Corn and Economic Interdependence / by Mark Langevin

It does sound corny, but basic grains can bring people and nations together when diplomats cannot or will not. Corn, ethanol, soy, and vegetable oil to eat or fuel transportation are increasingly bringing Brazil and the United States into a closer economic orbit. Both nations now feed and fuel the world in different, but very important ways.  Yet, it is the drought in the U.S. and its effect of lessening the corn harvest that confirms this structural trend toward basic grain interdependency between Brazil and the U.S.

 

North Carolina pork producer Prestage Farms recently announced a deal to buy 750 thousand tons of corn from Brazilian producers.  Also, the U.S. Department of Agriculture forecasts that the U.S. will import some 1.9 million tons of corn by the end of August of 2013, much of which will be imported from Brazil.

 

John Prestage, Vice-President of Prestage Farms, notes that his firm produces 170,000 pigs for processing and 15 million turkeys, together consuming 1.27 million tones of corn a year.  Prestage also reports that importing Brazilian corn costs 5% less than corn delivered from Midwest of the U.S.

 

In addition to Prestage Farms, the chicken producer Pilgrim’s Pride whose majority owner is the gigantic Brazilian firm JBS, announced that it also intends to import Brazilian corn for feedstock.

 

The U.S. need to import Brazilian corn is not a one-way street, since 2010 Brazil has relied upon U.S. ethanol producers to meet the country’s spiking demand for passenger vehicle fuels.  Certainly the drought will hamper U.S. corn growers’ capacity to produce ethanol and ship it to Brazil in the coming year, but the lesson is clear as corn syrup; both countries are increasingly dependent upon one another’s basic grains and vegetable oils to feed the world and fuel their respective vehicle fleets. Indeed, Brazil may return as a supplier of ethanol for U.S. motorists if domestic corn supplies cannot accompany domestic demand for this renewable fuel.  This fluctuating import-export flow presents occasional twists and turns, but the overall direction is toward increasing interdependence upon the building blocks of economic development and human welfare. Today, Brazil’s exports to the U.S. are on the rise, while exports to China and Europe have fallen during the last two quarters.

 

Diplomats from both countries have recognized this interdependency and conditions for partnership, but bilateral relations continue to be plagued by much talk and too few negotiations over issues that matter most, including grains and fuel.  It is important to both producers and consumers that such building blocks can be supplied at as low cost as possible, and lessening trade barriers should be a focus. Yes, both governments and their citizens often sing the praise for free trade, some of which is not deserved, but where interdependency exists, efforts should be doubled to achieve efficient trading opportunities.

 

What efforts currently exist between the two governments to respond to this grain and fuel interdependency and lessen trade barriers?

Please feel free to respond.