BRAZIL: ARGICULTURE AT THE CROSSROADS

• Document Type: CREST
• Collection: General CIA Records
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• Original Classification: C
• Document Page Count: 44
• Document Creation Date: December 27, 2016
• Document Release Date: August 16, 2012
• Sequence Number: 1
• Publication Date: March 1, 1988
• Content Type: REPORT

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Directorate of t-onnuential
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Brazil: Agriculture at
the Crossroads
A Research Paper
?PROLthX.71.' NUMBER j75T7 41
I W M
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Confidential
ALA 88-10013
GI 88-10033 ,
March 1988
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Intelligence
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Brazil: Agriculture at
the Crossroads
A Research Paper
This paper was prepared by Office
of African and Latin American Analysis, and by
Office of Global Issues. Comments and
queries are welcome and may be directed to the Chief,
Brazil Branch, South America Division, ALA
or the Deputy Chief,
Strategic Resources Division, OGI
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-ILA 88-10013
GI 88-10033
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Summary
Information available
as of 18 February 1988
was used in this report.
Brazil: Agriculture at
the Crossroads
During more than 20 years in power, Brazil's military rulers focused
attention on rapidly expanding the production of export crops. Brazil now
ranks only behind the United States in net export revenues earned from ag-
riculture and competes directly with many US agricultural exports, such as
soybeans, poultry, and processed products ranging from frozen orange juice
to soybean meal and oil. These achievements came at the cost of stagnating
and, in some cases, declining production of domestic food crops, however.
This, in conjunction with a rapidly expanding population, caused per capita
consumption of basic foodstuffs to sharply decline during the military
government.
The civilian government of President Jose Sarney came to office in 1985
pledging a set of reforms that would capitalize on the country's enormous
agricultural potential. It outlined an ambitious two-track policy designed to
expand lucrative exports and to push aggressively for growth in domestic
food production. The political, financial, administrative, and technical
obstacles to balancing these goals have been formidable, but the Sarney
administration has begun to take a number of steps to address many of
Brazil's longstanding agricultural problems. It has:
? Set investment targets to expand rural infrastructure, such as agricultur-
al storage and irrigation facilities.
? Improved credit access for small farmers engaged in food staple
production.
? Raised support levels for food crops.
? Provided broader access to farmland through land reform and by opening
up new production areas in the frontier.
? Slightly reduced the government's role in the agricultural marketplace.
? Expanded research funds for both domestic and export crops, but with
emphasis on food crops.
These policies have had mixed results. The agricultural sector has recov-
ered from a drought-induced setback in 1986, and in 1987 boasted record
crops?a turnaround that helped Brazil achieve an expected $11 billion
trade surplus for 1987. Nonetheless, major problems remain:
? Subsidies used to spur an agricultural rebound are contributing to the
massive public-sector deficit, and have heightened inflationary pressures.
? Brazil's overall precarious economic situation puts in question the
government's ability to continue heavy subsidies in the agriculture sector
and inhibits private investment.
? High inflation has eroded real gains in credit access and research
funding.
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? Land reform remains stalled by a scarcity of government funds and by
the resistance of landed elites.
? General policy drift has prevented action on cutting back inefficient state
enterprises involved in agricultural marketing commodities such as wheat
and sugar.
Despite Brazil's precarious economic situation, it has virtually unlimited
potential to make even greater strides in expanding agricultural produc-
tion:
? Vast undeveloped areas. Enormous untapped agricultural areas?espe-
cially the promising Cerrados region of west-central Brazil?exist where
only a small portion of the total arable land has been developed to date.
The Cerrados is slightly larger than the state of California, with about 50
million hectares recognized by agricultural experts as being potentially
productive.
? Underutilized agrotechnology. The Brazilians can also further expand
agricultural production significantly through better use of existing
agrotechnologies?hybrid plant varieties, for instance, and fertilizers?
for improving crop yields. While some effort has been made to use
technological advances more extensively, they have been used largely in
the cultivation of export crops. Yields of food crops are quite low by
world standards.
Brazilian agricultural policy currently stands at a crossroads, with several
alternatives open to it. We believe Sarney, given his approach thus far and
the many constraints on taking new initiatives that he faces, is most likely
to steer a course we term More Balanced Growth. This would be
characterized by moderate export promotion, but, with increased attention
to food crops through improved support policies for food producers,
including greater access to land for small farmers, improved production
loan and price supports for food crops, larger investments in rural
infrastructure, and food research funding. Although we consider them less
likely, we believe the government has two other options. One is Enhanced
Export Promotion in which Brasilia turns away from recent policy
initiatives and again emphasizes the production of export crops. In our
judgment, the government could lean toward this option if the economy
markedly deteriorates and Brasilia is obliged to maximize foreign exchange
earnings. Finally, we can envision circumstances in which a seriously
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weakened Sarney government bows to growing popular political pressure to
significantly Improve Food Production at the expense of export crops.
We have examined these scenarios and projected the following
consequences:
? Should Brasilia decide to continue the recent policy of moderate export
promotion and increased attention to the production of food crops, the
value of net exports by 1992 would increase more than 90 percent from
1986?the base year for our forecasts?and provide an additional US $4-
5 billion in revenues. The cost of food imports in 1992 would be about US
$1.3 billion?still substantially less than under the Enhanced Export
Promotion scenario?but considerably more than in 1986 because
population growth would lead to an increased demand for food.
? Alternatively, should Brasilia again emphasize export at the expense of
food crops, net export earnings by 1992 would increase dramatically?
amounting to $7.5 billion more than in 1986. However, the cost of food
imports?more than US $2 billion in 1992?would more than double
that of the base year.
? Should the government increase food production at the expense of export
crops, the cost of food imports would increase due to population growth,
but by only US $300 million over that of the base year to about US $1.2
billion in 1992. The value of net exports, however, would still be greater
than the base year?roughly a US $2.5 billion increase.
Given Brazil's size, resources, agricultural potential, and already well-
established role in international agricultural markets, we believe that
whatever policies it pursues will have an impact on US-Brazilian relations.
An expansion of exports of coffee, cocoa and sugar, for example, will mean
lower prices for US consumers and a reduced US agricultural import bill.
An increase in the production of orange juice, tobacco, soybeans, and
poultry, however, will intensify already sharp competition with the United
States for third country markets. The United States has already objected
to the GATT about Brazil's export subsidies on soybean products, while
Brazil has accused the US of subsidizing exports of poultry. These trade
tensions almost certainly will intensify if, as we expect, Brazil continues to
try to have the best of both worlds by pursuing aggressively its export
policy while restricting access to its own domestic market.
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Contents
Page
Summary
111
Scope Note
ix
Introduction
1
Roots of the Export Boom
1
Keys to Success
2
Social Impact
4
Civilians Take Stock
6
New Priorities
6
Fostering Growth
7
Mixed Success
8
Agricultural Rebound Aids the Economy
8
Some Progress Toward Fundamental Change. . .
9
. . . But Major Problems Remain
10
Future Paths
13
More Balanced Growth
13
Enhanced Export Production
14
Improved Food Production
15
Implications for the United States
15
Appendixes
A. Brazil: Production and Trade of Major Export and Food
Commodities, 1975-86
17
B. Brazil: Agriculture's Resource Base
25
C. Brazil: Agriculture-Based Energy Program
27
D. Brazil: Forecasting Agricultural Trend-Methodology
29
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Scope Note
This Research Paper focuses on the performance and prospects of the
Sarney government in capitalizing on Brazil's enormous agricultural
potential. The paper highlights options available to Brasilia for managing a
growing dilemma?whether to expand production of agricultural exports
or domestic food crops. In particular this paper evaluates the implications
for the United States of Brazil's position as a leading agricultural supplier
and its increasing importance as a competitor in other markets.
This study is part of a continuing effort within the Directorate of
Intelligence to scrutinize the Brazilian economy and its impact on the
United States.1
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Figure 1
Brazil: Area and Population, by Region and State
*BOGOTA
Colombia
-o
CARACAS -
*
00?
Rio
-
Vebe'zuela
Rio _Negro
X, Trinidad
and
Tobago
GEORGETOWN
ARAMARIBO
Cayenne
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(FR.)/
Guyana
Boa C'
Vista
\? RORAIMA .
7.1
Amazon MasP
? _
Suriname
AMAZONAS
ACRE
Rio 0
Branco
Peru
1%Zorl:
RONDONIA
Bolivia
LA PAZ
North
42.0/4.9
AMAPA
1.Macapa
Ii
at
PARA
MATO
GROSSO
?
Region State ' (thousand
(territory)
Area
km 2)
1986
Population
(thousands)
North Acre
153
302
Amapa*
140
176
Amazonas
1,564
1,406
Para
1,251
3,411
Rondonia
243
493
Roraima'
230
79
North- Alagoas
28
1,988
east Bahia
561
9,471
Ceara
151
5,294
Maranhao
329
4,003
Paraiba
56
2,773
Pernambuco
98
6,145
Piaui
Rio Grande do Norte
251
53
2,140
1,900
Sergipe
22
1,142
Center- Distrito Federal
6
1,177
West Goias
642
3,865
Mato Grosso
881
1,141
Mato Grosso do Sul
351
1,369
South- Espirito Santo
46
2,024
east Minas Gerais
587
13,383
Rio de Janeiro
44
11,298
Sao Paulo
. 248
25,023
South Parana
200
7,617
Rio Grande do Sul
282
7,777
Santa Catarina
96
3,629
Total
8,512
119,026
Source: Anuario Estatistico do Brasil. 1985 Brazilian
. Institute of Geography and Statistics (IBGE).
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Boundary representation is
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Region boundary a
10.9 Percent of total area
43.5 Percent of total population
-- State-level boundary
e State-level capital
a The Brazilian Institute of Geography and
Statistics (IBGE) compiles statistical data
for regions as well as states.
0 500 Kilometers
0 500 Miles
711969 (546709) 3-88
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Brazil: Agriculture at
the Crossroads
Introduction
The Sarney government took office in 1985 counting
on a robust performance in the agricultural sector to
help bolster Brazil's long-run economic development.
The government's ambitious development plans called
for an expansion of agricultural production that would
provide increased export revenues, produce more food
for the domestic market, and decrease dependence on
imported petroleum by increasing the output of fuel
alcohol. Brazil's agricultural sector now stands at a
crossroads, with difficult choices facing the country's
civilian leaders. Brasilia's policy direction will have a
strong effect on global agricultural markets as well as
on the availability of foodstuffs for the rapidly ex-
panding Brazilian population (see figure 2)
This paper is our first comprehensive analysis of
Brazil's agricultural sector since the late 1970s.
Building on Embassy reports, industry studies, and
contract research, it profiles Brazil's push to become a
leading exporter of agricultural products and notes
the social costs associated with that policy. It also
examines the priorities set for agriculture since the
country's return to civilian rule in 1985, and analyzes
the successes and failures of the Sarney government's
pursuit of its goals. In an effort to estimate possible
future trends in Brazil's agriculture in the early
1990s, the paper posits three scenarios for agricultural
production and trade and evaluates the implications of
each for Brazil and for its bilateral relationship with
the United States.
Roots of the Export Boom
During more than 20 years in power, Brazil's military
rulers pursued a broad range of policies designed to
expand the production of cash crops and boost export
sales. Throughout the 1970s and into the 1980s,
military governments provided highly subsidized pro-
duction loans and price supports, especially to large
farmers growing export crops. In addition to granting
1
Brazilian Agriculture in a Nutshell in 1987
? Agriculture accounts for 35 percent of national
employment and generates 30 to 40 percent of total
annual exports since 1980.
