Cottoning on to more productive farming
IN 1984 WALTER HORITA, the youngest of three sons of a Japanese immigrant who farmed 500 hectares (1,240 acres) in the southern state of Paraná, headed north in search of land. Mato Grosso do Sul and Mato Grosso, colonised by gaúchos from southern states in the previous two decades, were too expensive for him. Eventually he settled on western Bahia (see map below), where he bought 1,210 hectares, paying four sacks of soyabeans per hectare. “There was nothing,” he says. “No roads, no schools, no health care, no electricity, no water supply, no phone.” He got digging. By 1999 the farm was so successful that his brothers in Paraná sold up and joined him. Today the Horita brothers own 150,000 hectares in western Bahia, growing mostly soya, cotton and corn.
The story of how Brazil’s vast central and north-eastern crop belt was won starts in 1973, when Brazil’s military regime decided to centralise agronomy research and set up the Brazilian agricultural research corporation, Embrapa. It sent 1,200 bright young scientists abroad to study. When they returned and were set to work, they achieved something of a miracle: they made the cerrado bloom. Until then, Brazil’s savannah with its acid, nutrient-poor soil had been thought impossible to cultivate. It turned out that deep tilling, huge quantities of lime and fertiliser and fast-growing crops bred to suit the local conditions could coax a rich harvest from it.
Go north, young man
The new crops and techniques were adopted by gaúcho sons lured to the cerrado by the promise of virgin lands. They pushed northwards through Brazil’s central states, eventually arriving in the region now nicknamed MaPiToBa: the cultivable parts of Maranhão, Piauí, Tocantins and Bahia. Not only vast farms but prosperous new towns sprang up as a result. When Mr Horita arrived in western Bahia, Luís Eduardo Magalhães (known as LEM) was just a petrol station. In 2000, when it had 18,000 residents, it split away from Barreiras, the region’s only sizeable municipality at the time. LEM now has a population of 70,000 and is one of Brazil’s fastest-growing towns. The mayor says his biggest problem is finding 2,000 new school places each year. The John Deere concession run from LEM by Chico Oliveira, another gaúcho pioneer, is one of the American farm-equipment maker’s biggest worldwide.
Around 40% of the 6.6m hectares planted with grains and oilseeds in MaPiToBa is in western Bahia. Much of it is producing soya and either cotton or corn, planted and harvested in the same year. Where rain is too sparse, millet replaces the cotton or corn. Marcos Jank of Agroconsult, a Brazilian consultancy, reckons that another 20m hectares in Brazil could be transformed in the same way without further advances in crops and technology. A further 6m hectares currently under pasture could be turned over to high-productivity crop farming.
The transformation of the cerrado is often dismissed as Brazil’s belated discovery of a competitive advantage. That leaves out a lot, and not just Embrapa’s role and the courage of the gaúcho pioneers. Farming in the tropics is in many ways more difficult than in a temperate climate. Without cold winters, pests and crop diseases are harder to control. Intensive soil preparation and large amounts of lime and fertiliser require scale and capital. According to Rodrigo Rodrigues of Agrifirma, a company that buys and farms virgin cerrado, preparing land for its first crop—deep-tilling, root-picking, liming and so on—means passing over it 15 times, which costs as much as the land itself. The 1,300 members of AIBA, Bahia’s farmers’ association, on average farm 1,269 hectares each. The average American farm is 170 hectares.
Other obstacles in the way of Brazil’s frontier farmers include murky land titles. Bahia is better in this respect than other bits of MaPiToBa, and an electronic rural-land register will eventually bring a big improvement, but for now every purchase requires expensive due diligence. Brazil’s Forest Code requires some land to be set aside on every farm nationwide, no matter how far from the rainforest. Getting the environment agency to agree on set-aside and grant a licence to start clearing can take years. Petty bureaucracy is a problem too. After buying a farm in western Bahia in 2009, Agrifirma built a 23km power line at a cost of 460,000 reais to connect it to the national grid. The power line has been finished since March, but the company is still waiting for permission to hook it up.
Survival of the fittest
On the wall of the Horita brothers’ office in Barreiras hangs the framed root of a drought-resistant cotton plant. It is 3.4m long, a reminder of the power of natural selection in a harsh environment. Julio Busato, AIBA’s president, says such forces have shaped the region too. One reason its farms are so big is that only the best made the grade, and they bought out the losers. “You don’t hear those stories so often,” he says, “but lots of people came and lost everything, and now they’re, say, driving a truck.”
