It's fast becoming very hard to buy Brazil's ambitious promise to "feed the world by 2050". The reason is mainly down to a few structural issues but also a number of risky strategic choices:
- Firstly an inadequate infrastructure and rising transport costs
The latest good intentions of the federal government will be put to the test by last minute preparations for the 2014 World Cup, followed immediately by a pick up in preparations for the 2016 Olympics. By that time Brazil will have another administration that will presumably apply the usual patches while focusing on oil extraction off the coast of RJ, administer the royalties and...watch the R$ appreciate, which could possibly slowly remove any remaining competitiveness from ag exports.
- Secondly Brazil's agriculture is over-reliant on fertilisers
That means that the peak may only only a few yards away, unless more is done to prevent soil fatigue, such as no-till, rotation and other strategies. The current model is not highly sustainable.
- Thirdly the country is dangerously moving towards a dominant crop system
This is the result of a very risky "one client - one product" strategy (China's seemingly unlimited apetite for soyabeans drives the whole Brazilian ag sector). Indeed soy acreage expands, while other crops shrink dangerously...
There may well be a hard landing at some point, possibly when China's economic model matures and its GDP cools down to align with levels now endured by Japan or South Korea. Unbalances in the agricultural model & supply chain will be hard and expensive to fix.
- Further exports are increasingly dominated by commodities, with manufactured goods ebbing away
De-industrialisation is a key risk facing the country, and worryingly there's a near-complete absence of value addition in the mindset of established players which limits the potential for jvs, cross-border M&As and technology transfers. In addition education is lagging international standards, labour productivity has been on a slow decline, while a very heavy tax administration and bloated red tape suffocate businesses.
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