July 20, 2015

FAO Predicts continued Agricultural Expansion in Brazil

In their recent report - "Agricultural Outlook: Challenges for Brazilian Agriculture 2015-2024", the Organization for Economic Cooperation and Development and the Food and Agriculture Organization of the United Nations (FAO) estimated that the land area dedicated to the principal crops in Brazil will expand at the rate of 1.5% per year for the next decade. The report estimated that by the year 2024, there will be 69.4 million hectares (171.4 million acres) of land in Brazil dedicated to the production of oilseeds, cereals, sugarcane, and cotton, which would represent an increase of 20% compared the average of 2012 through 2014.

In their report, they estimated that the sugarcane acreage is expected to expand by 37%, cotton by 35%, and oilseeds by 23%. Soybeans will remain the principal crop in Brazil and be responsible for approximately half of the agricultural expansion over the next ten years.

The report went on to further state that "Feeding more mouths in Asia will help cement Brazil's place as the world's largest supplier of food and agricultural products after the U.S." and that "Brazil is poised to become the foremost supplier in meeting additional global demand, mostly originating from Asia."

Currently, Brazil is the main exporter of sugar, orange juice, and coffee and second in soybeans and a principal exporter of corn, rice, tobacco, beef and poultry. By the year 2024, Brazil is expected to be the top beef and poultry exporter with 20% and 31% market share respectively. The report indicated that Brazil's soybean exports to China would hit 47 million tons in 2024 compared to 31 million tons in 2014. Agricultural output in Brazil has more than doubled since 1990 in Brazil and livestock production has almost trebled, thanks to productivity gains.

I could not agree more with the report and if anything, I think their estimates for agricultural expansion in Brazil are too conservative. If world commodity prices returned to the levels of just a few years ago, the agricultural expansion in Brazil would far surpass the 1.5% per year estimated in the report.

On the negative side, Brazil is currently facing an economic downturn which will take several years to overcome. The 2016 Olympics in Rio will probably set Brazil even further behind in the short-term, but ten years is a long time and there are some positive signs as well.

The main positive I see in Brazil is that the country is finally addressing its infrastructure shortfalls. These infrastructure problems including: roads, railroads, barging operations, and ports have been many years in the making, but ever so slowly these issues are being addressed. I think the most positive sign is the "Northern Arc" of ports being developed or expanded on the Amazon River and in northeastern Brazil. This will have the biggest short-term impact on reducing the cost of Brazil's exports and keeping the country competitive in world markets.

I have said this many times in the past and I continue to believe that in the future, Brazil will be the largest exporter of food and agricultural products. It has the land area, the climate, and the know how to continue expanding its agricultural expansion. Additionally, it has a relative small population compared to countries in Asia and even the U.S., thus most of the expanded production will go towards increased exports. We may not see Brazil become the number one exporter in our lifetimes, but I feel it is inevitable.