? Brazil is one of the most diverse agricultural
producers in the world, with products including
traditional tropical commodities like Brazil nuts
and black pepper from the Amazon Basin, sisal and
carnauba wax from the dry northeast, and soybeans
and wool from the more temperate south.
? Brazil maintains the world's fourth-largest cattle
herd of over 130 million head and the world's
largest bioenergy program, producing about 13
billion liters (50.4 million barrels of oil equivalent)
of fuel alcohol from sugarcane in 1987.
? Brazil is the world's largest exporter of coffee,
orange juice, and soybean meal, and ranks among
the world's top three exporters of sugar, cocoa
beans, soybeans, beef tobacco, and spices.
? Averaging almost US $9 billion in earnings annual-
ly over the last six years, Brazil ranks behind only
the United States in net export earnings from
agriculture.
? Most of Brazil's agricultural exports are marketed
in OECD countries but, increasingly, new markets
are being sought in the Middle East and East Asia.
? Brazil is not a major wheat producer and is forced
to import from Argentina, Canada, France, and the
United States.
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Figure 2
Brazil: Population Growth, 1960-87
Million persons
150
50
25
I 1 I I I I I I I I I I I I I I I I I I I I I I I I I
0 1960 65 70 75 80 85
316146 2-88
preferential financing for equipment purchases, low
export taxes, and tax credits, Brasilia also subsidized
fuel and transportation costs for opening new produc-
ing areas and sponsored research to enhance produc-
tivity. As a consequence, Brazilian exporters were
able to attract an increasing share of global markets
by offering competitive prices; Brazil today ranks only
behind the United States in net trade revenues earned
in world agricultural markets, according to UN statis-
tics.
Keys to Success
The significant growth in agricultural output between
1970 and 1985 was in large part a result of the
expansion of area planted. Government statistics indi-
cate that during this 15-year period Brazil's cropland
increased 46 percent, to nearly 50 million hectares,
with the area in export crops more than doubling to
nearly 22 million hectares. Over one-quarter of the
expansion took place in the Center-West Region,
Confidential
Government Policies Spurring Growth
of Agricultural Exports
To help stimulate agricultural exports, especially
processed agricultural exports, Brazil's military gov-
ernments used a variety of measures including prefer-
ential export financing and tax concessions. For
example, processed agricultural exports such as or-
ange juice, soybean meal, and sisal cordage have been
exempt from the federal value-added tax on process-
ing (IPI tax). Brazil also has utilized differential
export taxes to encourage soybean oil and soybean
meal exports over raw bean exports. The US oilseed
industry believes this practice increases profit mar-
gins, thus constituting a subsidy that enables Brazil
to export below world prices.
According to a US Trade Representative (US TR)
report, the price advantage has been instrumental in
displacing US exports and in producing excess oil-
seed crushing capacity in Brazil-25 million metric
tons when production averaged only 14.7 million tons
from 1980 to 1984. In addition, Brasilia's preferen-
tial financing on soybean imports?to feed its excess
crushing capacity?has added to US industry con-
cerns. USDA reports that the US share of the world
soybean meal market fell from 38 percent in 1977178
to 20 percent in 1984-85, and the US share of the
world soybean oil market fell from 35 percent to
21 percent
largely made up of the wooded savanna geographic
zone known as the Cerrados (see figure 3 and inset);
this in part reflects the emphasis placed on soybean
production in response to increased global demand. In
the state of Goias, for example, soybean production
tripled to over 860,000 metric tons annually during
the 1979-84 period and stands at over 1 million tons
per year, according to Embassy reporting. In the more
remote states of the Cerrados?Mato Grosso, Mato
Grosso do Sul, and Rondonia?virgin land was
opened up to those producing mainly export crops,
according to press reports.
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Figure 3
The Cerrados Region
60 k OPARAMARIBO
Venezuela
Colombia
S linorna
Guyana
F, Cayenne
Games
(Fr.
45
North
Atlantic
Ocean
ru
Porto
Velho
aro"
RI:Albania
LA PAZ
Bolivia
South
Pacific
Ocean
Chi e
Brazil
Pltraguay
ASU
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Grosso
Ldo Sul'
ION
Rio Grande
Po Luis
47BRAtILIA
s-f/
/Belo
Horizon
-3o
SANTIAG
75
Argentina
BUENOS
AIRES
urugua
MONTEVIDEO
0-
75?
South
e Atlantic
Ocean
Rio de Janeiro
State boundary
0 500 Kilometers 3?
0 500 Miles
Boundary representation Is
not necessarily authoritative.
711968 (A03533) 3-88
In southern Brazil, agricultural experts report, the
military governments' policies encouraged many es-
tablished commercial farmers and ranchers to aban-
don production of food staples and livestock in favor
of export crops and sugarcane for fuel alcohol:
? In the state of Sao Paulo, for example, the area
planted with orange trees has nearly doubled since
1975 from under 400,000 hectares to over 700,000
hectares.
? During the same period, data from Brazil's Coffee
Institute indicates, the nation's coffee tree inventory
expanded by 21 percent, growing from some 2.8
billion trees to 3.4 billion trees. Expansion was
greatest in the state of Minas Gerais, With the
doubling to over 1 billion trees?reflecting the
government's $1 billion coffee rehabilitation pro-
gram following the devastating 1975 frost.
? Government subsidies also encouraged the growing
of sugarcane for fuel-ethanol (alcohol) production at
the expense of domestic food crops. Nearly 2 out of
3
The Cerrados: Brazil's Potential
Agricultural Powerhouse
The Cerrados Region is situated in central Brazil
between latitude 6?S and 20?S in a semitropical
environment. According to Brazilian land survey
statistics, the region occupies roughly 180 million
hectares?about one-fifth of the national territory.
Although 50 million hectares?more than the total
area of California?are potentially arable, less than
20 percent of the region's gently rolling to flat
topography has been developed to date, in part be-
cause of lack of infrastructure and heavy startup
costs.
Soils in the Cerrados are high in iron and acidity and
low in nutrients, but when treated with lime and
managed well can be highly productive. Weather is
favorable: temperatures are mild and fairly uniform
throughout the year, and rainfall averages between
1,000 and 2,000 millimeters with the greatest concen-
tration occurring from November to April. The avail-
ability of ground water and streams allows the
development of irrigation for agriculture during the
May-October dry season (appendix B).
According to Brazilian agricultural experts, the Cer-
rados has the resource potential for achieving yields
on a par with developed country producers for soy-
beans, rice, corn, wheat, and dry beans. Brazilian
experts foresee the Cerrados as having considerable
potential for wheat production in the future, thereby
offering the opportunity for gradually shifting pro-
duction out of the difficult wheat-producing areas in
the south, especially Rio Grande do Sul. Moreover,
the Region has the potential to support coffee produc-
tion and tropical tree crops?such as mangos and
papayas?as well as livestock.
4 million hectares of sugarcane?mostly in Sao
Paulo state?now produce nearly 13 billion liters?
includes small amount of manioc-produced etha-
nol?(50.4 million barrels of oil equivalent) annually
compared with under 1 billion liters in the mid-
1970s.
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? Brazil also has become a major exporter of poultry,
nearly tripling commercial production over the last
decade. Although not a large user of land directly,
the poultry industry is a large consumer of corn and
other domestic feedstuffs.
Industry experts indicate that improvements in crop
yields and the management of livestock have been
more modest and less even, but nevertheless have
helped those growing crops for export more than those
concentrating on supplying the domestic marketplace.
Advances in agrotechnology?hybrid plant varieties,
yield-improving fertilizers, specialized pesticides and
herbicides, for example?have been largely limited to
export crops. As a result, during the 1981-85 period
the yield of Brazil's food crops was less than one-half
that of the worldwide average and about one-third
that of average US yields, according to UN statistics.
By contrast, the yield of Brazil's traditional export
crops?coffee, cocoa, and sugarcane?exceeded the
world average but with the exception of soybeans and
tobacco was still only two-thirds as productive as the
United States (figure 4).
The increased output of soybeans, oranges, tobacco,
and poultry has allowed Brazil to increase its agricul-
tural exports at an average annual rate of 12 percent
since 1970 and has made Brazil a major competitor of
the United States for third-country markets. Compe-
tition has been particularly intense in soybeans and
soya products, orange juice, poultry, and tobacco, all
of which Brazil now efficiently produces, processes,
and markets.' In 1975 these four products accounted
for only US $1.5 billion from shipments of 7.0 million
tons, but by 1985 they represented US $4.0 billion
from 14 million tons. Earnings from the export of soy
products alone increased from a little over US $1
billion in 1975 (from 6.7 million tons) to US $2.5
billion in 1985 (from 13 million tons). Although
earnings from agriculture as a whole in 1987 account-
ed for only about one-third of total export earnings
compared with over 50 percent a decade ago, the
'Production and processing of soybeans, oranges, and tobacco?all
geared primarily for the export market?benefit from the technol-
ogies and expertise of multinational agricultural firms. For exam-
ple, tobacco producers receive technical support from international
tobacco firms such as R. J. Reynolds, and Ligget and Meyers.
Confidential
Figure 4
Average Yields of Selected Crops:
Brazil, Argentina, and US, 1980-85
11
1_4?1
Brazil -
Argentina
US
Wheat
Corn
Rice
Beans, dry
Soybeans
Tobacco
NINO
11
in=1
MI=
WWI
1=11
IMO
11
IMP
LM
ENS
JIM
MEI
MI
II
0 1 2 3 4 5 6 7
Metric tons per hectare
316147 2-88
value of current agricultural exports is roughly double
that of pre-1975 annual sector earnings (table 1).
Social Impact
The emphasis by the former military government on
exports caused domestic food production to stagnate
and in some years actually to decline. At the same
time, Brazil's population was rapidly expanding-55
million were added during the 1965-85 period, creat-
ing sharp declines in the per capita availability of
4
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Table 1
Brazil: Value of Selected
Agricultural Exports
Billion US $ Livestock Sector: Productivity Declining,
Per Capita Consumption Lower
1981
1982
1983
1984
1985
1986
1987
Coffee
1.8
2.1
2.3
2.8
2.6
2.4
2.0
Soybeans a
3.2
2.1
2.6
2.6
2.5
1.6
2.4
Cocoa
0.6
0.4
0.6
0.7
0.8
0.6
0.6
Sugar
1.1
0.6
0.5
0.6
0.4
0.4
0.4
Orange juice
0.7
0.6
0.6
1.4
0.8
0.6
0.8
Meat (beef
and poultry)
0.8
0.7
0.8
0.8
0.8
0.6
0.4
Tobacco
0.4
0.5
0.5
0.4
0.4
0.4
0.4
Others b
1.0
0.4
1.0
1.2
1.0
0.7
1.0
Total
Agricultural
exports
9.6
7.4
8.9
10.5
9.3
7.3
8.0
Merchandise
exports
23.3
20.2
21.9
27.0
25.6
22.4
26.2
Merchandise
imports
22.1
19.4
15.4
13.9
13.2
14.0
15.1
Merchandise
trade balance
1.2
-0.8
6.5
13.1
12.4
8.4
11.1
Note: These data are based on Embassy reporting and CIA
estimates.
a Including soya products.
b Includes a wide range of products from Brazil nuts, cashews, and
black pepper to sisal twine, animal hides, and castor oil.
basic foodstuffs. According to official Brazilian statis-
tics, shortages of manioc and dry beans, for exam-
ple-the main staples of the poor-typify the prob-
lem. Manioc production, concentrated in the
impoverished Northeast, totaled 25 million tons in
1965 but only 23 million tons in 1985, reflecting
generally declining yields and smaller acreage devoted
to the crop. Dry bean production during the period
remained relatively static at about 2.3 million tons as
declining yields more than offset expanded acreage.
