major pork consumer and ranked fifth in global consumption in 2010. Yet domestic pork consumption lags far behind consumption of beef and broiler meat. The relatively small size of the domestic market means that a disruption in exports may have a greater impact on pork producers than on beef or poultry producers. Statistics for the production, consumption, and trade of major pork producers and importers in 2011 (in metric tons carcass weight) are presented in the table below.

Further Reading You can view the full report by clicking here.