Brazil Is No Match for New Zealand

Brazil's status as an agricultural powerhouse is not currently threatening New Zealand's beef or dairy sectors, but Brazil is rapidly advancing its production systems audiences across New Zealand were told this week.

Brazilian beef and dairy expert, Rodolfo Hirsch spoke to audiences in Gore, Ashburton, Greymouth, Feilding, Waipukurau, Gisborne and Whangarei as part of Rabobank's renowned Visiting Experts Program, discussing the growth of Brazil's beef and dairy sectors.

Mr Hirsch, a senior analyst with the Food and Agribusiness Research (FAR) team at Rabobank in Brazil told audiences throughout the week that the world's leading producer and exporter of coffee, sugar and orange juice and the world's leading exporter of ethanol, poultry and beef, did not compete in New Zealand's top end beef and dairy markets.

Despite a 165 million strong Brazilian cattle herd, which produces 7.9 million tons of beef, lower production costs and high pasture land availability – Brazilian beef is destined for lower value markets than New Zealand beef, Hayley Moynihan, Senior Rabobank analyst said following Mr Hirsch's presentation.

"Although Brazil is an intimidating producer and exporter of many agricultural products, New Zealand beef producers are servicing higher value consumer markets like Japan, Korea and the US – we are well positioned as a producer of high quality beef, despite the growth of emerging markets such as Brazil," Ms Moynihan said.

Although Brazil produces over 50% more milk than New Zealand and now has the conditions required to become a significant dairy exporter in the longer term, Mr Hirsch says that for the time being it poses little direct threat to New Zealand's well established dairy sector.

"Despite immense growth potential, a large majority of Brazil's dairy production is absorbed by local demand. New Zealand's well established dairy market, which services demand from very diversified markets is not likely to feel significant competition from Brazil in the medium term," Ms Moynihan said.

Mr Hirsch also discussed several factors limiting Brazil's ability to recognize its full growth potential.

"Poor transport infrastructure and recent exchange rate appreciation has held back investment and competitiveness," Mr Hirsch said, adding that Brazilian farmers have also been adapting to many of the same issues faced by New Zealand farmers.

"The Brazilian currency is almost 50% stronger than in June 2004, which has negatively impacted returns available for all export sectors". Mr Hirsch also noted that the variety of crops grown in Brazil combined with the growth of the biofuels industry is changing land use in many agricultural regions as farmers move to maximize profitability."

Despite its label as an agricultural powerhouse, Ms Moynihan says that market access issues and New Zealand's focus on higher value consumer markets provides some relief from Brazil's strength as a competitor to New Zealand's primary producers.

"New Zealand's quota access to the US, well established relationships with higher value consumer markets and Brazil's market access restrictions, which are unlikely to be resolved quickly, should mediate any immediate concern that New Zealand's beef and dairy producers have, providing that they continue to maintain the high quality standards they are renowned for," Ms Moynihan says.

However, significant growth in Brazil's agricultural output has been fueled by rapid advances in technology used by Brazilian farmers and by adapting management practices. Mr Hirsch says that the use of mineral supplements, fertilizer, better genetics and other technologies is lifting productivity quickly for many farmers. This has lowered the average slaughter age for beef cattle and steadily lifted milk output per cow over the past five years.

Mr Hirsch concluded that Brazil has the fundamental conditions in place to further increase its vast agricultural output. While not currently competing directly with New Zealand exporters the potential for future growth from this leading agricultural producer cannot be underestimated.

Rabobank New Zealand is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customized banking and finance solutions to businesses involved in all aspects of food and agribusiness.

Rabobank has a AAA credit rating and is ranked the world's safest private bank by Global Finance magazine. Rabobank operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches.

Rabobank New Zealand is one of the leading rural lenders and a significant provider of business and corporate banking and financial services to the New Zealand food and agribusiness sector. The bank has 29 branches throughout New Zealand.



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