With food in shorter supply, prices rose and the poor
reduced their consumption not only of basic staples
but also of beef-consumption of which had already
been declining (table 2). World Bank, FAO, and
USDA reports show the average nutritional level of
5
Despite Brazil's cattle herd of more than 130 million
head, its meat production for 1987 was only about
2.2 million metric tons, the same level as at the
beginning of the decade. Productivity is very low. The
ratio between the number of animals slaughtered and
the total size of the herd currently does not exceed 12
percent, half of Argentina's level. This deterioration
of the cattle sector reflects failure to improve pas-
tures and herds because of poor returns in the
marketplace. Poor nutrition has led to low calving
rates and downward trending productivity. The cattle
herd's rate of growth was 23.1 million head for the
period 1970-75, 16.4 million head for 1975-80, but
only 9.6 million head during 1980-85. Brazil's dairy
herd averages only 800 liters of milk per cow per year
compared to 5,600 liters in the United States. Sup-
plies of milk for the domestic market, which in-
creased 40 percent between 1975 and 1980, declined
to only 7.5-percent growth between 1980 and 1985,
according to the Ministry of Agriculture.
The problem confronting the Sarney government is
how to establish a pricing policy that both spurs
cattle and dairy production and places it within the
purchasing power of Brazilian consumers. A solution
advocated by the Beef Cattle National Council is
increasing productivity through the expanded use of
feed lots in Brazil to fatten cattle and by reducing the
slaughter age from 4.5 years to 3.5 years. Develop-
ment of this strategy, however, hinges on the plentiful
supply of cheap grains as the primary feed source.
Brazilians, especially those in low-income groups, has
been falling since the early 1960s.2 Statistics compiled
by the World Bank indicate that during this period
In this study we assume that food crops supply about 60 percent of
the total intake of calories per day per person as in the early 1960s.
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Table 2
Brazil: Average Per Capita
Availability of Traditional
Food Staples
Kilograms per person
1961-63
1981-85
Percent
Change
Beans, dry
22.0
16.6
?24.5
Corn, meal
21.7
20.8
?4.1
Manioc, fresh
134.9
88.7
?34.2
Rice, milled
44.4
42.0
?5.4
Wheat, flour
25.2
37.1
47.2
many people in the Northeast Region suffered from
malnutrition. In our judgment, the nutrition problem
may have been even worse for those urban poor who
were cut off from the support of the rural extended
family.
In an effort partially to offset the decline in the
production of domestic staples, Brasilia began to
increase its imports of wheat in the 1970s, while
encouraging plantings, although wheat is difficult to
grow in southern Brazil.' Wheat consumption grew by
over 115 percent between 1975 and 1985 to an
estimated 8.4 million tons. According to Brazilian
trade statistics, over the last decade Brazil has spent
about $700 million annually to import wheat. The
military government also subsidized consumer prices
for both domestically grown and imported wheat
products?at a cost of over $1 billion annually?
contributing to the perennial public-sector deficit,
according to Embassy reporting. Even with these
actions, per capita bread consumption in Brazil in
1985 was only 22.6 kilograms, compared with over 50
kilograms in the United States. With the exception of
wheat imports, military governments opted not to
utilize revenues generated from agricultural exports
for food imports to ensure an adequate diet for all
'Heavy rains and high humidities at harvest are a perennial
problem for wheat in southern Brazil, the traditional growing area,
leading to disease problems, crop losses, and low yields. These
conditions have spurred government programs fostering a shift of
wheat production to the Cerrados where the climatic conditions are
generally better.
Confidential
Brazilians.' Foreign exchange surpluses were instead
used largely to help pay for Brazil's mushrooming oil
import bill, to help buy capital goods for industrial
development, and to help finance such prestige pro-
jects as the world's largest hydroelectric facility at
Itaipu, nuclear power facilities, and a military arms
industry. Only in food crisis situations, such as in
times of severe drought or rioting over lack of food?
which occurred in Rio de Janeiro in the early 1980s?
did the military government rush to import basic
foodstuffs.
Civilians Take Stock
New Priorities
The Sarney government came into office aware of the
problems and inequities associated with export agri-
culture, and pledged long-term agricultural reforms to
bring unused, potentially arable land into food pro-
duction. In a series of conferences held in late 1984,
the agricultural business community emphatically
underscored Brazil's emerging food crisis?the na-
tion's food output had dropped 13 percent during the
1977-84 period while export crop output increased 19
percent. The businessmen warned that, if pre-1984
trends persisted, malnutrition would worsen and Bra-
zil would have no choice but to become a permanent
large importer of grain. According to Embassy re-
ports, Sarney's program included the development of
frontier lands, notably the Cerrados, as well as land
reform. The latter program, aimed at redressing a
highly skewed land distribution pattern-10.4 percent
of the farms made up 80 percent of farmland in
1980?called for the transfer of approximately 50
million hectares of underutilized government or ex-
propriated private land to 1.4 million landless families
over a four-year period (table 3). Farmers were to
receive increased government financial support for
Wheat and wheat products (bread, noodles, flour, and bakery
products) are mainly urban middle- and upper-class consumption
goods. Accordingly, increased wheat production and imports only
marginally improve the diet of lower income urban dwellers, rural
workers, peasants, and the landless.
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Table 3
Brazil: Size Distribution
of Farms by Number
and Area, 1980 a
Size
(hectares)
ct a re s)
Number
(percentage)
Area
(percentage)
Total 100.0
100.0
Less than 10 50.4
2.5
10-100
101-1,000
1,001-10,000
39.2
9.5
0.9
Greater than 10,000 NEGL
17.7
34.8
28.7
16.4
, Source: Brazilian Institute of Geography and Statistics, Anuario
Estatistico, 1985.
Note: Land ownership concentration is greater in the North,
Northeast, and Center-West and smallest in the South. This
reflects both the great variety of socioeconomic conditions and the
different types of agricultural activities found in the different
regions of Brazil?ranging from small family farms of descendants
of European immigrants in southern Brazil, to the cooperatives of
Japanese Brazilians in Sao Paulo and Parana to the giant ranges of
Mato Grosso and the traditional sugar estates in northeastern
Brazil.
growing basic foodstuffs, especially beans, manioc,
and corn. Sarney in part justified the policy by the
need to reduce the growing number of land-related
conflicts; the press, for example, reported some 950
separate incidents and 180 deaths in 1984.
Fostering Growth
In other agricultural policy initiatives, Sarney called
for the promotion of greater free enterprise in some
respects, but pushed expansion of supports for food
production. More specifically, Brasilia earmarked
three major government organizations for possible
reorganization or elimination?the Brazilian Coffee
Institute, the Institute of Sugar and Alcohol, and the
Wheat Board, according to Embassy reporting. In
addition, it announced a Plan of Goals in July 1986
that called for expansion of grain and oilseed produc-
tion from the 49-million-ton average for the 1980-84
period to 72 million tons by the 1989/90 crop year.
The plan also called for increased rural credit, higher
minimum price support programs, and an expansion
of agricultural storage facilities; it also pledged to
7
reverse the disproportionate allocation of government
financial and technical resources to export crops.
The government envisioned an expenditure of $140
billion cruzados (approximately US $3.5 billion in
current dollars) in new investments through 1989.
Embassy reports indicate that significant funds were
made available to expand production and marketing
infrastructure?rural road construction, electrifica-
tion power and communication services, transporta-
tion and storage facilities, and irrigation and drainage
systems?with the Cerrados Region and the impover-
ished, drought-ridden Northeast the primary benefi-
ciaries.
To help finance these and other projects, Brasilia
aggressively sought foreign assistance. The Japanese,
in particular, have increased investment in rural
Brazil, providing technical and financial assistance to
develop the frontier, according to Embassy reporting.
In 1985, for example, the Japanese Government
committed US $150 million for the second phase of a
project in the Cerrados to expand cultivation on
150,000 hectares, comprising 400 to 500 farms that
concentrated on soybeans, corn, wheat, sorghum, and
rice production.' The Japanese are also reportedly
interested in financing a railroad to serve the produc-
ing areas of the Cerrados. In addition, since mid-
1984, the World Bank has approved US $1.9 billion in
loans for agricultural and rural development, especial-
ly in the Northeast Region, which would focus on
irrigation development, research and extension, credit
and land tenure and resettlement, marketing reform,
and livestock disease control. Also during this period
the World Bank has approved new loans worth US
$1.7 billion, aimed at improving physical infrastruc-
tures such as roads, highways, bridges, railroads, and
electric power generation and transmission?projects
that support the growth of the agricultural sector.
This project, and the pilot project covering 50,000 hectares that
began in 1980, are part of the Japanese-Brazilian Agricultural
Development Program involving government and private organiza-
tions to develop large-scale agriculture in Brazil in an effort to
increase food production.
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onna enu a
Mixed Success
Implementation of these ambitious programs has been
mixed. A severe drought during the first year of the
Sarney administration significantly undercut Brasi-
lia's efforts to increase food production. A combina-
tion of real wage hikes, a price freeze, and expanded
social services for the poor spurred consumer food
demand just as drought in southern Brazil reduced
the output of soybeans by 27 percent to 13 million
tons and caused significant losses to cattle herds as
pastures deteriorated. According to Embassy report-
ing, in 1986 the Sarney government responded to
widespread food shortages by importing a record US
$2 billion worth of foodstuffs, but internal demand
nonetheless outran supplies.6 Moreover, lower volumes
of exportable commodities?coffee production was
halved to under 17 million 60 kilogram bags (1 million
tons)?coupled with generally weak world prices, re-
duced Brazil's agricultural export earnings about 22
percent to $7.3 billion (table 1)
Agricultural Rebound Aids the Economy
In addition to increasing imports, the Sarney govern-
ment responded to the crisis with a number of stopgap
measures designed to quickly boost food production.
In addition to increasing farm credit and setting
higher crop support prices, it set price controls on
production inputs at the time of planting in order to
encourage farmers to use fertilizer and pesticides to
improve yields. Price controls and new financial regu-
lations induced large landowners to shift funds from
money market instruments into farm production in-
vestments. These factors paid off in a sharp expansion
of acreage under food cultivation; corn and rice
acreage alone went up 20 percent?approximately 1.9
million hectares in 1987 compared with 1986 levels.
Embassy reporting suggests that 1987 harvests reflect
the impact of government policies as well as excellent
growing conditions. According to the Ministry of
'In addition to US $900 million in corn, rice, and wheat imports,
Brasilia's Interministerial Food Supply Council (CINAB) also
authorized liberal imports of milk, beef, pork, and horticultural
products.
Confidential
Agriculture, Brazil enjoyed a record grain and oilseed
crop?estimated at 64 million tons, 20 percent above
the drought-reduced 1986 crop?and a record coffee
crop of 38 million bags (2.3 million tons). Corn
production was up 31 percent to a record 27 million
tons, shifting Brazil from a net importer to a potential
exporter. The US Department of Agriculture esti-
mates that Brazil's 1987 soybean production totaled
17.3 million tons, up 23 percent from 1986. The
volume of beef and soya exports also was up sharply in
1987, reflecting both stronger international demand
and slackening domestic demand. Orange production
in the state of Sao Paulo?accounting for 80 percent
of national output?reportedly rebounded to 240 mil-
lion 40.8 kilogram boxes, up 15 percent from 1986,
while frozen concentrated orange juice exports for
1987 are estimated at 785,000 tons.' Finally, excellent
growing conditions in 1987 were reflected in a record
wheat crop, in the traditional southern producing
states, as well as in the Cerrados state of Mato Grosso
do Sul where 540,000 tons were harvested this year?
compared with only 113,000 tons in 1982. All told,
the 1987 wheat harvest is a record 6 million tons, up 7
percent from the good 1986 crop and more than
double the average annual production during the
previous decade. The narrowing gap between domes-
tic wheat production and demand in 1988 apparently
will be met by imports of about 2.2 million tons
costing between US $200 and US $250 million?
compared with average annual imports of 4.4 million
tons costing US $850 million annually during the
period 1980-85.
