PRIMARY PRODUCTION: by Ken FrancisNews Weekly
Brazil, Argentina threat to Australian exports
, November 19, 2005
Policy-makers in Australia would do well to consider introducing the factors which have brought Brazil and Argentina to their strong position in the world tables as agricultural food and fibre producers and exporters, writes Ken Francis. Australian exporters of farm commodities are facing major new competition from producers in Brazil and Argentina, which are emerging as the powerhouse for the production of beef, sugar and other crops, according to a new report issued by the Australian Farm Institute. [Agricultural Development in Argentina and Brazil: Emerging Trends and Implications for Australian Agriculture (Oct 2005).]
These two nations benefit from temperate and subtropical climates and a supply of natural resources which were not fully exploited in the past, but which are now on the point of explosive growth, particularly in Brazil.
Both countries have demonstrated strong growth in GDP in 2004 and their governments have developed policy settings, which seek to drive national economic development through facilitating the expansion of rural industries.
While a proportion of the additional food production will be consumed in their own expanding domestic markets, Brazil and Argentina are driving the expansion of national export income through agricultural production. As a result, by 2010, a large additional supply of low-cost food from Brazil and Argentina will pour onto a world market already awash with surplus produce.
In 2002, Argentina's rural base provided 11 per cent of the country's GDP and 43 per cent of her total exports. Since then, agricultural production has expanded substantially, and agricultural exports have become increasingly competitive owing to a major devaluation of the currency.
Her farmers benefit from sales to a population of 39 million and have available some 35 million hectares of arable land, compared to Australia's 20 million people and 49 million hectares.
Argentina is expected to export 600,000 tonnes of beef in 2005, which is the highest level for 25 years. Foot-and-mouth disease (FMD) has been partially controlled through vaccination programs, and the country is expected to be declared provisionally free of the disease in the near future.
Once this happens, Argentinian chilled beef is expected to gain access to US and Canadian markets.
In cropping, Argentina is increasing its exports of wheat, maize, rice and soy products as improved technologies have driven a rapid increase in crop yields. There has been continued investment in the national transport infrastructure, which has resulted in cost-effective delivery of product to export markets.
Brazil is recognised as having the greatest potential for increases in agricultural production of any country. Driving this potential expansion is the huge reserve of undeveloped, potentially arable land in the Central West region, in addition to the 180 million hectares of improved pasture land, currently available.
Globalised companies are leading the clearing of this new country, often to the dismay of conservationists and of the local people who are often dispossessed of their traditional land holdings.
These multinational agribusiness conglomerates have also supported increased production and exports. The Brazilian rural economy has developed through its role in supporting a vast domestic market of 179 million people, including an agricultural workforce of 13 million, and through the introduction of improved technologies and management systems, combined with vertical and horizontal integration of the rural business operations.
The cropping sector in Brazil has experienced higher yields owing to increased use of fertilisers and improved varieties including genetically-modified (GM) seed material.
In livestock, Brazil's cattle herd is expected to reach 175 million head in 2005, with some 84 per cent being run in FMD-free areas - although a recent outbreak of FMD in October 2005 has resulted in a ban on imports to 30 countries.
In comparison, Australia's cattle herd was 24 million head in 2003/04 with exports valued at $3.8 billion.
Agricultural production in these South American countries is stimulated by a number of factors including the expansion of corporate agriculture with its economies of scale, particularly in cropping enterprises; access to and investment in new technologies; the improvement in marketing channels, permitting cost-effective access to export markets; and improvements to transport infrastructure.
In Argentina, currency depreciation has increased the international competitiveness of its agricultural exports; while, in Brazil, the availability of new agricultural land provides for increased production.
Against these driving forces, a number of impediments may be identified including the variability of price obtained in export markets, the impact of FMD on livestock, inadequate credit systems for farmers, possible market resistance to GM foods and the macro-economic impact of high national debt levels.
Brazil's rural industry is restrained by inadequacies in infrastructure, a lack of clarity in property rights and increased militancy directed against multinational firms on the part of landless residents.
Pressures from environmentalists may increasingly restrict the wholesale clearing of land and forests.
The net result of these factors, however, is the stimulation of agricultural product exports from these countries. Thus exports from Argentina are projected to increase substantially in the period to 2010, with annual growth rates of 6 per cent for sheep and goat meat, 8 per cent for dairy products, and 3 per cent for sugar and wheat.
In the case of Brazil, growth rates in exports for the same period are estimated at 9 per cent for beef, 12 per cent for pig meat and 6 per cent for sugar.
On the other hand, estimates for Australia indicate no change in exports of wheat and sugar, a slight decline in beef, with dairy exports expected to grow by 6 per cent.Impact on Australia's markets
Substantial expansion of exports from Argentina and Brazil will impact on some of Australia's markets and have the effect of depressing world market prices through an increased supply of products.
The extent of direct competition between Australia, Argentina and Brazil will depend on the level of access available to the major protected markets in the US, the EU and Japan.
It appears that Australian exports of beef and sugar may be the most vulnerable to increased competition from emerging production by Brazil and Argentina. On the other hand, Australian manufactured dairy products may find a market available in South America.
Australian farmers and food processors are entering a period of increasing competition in global export markets in the years to 2010 and, if our farmers are to remain profitable, a realistic assessment of Australia's competitive position in food and fibre production must be undertaken and appropriate strategies put in place.
Policy-makers in Australia, be they in government or farmers' organisations, would do well to consider introducing the factors which have brought Brazil and Argentina to their strong position in the world tables as agricultural food and fibre producers and exporters:
(1) It is imperative to understand that the domestic market is the mainspring of successful agricultural production, and that exporting to the world without a strong base in the local market will lead to the agricultural sector flogging its product on a world market marked by fluctuating demand and rock-bottom prices.
(2) The health of our livestock and horticultural enterprises is paramount, and that no effort should be spared in protecting our agricultural assets by quarantine and testing systems that are completely watertight.
(3) A strong agricultural sector requires sources of patient finance at reasonable rates of interest.
(4) It is imperative that our producers be able to access transport and product-handling systems and infrastructure that enable commodities to move cheaply from the farm gate to the market.
(5) Recognise that excellent business can be obtained from diversifying the range of products obtainable from rural commodities and, in particular, the opportunities available in the production of ethanol from sugar and other biomass, mandating substantial ethanol content in petrol, and facilitating the initiation of a new bio-diesel industry from oilseed crops.
(6) Understand that macroeconomic settings, including national borrowings and adverse trade balances, can act to inflate the Reserve Bank interest rate settings and thus lead to an overvalued Australian dollar which works to disadvantage exporters.
(7) Due recognition should be given to the family farm as a base for rural production as being more efficient than the larger aggregated enterprises employing labour.
(8) It would be wise not to overlook the advantages offered by "single-desk" marketing operations for the export of specific products such as beef, whereby product branding and the communication of specific quality parameters such as "clean and green" can be effectively undertaken.
(9) Recognise that Australian sugar producers are at risk from a corrupt world sugar trade which often results in excessively low sugar prices, and that it is entirely valid to introduce policies that enable an industry to continue despite low world prices.Australia's trade position
Salient features of Australia's rural trade position include the following issues:
First, Australian farmers' major market for rural commodities overall is not the export market, as commonly quoted by government and farmers' associations, but the home market which comprises over 70 per cent of all unprocessed product which leaves the farm.
The exported proportion of rural commodities varies from product to product; but only seven of the 53 lines of agricultural products exported more than half of their production (News Weekly
, July 28, 2001), included amongst which are fresh meat, raw sugar, wheat, wool, ginned cotton and lobsters and crayfish.