Sao Paulo, BRAZIL, Wednesday,
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
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 U.S. troops.
"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 says.
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 capability."
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
Write to Jonathan Karp at firstname.lastname@example.org