Brazil's recent agricultural bonanza also has had
several ancillary benefits that have helped the trou-
bled domestic economy, according to Embassy and
press sources. The large summer harvest in 1987, for
example, required employment of an estimated 2
million seasonal farmworkers, while the agricultural
processing industries employed many of the workers
laid off from industrial jobs. The marketing of the
record crop from farm to retail outlets and export
terminals also added thousands of new jobs for
' Tons in 65 degree Brix (percent by weight of sugar).
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truck-drivers, warehousemen, and stevedores. Plenti-
ful food supplies also helped temper price hikes for
staples, despite high inflation.'
The across-the-board agricultural production boom is
also reflected in an upturn in 1987 agricultural
exports. Even though world prices for key exports
such as coffee, cocoa, and sugar continue to be
depressed, the Embassy reports that Brazil has
gleaned US $8 billion in foreign exchange earnings
from agriculture in 1987, 10 percent above the 1986
level and about one-third of total export earnings. In
addition, improved domestic supplies and low wheat
import prices will save more than $1 billion in foreign
exchange. Moreover, the agricultural boom has trans-
lated into an 8-percent jump in the sector's contribu-
tion to Brazil's 1987 GDP. This has off4t the sharp
decline in the industrial sector and has allowed the
economy to achieve a modest 2-percent growth level
for the year (figure 5).
Some Progress Toward Fundamental Change...
Preliminary reporting?including information from
the World Bank and Brazilian agricultural experts?
indicates that some longer term institutional changes
are beginning to take hold, increasing the chances
that Brazil will remain a major agricultural exporter
in the years ahead. Government investments in re-
search, in particular, are beginning to bear fruit.
Brasilia's Agricultural Research Enterprise
(EMBRAPA), for example, recently announced that,
after a seven-year study and test period, the Cerrados
Research Center has developed the first high yielding
hybrid corn in the world tolerant of the region's acid
soils. The new hybrid reportedly has yields compara-
ble to those in the United States and more than triple
Brazil's current average national corn yields. In addi-
tion, public and private investments made in response
to high international prices for coffee, citrus, and
cocoa in the late 1970s are also beginning to pay off.
According to Embassy and USDA reporting, by the
early 1990s Brazil could produce:
? Forty to 45 million bags of coffee, up 5 to 18 percent
from this year's record production.
According to the Wholesale Price Index of the Getulio Vargas
Foundation, agricultural prices rose 147 percent for the period
January to July 1987 compared with a 222-percent price rise for
industrial prices during the same period.
9
Figure 5
Brazil: Changes in Gross Domestic Product
and Agricultural Output, 1980-87
GDP
Agricultural output
Percentage
7
_
6
3
17
_
1
o
?
!
1
?3 _
?6
I
i_
?9 1980 81 82 83 84 85 86 87a
a Estimated.
316148 2-88
? Approximately 350 million boxes of oranges, 19
percent above this year's record.
? 550,000 tons of cocoa beans, one-third higher than
the 1984/85 record harvest.
In contrast to past practice, Brasilia's new emphasis
on the parallel expansion of major seasonally planted
crops could permit an expansion of grain and oilseed
production to 72 million tons by the 1989/90 crop
year. The harvest of 64 million tons in 1987 already
puts the plan ahead of schedule, although early
indications for the 1988 crops point to an expansion
mainly of soybean acreage at the expense of food
crops such as corn and rice.
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Brasilia also is making some progress in reducing
agricultural budget expenditures by reducing subsi-
dies. For example, the Embassy reported that in mid-
June 1987 Brasilia reduced the wheat subsidy, which
had cost the government over $1 billion annually. All
imported and domestically produced wheat is now
sold to flour mills at US $155 per ton, up from about
US $25 a ton charged under the subsidy. Brasilia has
also authorized incremental increases in wheat flour
and bread prices to consumers. For example, in
December 1987 the price of wheat flour increased 25
percent and the price of a 50-gram loaf of French
bread went up 15 percent. At the same time, accord-
ing to USDA, Brasilia lowered the price paid to
farmers for the 1987 wheat crop. The guaranteed
purchase price by the Bank of Brazil, which buys the
entire crop, in December 1987 was US $182 per ton,
well below the price of US $204 per ton and US $224
per ton in effect in 1986 and 1985, respectively.
The government also has begun to back away from
the traditional use of subsidized production credit,
relying more on price support to stimulate production.
According to statements made by the Agriculture
Minister, Sarney favors incentives that benefit honest
producers instead of subsidized financing, which he
suspects is often diverted to other uses, such as land
speculation and financial instruments. For harvests
beginning in early 1988, the Ministry of Agriculture
has increased minimum support prices for basic food
crops by 218 percent in nominal terms compared with
1987 and for cash export crops by 205 percent.' By
combining these increases with a modified production
credit program, the Agriculture Minister hopes to
encourage farmers to produce 70 million tons of grain
and oilseeds in 1988.
Finally, Sarney abolished the Brazilian Coffee Insti-
tute early this year. This institute had long held a
monopoly on coffee exports and imposed support
policies that rankled private traders. Moreover, past
audits found serious administrative irregularities and
overstaffing.
'These new support prices announced in August 1987 will be
indexed to National Treasury bonds, which normally follow the
inflation rate.
Confidential
... But Major Problems Remain
The policies that have stimulated the production
bonanza have not been without cost, however. Ac-
cording to Embassy and press reports, the dip in farm
prices in 1987 below guaranteed levels forced Brasilia
to buy and store 24 percent of the 1987 rice harvest,
20 percent of the corn output, and a significant share
of the near record coffee crop. This support was
expected to total about 1.2 percent of the 1987
GDP?an estimated US $3.2 billion?according to a
statement made by President Sarney. Agricultural
spending is also a major contributor to the public-
sector deficit, which is now nearing 7 percent of GDP
and fueling triple-digit inflation
The government's poor financial position and a series
of changes in the leadership of the Ministry of Land
Reform also have left agrarian reform in disarray.
The Embassy reported that in 1985 the cost of the
reform effort was envisaged at US $8 billion, but
since then the lack of operational funds has stymied
achievement of interim goals for redistributing land
and settling families. Moreover, in rural areas, the
frequency of clashes between landlords and squatters
has increased, according to the press, and landowners
are resorting to strong-arm methods with little fear of
retribution from Brasilia or state capitals. The Rural
Democratic Union, a rightwing organization founded
to fight agrarian reform, has grown in size and
influence. As a result, land reform provisions in
Brazil's new Constitution are likely to reflect the
traditional interests of the landed elite.
The Brazilian Wheat Board, an agency of the Bank of
Brazil, continues its monopoly, annually setting quo-
tas for the nation's wheat mills.'" Likewise, the Sugar
and Alcohol Institute still sets crop and mill produc-
tion goals and controls all exports. The Institute is
under attack by Copersucar, the country's largest
sugar cooperative, for its price policies that eliminate
1? In 1967, there were nearly 570 wheat mills in Brazil; today there
are only 180. As mills closed, they sold their registrations to
remaining ones, thus leaving some regions of Brazil without a single
operating mill. Many of those still operating are not functioning at
full capacity and many are operating inefficiently, according to
grain milling specialists.
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competition between growers and mills and thus
reduce efficiency. In addition, Copersucar has
charged that mismanagement by the institute cost
Brazil over $70 million a year between 1979 and
1986.
Despite considerable speculation in mid-1987 that
Brasilia was preparing to back away from the heavily
subsidized sugarcane-based fuel alcohol program, the
government?following recommendations of the Na-
tional Energy Commission's Task Force for the Eval-
uation of the National Program?recently announced
that it will expand production of alcohol from the
current annual output of 13 billion liters (50.4 million
barrels of oil equivalent) to 20 billion liters by 1992 as
well as maintain the 35-percent price advantage that
pure alcohol has over gasoline. To achieve this in-
crease, the government will need to invest an estimat-
ed US $1.2 billion, according to press sources. While
increased yields will be sought, the new production
target is likely to result in an additional 1-1.5 million
hectares planted to sugarcane for alcohol. This will
mean that less land will be available for food produc-
tion, especially in Sao Paulo, the leading fuel alcohol?
producing state (see appendix C).
Also moving slowly are Brasilia's plans for certain
infrastructure projects, particularly new storage facil-
ities." Inadequacies were especially evident with this
year's record grain harvest. As a result, Brasilia
announced in June that it would lend US $110 million
from the National Development Fund to farmers to
construct silos in producing areas. In addition, Bra-
zil's ports system is reaching its saturation point and
action is required to avoid export bottlenecks in the
near future
. Modernization projects are on
the drawing boards for the port of Santos in the state
of Sao Paulo, the primary export terminal for coffee
and orange juice, and the National Development
Bank announced in June that it would spend US $6
million on expanding the port of Paranagua in the
" Brazil's state storage firm Cibrazem estimates current national
grain storage capacity at 60 million tons. The shortage of 3 to 4
million tons of storage, especially in the Center-West, forced
growers in 1987 to sell below floor prices or face crop losses.
Brazil: Railroad Projects Proposed
North-South Railroad 1,600 km linking Brasilia!
Anapolis to city of Acailandia in Maranhao where it
will intersect with the Carajas Railroad to Sao Luis
on the coast. Status on hold as of 15 June 1987 as
part of the new Economic Stabilization Program (in
mid-November, President Sarney indicated that he
would go forward with the project).
Cerrados Railroad linking Center-West states of
Mato Grosso and Goias with western Minas Gerais to
port of Tubarao in Espirito Santo, 1,820 km. First
part will link existing Vitoria-Minas Railroad to
Cerrados. Status on hold as of 15 June 1987.
Soybean Railroad line to be built between port of
Paranagua and city of Miranda, Mato Grosso do Sul,
length 1,263 km. Parts already completed. Status on
hold as of 15 June 1987.
southern state of Parana, the main soybean outlet. On
other projects?such as improving farm transporta-
tion to markets?the government record is mediocre.
In mid-1987, Sarney was forced to shelve his much
publicized agricultural railroad projects because of
the burgeoning financial deficit. Yet in November,
Sarney announced he will push ahead with his pet
North-South Railroad project, estimated to cost US
$2.4 billion (figure 6). Of more immediate importance,
much needed irrigation programs for the Northeast
are behind schedule and over cost, and have been
scaled back, according to Embassy reporting. Studies
by Sao Paulo's Economic and Social Planning Insti-
tute found that the ambitious National Irrigation
Program created in 1986 is underfunded and unlikely
to meet its goals. The program was supposed to
increase irrigated land by 2 million hectares, which
could produce an additional 8 million tons of grain.
11
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Figure 6
Proposed Brazilian Railroad Projectsa
'Belem
Santarem
Pnaiba
Luis (
I
Amazonas
Carajas
Fortaleza
cailandia /Teresina\ C e r a /
Rio
Maranhao
, Grande
,
,...-,?, I., "" e?-?do Norte
, , ---,3
? Para
el.
