January 4, 2013

Brazil's 12-Year Long Trade Surplus due to Agricultural Exports

For the twelfth consecutive year in a row, it's been agricultural exports from Brazil that has given the country a positive trade balance. After six years of trade deficits between 1995 and 2000, Brazil started to ramp up its agricultural exports in 2001 and it has had a trade surplus ever since. Between January and November of 2012, Brazil's agricultural exports have accumulated a surplus of US$ 73 billion, which was more than sufficient to cover the trade deficits in other sectors of the economy.

At least one third of the Brazilian exports over the last ten years have been agricultural in nature. During the first eleven months of 2012, agricultural exports have accounted for 40% of Brazil's exports. High commodity and meat prices along with strong demand from China especially for soybeans are the two driving forces behind the agricultural trade surplus.

A decline in the industrial sector has been partially compensated for by the service sector, but it has been the agricultural sector that has been responsible for the trade surplus. This heavy reliance on agricultural exports points to a potential vulnerability in the rest of the economy.

According to Carlos Magno Bittencourt, an economist with the Regional Economic Counsel of Parana, the Brazilian economy has soften due to slower growth in China, a delayed recovery in the United States, and the ongoing financial crisis in Europe. He is concerned that if commodity prices would decline due to improved crop production around the world, it could result in trade deficits emerging once again in Brazil.

He feels the Brazilian government should put more emphasis on long term growth in other sectors of the economy in order to reduce its reliance on just agricultural exports.