Agriculture: Brazil's Backstop / by Mark Langevin

            Brazilian agriculture is a fundamental pillar of national economic development in the 21st century. Baer claims that the agricultural sector has been the “engine of economic growth” since the colonial era (2014:281) and Barros reports that “Agriculture was the foundation upon which Brazil’s economic system functioned up to the beginning of the twentieth century (2009:83).” For decades agriculture fed a growing nation and financed its development despite the onset of an inward oriented, import substitution industrialization (ISI) model launched by President Getúlio Vargas and his Estado Novo after the Great Depression. Although a majority of Brazilians moved to the cities to work in manufacturing and services, the present and future of Brazilian economic and fiscal stability continues to be anchored to agriculture and agricultural commodity exports. Agriculture is Brazil’s backstop.[1]

            If Brazilian agriculture was rooted to a colonial past of coffee and sugarcane plantations, then its modernization during the last century grew from “neglect and even outright discrimination against” this sector by policymakers representing the budding cities and the emerging industrial elite of the post World War II era. With an emphasis on ISI, the agricultural sector was responsible for keeping pace with the growing urban demand for foodstuffs and the foreign exchange needed for the more capital intensive ISI activities. From 1945 to 1980 the Gross Domestic Product (GDP) grew at an approximate annual rate of 7 percent while the agricultural sector, with fewer government supports and less protection, lagged behind at 4.5% annual growth (Baer 2014:282). Agriculture’s contribution to the Gross Domestic Product (GDP) slipped from from 27 to 11 percent by 1980. This sector’s modest supporting role during this high growth period made modern economic and urban development possible, but both civilian and military governments did little to mitigate this sector’s underinvestment, low productivity, and increasing conflicts over land tenure (Bacha and Carvalho 2014, Helfand 1999, Santana and Nascimento 2012).

            During the depths of the “lost decade” of the 1980s the rural sector overcame decades of neglect and conflict to reinvent agriculture through migration to the Center-West “Cerrado” region (Bacha and Carvalho 2014, Santana and Nascimento 2012:75-85). The migration to the Cerrado by commercial agricultural producers and family farmers was encouraged by the innovative development of tropical cultivation systems by the Brazilian Agricultural Research Corporation known as EMBRAPA or the Empresa Brasileira de Pesquisa Agropecuária (Bacha and Carvalho 2014:6-9). During subsequent decades the application of increasing levels of technology intensive production methods, greater scales of economy through the concentration of productive units in the Cerrado, and the vertical coupling of modern agriculture to industry to form what is now known as agribusiness served to launch a promising cycle of rural modernization. Together, Brazilian agriculture and its vertical based value chains now comprise a third of the national economy and feature many of the world’s most productive farmers. In addition, agribusiness represents one of Brazil’s most internationally competitive economic activities and source of exports.

In February of 2015 the monthly value of agricultural exports reached $3.7 billion USD, but twelve months later the value grew to $5.76 billion USD, the highest monthly return since the data series was established in 1997

            In so many ways the agricultural sector plays the role of backstop to the country’s economic development by providing a reliable and widening stream of private investment and government revenues. The current recession shines a limelight on agriculture’s role as a backstop for economic development and stability amidst an historic contraction of economic activity, deindustrialization, and falling government revenues. Indeed the brightest spot for the current Brazilian economy is agriculture and its exports. Despite the economy’s contraction by 3.8 percent in 2015, the agricultural sector grew from 21.4 percent of GDP in 2014 to 23 percent in 2015.[2]  From February 2015 to February 2016, agricultural exports rose by 36.9 percent in U.S. dollar value (USD) and 113.26 percent by volume.[3] In February of 2015 the monthly value of agricultural exports reached $3.7 billion USD, but twelve months later the value grew to $5.76 billion USD, the highest monthly return since the data series was established in 1997.[4]

            During the first five months of 2017 (January to May), the top ten agricultural exports were valued at 31.9 billion USD, 39 percent of all Brazilian exports during the period and 87 percent of all agricultural exports. Soybeans led the way, representing 34 percent of agricultural exports and 15 percent of all Brazilian exports (Confederação de Agricultura e Pecuária do Brasil 2017:4). Today, agricultural exports are responsible for generating billions of U.S. dollars in foreign exchange, preserving Brazil’s positive trade balance despite the national recession, and adding more than its fair share to government revenues. Without Brazilian agribusiness and its exports, the country’s current economic slump would be catastrophic.

 

[1] The term “backstop” is used in finance and refers to “the act of providing last-resort support or security in a securities offering for the unsubscribed portion of shares. A company will try and raise capital through an issuance and to guarantee the amount received through the issue, the company will get a back stop from an underwriter or major shareholder to buy any of the unsubscribed shares.” Investopedia. Accessed at: http://www.investopedia.com/terms/b/backstop.asp.

[2] Agência Brasil. “Participação da agropecuária no PIB sobe para 23% em 2015. December 10, 2015 and accessed at: http://agenciabrasil.ebc.com.br/economia/noticia/2015-12/participacao-da-agropecuaria-no-pib-sobe-para-23-em-2015.

[3] Confederação Nacional de Agricultura e Pecuária do Brasil (CNA). “Boletim Agronegócio Internacional.” March 2016:3-4.

[4] Ibid.