- / -\--
L.
e-' Piaui , --,...."), ../campina ,
\,-? ; . r Salgueiro 'Grande,'
?
r?1 Pernambuco
k ' ,?4?.. ,-"/"'.1
) (Mune .
le
.r, l rolina -_,
o? ,..fSe...,
yAracaju
Gurupi?
las (,
13
5 ut
-E,
, t,
. c,)
s.,
l,
Federal,U,L.
Distrito _
MIA 1.
.11nAltina
M.-to
G rosso
oad B
Anapoli
Goiania
Cruz das
Almas
Natal
Salvador
Joao
Pessoa
Recife
Maceio
South
Atlantic
*Porto Ocean
eguro
Bolivia
?rumba
ra
inas
Gerais
Miran a
Mato Grosso
do Sul
Ponta
Pori
Sao
Paulo
Formosa
Encarnaci'
..(resiste'neit
rgentin
Uritguey
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Concordia
Passo
Fundo
Santa
Catarina
Grande
Sul
Sa
Maria
Paranagua
Santos
Florian?polis
Rio de
Janeiro
Boundary representation is
not necessarily authoritative.
12
r0
jrubario
Vitoria
Proposed railroad project
? Existing railroad
--- State-level boundary
o State-level capital
The alignments shown for the
proposed railroads are from the best
available sources. The actual alignments
may vary from that shown.
300 Kilometers
300 Miles
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Plans to improve the quality and quantity of the
Brazilian diet also are a long way from being
achieved. Despite last year's production bonanza,
rampant inflation and the declining purchasing power
of the average Brazilian continue to have an impact
on his diet. For example, according to agricultural
experts, the minimum monthly wage in Brazil, which
10 years ago bought 47 kilograms of beef, today
barely buys 22 kilograms. Brazil's Beef Export Asso-
ciation now estimates per capita consumption at 11
kilograms, the lowest level since 1970 and in sharp
contrast to the 60 to 80 kilograms consumed per
capita in the United States and Argentina. Current
milk production, if distributed to all the population,
would provide only one glass of milk for each inhabit-
ant of the country for the year, according to agricul-
tural experts.
Future Paths
Looking ahead, we believe Sarney and his successors
will have difficulty charting a consistent course for
agriculture into the next decade. Sarney has little
latitude for major policy initiatives, given his lack of
clout with Congress, his consistent inability to out-
manuever other politicians, and his lameduck status.
Moreover, the government is under growing pressure
to cut spending in the face of a massive deficit.
Furthermore, we do not envision an improvement in
Brazil's economic situation during the next year or
two?when a successor to Sarney will be chosen. As
such, the next president will almost certainly face the
same economic constraints and political difficulties.
Finally, Brazil's options will also be limited by world
market demand and the trading practices adopted by
other major agricultural producers.
In these circumstances, we expect Sarney to continue
to pursue a policy designed to achieve More Balanced
Growth between export and food crops?by opting for
moderate export promotion, but with some increased
attention to food crops. For purposes of analysis, we
set out below a scenario to illuminate the likely
implications of this most likely policy, as well as
scenarios illustrating two other, in our view less likely,
policy options. One is Enhanced Export Promotion, in
13
which Brasilia turns away from recent efforts to boost
food production and again emphasizes the production
of export crops. This could occur if the economy
deteriorates further and emergency conditions oblige
Brasilia to maximize foreign exchange earnings at the
expense of food crops. Finally, in a scenario we term
Improved Food Production, we envision circum-
stances in which the ever weakening Sarney govern-
ment bows to political pressure from the center-left to
increase food production at the expense of export
crops." To implement any of these approaches, the
government would use a combination of price incen-
tives, credit policies, and government investment fo-
cused on the type of products being emphasized.
More Balanced Growth
Our projections of agricultural production under this
most likely policy option indicate that output of most
food and export crops would increase steadily through
1992. Export crops?especially soybeans?would con-
tinue to lead this growth (table 4). We estimate that
soybean production would increase by 47 percent over
the 1981-85 levels, exceeding 22 million tons in 1992
(table D-1, appendix D). Brazil would earn about US
$9.6 billion in net exports from the sales of major
export crops?especially soybeans, oranges, and cof-
fee (figure 7).
In this scenario wheat production would decline sig-
nificantly?down 30 percent in 1992 from the 1981-
85 average level?due to decline in both area harvest-
ed and yields reflecting a drop in the producer subsidy
(table D-1, appendix D). As a result, approximately
US $1.3 billion would be needed to cover imports in
1992, but food consumption per capita would still
decline about 10 percent from the average 1981-85
level because of rapid population growth. This would
mean that consumption in 1992 would be about 20
percent below the adjusted national daily calorie
requirement, according to World Bank studies.
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12 Analysis is based on Brazil's seven major export crops (cocoa,
coffee, cotton, oranges, soybeans, sugarcane, and tobacco) and five
leading food crops (dry beans, corn, manioc, rice, and wheat). (See
appendix D for a detailed explanation of the methodology used to
develop the scenarios.)
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Table 4
Brazil: Comparison of Area and
Production for Major Agricultural Crops,
Base Year 1986 and Scenarios 1992
Millions Figure 7
Brazil: Comparative Value of Food Imports and
Cash Crop Exports, Base Year 1986 and
Scenarios 1992
Food Crops
Export Crops
Area Production Area Production
(hectares) (metric tons) (hectares) (metric tons)
Base year, 29.2
1986
64.4
20.3
25.9
More balanced 29.3
growth, 1992
65.5
22.9
39.9
Enhanced 26.4
export promotion,
1992
59.5
25.8
45.7
Improved food 32.8
production,
83.4
19.5
34.3
1992
Note: Estimates for individual crops appear on tables D1-3.
Enhanced Export Production
Should Brasilia again emphasize export crops, net
export earnings by 1992 would increase dramatical-
ly?earning US $9 billion more than in 1986, the base
year for our forecasts (table 4 and figure 7). However,
the cost of food imports?more than US $2 billion?
would more than double that of the base year?if
Brasilia opts to provide its population with compensat-
ing food imports. For this scenario, we found that
output of export crops would increase significantly
over current levels, and, according to World Bank
agricultural price forecasts, Brazil would have the
potential to earn about US $13 billion (current dol-
lars) in 1992 or roughly US $8 billion more than for
1986 (see tables 4 and 7)." For this scenario, soybean
production, spurred by strong global demand and firm
prices, would increase at nearly 11 percent per year,
reaching nearly 25 million tons in 1992 and allowing
exports to increase from $1.6 billion in 1986 to US
$4.6 billion in 1992. The production of other products
that compete with US agricultural exports?orange
juice and tobacco, for instance?would increase rapid-
ly as well, averaging about 18 and 20 percent per
year, respectively (table D-4).
'These estimates are based only on the 12 major crops in our
model. Minor exports such as meat, nuts, sisal, animal hides, and
castor oil are not included. In the aggregate these exports earned an
additional US $1.3 billion in 1986 for Brazil
Confidential
Food imports Net exports
Cash crop
exports
Base Year 1986
More Balanced Growth Scenario
Enhanced Export Promotion
Improved Food Production
''?
6
Billion US$
12 15
316149 2-88
The major economic cost to Brazil of enhancing its
export potential would be a 125-percent rise in the
cost of food imports. World Bank price forecasts
suggest Brasilia would have to spend an additional US
$350 million per year through the early 1990s just to
maintain daily caloric consumption per person at
about 90 percent of the average 1981-85 level. We
estimate that, under this scenario, Brazil would have
to import 3.2 million tons of corn, 6.2 million tons of
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wheat, and nearly 1.4 million tons of rice in 1992?
this compares with 6.1 million tons of actual imports
of these three grains in 1986 (table D-4, appendix D).
Improved Food Production
Alternatively, should the Sarney government opt to
respond to political pressure for food production at the
expense of export crops, the cost of food imports
would increase US $300 million over that of the base
year to about US $1.2 billion in 1992. The value of
net exports, however, would still be 50 percent greater
than the base year?roughly a US $2.5 billion in-
crease.
To increase per capita food production substantially
through 1992, Brasilia would need to encourage
through financial incentives the expansion of the area
devoted to food crops and improve yields. Projections
of food production based on these assumptions indi-
cate that output would sharply increase through 1992.
This would allow Brasilia both to raise per capita food
availability and to cut food imports. In particular,
wheat import requirements could be cut 18 percent.
On a per capita basis, food staples would supply about
1,625 calories per day in 1992?approximately 20
percent above current levels. Moreover, there would
be a marked improvement in the diet of lower-class
Brazilians (table 5).
The adoption of this policy, however, would result in
considerable reductions of net agricultural export
earnings?a 21-percent cut, to about US $7.5 bil-
lion?from net export earnings under the Balanced
Growth scenario. Reduced earnings from three major
commodities?soybean products, tobacco, and frozen
concentrated orange juice?would account for over 90
percent of the total reduction in export proceeds by
1992 (table D-4).
Implications for the United States
Given Brazil's size, resources, agricultural potential,
and already well-established role in international agri-
cultural markets, whatever policies it pursues will
have an impact on US-Brazilian relations. An expan-
sion of traditional exports of coffee, cocoa, and sugar,
for example, would mean lower prices for US consum-
ers and a reduced US agricultural import bill. Brazil
15
Table 5
Brazil: Average Per Capita
Availability of Traditional
Food Staples a
Kilograms per person
Commodity
1981-85
1992
Percent
Change
Dry beans
16.6
22.9
38.0
Corn, meal
20.8
27.5
32.2
Manioc, fresh
88.7
86.7
?2.3
Rice, milled
42.0
43.4
3.3
Wheat, flour
37.1
43.9
18.3
a Actual in 1981-85 and assuming improved food production sce-
nario in 1992.
is the largest supplier of US agricultural imports,
averaging about US $2 billion annually over the last
five years. Coffee, cocoa, and sugar alone account for
85 percent of total imports from Brazil (figure 8). An
expanded Brazilian presence in markets in which the
United States and Brazil compete, however, would
aggravate trade frictions. Brasilia's aggressive mar-
keting of soybeans and products in the Far East and
poultry meat in the Middle East has already raised
trade tensions. The United States has complained to
the GATT about Brazil's use of export subsidies on
soybean products; Brazil, in turn, has accused the
United States of subsidizing exports of poultry to the
Middle East via USDA's Export Enhancement Pro-
gram. Because of a changing supply picture in the
United States, exportable surpluses of Brazilian- and
US-produced orange juice and tobacco appear headed
for intense competition for market shares. If Brasilia
keeps its exchange rate competitive, competition with
the United States is likely to become even fiercer.
A significant increase in food production, as described
in the third scenario, would be likely to result in a
sharp contraction in US grain exports to Brazil. US
exports to Brazil have traditionally been dominated
by wheat and corn with an aggregate value of US
$500 million annually for the period 1982-86, with
wheat being the largest year-to-year export earner.
Brazil's drive toward self-sufficiency in wheat, howev-
er, combined with larger imports from Argentina
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l-ummenuati
Figure 8
United States: Average Annual Agricultural
Trade With Brazil, 1975-87
11-1 US agricultural
imports from Brazil
exports to Brazil
1 US agricultural
1975-78
1979-82
1983-86
1987a
1,000
Million
1,500
US$
2,000
0 500
a Preliminary.
316150 2.88
under the new trade agreement, purchase commit-
ments with Canada, and heavy purchases of subsi-
dized French wheat have already diminished US
opportunities. In 1986, US wheat exports to Brazil
were valued at only US $66 million, the lowest in a
decade. Prospects for US wheat sales to Brazil in
1988 look even dimmer; but this might be partially
offset by substantial corn exports to ease Brazil's
possible domestic corn supply shortages during 1988."
