BRAZIL, April 2, 2003 -- CropChoice news: Amid
shrinking economic-growth forecasts and war-stoked uncertainty,
Brazil is being bouyed by a swelling trade surplus --
only months after investors feared the country might
default on its heavy public debt.
The increased sale of Brazilian soybeans to China,
car engines to Europe and meat to Russia reflects both
opportunism and structural adjustments in an economy
traditionally focused on a continental-sized domestic
market of 175 million people. A 35% depreciation of
Brazil's currency, the real, against the dollar last
year reduced the country's already competitive production
costs for commodities and semi-manufactured goods. Meanwhile,
slack local demand discouraged the purchase of pricey
Now, imports are beginning to pick up again, yet exports
are accelerating even more. After rising 3.7% last year
to a record $60.3 billion, exports are forecast to expand
about 9% this year, providing the "main engine
of growth for the Brazilian economy," Merrill Lynch
economists Felipe Illanes and David Beker wrote in a
recent report. While their forecast for Brazil's 2003
gross-domestic-product growth, 1.6%, is below the market
consensus, they are predicting a higher-than-consensus
trade surplus of $17.3 billion, which would be the best
result since 1988.
Unlike exporters in countries such as Mexico, which
rely largely on the U.S. market, many businessmen here
aren't concerned that Washington might retaliate through
trade talks for Brazil's opposition to the war in Iraq.
Leftist President Luiz Inacio Lula da Silva harshly
criticized the invasion initially, and his foreign-policy
adviser Marco Aurelio Garcia offered Saddam Hussein
political asylum -- only to quickly retract the statement.
Brazilian sales to the U.S. rose 8% last year to a
record $15.5 billion, accounting for just one-quarter
of all exports. For now, talks on accords that would
give Brazilian products greater access to the U.S. --
through the World Trade Organization and the U.S.-proposed
Free Trade Area of the Americas -- are at an impasse.
While the war in Iraq hurts Brazil's most-sophisticated
export, passenger jets made by Empresa Brasileira de
Aeronautica SA, or Embraer, it is a short-term fillip
for two other important industries. Led by poultry and
beef, Brazilian exports to the Middle East have soared
about 60% this year due to the rush to stock up before
war. At least one agribusiness company here is negotiating
a large orange-juice contract with Saudi Arabia to supply
"In every war or crisis, we normally have an important
rise in agricultural exports," says Marcos Jank,
a trade expert at the University of Sao Paulo. "If
there are bad feelings toward the U.S., this could benefit
Brazilian poultry and soy, two products for which the
U.S. is our biggest competitor."
Brazil's latest trade figures show an impressive start
to the year. Through March, Brazilian exports grew almost
27% from the year-earlier period to $15.1 billion, while
imports rose just 3.9% to $11.3 billion. Agriculture
Minister Roberto Rodrigues said Monday that the trade
surplus for agribusiness, Brazil's biggest export industry,
could beat last year's record of $20.3 billion, depending
on the course of the war in Iraq.
Behind the boom is a bumper soybean harvest and rebounding
commodity prices. Already the world's largest coffee,
sugar and orange-juice exporter, Brazil has rapidly
become a soy powerhouse, virtually doubling cultivation
in the past five years. But even more than favorable
exchange rates and global prices, Brazilian productivity
gains and deregulation are generating the windfall.
Like competitors Bunge Ltd. and Archer-Daniels-Midland
Co., multinational food processor Louis Dreyfus Group,
Brazil's third-biggest farm exporter, has been investing
heavily in Brazil's modernized farm industry. It is
building a $30 million soy-crushing plant and doubling
the capacity of two existing plants, says Kenneth Geld,
president of Dreyfus's local unit Coinbra.
Improved transport due to the privatization of railroads
brings greater efficiency to what has been the Achilles'
heel of commerce in this vast country. Three years ago,
Dreyfus trucked nearly all its soy, orange juice, sugar
and coffee to ports. Today, more than half goes by rail,
reducing freight costs by 20%, Mr. Geld says. He is
even paying in advance to help a train company accelerate
the purchase of rail cars.
With the U.S. all but closed to Brazil's main farm
products, new markets are fueling the growth. Exports
to Asia swelled 26.5% last year. "China is the
swing factor for soy," Mr. Geld says. Also, Chinese
consumption of orange juice, almost all supplied from
Brazil, has doubled each of the past two years. "A
few years ago, the Internet was the hot industry. Today,
agribusiness is the place to be in Brazil," he
Industrial manufacturers are joining the fray, too.
Ford Motor Co.'s export revenue from Brazil is expected
to nearly double in the first quarter of this year,
compared with a year earlier, says Richard Canny, president
of South American operations. He forecasts export growth
of 20% for the full year.
Renewed demand in Argentina, the main destination for
Brazilian manufactured exports, is one factor: Ford
has sent 1,641 cars there so far this year, compared
with just 630 during the same period last year. The
first sale of Brazilian-built car engines to Ford units
in Europe also helps. But Mr. Canny says that trade
agreements -- like one with Mexico, another under discussion
with Andean countries and a third in planning stages
with South Africa -- are critical to sustaining export
growth. Still, he says, "Brazil is shaping up as
a very solid export base."
Brazil's economic slowdown and the currency depreciation
have kick-started some manufacturers' long-nurtured
export hopes -- and helped them use excess factory capacity.
Faced with stagnant demand for appliances in Brazil,
Whirlpool Corp.'s Brazilian unit, Multibras SA Eletrodomesticos,
has seen exports grow from less than 5% of output in
2001 to an expected 20% this year.
"It's not opportunistic," says David R. Whitwam,
Whirlpool chairman and chief executive. "It's part
of our integrated strategy. We're building a long-term
To be sure, a strong recovery of domestic demand could
weaken the export surge, and many economists expect
the pace of growth to slow during the year due to capacity
constraints. Already, one steelmaker, Cia. Siderurgica
Nacional SA, has acceded to a government request to
lower its export target this year to ensure domestic
industry is served.
Write to Jonathan Karp at email@example.com