The effects of changing macroeconomic conditions on Brazil's agricultural production and trade are examined in a USDA Economic Research Service report, "Brazil's Agricultural Competitiveness: Recent Growth and Future Impacts under Currency Depreciation and Changing Macroeconomic Conditions."

The report was authored by Constanza Valdes, Kim Hjort, and Ralph Seeley.

What's the issue?

Brazil’s macroeconomic policies have played an important role in its emergence as one of the top exporters of agricultural products. However, extended periods of currency depreciation, low energy costs and interest rates, rising demand for biofuel feedstocks, and macroeconomic fluctuations have contributed to Brazil’s emergence as a competitor for the United States in global agricultural markets. This study explores the role of macroeconomic variables by simulating the impact of Brazilian policy-driven currency depreciation and sustained macroeconomic growth on Brazilian agricultural output and trade. The potential impact of macroeconomic events on Brazil’s agricultural exports remains important, especially as the country’s economy and agricultural commodity markets are vulnerable to the effects of the COVID-19 pandemic.

What did the study find?

A weaker value of Brazil’s currency, the real, during its deep 2014-16 recession contributed to the record growth in Brazil’s agricultural exports. During 2014-16, devaluation of the Brazilian currency encouraged Brazil’s farmers to bring more new land into production and increase double-cropping. Consequently, local currency-denominated prices yielded increased net returns for Brazilian farmers despite weak dollar-denominated prices in global markets.

The expansion of Brazil’s land use was led by 20% growth in the soybean area. USDA has projected additional growth in production and exports to 2028, and simulations show that this growth could accelerate if Brazil’s currency weakens more than previously expected. Alternatively, stronger economic growth in Brazil could stimulate more domestic meat consumption with more domestic use of corn and soybean meal.

Key findings from two simulated macroeconomic scenarios (accelerated depreciation and sustained growth) show:

How was the study conducted?

The study simulated impacts of macroeconomic scenarios with a partial equilibrium model of Brazilian agriculture that is used to generate USDA’s long-term baseline projections for production and trade over 10 years.

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