Currently, US corn shipped from Gulf ports can be imported into
the north of Brazil more cheaply than transshipping corn from
producing areas concentrated in central and southern Brazil. In
recent years Brasilia has repeatedly turned to the United States to
service deficits in supplies in the northern part of Brazil. However,
this shipping advantage for the United States may change in the
coming years with the construction of the North-South Railroad.
Confidential
Repercussions in the New GATT Round
Brazil's agricultural trade policies are coming under
close scrutiny during the current round of negotia-
tions by the General Agreement on Tariffs and Trade
in Uruguay. This eighth round of multilateral trade
negotiations, launched in September 1986 in Punta
del Este, features agricultural trade reform as the
centerpiece for negotiations, which will cover the
gradual elimination of import restrictions and subsi-
dies that directly or indirectly affect agricultural
trade. Brazil has pressed for special treatment for
developing countries?for example, allowing both
protection of the domestic market and special access
into OECD markets for Brazilian farm exports. The
Sarney government is expected to offer minimal
concessions?a stance likely to win few friends for
Brazil among OECD countries, but one that will
enable it to maintain its leadership role in the G-77
negotiating group.
Opportunities for US agricultural exports have also
diminished in recent years due to Brasilia's tariff and
nontariff barriers and outright import prohibitions.
Reduced market access, along with a series of recent
dumping cases in the US market, have led to a strain
in bilateral relations. These tensions, in turn, will
almost certainly spill into the new GATT round,
where agricultural trade issues will be highlighted,
and where Brazil will be on the defensive for its use of
export subsidies, dumping practices, and nontariff
barriers. We believe Brasilia will be under increasing
international pressure to back away from its mercan-
tilistic approach to trade. Nevertheless, Brasilia's
continuing payments problems and the current wave
of economic nationalism suggest that the Sarney
government will move in this direction only
grudgingly.
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Appendix A
Brazil: Production and Trade of
Major Export and Food
Commodities, 1975-861
Leading Export Commodities
Table A-1
Brazil: Cocoa
Calendar
Year
Area Harvested
(1,000 hectares)
Yield Per Hectare
(metric tons)
Cocoa Bean Production Beans and Byproducts a
(1,000 metric tons) Export Volume
(1,000 metric tons)
Beans and Byproducts a
Export Value
(million $)
1975
451
0.63
282
238
320
1976
407
0.57
232
193
352
1977
413
0.61
250
182
767
1978
444
0.64
284
223
815
1979
454
0.74
336
267
935
1980
483
0.66
319
243
694
1981
505
0.67
336
250
594
1982
533
0.66
351
236
427
1983
591
0.64
380
291
553
1984
586
0.56
330
245
658
1985
640
0.66
420
318
771
1986
657
0.70
460
262
618
a Includes beans, cocoa butter, cake, and liquor (products export
volumes not converted to green bean equivalent).
' Based on official data from the Fundacao Instituto Brasileiro de
Geografia e Estatistica (IBGE), Bank of Brazil Foreign Trade
Office (CACEX), FAO Trade Yearbooks, and supplemented with
data from the Agricultural Counselor, US Embassy, Brasilia
17
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Table A-2
Brazil: Coffee
Calendar Area Harvested
Year (1,000 hectares)
Yield Per Hectare
(metric tons)
Coffee Production a
(1,000 metric tons)
Coffee Export b
Volume
(1,000 metric tons)
Coffee Export
Value
(million $)
1975 2,217
0.57
1,272
813
955
1976 1,121
0.34
376
849
2,399
1977 1,941
0.50
975
544
2,625
1978 2,183
0.58
1,268
665
2,295
1979 2,406
0.55
1,333
615
2,327
1980 2,434
0.44
1,061
825
2,773
1981 2,618
0.78
2,032
873
1,761
1982 1,895
0.51
958
938
2,130
1983 2,346
0.71
1,665
978
2,324
1984 2,505
0.54
1,353
1,076
2,850
1985 2,483
0.76
1,877
1,067
2,607
1986 2,260
0.44
998
586
2,359
a Green bean equivalent.
b Soluble coffee export volume not converted to green bean
equivalent.
Table A-3
Brazil: Cotton
Calendar Area
Year Harvested
(1,000 hectares)
Yield/Hectare
(metric tons)
Cotton
Production a
(1,000 metric tons)
Export
Volume b
(1,000 metric tons)
Export
Value b
(million $)
1975
3,876
0.45
1,748
107
98
1976
3,409
0.37
1,262
6
7
1977
4,097
0.46
1,901
35
41
1978
3,951
0.40
1,569
45
53
1979
3,646
0.45
1,636
1980
3,699
0.45
1,676
9
11
1981
3,511
0.49
1,732
30
41
1982
3,624
0.53
1,928
56
62
1983
2,927
0.55
1,598
180
189
1984
3,114
0.69
2,160
33
42
1985
3,583
0.79
2,841
102
80
1986
3,161
0.73
2,315
37
17
a Cotton (with seeds) from annual and perennial cotton plants. Less
than 0.5 thousand metric tons.
b Raw lint cotton only. Less than US$ 0.5 million.
c Less than 0.5 thousand metric tons.
Less than US$ 0.5 million.
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Table A-4
Brazil: Oranges and Orange Juice
Calendar Area
Year Harvested
(1,000 hectares)
Yield per
Hectare
(metric tons)
Orange
Production
(1,000 metric tons)
Orange Juice
Concentrate
Production a
(1,000 metric tons)
Orange Juice
Concentrate
Export Volume a
(1,000 metric tons)
Orange Juice
Concentrate
Export Value
(million $)
1975
403
12.77
5,145
189
181
82
1976
414
14.11
5,842
211
210
101
1977
422
13.84
5,839
229
214
177
1978
455
14.02
6,378
400
356
333
1979
475
14.49
6,883
424
292
281
1980
575
15.44
8,877
479
401
339
1981
575
16.15
9,286
586
639
659
1982
590
16.01
9,444
550
502
552
1983
624
15.19
9,476
508
554
609
1984
632
16.66
10,526
726
911
1,425
1985
663
17.45
11,570
860
438
753
1986
708
15.34
10,861
575
752
636
a Frozen concentrate orange juice, 65 degree Brix.
Table A-5
Brazil: Soybeans
Calendar
Year
Area
Harvested
(1,000 hectares)
Yield Per
Hectare
(metric tons)
Soybean
Production
(1,000 metric tons)
Soybean and
Products a
Export Volume
(1,000 metric tons)
Soybean and
Products
Export Value
(million $)
1975
5,824
1.70
9,892
6,731
1,304
1976
6,416
1.75
11,227
7,506
1,778
1977
7,070
1.77
12,513
8,444
2,143
1978
7,782
1.23
9,541
6,582
1,515
1979
8,256
1.24
10,240
6,348
1,652
1980
8,774
1.73
15,156
8,875
2,264
1981
8,501
1.77
15,007
12,360
3,191
1982
8,203
1.56
12,836
8,977
2,097
1983
8,137
1.81
14,582
10,872
2,564
1984
9,421
1.65
15,541
10,103
2,569
1985
10,153
1.80
18,279
13,051
2,545
1986
9,450
1.49
14,100
8,126
1,562
a Includes soybeans, meal, and oil (crude and refined). Soybean
product export volumes not converted to bean equivalents.
19
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Table A-6
Brazil: Sugarcane
Calendar Sugarcane Area
Year Harvested for
Alcohol and Sugar
(1,000 hectares)
Alcohol
Production
(million liters)
Sugar
Production
(1,000 metric tons)
Sugar
Export Volume a
(1,000 metric tons)
Sugar
Export Value a
(million $)
1975 1,969
580
6,186
1,731
1,100
1976 2,093
642
7,598
1,167
307
1977 2,270
1,388
8,760
2,455
463
1978 2,391
2,359
7,767
1,962
350
1979 2,537.
3,437
7,027
1,829
364
1980 2,608
3,746
8,547
2,572
1,288
1981 2,826
4,211
8,393
2,701
1,062
1982 3,084
5,647
9,312
2,587
559
1983 3,479
7,986
9,576
2,461
515
1984 3,656
9,165
9,100
3,015
574
1985 3,778
10,700
7,810
2,509
364
1986 4,056
11,300
7,850
2,332
368
a Includes raw, crystal, and refined sugar.
Table A-7
Brazil: Tobacco
Calendar Area
Year Harvested
(1,000 hectares)
Yield Per
Hectare
(metric tons)
Leaf Tobacco
Production a
(1,000 metric tons)
Leaf Tobacco
Export Volume
(1,000 metric tons)
Leaf Tobacco
Export Value
(million $)
1975
254
1.13
286
98
142
1976
280
1.07
299
101
161
1977
311
1.15
357
101
186
1978
328
1.23
405
110
239
1979
326
1.29
422
126
284
1980
316
1.28
405
128
284
1981
298
1.20
357
132
356
1982
317
1.32
420
145
463
1983
312
1.26
393
155
458
1984
282
1.47
414
161
450
1985
287
1.43
411
170
438
1986
280
1.38
387
149
396
a Farm sales weight is roughly 15 percent higher than dry weight.
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Table A-8
Brazil: Beef and Poultry
Calendar Beef and Veal
Year (1,000 metric tons)
Beef
Export Volume a
(1,000 metric tons)
Beef
Export Value a
(million $)
Poultry
Production
(1,000 metric tons)
Poultry
Export Volume
(1,000 metric tons)
Poultry
Export Value
(million $)
1975
2,150
48
86
534
3
3
1976
2,230
67
144
604
20
20
1977
2,400
102
173
691
33
31
1978
2,200
64
121
858
51
47
1979
2,100
49
140
1,096
81
81
1980
2,150
79
266
1,326
169
207
1981
2,250
145
417
1,491
294
354
1982
2,400
197
439
1,596
296
281
1983
2,400
248
515
1,580
290
243
1984
2,300
260
543
1,398
277
261
1985
2,400
274
545
1,530
279
244
1986
1,900
450
354
1,620
225
220
a Includes fresh and frozen beef, beef extract and canned corn beef,
and cooked frozen beef (not including horsemeat).
Leading Food Commodities
Table A-9
Brazil: Corn
Calendar
Year
Area
Harvested
(1,000 hectares)
Yield Per
Hectare
(metric tons)
Corn
Production
(1,000 metric tons)
Corn
Import Volume
(1,000 metric tons)
Corn
Export Volume
(1,000 metric tons)
1975
10,855
1.50
16,335
2
1,148
1976
11,118
1.60
17,751
2
1,418
1977
11,797
1.63
19,256
1,420
1978
11,125
1.22
13,569
1,262
15
1979
11,319
1.44
16,306
1,526
10
1980
11,451
1.78
20,372
1,594
6
1981
11,520
1.83
21,117
902
7
1982
12,620
1.73
21,843
544
1983
10,706
1.75
18,731
213
766
1984
12,018
1.76
21,164
254
178
1985
11,802
1.87
22,020
262
1986
12,215
1.68
20,541
2,500
a Less than 0.5 thousand metric tons.
