Brazil’s Golden Harvest

This week BRI’s Market Development Manager Juan Carlos Rosa-Medina explores the recent developments in the Brazilian agricultural economy.

As the US and European economies face an uncertain future, more and more companies in those areas are looking to emerging countries for international expansion. Brazil in particular has been in the spotlight for its recent rapid growth and its leading industrial players such as Petrobras and Embraer, but behind all that there has been shrewd strategic thinking from its institutions and businesses. So here are two main lessons, albeit with more of an agribusiness slant, that we can learn from Brazil:

1. Invest in sustainable growth. Embrapa, the Brazilian Agricultural Research Corporation, has played a key role to convert Brazil’s once unproductive soil into the source of some of the world’s most productive farmland. They have done this by painstakingly adding nutrients to the soil to improve productivity, leveraging genetics to produce grasslands for their cattle, and adapting foreign crops to their local environment. Their model has been so successful that they have already surpassed the agricultural output of other Latin American countries and are a closing in on American production of crops such as soybeans.

2. Strengthen your base and reach out. According to the Yale Center for the Study of Globalization, Brazil has turned into the only Latin American net foreign investor because of the convergence of political stability, market oriented reforms, and macroeconomic soundness. This environment has increased competitiveness among Brazilian companies, which are now looking outside their territory to expand. A few examples include Brazilian company JBS, which acquired the US Beef production division of Smithfield Farms in 2008 and the poultry producer Pilgrim’s Pride in 2009, making it the world’s largest meat producer; Brasil Foods, the merger of Sadia and Perdigao, hold equal or bigger market capitalization than US-based Tyson and Hormel Foods, and the purchase of Burger King at a 46% premium by the Brazilian investment firm 3G Capital show Brazilian businesses flexing their economic muscles.

But running counter to real innovation and scalable business growth is a culture of informal markets that is endemic in Latin American businesses and society. The Brazilian expression “jeitinho”, for example, is usually associated with working around the rules by leveraging personal connections and favors to get things done. Thus, the challenge going forward for Brazil as it steps onto the world’s stage, will be how to transition to a more formal economy that will be increasingly trusted and respected by her growing number of trading partners from abroad.