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Corn+Soybean Digest

Brazil Digs In

As U.S. ambassador to Brazil since March 2002, Donna J. Hrinak is on the front lines with agricultural and economic issues faced by that country. She shares some of her thoughts about Brazil with The Corn and Soybean Digest.

Previously, she served as U.S. ambassador to Venezuela for two years, U.S. ambassador to Bolivia from 1997-2000 and as U.S. ambassador to the Dominican Republic from 1994-1997. Her career in related government positions spans nearly 30 years.

What are the emerging economic priorities of new President Lula?

President Lula and his economic team have done an impressive job of achieving macroeconomic stability after two turbulent years. Financial market panic in mid-2002 was the last and worst of a series of shocks that included Argentina's economic collapse, the global economic slowdown, September 11 and a domestic energy crisis. That Brazil absorbed these shocks without a recession is tribute to the resiliency of the economy and economic program of former President Cardoso, further strengthened by President Lula.

The Lula government has already shored up Brazil's shaky economic position and gained the confidence of international markets and the domestic business community.

The administration has twice raised interest rates, slashed the federal budget to ensure a primary surplus of more than 4% (International Monetary Fund recommendations), and is concentrating on public sector pension and tax reform.

Now attention turns to Brazil's weak economic growth. In the past two years, and probably again this year, growth around 1.5% is barely above population growth of 1.3%. Average real income has fallen four years in a row, and inflation has crept higher than 12% this year. The two biggest vulnerabilities for Brazil are debt — largely domestic government debt that increased steadily from 1994 to 2002, and large foreign debt in relation to Brazil's modest export base.

Lula is committed to tight fiscal policies that will reduce the domestic debt/GDP burden. The foreign debt has become more manageable with dramatic improvement in the trade balance and the recent resumption of foreign lending. We should see growth pick up the remainder of the year.

How might President Lula's economic plans affect international trade?

Exports figure prominently in plans to fuel economic growth and reduce the perceived dangerous vulnerability to international financial market gyrations. President Lula's economic policies will boost Brazil's competitive position, particularly for ag products. With economic modernization, such as tax reform, Brazilian agribusiness will become more efficient and attract greater foreign direct investment. New trade agreements will decrease imported input costs and enhance market access for Brazilian products.

To boost exports, the Government of Brazil (GOB) is aggressively seeking foreign markets through ongoing trade negotiations, stepping up government financing for exports and establishing export promotion expertise within its embassies. In addition, the GOB is analyzing factors that affect the competitiveness of various sectors with an eye toward policy development.

The Lula administration has ongoing trade negotiations with a long list of partners including the European Union (EU), China, South Africa and Russia. Lula has made strengthening political and economic ties within South America a priority, beginning with Mercosul, which he wants to re-energize as a trading bloc. Completion of a trade agreement between Mercosul and the Andean Community is a priority.

What do you expect might come from the Free Trade Agreement of the Americas (FTAA) discussions with regard to agriculture?

The FTAA negotiations on agriculture have four major negotiating objectives:

  1. Progressively eliminate tariffs and non-tariff barriers that restrict trade among participating countries consistent with WTO (World Trade Organization) rules on establishment of free trade areas.

  2. Eliminate ag export subsidies affecting trade in the hemisphere.

  3. Identify other trade-distorting practices for ag products and bring them under greater discipline.

  4. Develop measures to ensure sanitary and phytosanitary measures are not applied in a manner that would constitute a disguised restriction to trade.

Negotiations should be completed by Dec. 31, 2004, with implementation by Dec. 31, 2005. As co-chairs, the U.S. and Brazil share responsibility to generate practical ideas to stimulate negotiations. With just over a year left before the negotiating deadline, the U.S. will seek substantial commitment to the process by FTAA ministers prior to the Miami Ministerial this November.

How do you anticipate world trade talks might affect U.S.-Brazil relationships?

Brazil and the U.S. are allies in agriculture. We are both dedicated to eliminating export subsidies, reducing tariffs and trade-distorting domestic support and eliminating trade barriers throughout the world.

To thrive in the 21st century, our farmers need access to a free and fair global market. As we work together to bring down barriers around the world, we expect to see great benefits for Brazilian and U.S. farmers and consumers.

The U.S. proposal to reform world agricultural trade takes a long stride toward these goals, which were detailed in the WTO Doha Mandate.

Others, such as those proposed by the EU and Japan, have not been so forthcoming. The EU's proposal for agricultural reform at the WTO falls far short of the Doha Mandate, and continues to complicate discussions by raising non-trade concerns.

Without aggressive agricultural reform, the Doha agenda will be paralyzed. Nations will be divided between those who are serious about reform, and those who wish to block it. We need the EU and Japan to help move the talks toward a successful conclusion.

What is the status of biotech crop production in Brazil?

Commercial production and trade of GMOs in Brazil is prohibited, with the exception of the 2002-03 soybean crop. Earlier this year, the GOB formed a nine-member inter-ministerial working group to formulate Brazil's official stance on GMOs.

On the recommendations of the group, President Lula enacted Provisional Measure 113 in March, which allows “illegal” 2002-03 GMO soybeans to be exported and used domestically until April 1, 2004.

Producers illegally producing biotech soybeans after that time are subject to jail time, fines and crop confiscation. The GOB also enacted a new labeling law for products with more than 1% GMO content.

What other issues in Brazil should be of immediate interest to U.S. farmers?

Brazilian agriculture is a major sector of the economy and important for economic growth and foreign exchange generation. Agriculture contributes 13% to Brazil's GDP (29% if all agribusiness is included). The sector is growing, especially in the center-west regions, where cheap and abundant fertile “frontier” land remains available.

According to the Ministry of Agriculture, Livestock and Food Supply (MAPA), Brazil's total land area of approximately 2.2 billion acres is 41% Amazon rain forest, 6% cultivated land, 18% breeding pastures with an estimated 11% still available for farming (mostly Cerrado). Cerrado land prices generally range from $20 to $1,200 per acre — considerably lower than in the U.S. Midwest.

Transportation and port infrastructure continue to be critical factors to the growth of Brazilian agriculture. Every essential input, less rain and sunshine, must be transported to production areas. Conversely, the resulting ag commodities may move in excess of 1,500 miles by truck to gain access to an export point.

Though the GOB has recognized the need to improve rail, barge and roadway systems, it has not yet been able to allocate funds. But the private sector, fueled by foreign investment, has started government-private sector initiatives to improve logistics in the Cerrado region.

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