21
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Table A-10
Brazil: Dry Beans and Manioc
Calendar
Year
Dry Beans
Manioc
Area
(1,000 hectares)
Yield
(metric tons!
hectares)
Production
(1,000 metric tons)
Area
(1,000 hectares)
Yield
(metric tons!
hectares)
Production
(1,000 metric tons)
1975
4,146
0.55
2,282
2,041
12.79
26,118
1976
4,059
0.45
1,840
2,094
12.15
25,443
1977
4,551
0.50
2,289
2,176
11.92
25,928
1978
4,617
0.48
2,193
2,149
11.85
25,458
1979
4,212
0.52
2,186
2,111
11.82
24,962
1980
4,643
0.42
1,968
2,015
11.64
23,466
1981
5,027
0.47
2,340
2,100
11.90
25,000
1982
5,926
0.49
2,902
2,105
11.64
24,500
1983
4,069
0.39
1,586
2,020
10.40
21,000
1984
5,319
0.49
2,615
1,770
11.30
20,000
1985
5,317
0.48
2,550
1,860
12.37
23,000
1986
5,490
0.42
2,280
2,000
12.75
25,500
Table A-11
Brazil: Rice
Calendar
Year
Area
Harvested
(1,000 hectares)
Yield Per
Hectare
(metric tons)
Rough Rice
Production
(1,000 metric tons)
Milled Rice
Import Volume
(1,000 metric tons)
Milled Rice
Import Value
(million $)
1975
5,306
1.47
7,782
63
24
1976
6,656
1.47
9,757
17
5
1977
5,992
1.50
8,994
1978
5,624
1.30
7,296
30
8
1979
5,452
1.39
7,595
711
245
1980
6,243
1.57
9,776
239
99
1981
6,102
1.35
8,228
143
77
1982
6,025
1.62
9,735
137
47
1983
5,018
1.54
7,742
315
113
1984
5,351
1.69
9,027
1985
4,764
1.89
9,019
340
76
1986
5,594
1.86
10,405
800
180
Less than 0.5 thousand metric tons.
b Less than US $ 0.5 million.
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Table A-12
Brazil: Wheat
Calendar
Year
Area
Harvested
(1,000 hectares)
Yield Per
Hectare
(metric tons)
Wheat
Production
(1,000 metric tons)
Wheat
Import Volume
(1,000 metric tons)
Wheat
Import Value
(million $)
1975
2,931
0.61
1,788
2,098
357
1976
3,540
0.91
3,216
3,428
548
1977
3,153
0.66
2,066
2,624
295
1978
2,812
0.96
2,691
4,335
601
1979
3,831
0.76
2,927
3,655
630
1980
3,122
0.87
2,702
4,755
1,051
1981
1,920
1.15
2,210
4,460
962
1982
2,828
0.65
1,849
4,224
852
1983
1,879
1.19
2,237
4,182
805
1984
1,742
1.12
1,956
4,867
841
1985
2,672
1.62
4,323
4,041
591
1986
3,900
1.45
5,638
2,192
248
23
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%.,Ull111.M111.1a1
Figure 9
Brazil's Agricultural Land, by Region
Unused?
Arable
Forest Pasture
Region boundary
45.1 Millions of hectares
devoted to agriculture
78 Percent of region
devoted to agriculture
Suitable for agriculture,
but not currently in use.
Confidential
Boundary representation is
not necessarily authoritative.
South
45.1/78
Southeast
69.3/75
Source: Brazilian Institute of Geography
and Statistics, 1980.
24
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Appendix B
Brazil: Agriculture's
Resource Base
The evolution of the Brazilian economy has been
heavily influenced by its enormous resource base: the
natural environment (land area, soils, and climate),
agricultural research and technology, labor, and pro-
duction and marketing infrastructure.
Brazil's total land area, encompassing 851 million
hectares?of which about 9 percent is land under
cultivation?endows it with a vast potential to expand
agricultural production. More than two-thirds of Bra-
zil's huge land area consists of flat to hilly forests,
woodlands, and savannas that are sparsely populat-
ed?fewer than four persons per square kilometer.
The remaining third of the land area contains roughly
90 percent of Brazil's population?currently estimat-
ed at about 141 million?living mainly in the prosper-
ous South and Southeast economic regions (figure 9).
The soils of Brazil are mostly tropical, but temperate
soils cover much of the South. These soil types are
extremely diverse. Tropical soils alone have extremely
variable properties, ranging from the high base status
found in the drought-prone area of the Northeast
Region to acid infertile soils covering a large portion
of Brazil?from the Amazon Basin in the North
Region to the Cerrados in the Center-West and
Southeast Regions."
Vagaries in weather conditions are the principal
source of year-to-year changes in Brazilian crop yields
and production. Extended periods of frost and inade-
quate rainfall pose risks in the South and Southeast
" High base status and acid soils are mainly distinguished by their
active clay properties and very low natural fertility. High base
status soils are almost universally nitrogen deficient. A much more
important constraint, however, has been severe soil erosion caused
by overgrazing and intensive cropping. The major constraint of
acid-infertile soils is aluminum toxicity together with phosphorous,
potassium, and nitrogen deficiencies, and low water-holding capaci-
ty. These physical limitations are not as serious as those of high
base status soils.
25
Regions.' The severe frost of July 1975 that hit the
southern coffee zone killed millions of coffee trees and
led to record world prices and an expensive program
to replant coffee in less frost-prone areas. Crops lost
to weather from the approximate calendar year 1985- 25X1
86 drought were coffee (47 percent), soybeans (23
percent), cotton (19 percent), and oranges and orange
juice (6 and 33 percent respectively). Drought is a
problem in the Center-West and North-Northeast
Regions as well. For example, the 1983 dry spell
significantly reduced output of dry beans (67 percent),
corn (65 percent), rice (64 percent), and cotton (58
percent) in the North and Northeast Regions. Heavy
rains and high humidity at harvest are a perennial
problem for wheat in southern Brazil, the traditional
wheat-growing area, leading to disease problems, crop
losses, and low yields. These conditions have spurred
government programs fostering a shift of wheat pro- 25X1
duction to the Cerrados. 25X1
Research to improve production technology?such as
development of high-yielding varieties?has great po-
tential to increase Brazil's agricultural output. With
the creation in 1973 of the Brazilian Agricultural
Research Enterprise (EMBRAPA) and the Brazilian
Enterprise for Technical Assistance and Rural Exten-
sion (EMBRATER), Brazil launched a massive pro-
gram to reorganize basic investments in agricultural 25X1
technology (both institutions are connected to the
Ministry of Agriculture). Research is carried out
through 11 National Centers for Product-Specific
Research, three regional Resource Centers, and
The agroclimatic areas in the Northern Hemisphere analogous to
Brazil's regions are: South?North Carolina; Southeast?South
Carolina and Georgia; Center-West?Georgia; and North-North-
east?the lowland tropical rain forest area of Central America and
the humid coastal and semiarid area of northwestern Mexico near
the Gulf of California.
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through national, regional, and state research institu-
tions concerned with specialized topics.'
Brazil's total agricultural labor pool is large and
growing, but its distribution is changing. The agricul-
tural sector currently employs about one-third of the
working population?and is adding nearly 40 to 50
thousand new farm jobs each year. The basis for this
growth, in part, is natural population increase, aver-
aging some 2.6 percent per year. At the same time,
higher paying urban jobs have lured away thousands
of farmworkers in the South and Southeast Regions of
Brazil, which have responded to their growing rural
labor shortage with increased mechanization and by
hiring the urban unemployed, especially at harvest
time, to meet the demands of expanding agricultural
output. But in the aggregate, the migration of workers
from the impoverished Northeast to the agricultural
frontiers of the Center-West and North Regions more
than offsets losses in the agricultural labor force in
the South. All told, 1 million new workers have
entered Brazilian agriculture since 1965, according to
the World Bank.
Brazil's production and marketing infrastructure?
power and communication, transportation, storage,
irrigation, and drainage?is large and growing. How-
ever, infrastructure development still remains inade-
quate, particularly in the frontier areas of the Center-
West, and North Regions. Brazil's Ministry of
Agriculture acknowledges that lack of crop storage
facilities and transportation services is causing post-
harvest crop losses and marketing bottlenecks.
Some?of EMBRAPA's Product Centers and their locations are:
Cotton?Northeast (Campina Granda, Paraiba);
Rice and black beans?Center-West (Goiania, Goias);
Manioc and fruit--Northeast (Cruz das Almas, Bahia);
Corn and sorghum?Southeast (Sete Lagoas, Minas Gerais);
Wheat?South (Passo Fundo, Rio Grande do Sul);
Soybeans?South (Londrina, Parana); and
Swine and poultry?South (Concordia, Santa Catarina).
Three of EMBRAPA's regional centers by specialization and
location are:
Agriculture of the Cerrados?(Planaltina, Distrito Federal);
Tropical agriculture?North (Belem, Para); and
Semiarid, tropical agriculture?Northeast (Petrolina,
Pernambuco).
The major state research institutions are the National Center for
Genetic Research, the Brazilian Coffee Institute, the Sugar and
Alcohol Institute, and the Cocoa Research Center.
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Appendix C
Brazil: Agriculture-Based
Energy Program
Brazil is unique in the scale on which it uses its
agricultural sector to produce energy. In response to
the 1973 oil shock, Brazil in 1975 began
PROALCOOL?the government's program to substi-
tute imported petroleum with fuel alcohol (ethanol)
produced from sugarcane. A decade later, Brazil is
recognized as the first country to develop, on a large
scale, an agriculturally derived source of renewable
energy and, at the same time, an alternative use for
sugarcane.
Annual production capacity from over 500 distillers is
currently estimated at approximately 13 billion liters
(50.4 million barrels of oil equivalent), of which about
one-half is concentrated in the state of Sao Paulo
(table C-1). Currently, alcohol production supplies
over 1 million domestically produced vehicles running
on 100 percent hydrated alcohol, as well as helping
fuel the rest of Brazil's automobiles, which run on a
mixture of about 20 percent anhydrous alcohol and 80
percent gasoline.
According to its proponents, the program since its
inception has saved Brazil several billions of dollars in
foreign exchange by substituting alcohol for imported
oil. Other benefits widely discussed by the press are
increased rural employment, a heightened industrial
base with the construction of hundreds of alcohol
distilleries throughout the country, and an alternative
use for sugarcane during a period of weak internation-
al prices for sugar and changing structural demand
for sweeteners in the United States, Brazil's primary
market.
The benefits of the fuel alcohol program, however,
have come at a high cost. The program has been
heavily subsidized, with support going for sugarcane
growers, distillers, and distributors. For example, as
late as 1984, PROALCOOL was making available
three-year loans at 3-percent interest for the forma-
tion or expansion of sugarcane plantations. Eight-year
27
Table C-1
Brazil: Production of Fuel Alcohol
From Sugarcane
Billion liters
North/
Northeast
Center-West/
South
Total
1975/76
NA
NA
0.57
1980/81
0.65
3.01
3.71
1981/82
0.83
3.41
4.24
1982/83
1.19
4.63
5.82
1983/84
1.13
6.74
7.87
1984/85
1.59
7.68
9.27
1985/86
2.02
9.80
11.82
1986/87
2.16
9.57
11.73
loans at 3-percent interest have been available for
acquisition of farm equipment?market commercial
borrowing rates have been 30 to 40 percent. Brasilia
has also offered 12-year loans at 4- to 6-percent
interest for expansion and modernization of alcohol
distilleries and for installation of storage facilities. For
government-approved projects, modernization and ex-
pansion of facilities could be financed to a level of 80
percent of the fixed investment.
To increase demand, subsidies have been extended to
the consumer level as well, with alcohol sold at 65
percent of the price of gasoline. During the course of
the program, however, incentives have outstripped
demand, leading to a costly buildup of stocks. To
alleviate the stock problem, Brasilia authorized alco-
hol exports in 1985 at low prices, mainly to the US
market. These exports were later found to have been
sold at less than fair market prices and US authorities
imposed countervailing duties.