It was the opening up of Brazil’s economy that enabled Embrapa’s tropical-farming technology to be taken up so widely, says José Garcia Gasques of the agriculture ministry. Until a couple of decades ago farmers were being supported by means of minimum prices, government-purchase schemes and trade controls, and agricultural output was growing only because extra land was being added. But in 1990 Brazil’s then president, Fernando Collor, slashed tariffs and dismantled many import and export controls. Since then the total area under crop cultivation in Brazil has increased by 38% and production has more than trebled. Total factor productivity has been growing by 4.6% a year. “In these new areas [such as MaPiToBa] they rarely even mention the government,” says Mr Gasques. “There’s no culture of subsidies; it was broken 20 years ago.”
In the past decade, propelled by the commodity boom, Brazil has become one of the world’s largest agricultural producers. It is among the top three for nearly all of the 15 most widely traded crops. And since it uses less of what it grows than other big producers, it makes the biggest contribution of any country to feeding hungry mouths elsewhere.
Even as Brazil’s economy was opening up in the 1990s, industrial sectors with powerful lobbies in Brasília managed to hang on to some of their privileges, a legacy of the generals’ infatuation with government-driven industrialisation. The result is an anomaly: a big agricultural producer that protects its farmers less than its manufacturers. A recent study by the International Chamber of Commerce, a business lobby group, ranked Brazil as the most protectionist of the world’s 20 biggest economies. But according to figures from the OECD, a rich-country club, agriculture is largely left to fend for itself. State support accounts for just 5.7% of farm income in Brazil, compared with 12% in America, 26% across the OECD and 29% in the European Union.
Brazilian carmakers are particularly cosseted. The government first offered infant-industry support for foreign car firms prepared to open local factories in 1952. From 1974 to 1990 car imports were banned almost completely, and subsequently they were subjected to high tariffs which still persist. Brazil went from having no car industry at all to making 3.3m vehicles a year. Yet not even high tariffs could save carmakers when the currency strengthened. In 2005 imports made up just 5% of sales; by 2011 their share had leapt to 22%. The government responded by setting quotas on car imports from Mexico, with which Brazil supposedly has a free-trade agreement for cars, and to add an extra 30% to the sales tax on cars made anywhere other than Mexico and Brazil’s partners in the Mercosur free-trade block. That provoked complaints to the World Trade Organisation.
The government’s latest wheeze is to offer tax breaks for local research and development, which came into force in January. Carmakers who sign up to the programme do not have to pay the extra 30% sales tax. The stated aim is to make cars produced at home more competitive by stimulating innovation. In practice, manufacturers without a local presence will face higher taxes if they import more than a few thousand cars a year. Several, including BMW and China’s JAC Motors, have decided that building factories in Brazil is a price worth paying for access to the world’s fourth-largest car market.
The new policy may indeed increase local production, says Maurício Canêdo Pinheiro, an economist at the Fundação Getulio Vargas. And government support can stimulate innovation, as Embrapa has shown. But Brazil’s farmers innovated not only because the government offered help but because they were threatened with competition. Support for innovation tied to market protection is unlikely to work the same magic. Besides, in the 1970s and 1980s Brazilian farms were small and undercapitalised, Mr Pinheiro points out, whereas “global car firms are big enough to innovate without government help.”
Unlike their counterparts in the United States and the European Union, farmers are now Brazil’s most ardent proponents of free trade. They want an EU-Mercosur deal, which has been mooted for years and is becoming urgent for Brazil, since from next year it will be rich enough to lose its trade preferences. Bahian farmers want to cattle-ranch on cerrado that has too little rain for crop-farming, but for that to be profitable they need new markets. “We’d love to sell to Europe,” says Mr Busato. “Their meat is so expensive.”
Kátia Abreu, the president of Brazil’s main farmers’ union, says Brazil needs to rethink its entire attitude to trade. “There’s no sense in trying to protect your market the old-fashioned way,” she says. “A piece of every supply chain, that’s what we should be looking for.” A cattle-rancher, she turns to a homely analogy: salting and sun-drying meat will work well only if the meat is of good quality in the first place. “All those incentives for industries that can’t compete, they’re just wasted salt.”