Agro and mining already surpass manufacturing in Brazil – 04/13/2023 – Market

Brazil walks against the grain of the world. The country is becoming more primary –that is, more dependent on agriculture and mining– and less technological.

This had already been happening in our exports since the mid-2000s.

But data released by the IBGE (Brazilian Institute of Geography and Statistics) reveal that “reprimarization” —as economists call this kind of “return to the past” in terms of economic development— already covers the entire productive structure of the country.

In 1995 —the year following the creation of the Real Plan, which put an end to hyperinflation—, the manufacturing industry represented 16.8% of the Brazilian GDP, more than ten percentage points more than the weight of the sum of agriculture and mining ( 6.5%) in our economy.

This distance has been decreasing over the years, amid deindustrialization and China’s growing demand for primary goods.

Finally in 2021, with commodities on the rise amid the pandemic and the Ukraine War, the sum of agro and mining surpassed manufacturing in Brazilian GDP for the first time in decades.

The trend continued in 2022 and, according to economist Paulo Morceiro, a researcher at the University of Johannesburg (South Africa), represents a setback for the country.

Understand how agro and mining already surpass manufacturing in Brazil and why Morceiro says that “Brazilian industry has turned to dust”.

1. ‘Reprimarization’ of Brazil

The poorest countries tend to have their production and export basket concentrated on agricultural and mineral products, the so-called primary products, explains Morceiro.

As countries urbanize and their economies advance, the share of industrial products grows both in the composition of GDP and in exports.

The most successful countries in this process have a significant share of their participation in international trade in high and medium-high technology industrial products —this is the case of the main rich countries in the world, such as the United States, Germany, France, the United Kingdom, Japan and more recently, South Korea and China.

“Reprimarization is a setback from the point of view of economic development”, defends the economist.

Morceiro recalls that Brazil has been suffering from de-industrialization since the 1980s, which, according to him, is the result of the abandonment of long-term economic planning, the reduction of public investment and the loss of protagonism of industry as the center of development policy.

“We stopped prioritizing the industry, that’s the great truth”, he says.

To this scenario, from the year 2000, China’s demand for products such as iron ore, oil, meat and soybeans is added, amid the strong growth of the Asian country.

But what explains the shift from 2021 onwards, when agriculture and mining finally overtake manufacturing in terms of weight in Brazil’s GDP?

A combination of high commodity prices, but also an increase in the export volume of these products, due to record harvests, the pandemic, the Ukraine War and China’s stockpiling policy in the midst of the health crisis.

2. Advances in agriculture and mining are not reflected in employment

“It is not a problem to export iron ore, soybeans, orange juice, all these products. But that would only be enough if Brazil had a small population. As the country has a large population, of 210 million people, more is needed” , says Morceiro.

A clear example of this is in job creation.

Even with the increase in the importance of primary products in our exports and GDP, the participation of agro and extractive industries in employment in Brazil has been falling since the 2000s: from 21.5% at the beginning of the millennium, to 12.9% in 2020.

Extractive industries (oil and gas, iron ore and others) represent a tiny portion of these occupations —212,000 in 2020.

So most of this drop is explained by agribusiness, which employs fewer and fewer people, due to a combination of productivity gains, advances in mechanization and greater concentration of production.

The low wages and precariousness of work in the countryside also lead more and more people to leave agriculture in search of jobs in the cities.

“The extractive industry hardly generates any more jobs and agriculture will generate less and less”, predicts Morceiro.

“In the United States, for example, which is the world’s largest exporter of agricultural products [o Brasil é o segundo], only 1% of employment is in agriculture. France has 3%, Germany has 1%. So, if we’re lucky, we’ll be able to retain 5% of jobs in agriculture.”

The economist points out that agribusiness was and still is good for Brazil: it generates a very large trade balance, makes it possible to offset the deficit in the manufacturing industry and generate a surplus for the balance of payments, which increases our international reserves.

“This was very important, it reduced the country’s external vulnerability, which always suffered from exchange rate crises. So not everything is bad and not everything is good. But, from the point of view of generating jobs and innovation, these are not sectors that have a weight significant”, points out the analyst.

He notes that agro and extractives also have a more localized impact on growth, driving less the service sector, for example.

3. Losing space in high technology

Currently, only 2% of Brazilian exports are high technology —which includes sectors such as information technology, electronics, pharmaceuticals and aircraft. In the year 2000, it was 12%.

Medium-high technology —which includes, for example, automobiles, machinery and equipment, chemicals and medical instruments— has also shrunk: from 24% of exports in 2000, to 13% in the most recent data available.

On the other hand, agriculture and extractives increased their weight in the export basket: from 15% to 49%.

“Brazil was never a giant in high and medium-high technology, but we had some relevance in the past”, observes Morceiro.

“It is a country that is among the ten most populous in the world, among the ten largest GDPs in the world, but in technology trade it is a dwarf — it was already a dwarf and has become even smaller.”

4. Against the grain of the world

By specializing in primary products, Brazil is going against the grain of international trade trends, says the researcher.

While in the world 21% of exports are of high technology products and 31% of medium-high, in Brazil these slices were 2% and 13% in 2021.

Meanwhile, agriculture represents 20% of Brazil’s exports, but only 3% of global international trade.

In the extractive industry, these shares are 29% (Brazil) and 7% (world).

“World trade is stable and dominated by high and medium-high technology, which represent between 50% and 55% of global trade. These are sectors in which Brazil is not present”, says Morceiro.

“Those who defend industry do not defend it because they have a fetish for industry, but because 86% of world trade is in the manufacturing industry and more than half is in the technology industry.”

The economist adds that, in countries with more advanced income levels —USA, Korea, Japan, for example— two thirds of the export basket is made up of high and medium-high technology industry products.

“There is no case of a large and populous country that managed to leave middle income without a significant share in world trade in transformation products. What allowed these countries to jump out of middle income was the expressive increase in their participation in international trade in industrial products.”

5. Growing in areas of low value

Brazil’s share in world agricultural exports increased from 2.9% in 2020 to 8.7% in 2021.

In the extractive industry, the jump was more than five times, from 0.8% to 4.6%.

An impressive advance, right? But everything takes on a different perspective when we take into account the size of these markets in the world.

For example, as agribusiness represents only 3% of world trade, Brazil’s 8.7% share in this market is equivalent to 0.26% of all global trade.

“If we more than double our share in agricultural exports, and reach a 20% share in this market, we will still have only 0.6% of all global trade”, exemplifies Morceiro.

Meanwhile, if Brazil increases its share in world manufacturing exports by just 1 percentage point, from the current 0.8% to 1.8%, that would represent 1.5% of all world trade.

“It is much better for us to have 2%, 3% of world trade in industrial products, because this is a very large market, than to have 10%, 15% of the market for agricultural products”, observes Morceiro.

“If we had half of world trade in agricultural products — which is not going to happen — we would have 1.5% of world trade. We managed to have the same effect by increasing our share in industrial products by just 1 point.”