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Critics believe, however, that the program was ill-
advised and that it has led to unforeseen conse-
quences, mainly the delay in aggressive domestic oil
exploration during the 1970s. As a result, Brasilia is
committed to an alcohol program costing the oil
equivalent of $40 to $60 per barrel at a time when the
state oil enterprise has been producing oil at $15 to
$25 a barrel. Moreover, the initial objective of the
program?producing the bulk of Brazil's alcohol in
the underdeveloped North and Northeast?remains
unrealized. Production is concentrated in the South,
particularly in the state of Sao Paulo. The expansion
of sugarcane acreage for alcohol has displaced both
food and potential export crops. Nationwide, an esti-
mated 4 million hectares are devoted to sugarcane
grown on some of the most productive farmland in
Brazil.
Despite the economic trade-offs from the program
and the need to cut the public-sector deficit, the
Sarney government in September 1987 announced
that it planned to expand production of alcohol from
the current annual 13 billion liters to 20 billion liters
annually (77.5 barrels of oil equivalent) by 1992 as
well as maintain the 35-percent price differential with
gasoline. This decision follows recommendations of
the National Energy Commission's Task Force for the
Evaluation of the National Alcohol Program that
included increased utilization of existing distillery
capacity and renewal and expansion of sugarcane
planting. To achieve the more than 50-percent in-
crease in alcohol output by 1992, the Sarney govern-
ment will need to invest an estimated US $1.2 billion,
according to press sources. While increased yields will
be sought from sugarcane acreage devoted to alcohol
production, the new production target is likely to
result in an additional 1.0 to 1.5 million hectares
being planted to sugarcane for alcohol.
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Appendix D
Brazil: Forecasting Agricultural
Trend-Methodology
The performance of Brazilian agriculture during the
next five years will depend on a variety of factors. In
our judgment, the most significant determinants of
the crop-mix, crop production levels, and crop profit-
ability in Brazil are weather conditions and domestic
and world commodity prices in a particular year.
Governmental policy instruments, such as credit
terms and availibility, minimum support prices, and
trade policies, also are important factors affecting
agricultural output and earnings of Brazilian farmers.
This paper forecasts probable agricultural production
of major agricultural crops to 1992 by first forecast-
ing the regional crop area harvest and yield and then
examining how government policies could affect these
estimates.
To investigate the impact of different government
policy initiatives, we developed a set of three different
plausible policy-mix scenarios that we believe repre-
sent the range of options open to Brasilia. We see as
the most likely scenario what we call the More
Balanced Growth case. In this instance, government
policymakers continue to provide incentives for both
production for the local market, to offset the potential
shortfalls in food supplies, and for exports to boost
foreign exchange earnings. The second scenario we
examine is the Enhanced Export Potential case, in
which policies would work to increase cash-crop ex-
ports that in turn could be used to finance increased
food and other imports. The last scenario we examine
is the Improved Food Production case, where the
government stimulates local food production for hu-
manitarian and security considerations.
29
For each scenario, we used time series analysis models
to forecast regional crop area and yields for 1992.''
Output for each crop in each scenario is the product of
area harvested and average yields per hectare. Once
national production figures were aggregated, we de-
veloped a simulation model to compare production
with domestic consumption requirements and to ana-
lyze the impact of the different policy mixes on
Brazil's ability to feed itself and on its export poten-
tial. For each scenario, we used World Bank world
commodity price assumptions. Weather conditions
were assumed to be similar to those that prevailed
during the period 1950-86.
Time series model building followed an iterative
strategy, starting with a plot of the raw data and
ending with a statistical model for each major crop.
Data for the 1950-84 period were gathered from
official Brazilian sources: the Instituto Brasileiro de
Geografia e Estatistica (IBGE), as presented in vari-
ous issues of the Anuario Estatistico do Brasil. Data
for 1985 and 1986 were provided by IBGE press
releases and reports from the Agricultural Counselor,
US Embassy, Brasilia. Statistical criteria determined
our choice among models. A total of 90 distinct time
series analysis models were used to forecast the area
harvested and yields of Brazil's major crops.
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25X1
Tables D-1 to D-4 present the statistical results of our
analysis. In particular, tables D-1 to D-3 present
historical data for 1986 and scenario forecasts for
1992 of total area harvested, average yield, and total
production by major crop. Table D-4 presents net
exports of major agricultural products for 1986 and
for 1992 by scenario.
The SPSS-X software package was used for all model building
and area and yield forecasting exercises
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Table D-1
Brazil: Area, Yield, and Production:
1986 Compared With More Balanced
Growth Scenario for 1992
Major Crops
Area
Yield
Production
1986
(1,000 hectares)
1992
(1,000 hectares)
1986
(metric tons
per hectare)
1992
(metric tons
per hectare)
1986
(1,000 metric
tons)
1992
(1,000 metric
tons)
Food crops
Total
49,771
52,243
91,049
105,327
Beans, dry
5,490
5,123
0.42
0.41
2,280
2,113
Corn
12,215
13,959
1.68
1.88
20,541
26,219
Manioc
2,000
2,089
12.75
11.56
25,500
24,147
Rice, rough
5,594
6,518
1.86
1.73
10,405
11,255
Wheat
3,900
1,647
1.45
1.05
5,638
1,724
Subtotal
29,199
29,336
64,364
65,458
Export crops
Cocoa,-beans
657
733
0.70
0.60
460
442
Cotton with seeds
3,161
2,708
0.73
0.65
2,315
1,769
Coffees
2,260
2,439
0.44
0.61
998
1,483
Oranges, FCOJ b
708
789
15.35
16.38
575
813
Soybeans
9,450
11,506
1.49
1.95
14,100
22,436
Sugarcane, sugar c
4,056
4,335
61.73
62.78
7,850
12,367
Tobacco d
280
397
1.38
1.41
387
559
Subtotal
20,572
22,907
26,685
39,869
. Coffee beans, green.
b Area and yields in oranges and production of FCOJ (frozen
concentrated orange juice; 65 degree Brix, percent by weight of
sugar in the juice).
c Area and yields in sugarcane for both sugar and alcohol, produc-
tion is only centrifugal sugar (raw value).
d Tobacco leaf.
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Table D-2
Brazil: Area, Yield, and Production:
1986 Compared With Enhanced Export
Promotion Scenario for 1992
Major Crops
Area
Yield
Production
1986
(1,000 hectares)
1992
(1,000 hectares)
1986
(metric tons
per hectare)
1992
(metric tons
per hectare)
1986
(1,000 metric
tons)
1992
(1,000 metric
tons)
Food crops
Total
49,771
52,241
91,049
105,199
Beans, dry
5,490
4,430
0.42
0.41
2,280
1,827
Corn
12,215
13,232
1.68
1.88
20,541
24,852
Manioc
2,000
1,915
12.75
11.56
25,500
22,140
Rice, rough
5,594
5,101
1.86
1.73
10,405
8,808
Wheat
3,900
1,748
1.45
1.05
5,638
1,830
Subtotal
29,199
26,426
64,364
59,457
Export crops
Cocoa, beans
657
757
0.70
0.70
460
532
Cotton with seeds
3,161
3,977
0.73
0.81
2,315
3,214
Coffee .
2,260
2,827
0.44
0.70
998
1,967
Oranges, FCOJ b
708
878
15.35
24.52
575
1,571
Soybeans
9,450
12,000
1.49
2.08
14,100
24,912
Sugarcane, sugar c
4,056
4,809
61.73
70.84
7,850
12,367
Tobacco d
280
567
1.38
2.08
387
1,179
Subtotal
20,572
25,815
26,685
45,742
3 Coffee beans, green.
b Area and yields in oranges and production of FCOJ (frozen
concentrated orange juice; 65 degree Brix, percent by weight of
sugar in the juice).
c Area and yields in sugarcane for both sugar and alcohol, produc-
tion is only centrifugal sugar (raw value).
d Tobacco leaf.
31
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D-3
Brazil: Area, Yield, and Production:
1986 Compared With Improved Food
Production Scenario for 1992
Major Crops
Area
Yield
Production
1986
(1,000 hectares)
1992
(1,000 hectares)
1986
(metric tons
per hectare)
1992
(metric tons
per hectare)
1986
(1,000 metric
tons)
1992
(1,000 metric
tons)
Food crops
Total
49,771
52,241
91,049
117,715
Beans, dry
5,490
5,572
0.42
0.51
2,280
2,847
Corn
12,215
15,010
1.68
2.24
20,541
33,593
Manioc
2,000
2,387
12.75
12.66
25,500
30,211
Rice, rough
5,594
6,641
1.86
1.82
10,405
12,093
Wheat
3,900
3,177
1.45
1.48
5,638
4,689
Subtotal
29,199
32,787
64,364
83,433
Export crops
Cocoa, beans
657
607
0.70
0.60
460
366
Cotton with seeds
3,161
2,413
0.73
0.65
2,315
1,576
Coffee a
2,260
1,884
0.44
0.61
998
1,146
Oranges, FCOJ b
708
616
15.35
16.38
575
562
Soybeans
9,450
9,417
1.49
1.90
14,100
17,893
Sugarcane, sugar c
4,056
4,253
61.73
62.78
7,850
12,367
Tobacco d
280
264
1.38
1.41
387
372
Subtotal
20,572
19,454
26,685
34,282
a Coffee beans, green.
b Area and yields in oranges and production of FCOJ (frozen
concentrated orange juice; 65 degree Brix, percent by weight of
sugar in the juice).
Area and yields in sugarcane for both sugar and alcohol, produc-
tion is only centrifugal sugar (raw value).
d Tobacco leaf.
Confidential
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k.onnuenuai
Table D-4
Brazil: Net Volume and Value of Trade in Major
Agricultural Products, Base Year (1986) and
Scenarios for 1992 a
Major Crops and Historical Base
Byproducts Year 1986
More Balanced Enhanced Export Improved Food
Growth Scenario, 1992 Promotion Scenario, 1992 Production Scenario, 1992
Quantity
(1,000)
(metric
tons)
Value
(million $)
Quantity
(1,000)
(metric
tons)
Value
(million $)
Quantity
(1,000)
(metric
tons)
Value
(million $)
Quantity
(1,000)
(metric
tons)
Value
(million $)
Net exports
6,400
5,055
12,494
9,597
13,536
12,603
10,310
7,548
Food crops
Beans, dry
140
47
158
68
-92
-40
-1,044
-453
Corn
-2,500
-220
-1,920
-246
-3,231
-414
0
0
Rice
-1,400
-480
47
14
-1,437
-409
580
165
Wheat
-2,192
-248
-6,206
-1,166
-6,206
-1,148
-5,092
-948
Subtotal
-5,952
-901
-7,921
-1,330
-10,966
-2,011
-5,556
-1,236
Export crops
Cocoa beans b
295
618
386
850
476
1,046
310
682
Coffee e
655
2,359
1,085
3,405
1,085
3,405
1,085
3,405
Cotton d
37
17
-48
-55
500
572
-122
-139
FC0J e
752
636
803
1,023
1,561
1,990
552
703
Soybeans r
1,200
243
1,500
425
1,500
425
1,500
425
Soybean meal
6,542
1,181
12,435
2,848
14,189
3,249
9,217
2,111
Soybean oil g
390
138
1,215
721
1,636
972
441
262
Sugar
2,332
368
2,774
1,071
2,774
1,071
2,774
1,071
Tobacco
149
396
265
639
781
1,884
109
264
Subtotal
12,352
5,956
20,415
10,927
24,502
14,614
15,866
8,784
Negative figures represent net imports.
b Cocoa beans and products in bean equivalent.
e Coffee bean, green, and soluble (bean equivalent).
d Cotton, lint.
e FC0J, 65 degree Brix (percent by weight of sugar in the juice).
r Soybeans quantity figures for 1992 are assumed.
8 Soybean oil, includes crude and refined, in crude equivalent.
33
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Confidential
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