Former Minister Warns Brazilian Farmers: “Hold Your Horses”

Brazilian ex-minister Roberto Rodrigues Sow whatever you can using the best technology available and your own funds or the available rural credit. Just do not take a step that is larger than your legs at a moment of global crisis. This is the recommendation of the former minister of Agriculture, Roberto Rodrigues, and is turned to one of the most prosperous sectors of the Brazilian economy: agribusiness.

The Coordinator of the Agribusiness center at Getúlio Vargas Foundation, in São Paulo, Rodrigues uses an old saying to recommend care. "It is necessary to hold your horses," he said.

According to the former minister, even before the worsening of the global economy, Brazil already had credit problems for agribusiness due to greater demand for two reasons. The first, says Rodrigues, is that production costs have risen significantly. "This year, the volume of credit per hectare, for example, is greater than in 2007." The second factor is that there has been a 5% increase in the cultivated land. That is, a greater number of hectares to be cultivated.

As demand rises, offer drops. According to Rodrigues, trading companies and large grain grinders are reducing their share of private financing to producers. They did this through known hedge operations. Another problem was the lack of definition regarding previous agricultural debts.

"So, the real scenery we have today is one of credit reduction and greater production costs. With less money available, producers reduce investment in technology and leave open the possibility of lower productivity due to unfavorable climate conditions, for example," he adds.

To Rodrigues, more pessimistic possibilities may be elevated. You may think, for example, on lower global demand for food, which would reduce commodity prices at the time of the harvest. "This would have to be mitigated through exchange rates, higher dollar values, as is taking place now," he says.

However, as the behavior of exchange rates is uncertain, a scenario of "the worst of the worlds" may also be traced: high production cost, low credit and low dollar rates. "But I do not believe this is going to happen," he said. They are only hypotheses, but care and attention is good for anyone.

The Role of Transportation

Lower transport costs would generate significant growth in Latin-American exports, exceeding any possible gain that the region may have with lower future tariffs. This is shown in a study by the Inter-American Development Bank (IDB).

A 10% reduction in freight costs in nine Latin American countries – including Brazil, Argentina, Chile, Colombia and Bolivia – would permit exports to the United States to rise by 39% on average, according to the study. In contrast, exports from these countries to the United States would rise less than 2% on average if tariffs were reduced by 10%.

"Transport must be in the center-stage of the debate about trade policies after the failure of Doha," said Maurí­cio Mesquita Moreira, the IDB economist who coordinated the study.

Relatively small improvement in transport would also allow for the countries in the study to substantially increase sales of products that they already export to other Latin America and Caribbean countries.

The study suggests that, with a 10% reduction in transport costs, intra-regional exports may grow over 30%, which represents a much greater impact than the effect of similar tariff reductions.

In Brazil, for example, the expansion of exports of seeds and oleaginous fruit and machinery, due to the same reduction of freight costs, would be approximately 32 times greater than the effect of a reduction of tariffs.

The products manufactured in Brazil, Chile, Ecuador, Peru and Uruguay would be those most benefited by a reduction of costs in transport, whereas exports of ores and metals would grow most in Argentina, Colombia and Paraguay.

Furthermore, exporters could have a greater share of their profits, which are currently being transferred to an inefficient transport sector, allowing them to invest in expansion and improvement for further productivity. In Brazil, for example, the soy transport cost may represent as much as 79% of the price for producers.

Summing up: the IDB study concludes that, without a significant improvement in transport, the greater presence of Latin America and the Caribbean in global markets should continue as a distant target.

See-saw

Appreciation of the dollar against the Brazilian real in share of sales in the third quarter of 2008, up to September 29th, was 22.9%. According to consultancy company Economática, this is the third greatest rate since the Brazilian currency became the real, in 1994.

The greatest increase was in the first three months of 1999, when there was an exchange crisis and the second was in the last quarter of 2002, little before the election of president Luiz Inácio Lula da Silva for his first term in office.

According to figures supplied by Economática, the appreciation of the United States currency should have a negative impact on the quarterly results of listed companies with debt denominated in dollar.

Organics in Boston

Nine Brazilian organics companies are going to participate in Biofach America, to be held in Boston, United States. From October 15th to 18th, they are going to showcase their products at the stand of Organics Brasil.

Organics Brasil works in partnership with the Institute for Promotion of Development (IPD), the Federation of Industries of the State of Paraná (Fiep) and the Brazilian Export and Investment Promotion Agency (Apex-Brazil) to place Brazilian organics in the foreign market.

In the Land of Mao

Novo Mel, a maker and distributor of bee products, has just shipped 3.6 tons of honey to China. By the end of the year, the company expects to export 10% of its production, estimated at 69 tons. Novo Mel's breaking into the Asian market is a result of initiatives by the Export Support System (SAX), from the city of Santo André, in the Greater São Paulo region. The SAX provides free consultancy to micro and small companies that wish to take their production and services abroad.

Anba – www.anba.com.br

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