São Paulo – The world economy on the tightrope brings uncertainty to Brazilian agribusiness. Agricultural commodity prices have already started dropping, but may be further reduced with a worsening of the European crisis. The former minister of Agriculture of Brazil, Roberto Rodrigues, recalls, however, that, if this takes place, Brazilian exporters will be compensated by the appreciated dollar. “It is almost compensation,” he said. The process is taking place as whenever investors flee from commodities, they go to assets in the US currency, appreciating it.
In an exclusive interview to ANBA, Roberto Rodrigues, who is the coordinator of the Agribusiness Centre at Getúlio Vargas Foundation (GV-Agro), also spoke about the lack of world leaders and the little importance society grants to multilateral organisations, like the WTO, FAO and IMF. The world, according to him, needs a “leading project” that should take into consideration food safety and sustainable energy. On the eve of the Rio+20, he believes that the homework done by Brazil in agribusiness, using productivity instead of greater area for expansion of production, will be recognised at the UN conference.
Apart from being a minister during the term in office of president Luiz Inácio Lula da Silva, Rodrigues has already presided the Organization of Brazilian Cooperatives (OCB) and was the first no-European to occupy the presidency of the International Co-operative Alliance (ACI). An agronomical engineer, he currently shares his time between coordination of the Getúlio Vargas Foundation Centre and teaching lessons at the Federal University of São Paulo (Unesp).
ANBA – How can the current international conjecture, with economic problems in Europe, the United States growing little, China growing less, the Middle East living political problems, have an effect on the world’s and Brazil’s agribusiness?
Roberto Rodrigues – There are two answers to this questions, curiously in antagonism, from multilateral organisations. The FAO (Food and Agriculture Organization of the United Nations) insists on stating that the fundaments for prices of agricultural commodities to remain above average persist. And what are these fundaments? Firstly that demand in emerging countries is still growing, the crisis is not affecting these regions, where per capita income of the population is still no the rise. The second is that the global offer is not growing at the same proportion as global demand, partly due to climate problems in some regions. South America, for example, lost 25 million tonnes of soy this year due to the La Niña [climate phenomenon]. This has resulted in global stocks of the main commodities dropping below the historic average, in days of consumption. Furthermore, there is the question of speculation, which helps lower prices.
On the other hand, the IMF (International Monetary Fund) recently placed a warning to emerging nations, saying that the European crisis is going to worsen, and last a longer time, which would affect the international demand, including from emerging nations. This, when added to the American and Chinese situations, would cause commodity prices in general to drop. According to the IMF, this is a threat to emerging nations, which need to work on it. According to the study, this horizon would be negative next year, maybe even in the second half of this year.
These are two different positions, from the FAO and the IMF. What is happening in practice? In practice, what is happening is that speculators are leaving agricultural commodities. What is the result? The result is that the prices are falling. Is that a reflex of this exit? It could be. But it could also mean that the European crisis is already starting to reflect in emerging nations, reducing agricultural demand in emerging nations. Today (Tuesday, May 15) may be the wrong day to talk about the matter as each dollar is going for R$ 2, and international stock markets are agitated, agricultural commodities are dropping and speculators have been leaving the market.
Anyway, if the European crisis really gets worse and spreads, harming demand in emerging nations, there will surely be a reduction in agricultural exports and in those of other commodities, and this should drop prices, causing the demand and income to drop. There is, in the case of Brazil, a compensation for this, due to the appreciated dollar. Naturally, when commodity prices drop, speculative capital goes to other assets and the dollar is always a haven. They are almost communicating vessels. So the remuneration of Brazilian producers does not drop much. You end up making money due to the appreciated dollar. It is not possible to guess, but it is possible to say that the tendency for depreciation of commodities in general, including agricultural ones, should only be confirmed once it is sure how deep the extension of the European crisis is and what its reflexes are on developed and emerging nations, as is the case with China.
Has the comfortable economic situation Brazil has lived up to now, despite the global crisis, been related to agribusiness?
Some comfort is provided by agribusiness to the Brazilian economy and to the balance of trade and, therefore, to international reserves. Last year, the agribusiness foreign trade surplus was double that of Brazil’s global foreign trade surplus. In other words, if it had not been for agribusiness, we would have had a trade deficit last year, the year before and throughout our lives. Agribusiness has been guaranteeing the Brazilian trade balance for many years. This obviously represents financial comfort, and has been allowing for growth of international reserves in dollars. Not to mention the fact that the growth of agricultural productivity and sustainability of the production method has been offering the population that is entering the market – 30 million Brazilians climbing into the middle class over the last ten years – a very cheap product when compared to the rest of the world, and with good quality. There is the economic aspect, which is positive, and the social side. The social side is not just the offer of food at competitive prices, but also employment. Agribusiness is currently responsible for 37% of jobs in Brazil.
