ABSTRACT: This study analyzes the structure of the Brazilian soybean industry with emphasis on government policies and the competitiveness of the sector. The role of Brazil in the world soybean market is outlined. The Brazilian soybean production and processing sectors are discussed. Brazilian government policies, including the provisions of MERCOSUR, and their effects on the competitiveness of the Brazilian soybean industry are considered. Implications for the future of the Brazilian soybean industry are suggested.
 

EXECUTIVE SUMMARY: Over the last 25 years, the Brazilian soybean sector has been transformed into the greatest generator of foreign exchange in the country. Brazil has become the world's second largest producer of soybeans and the world's largest exporter of soymeal. Although the domestic soybean processing industry has been completely overhauled and modernized over that same period, government subsidies have led to a severe over-capitalization of the industry. Total annual processing capacity is now equal to nearly one and a half times the volume of the annual harvest while average capacity utilization is less than 50%.

Soybean oil demand has been the primary force behind the growth of the Brazilian soybean industry. Even so, the domestic livestock industry, particularly poultry, has also experienced growth leading to growing domestic use of soymeal. Although Brazil has enjoyed growing competitiveness in world soybean and product market, recent declines in the volume produced and exported have caused some concern over the future of soybeans in Brazil.

The establishment of MERCOSUR and changes in Brazilian government policies have thrown Brazilian soybean producers and processors into more direct competition with their counterparts in Argentina and Paraguay. The elimination of internal tariffs among member countries could shift the competitive advantage away from Brazil and result in growing imports of soybeans and products into Brazil from its MERCOSUR neighbors. The highly productive, fertile soils and favorable climate of Argentina has given Argentine producers a competitive edge over Brazilian producers in cost of production. Whereas the growth of Brazilian production has slowed, Argentine production appears to be picking up speed.

Brazil has also substantially eliminated policy measures that have tended to favor the agricultural sector. Brazilian agriculture now operates with fewer government subsidies but is strapped with a heavy tax burden which significantly affects the competitiveness of the soybean sector. Research indicates that Brazilian producers face higher costs of production and receive lower net average returns for their soybeans than Argentine and U.S. producers. Poor transportation infrastructure between new production areas and major ports, long hauling distances to ports, and high fuel costs have significantly increased the cost of Brazilian soybeans and products in world markets and constrained the expansion of soybean area in Brazil.

These problems have induced Brazilian producers to search for cost-reducing technologies and alternatives to soybeans in production. Research institutions in Brazil can play a vital role in this process. New, higher yielding soybean varieties are needed. Systems for more efficient use of inputs and management techniques to maximize profits must be devised. Analyses of production alternatives must be conducted. The public sector must also contribute to help rescue the soybean sector from declining competitiveness. A revision in tax policy to reduce the tax burden on soybean producers is overdue. Direct investments in transportation and related infrastructure and incentives for private investment in infrastructure are critically needed. These and many more tasks must be accomplished if the future of the Brazilian soybean industry is to be as bright as its past.

* Dr. Vieira is Researcher, Public Policy Studies, Empresa Brasiliera de Pesquisa Agropecuaria (EMBRAPA), Brazil and a post-doctoral student in the Department of Agricultural Economics, Texas A&M University. Dr. Williams is Professor and TAMRC Director, Department of Agricultural Economics, Texas A&M University, College Station, Texas 77843-2124.