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Brazil Looks North

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Mad Max

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Apr 3, 2005
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at my computer
Brazil Looks North

By Clint Peck Senior Editor

Beef, Jun 1, 2002

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You'll probably never meet Marcos Minghini, Liza de Paulo or João Vinicis Pratini de Moraes. But, the trio represents a looming competitive threat to U.S. beef producers.

Minghini is a Brazilian cattle farmer, while de Paulo is a scientist for a large Brazilian agribusiness. Pratini de Moraes is Brazil's agriculture minister and may be the most powerful, yet underrated, agripolitico in the world.

Already boasting the planet's largest commercial cattle herd, Brazil is clearly a formidable player in today's international beef market. But, with 165 million cattle currently grazing 370 million acres, Brazil could put another 180 million-200 million acres into production — "without cutting down a single tree," as Pratini de Moraes says. These areas of undeveloped savanna equal the size of France and Germany — or Texas and New Mexico.

The Brazilian beef story grows more ominous.

Production costs are a third to half of what American ranchers face. Brazil's costs are better compared to Australia's grass-fed beef system, however, but even then, Brazil wins out — at a 15% lower cost of production.

Brazil is close to removing foot-and-mouth disease (FMD) as an export impediment. Its economy and political system are relatively stable. And recently, Brazil has filled the beef production void left after Argentina's economy and political system crashed last fall.

Beef exports, along with sugar, orange juice, coffee, soybeans, poultry and pork, are seen as Brazil's pass into First World status.

"Europe is our biggest trade partner, and we will do everything possible to grow those markets," says Pratini de Moraes. "But, we also know there are other areas where we can gain markets for our beef and other agricultural commodities."

He's talking about the U.S., and the Brazilian agriculture minister has been in close dialog with U.S. agricultural and trade officials on market access, gradual elimination of export subsidies and revision of internal supports where they affect external markets.

How all this bodes for U.S. beef producers is becoming very clear.

"We can compete very well with any beef producers in the world," Pratini de Moraes says. "Agriculture will be a focal point of all world trade negotiations in the next few years — and we know we have a strong position from which to negotiate."

Pratini de Moraes believes improving the income of rural-based people and keeping them from moving into the already over-crowded cities is critical for his country's advancement. And, he believes that agricultural development must come via market channels, not at taxpayers' expense.

"We're not going to reach those goals through artificial methods," he says firmly. "We do not subsidize farming," he adds, though admiting some "family farmers" receive special tax credits to adopt certain state-of-the-art practices, but the credits have to be re-paid.

"In today's world, the competition is no longer between farmers — the competition is between treasuries," says Pratini de Moraes. "Our treasury cannot compete with the U.S. treasury or the European treasuries."

Agricultural subsidies are not only expensive, he says, but harmful to farmers in all countries.

"Every country should protect its agriculture," he says, "but we think it is wrong when the form and level of support depress international prices."

Pratini de Moraes is especially critical of export subsidies, which he says distort international trade and carry "an enormous social impact on people of the world."

He points out that last year the U.S., Japan and the European Union combined to dole out more than $1 billion/day in agricultural subsidies.

"If the rich countries would give 10% of what's spent in subsidies to help feed the world, there would be no more hunger on Earth," he says.

It's a sentiment widely held by Brazilian beef producers. For instance, Marcos Minghini, a medium-sized beef farmer (300 cows) from the southern state of Paraná, has a hard time understanding why he should be asked to compete against producers in subsidized countries.

Like American producers, Minghini says he's wants a level playing field. "If other countries would reduce their barriers and subsidies, we could compete on the same basis," he says. "We could compete against anyone if it were simply a matter of markets."

Francisco Luiz, president of the Sociedade Rural do Paraná — a group similar to a state farm bureau — understands why Europe and America subsidize their food systems.

"We understand these countries think it is necessary for national security. What we can't understand is why they impose quotas, tariffs and unscientific sanctions that rob others of the opportunity to compete in international markets," he says.

Packers And Production Alliances
Export competition isn't the only thorn in the sides of Brazilian beef producers. They also deeply distrust meat packers, who they view as an impediment to competition.

About 90% of all market cattle are sold directly to Brazilian slaughterhouses, the majority of which are small and inefficient by U.S. standards. In Paraná, for example, 33 facilities kill an average of 200 head/day. Another 81 kill 60 head/day. Paraná also has some larger "conglomerate" slaughterhouses — but they're few and far between.

Beef farmer Edson Gaudêncio, Santo Antonio, Paraná, says this packing structure catches most Brazilians between a rock and a hard place.

"With the small slaughterhouses, you never know when you will get paid," he says. Cattle checks often take more than a month to be delivered. "And the bigger slaughterhouses that can guarantee payment sometimes form cartels to develop one price among them," he adds.

Gaudêncio and his neighbors are trying to find other routes to domestic and international markets. They're selling custom-processed beef directly into retail outlets. Last year, 10% of Gaudêncio's production from his 400 cows was sold through the international Carrefour® supermarket chain.

"This concept is new to us, and we're still working to make it better," he says. "Maybe someday it will allow us to get around dominance by the big slaughterhouses and the uncertainly of payment from the small slaughterhouses."

The Brazilian cattle industry is based on "natural" production. Loosely translated, cattle are grown with no added hormones. But natural production goes a step further at Fazenda São Miguel, one of southern Brazil's showcase cattle farms. Part of the family-owned Independência agricultural company, São Miguel has become a model for large-scale, organic beef production.

About 12,000 of São Miguel's 65,000 head grown each year are "fattened" organically on its lush grasslands. The organic beef, along with most of São Miguel's traditional production, is exported to Chile, Argentina and Europe.

No fertilizers, antibiotics or vaccines are used in these organic operations. And, it's working better than anyone at São Miguel expected.

"To our surprise, we've found it's easier and more economical to raise beef organically," says João Mella, a cattle buyer for Independência. "We're also receiving 25% better prices in the organic beef market." Mella says he passes 10-12% in added profits back to the organic calf producers he buys from.

Key to this system is biochemist Liza de Paulo. She makes sure strict international organic production rules are followed at São Miguel.

"We are constantly testing our production — and we are watched closely by our customers to be sure we produce to their standards," she explains.

And because Independência's operations also include a slaughterhouse, fertilizer plant and tannery, de Paulo and her lab mates continually monitor virtually everything produced and discharged by Independência factories.

"We must also follow very strict environmental laws to avoid polluting the water and soil," says de Paulo. "This is my responsibility, legally and morally, and I take it very seriously."

Next month: A closer look at Brazilian beef production practices and how U.S. trade officials are addressing competition from Brazil
With this on the horizon looking at us, some US producers and groups that claim to represent the US cattleman still support a generic checkoff, oppose COOL, and support dropping all trade barriers. Unbelievable.
the US needs to hire this guy

subsudies for agriculture are what is wrong with agriculture

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