We have the highest agricultural surplus in the world. Will that be maintained with the lower commodity prices?
There would be a reduction. But we are far from the second place, the Netherlands.
Is there any importance to this position of highest agricultural trade surplus in the world?
They are statistics, and have no weight. The weight is internal. The great surplus is advantageous to the nation, to the Brazilian society, but being in first, second or third place is not of the slightest relevance.
The Arab world has lived the Arab Spring, changes in governments in some countries, and we export many commodities, meats and sugar to them. May these changes in the region be beneficial for Brazil in the trade aspect?
I believe that one of the main characteristics of the contemporary world is the lack of leaders, in any nation. When [Barack] Obama was elected president in the United States, there was great hope that he could be a global leader, with democratic background, with a more social view. The American crisis inhibited his leadership, and even his re-election is currently in doubt. I believe he will easily win the election, but there is doubt. Europe has no prominent leader. In Asia, Japan, China, India and in Russia itself, the domestic problems are so large that they do not have time to look outside. What you don’t see is an expressive leader like [John] Kennedy, Mao Tse Tung, [Adolph] Hitler or [Joseph] Stalin. Whether you like them or not, they were leaders who guided the planet, or part of the planet, in a specific direction. There are currently no leaders with such an important conceptual message. On the other hand, nobody pays any attention to the great international institutions, like the UN (United Nations), the FAO, WTO (World Trade Organisation). The Americans invade Iraq despite UN condemnation. And? What happened?
There is being great domestic discussion of the Rio+20, but who will take care of that, what penalisation will the countries that do not comply [with the agreements made] face? Therefore, there is no leader, neither individual, nor institutional, and that leaves us in a perplexing situation. And there is another theme: one year ago, who would have imagined [Muamar] Khadafi (the former Libyan leader) being deposed. Who would have imagined what is going on in Egypt? Who did that? Social medias. Who is the leader? There is no leader. In my point of view, this creates a threat to democracy. An empty space in leadership allows for the creation of an intelligent opportunist, competent, well-spoken, who may polarize the planet.
In academia, some say that this lack of leaders is due to the globalisation of the economy, which granted finance the position of "driver" of the world. And as finance has no nation, ideology, religion, and concerns itself only with more finance, we skip from financial crisis to financial crisis, with no forecasted solution in the medium term.
In the meetings I participate in, I have placed much importance on a global project that pleases all nations, rich or poor, Africa, Asia, America, one allowing the establishment of a route we may trail from now on. If there are not objective leaders, there could be leading projects. My thesis is that this project should be for food safety and sustainable energy. Who goes against that?
I am saying all this because to try to look at the question you made: will these things affect global trade? I am much more concerned with preservation of democracy and, consequently, of world peace. The existence of leaders, of a route for humanity, may throw us into a more unstable hole and then farewell to global trade, commodities, to everything, it’s each one for himself. I do not find that we are heading in this direction, but it is necessary to start a great global effort to stop this happening.
Should the Rio+20 (the United Nations Conference on Sustainable Development) bring any important decision to agribusiness, any advance?
I believe so. Brazil has been doing its homework, part of its homework regarding rural sustainability. If you eye the Brazilian figures, the area on which grain is grown has expanded 35% in 20 years, and production grew 175%. In Brazil today we have 53 million hectares on which grain is grown. If we had the same productivity from 20 years ago, we would need another 52 million hectares to produce what we do. So our technology in grain has allowed us to economise 52 million hectares, which have remained forested, or with some other kind of environment. Sugarcane covers eight million hectares in Brazil. If our productivity was that of the 1970s [when the Proalcool fuel alcohol project started being developed], we would need another six million hectares. Therefore, in grain and cane alone, we economized 60 million hectares. Furthermore, ethanol issues 11% of the CO2 that petrol issues. Brazil has done its homework regarding sustainability. It is evident that Rio+20, regarding the formal document to be signed between the countries, should recognise this, as it is a reality, everybody knows it.
On the other hand, there should be an enormous set of parallel meetings, many of them motivated by commercial interests, which may occasionally be against Brazil. In 2000, Brazil exported US$ 21 billion in agribusiness and, last year, US$ 94 billion. It is evident that someone has lost space and is not happy about that, and will want to return. That is why there are all these empty complaints about the deforestation of the Amazon, slave labour, these things, and rightly so, in some cases, as people are going to shed light on the exception, not on the totality, which is much greater. Brazil has 64% forestry territory, and only 8% farmland. The trophies Brazil has to exhibit in the Rio+20 are more vigorous, brilliant, than the problems. And we do have problems.
Should the Conference put these initiatives in evidence in Brazil?
