Brazil, foodbasket to the world

Brazil, foodbasket to the world

by Pininvest Analysis

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In the recently updated note, "The crucible of soybean trades", the focus has been on the profound transformation of world’s most traded agricultural commodity

The trade negotiations, concluded in January ‘20 between China and the U.S., put soybean imports to China in the limelight, but plain facts regarding the actual trade flows of soybeans were left unsaid

Ten years ago, the U.S. were the world’s and China’s premier source of the protein, exporting 40 million tons globally and China the premier importer for 45 million tons

But Brazil – exporting around 30 million tons in 2008/2009 – took off in sync with accelerating demand from China, estimated at 97.4 million tons in 2019/2020

Tripling exports to over 90 million tons, Brazil dominates the market for the commodity today (in ’20), while the U.S. remains stuck in its 2009 range of 40 to 45 million tons

Presumably, Brazil is very much determined to protect its leading market position, which begs the question how the Brazilian agroindustry will tend the country’s natural environmental advantage and protect its land and its water resources, while staying in line with China’s demand, projected to increase by 25% over the next five years

There is no easy answer...

In the highly acidic, aluminum rich soils of the cerrado, a vast tropical savanna ecoregion of Brazil, the nitrogen-fixing bacteria found in the roots of the soy would not have survived if state-sponsored Brazilian agricultural research had not managed to breed new soy varieties and to inoculate resistant bacteria strains, opening the way for an agricultural boom from the 1980’s on

Interdependence of China, United States, and Brazil in Soybean Trade fig.16 Credit USDA 

As highlighted on the map, soybean farming has converted the ‘cerrado’, focusing initially on the Brazilian middle west state of Mato Grosso, mostly empty in the 1960’s and leading soy production today on close to 10 million ha (24 million acre)

ProTerra Foundation brings the expansion of soybean culture in focus, in successive waves

  • The 1st phase comprises the expansion of cultivation in the southern region during the 1960s and 1970s
  • The 2nd phase is associated to the expansion of soy in the Midwest during the 1980s and 1990s
  • During phase 3, the first decade of the 21st century, soy expanded to the north and northeast regions (mainly in the states of Maranhão, Tocantins, Piauí and Bahia), areas where the Cerrado biome is present

More recently, other states in the northern region, these inserted in the Amazon biome (States of Pará, Rondônia, Roraima and Amazonas), are considered as the potential to further leverage national production, constituting what could be considered the 4th phase of soy development in Brasil

Biomes of Brazil - credit ProTerra Foundation

The Brazilian states, earmarked for extension of soy production, Pará, Rondônia, Roraima and Amazonas, form integral part of the Amazon biome, as can be seen on the ProTerra map

Burned and bulldozed into farmland, the land-use change in the first three phases of agricultural extension outside the Amazon biome did not draw much attention of the environmental groups, although almost as biodiverse as the rain forest itself


More farmland is still said to be available if feedback from a recent tour of American farmers (Feb. '19) is to be believed, providing Native tribes choose to put 1 million ha (2.4 million acres) under ownership into production

Quoting one farmer on the tour

John Takacs, a hay and straw farmer from Wellington, Ohio, said he got a different view of Brazilian agriculture after expecting to see older combines and technology in the fields. “It’s the complete opposite. They are doing everything that we are doing. The organization, the size of the farms, it’s all there.”

credit Brazil Monitor

Takacs was also surprised at the scope of the reserve acreage and the emphasis some farmers placed on sustainability practices. At least one farm provided a detailed explanation of its sustainability measures and the importance of those practices to selling soybeans and other commodities to Europe.

“They have some viewpoints that are ahead of us in many ways,” Takacs said. “They were all talking about their carbon footprint. It seems like they are well into their sustainability focus.”


