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Brazil: Competitive Factors in Brazil Affecting US and Brazilian Agricultural Sales in Selected Third Country Markets

28 August 2012, at 12:00am

A new report from the United States International Trade Commission (USITC) describes and analyses competitive factors in Brazil affecting US and Brazilian sales of agricultural goods - including grains, soybeans and meats - in third-country markets.

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.

Soybeans: Production, consumption and trade, selected producers and markets, marketing year (MY) 2010/11 ('000 mt)
Production Consumption Imports Exports Trade balance
PRODUCERS
United States 90,606 48,394 393 40,859 40,466
Brazil 75,500 39,233 37 29,951 29,914
Argentina 49,000 39,235 13 9,205 9,192
China 15,100 65,950 52,339 190 –52,149
India 9,800 10,885 0 10 10
All other 24,174 47,882 35,713 12,205 –23,508
TOTAL 264,180 251,579 88,495 92,420
SELECTED MAJOR MARKETS
China 15,100 65,950 52,339 190 –52,149
EU-27 1,048 13,465 12,465 55 –12,410
Japan 220 3,255 2,917 0 –2,917
Russia 1,222 2,200 1,000 1 –999
Korea 105 1,378 1,239 0 –1,239
SUBTOTAL 17,695 86,248 69,960 246 –69,714
Source: USDA, FAS, PSD Online database (accessed January 25, 2012).


Soybean meal: Production, consumption and trade, selected producers and markets, MY 2010/11 ('000 mt carcass weight)
Production Consumption Imports Exports Trade balance
PRODUCERS
US 35,608 27,467 162 8,259 8,097
Brazil 27,850 13,445 58 13,987 13,929
Argentina 29,311 719 0 27,615 27,615
China 43,560 43,382 294 472 178
India 7,660 3,105 6 4,635 4,629
All others 30,981 82,049 55,566 3,458 –52,108
TOTAL 174,970 170,167 56,086 58,426
SELECTED MAJOR MARKETS
China 43,560 43,382 294 472 178
EU-27 9,675 30,722 21,714 606 –21,108
Japan 1,591 3,804 2,208 0 –2,208
Russia 1,708 2,181 455 28 –427
Korea 733 2,329 1,658 72 –1,586
SUBTOTAL 57,267 82,418 26,329 1,178 –25,151
Source: USDA, FAS, PSD Online database (accessed January 25, 2012).


Soybean oil: Production, consumption and trade, selected producers and markets, MY 2010/11 ('000 mt)
Production Consumption Imports Exports Trade balance
PRODUCERS
US 8,567 7,618 72 1,466 1,394
Brazil 6,920 5,260 0 1,668 1,668
Argentina 7,181 2,507 0 4,561/td> 4,561
China 9,840 11,109 1,319 52 –1,267
India 1,715 2,650 945 2 –943
All others 7,005 11,854 6,860 1,752 –5,108
TOTAL 41,228 40,998 9,196 9,501
SELECTED MAJOR MARKETS
China 9,840 11,109 1,319 52 –1,267
EU-27 2,236 2,794 905 456 –449
Japan 378 403 19 0 –19
Russia 389 240 21 135 114
Korea 168 445 300 29 –271
SUBTOTAL 13,011 14,991 2,564 672 –1,892
Source: USDA, FAS, PSD Online database (accessed January 25, 2012).

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.

Broiler meat: Production, consumption and trade, selected producers and markets, 2011 ('000 mt carcass weight)
Production Consumption Imports Exports Trade balance
PRODUCERS
US 16,757 13,890 47 2,966 2,919
China 13,200 13,020 230 410 180
Brazil 12,954 9,655 1 3,300 3,299
EU-27 9,500 9,100 700 1,100 400
Mexico 2,922 3,492 590 20 -570
All other 25,700 30,744 6,431 1,357 -5,074
TOTAL 81,033 79,901 7,999 9,153 (b)
SELECTED MAJOR IMPORTERS
Russia 2,520 2,907 390 3 -387
Japan 1,235 2,060 840 5 -835
Thailand 1,350 870 0 460 460
Saudi Arabia 590 1,410 830 10 -820
Hong Kong 12 262 250 (a) (a)
SUBTOTAL 5,707 7,509 2,310 478 (b)
Source: USDA, FAS, PSD Online database (accessed February 6, 2012).
a = Not available; b = Not applicable.

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.

Beef: Production, consumption and trade, selected producers and markets, 2011 ('000 mt carcass weight)
Production Consumption Imports Exports Trade balance
PRODUCERS
US 12,048 11,750 911 1,241 330
Brazil 9,030 7,750 45 1,325 1,280
EU-27 8,050 7,945 370 475 105
China 5,550 5,532 42 60 18
India 3,060 1,960 0 1,100 1,100
All other 14,728 14,073 2,804 3,444 640
TOTAL 56,848 55,834 6,862 7,870 -
SELECTED MAJOR IMPORTERS
Russia 1,405 2,451 1,050 4 –1,046
Japan 505 1,208 725 0 –725
Korea 262 670 410 1 –409
Iran 380 605 225 0 –225
Mexico 1,830 1,890 280 220 –60
SUBTOTAL 4,382 6,824 2,690 225 –2,465
Source: USDA, FAS, PSD Online database (accessed February 6, 2012).

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.

Pork: Production, consumption and trade for selected producers and markets, 2011 ('000 mt carcass weight)
Production Consumption Imports Exports Trade balance
PRODUCERS
China 49,500 49,810 550 260 –290
EU-27 22,530 20,545 15 2,000 1,985
US 10,278 8,384 379 2,246 1,867
Brazil 3,227 2,646 1 582 581
Russia 1,965 2,894 930 1 –929
All other 13,627 16,570 4,391 1,485 –2,906
TOTAL 101,127 100,849 6,266 6,574
SELECTED MAJOR IMPORTERS
Hong Kong 114 474 360 0 –360
Japan 1,255 2,481 1,210 0 –1,210
Korea 835 1,470 625 0 –625
Canada 1,753 793 195 1,160 965
SUBTOTAL 2,204 4,425 2,195 0 –2,195
Source: USDA, FAS, PSD Online database (accessed February 6, 2012).


Further Reading

You can view the full report by clicking here.


August 2012