I think that in the gubernatorial level, yes. In the parallel level, where there is more noise, where communications are freer, there will always be a tendency to minimise the great advantages of Brazilian agribusiness.
In talks about our Forestry Code there has been foreign participation, are other countries eyeing this question?
There is great participation of environmental NGOs. Some people who think they are connected to the commercial interests of other countries. I don’t think so. I believe this is a ghost that does not exist. The result may serve competition in the end. But I believe that no competitor country, out there, would take these steps. Environmentalists who believe in that (their pleas), are working on it, and I don’t believe there is external interference in the matter of the Forestry Code. In the Rio +20 there is. I believe there will be a series of postures, of commercial interests. But that’s life.
It is perceptible that in recent years several sectors of Brazilian agribusiness have become more professional. Many sectors changed from middle agriculture, with family businesses, to great companies, more professional, which work with an international vision. In the area of cane, this has taken place and it seems that it is also taking place in dairy. This is the route in the Country and this may stunt small-scale agriculture?
A figure that is true for any economic society is the need to compete with technological and management efficiency. Brazilian agriculture is living this process. There was already technology, it was in research organisations and when the economy became viable, the funds no longer came from investment, but from competent production, Brazil progressed with technological leaps and increased productivity.
There was no management because with inflation of 80% a month, who can manage? Managerial efficiency was not important up to 1994, when the Real Plan came. After that, Brazil moved towards management mechanisms, leaders arose, projects arose, and there is currently a growing movement towards management, which is added to technology to increase competitiveness.
And management is not only commercial, but also fiscal, financial, knowing how to choose the interest rate for loans, it is human resources, it is environmental. A harvester may cost R$ 1 million, for example. Money is necessary to manage all this. But human resources are not adequate. There was a leap without preparation. There is a shortage of people.
But there is a process in progress for technological and managerial improvement. Therefore, there is a hiring process. Families that can’t cope are moving out and more organized and managed companies are coming in.
Then comes the question of small properties. A truth of the global economy is the reduction of profit per unit produced, resulting in small producers not managing to have sufficient margin to manage his land, resulting in sale or union with others. The tendency is for concentration, resulting in a volume that compensates the low unitary value. Therefore, what is growing in Brazil and worldwide is cooperativism, which allows a group of small farmers to become large and compete in equal conditions.
Brazilian cooperatives, in fact, are currently very well managed, have made vigorous and strong investment in personnel education and management, and have been giving spectacular signs of progress, including the adding of value, growing from agricultural production to industrialisation, packaging and distribution. You mentioned the case of dairy. That is one of the sectors, but not only dairy. The beef sector is using partnerships (with cooperatives) in chicken and pork, with domestic or international organisations, BR Foods and others. They are mechanisms used by cooperatives, which have grown and become giants in the market, offering associates other margins that are not agricultural, but also those of industrialisation, trade and distribution. They take bites out of other parts, allowing for income to small-scale producers in the end. The classic definition of cooperativism is one of correcting social problems through economics, improving cooperative income so that it may grow and reach a social scale.
Brazilian agriculture is growing and one of its problems is the supply of fertilizers. Tunisia, a great producer in the area, spoke about privatisation in the phosphate sector. Will it be a viable route for Brazil to buy abroad in the area or is the strategy the country is adopting, of seeking alternatives, including production of organic fertilizers, going to solve the problem? Are we on the right route to solve the fertilizer question?
Today, 73% of the fertilizer produced is imported. And what’s worse: the farmland we have to open is the worst of the land, the good land has already been opened. The Cerrado (the Brazilian Savannah) is very poor, very bad (the soil), it needs much in terms of fertilizers so it is a bottleneck that controls the expansion of Brazilian agribusiness. And there is a great effort to reduce [dependence on imports], with a large scope of possibilities. One of them is the growth of Brazilian companies, like Vale itself, buying mines and opening new mines for exploration within and outside Brazil. On the other hand, companies that are mixing the product are signing agreements with international phosphate producers. Therefore there is space for supply that has been allowing Brazil to grow much. All forecasts for the future show that this dependence should drop in ten years, to 45%, 50%. But there is also what you said, a technological effort to work with organic fertilizer, to seek alternatives for synergies in the area of fertilizers and technological efforts in the areas of grass and leguminous plant rotation.
There is significant research for improvement of this condition. And, last of all, there is the agronomic theme: when you go to the weak Cerrado, you cannot produce anything in the first years, then, after five, ten or fifteen years, the land changes. Today, with direct plantation, precision agriculture, crop/livestock integration, you can go to the Cerrado, which was poor ten years ago, and there are works there, literally. That is, the technology that is being used, has changed the profile of demand. The lower foreign dependence will be the result not only of greater internal offer but also due to the lower demand per area and to new technologies, which are creating other profiles for production.
*Translated by Mark Ament