Conflicted ambitions

Soybean agro-industry is on a roll and port of first call to sate China’s insatiable appetite of animal feed for its domestic herds

Favored by geography and by world-beating farming expertise, Brazil has gained market share in the global soy trade as a supplier capable of increasing shipments as China has demanded over the past 20 years

While uniquely dominant, soybean trade is not the only driver of ever closer commercial relations with China in a field of paramount political and economic importance to the country, securing food availability at affordable prices

In the 5 years from 2015 to 2019 (projection), beef imports by China (incl. Hong Kong) have increased by 122%, accounting for 25% of world beef trade, altering global beef flows to the benefit of Brazil, Uruguay, Argentina, Australia, and New Zealand

Brazil comes out on top, exporting about 22% of its beef to China which accounts for 31% of total Chinese beef imports. Another 17% of Brazil’s exports are shipped to Hong Kong

Beef exporters - credit USDA

The dominant position Brazil consolidated in the beef trade in less than 2 decades needs to be factored in any evaluation of the country’s agricultural potential

The opportunities to integrate the agroindustry more and more closely in complex facilities for the soybean feed, crushed into soy meal rations, and for meat processing on a massive scale, have been – and continue to be – infinite, limiting the costly impact of poor transportation infrastructure


A recent (Aug. ’19) report by the Brazilian Ministry of Agriculture sets the guidance for a 10 million ha increase in acreage dedicated to soybean by 2029 (aiming at a total of 45.3 million hectares or 111.8 million acres)

With a 33% soybean production increase, on top of today’s huge oilseed business, Brazil might be seeking to strengthen its status as reliable provider of China’s projected future animal feed needs

But the planned acreage increase across the ‘cerrado’ from the North-East, still poorly served by transportation infrastructure, central Brazil and the southern fringe of the Amazonian states has far reaching consequences for existing pastures

With relatively expensive land prices in central Brazil – the focal area of soybean production – the projected volume increase can be expected to accelerate creeping conversion of pastures to row crop production, effectively pushing the herds out into the rim of the Amazonian forest, as even today most soybean expansion occurred over pastures, while areas newly deforested were most often used as pastures

credit - Butler, Rhett A. “Diversities of Image - Rainforest Biodiversity.”

The Mongabay report curated by Rhett Butler, of which the map of the Amazonian forest is excerpted, makes dismal (and recommended) reading

According to Rhett, "one opportunity is making better use of degraded cattle pasture in the Brazilian Amazon. Areas that were long ago deforested could be utilized more productively between rebuilding soil quality through better cattle management to planting other crops (including oil palm) to facilitating forest recovery"


This note has aimed at gaining understanding of the dynamics of agricultural expansion and resulting, often creeping, deforestation

Though the agroindustry’s trade interests, driven by China’s insatiable demand, appear irresistible, giving short shrift to the latter’s supposed environmental commitments, international pressure might engage the Brazilian government on its own terms, with a focus on environmental risks for the country and on shared trade opportunities

Environmental risk comes unfortunately – but obviously – top of mind of Brazilian experts themselves with the 98% deforestation of the enormous Atlantic forest (situated between the ‘cerrado’ and the Atlantic coast), exposed today to a micro-climate where temperature increases due to climate change are twice the global average, putting the coffee culture (40% of world production) at risk

Rocky mountains stretching across the horizon - the Atlantic forest - credit

Value-adding trade opportunities are no less critical for Brazil’s agroindustry and fully recognized as such by its leading – opinion setting – businessmen.

European environmental soybean import requirements are accounted for today in the Brazilian production chain as a matter of course and an international push for the adoption of a similar framework by global importers, foremost China, is not necessarily far fetched because Brazil is, with the U.S., the only volume provider - and China's lifeline - for soy, the country's essential animal (as well as human) nutrient


Our suggestions sidestep a confrontational approach with the Brazilian government

As our note hopes to demonstrate, Brazil’s policies are intertwined between pressing trade interests of the country’s commercial partners and, necessarily, Brazil’s intent to maintain its standing as premier agricultural power well into the future

Possibly a framework for international negotiators… but for now, the harvesters roll on

credit Rabobank