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November 19, 2019

Brazil Benefits by Hosting Annual Meeting of BRICK Nations

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

The leaders of the BRICK nations, which include Brazil, Russia, India, China, and South Africa, met in Brasilia last week for their annual meeting. Brazil is the rotational leader this year, so the Brazilian President, Jair Bolsonaro, played host to President Xi Jinping from China, President Vladimir Putin from Russia, Prime Minister Narendra Modi from India, and President Cyril Ramaphosa from South Africa.

During two days of meetings, the leaders discussed various topics including commercial accords, investment opportunities and demands, infrastructure, and new dynamics for global commerce between member nations. The biggest takeaway from the meetings appears to be expanded bilateral relations between Brazil and the other members of BRICK

Expanded trade relationships between Brazil and the other members of BRICK are very important for the agricultural sector in Brazil that continues to take advantage of the trade war between the U.S. and China. The other four members of BRICK, excluding Brazil, contain approximately 39% of the world's population. China has approximately 1.43 billion people (18.59% of the world's total), India has 1.36 billion (17.71% of the total), Russia has 145.8 million (1.89% of the total), and South Africa has 58.5 million (0.76% of the total).

Therefore, it goes without saying, improved relations between Brazil and countries that contain 39% of the world's population would benefit the expanding agricultural sector in Brazil that is heavily dependent on exports.

Brazil-China - Approximately 40% of Brazil's agricultural exports are destined for China, so the Brazil-China relationship is the most important for the agricultural sector in Brazil. China recently approved 13 more beef processing facilities for export to China and Brazil's exports of beef, pork, and poultry to china continues to increase. During the meeting, Brazil and China signed a new agreement allowing Brazilian melons to be exported to China and Chinese pears to be exported to Brazil.

Brazilian exports to China are heavily concentrated in soybeans, petroleum, and iron ore. The Brazilian government wants to increase the number of products exported to China to include various food products, especially animal protein.

For its part, China is anxious to invest in Brazilian infrastructure projects. China indicted that they have US$ 100 billion in five investment funds ready to invest in Brazil with most of the money destined for infrastructure. Brazil and China agreed on an action plan for 2019 to 2023 to increase agricultural investments, commerce, scientific and technological innovation and agricultural sustainability.

In fact, Reuters reported last week that China will make a billion dollar investment in the Port of Sao Luis in northeastern Brazil. The China Communications Construction Company (CCCC) will partner with Brazilian firms to build a new terminal at the port. This is an interesting development because the port is served by the North-South Railroad that transports iron ore from the Caracas mining operation as well as grains produced in north-central Brazil.

The China Communications Construction Company is partnering with Brazilian construction companies to expand the railroad network in the state of Para and they are eyeing the potential of building the Ferrograo Railroad linking Mato Grosso with ports on the Amazon River.

Brazil-Russia - Russia is a major fertilizer producer and Brazil is a major fertilizer importer so the two countries discussed increased fertilizer trade between the two countries. Brazil is also interested in expanding meat exports to Russia, which has been at a low point in recent years.

Interestingly, as a result of the increased interest in beef exports to China and Russia, cattle prices in Brazil hit a new record high last week surpassing the previous record set in April of 2015. Brazilian cattle prices are now 37.8% higher than a year earlier.

Brazil-India - The population of India continues to expand and India will likely surpass China as the most populated country in the near future. The Brazilian President will visit India in early 2020 and the Brazilian Minister of Agriculture is already preparing for increased food exports to India, especially animal protein, as the Indian middle class increases its buying power.

Bottom Line - Needless to say, last week was a positive week for improved and expanded bilateral relations between Brazil and the other members of BRICK, which can also be viewed as a positive development for the Brazilian agricultural sector.