Agribusiness advances without subsidies – 07/12/2023 – Market

Total public subsidies for agribusiness in Brazil have plummeted in recent decades, against the vertiginous increase in production and productivity.

Compared to other strong countries in the area, Brazil currently subsidizes the sector the least, taking into account the ratio between the total produced and the public money used in the activity.

Experts point to the scarcity of direct subsidies in recent years, the fact that it has not been heavily protected by tariffs and that it has remained relatively free from political interference as keys to the success of agribusiness.

In the past, however, the public sector was fundamental to generate the conditions for current unemployment, mainly through the creation, 50 years ago, of Embrapa (Empresa Brasileira de Pesquisa Agropecuária).

In the João Figueiredo (1979-1985) and José Sarney (1985-1990) governments, Brazil spent around 5.6% of the Budget on Agriculture, according to Ipea (Institute for Applied Economic Research). With Itamar Franco (1992-1995) and FHC (1995-2003), expenditures fell by half, to around 2.2% of the Budget.

It was from this period, however, that agribusiness took off. In the early 1990s, Brazil occupied 39 million hectares to produce 58.3 million tons of grain. Today, it uses 78 million hectares (+100% compared to 1990) and produces 316 million tons (+445%), according to the Ministry of Agriculture and Livestock.

In the last 20 years, the total factor productivity of Brazilian agriculture grew by 3.2% per year, on average. In China, the increase was 2%; in the US, 0.5%.

Among the major global producers, Brazil is the one that least uses public resources in proportion to the volume produced, at a rate of 1.3%. The champion in subsidies is the European Union, with 19.3%, followed by China (12.2%), USA (11%) and Russia (6.7%).

At the end of June, the Lula government announced resources of R$ 364.2 billion for the Crop Plan, to support the production of medium and large rural producers until June 2024. Another R$ 77.7 billion will be invested in family farming. Of this total, however, only a small portion will have subsidized interest, especially for low-carbon family farming

In the 2022/2023 harvest, according to calculations by Xico Graziano, agronomist and professor at FGV, even adding the amount destined to equalize interest rates to the budgets of the Ministries of Agriculture and Agrarian Development, public spending on the sector was close to 2% in relation to the gross production value.

“A myth was created based on the economy of the past [de que o agro seja subsidiado]when the rural sector actually received huge benefits from the State”, says Graziano. “Today, the agro holds the economy with its own legs.”

For Sérgio Vale, chief economist at MB Associados, the fact that agribusiness did not have so much help and state interference explains its successful trajectory.

“The agro came before the [presidente] Getulio Vargas [1934-1945 e 1951-1954] and therefore it was already independent. It has historical roots for having managed, with political force, to avoid stronger interference from governments”, says Vale.

“At the time of Getúlio, there was an understanding that what makes the economy grow is not the agro, but the industry, and all the incentives, subsidies and protections ended up being created for the industry. It was that developmentalist idea that we would have to protect the industry to later become an exporting power. The industry ended up being a victim of these ideas of the past.”

Vale highlights that one of the great contributions of the State to agriculture was the creation of Embrapa, in 1973, during the military regime.

“Throughout history, Brazil had a vocation for coffee, but it was growing and there was no point in importing agricultural products. Hence the movement to increase domestic production, starting in the 1970s.”

One of those responsible for creating Embrapa is economist José Pastore, a retired professor at USP’s Faculty of Economics and Administration. At the invitation of the then Minister of Agriculture, Luiz Fernando Cirne Lima, during the Emílio Garrastazu Médici government (1969-1974), he had the task of preparing high-quality researchers in the area.

“The proposal presented to Cirne included training about a thousand doctors and a thousand masters in the various areas of agricultural research, at the best universities in the world”, says Pastore.

With previous experience in training researchers in the economic area and having studied at a university in the USA, Pastore and the other creators of Embrapa sought money in international organizations, such as the World Bank and the Inter-American Development Bank, as well as foundations, such as Ford and Rockefeller.

“The first waves of scholarship students started between 1974 and 1976. After about ten years, Embrapa already had a top quality team to research products, soils and climates”, he says. “Before, agricultural research in Brazil was done by civil servants, who researched what they wanted.”

According to Pastore, the fact that the researchers studied at top universities, especially in the US, instilled in Embrapa’s technical staff “an ethic of work and zeal”. “In addition to the research they brought, there were also many books that helped in the development of Embrapa.”

Upon celebrating 50 years of existence this year, Embrapa accounted for the formation of 2,000 doctors dedicated to the agricultural sector, twice as many as its creators aimed for.

But the great agribusiness boom would only occur with the rise of Chinese income from 2000, when the country’s GDP was US$ 1.2 trillion and jumped to US$ 6 trillion in 2010, growing between 8% and 14% year-on-year. year. GDP per capita went from US$1,053 to US$4,550. Richer, the Chinese began to eat more and better.

“When China arrived, Brazil was prepared. First there was soybeans, and now we have meat and corn, which will be the new soybeans. China will have to import corn as it imported soybeans, and the only country with scale to supply -that’s Brazil,” says Vale.

The fact that the sector is also politically strong (the ruralist group in Congress now has 302 deputies and 45 senators) shielded the sector from taxation, as in Argentina.

In the neighboring country, the government taxes agricultural exports at rates from 7% to 33% and prevents the sale of some cuts of meat abroad to guarantee supply.

In the past, Brazil and Argentina competed closely in the area of ​​grains. Today, Brazil produces more than twice as much compared to the neighboring country (316 million tons, compared to 140 million).

According to the Argentine Rural Society, the State withdrew around US$ 175 billion in taxes from Argentine exports in 21 years, reducing the sector’s investment capacity.