India’s Interest in Latin America/South America must go beyond World Cup: Not just football superpowers, agriculture superpowers as well

by Dave

Note: an abbreviated version of this article titled “India’s Interest in Latin America must go beyond World Cup” was syndicated by Indo-Asian News Wire Service. A few portals that ran the article include: SIFY, TradeIndia, IndiaNewsPost, ThaIndian, SouthAsiaMail, ProKerala, Gulf Times, Qatar and the Ministry of Overseas Indian Affairs.

Over the next few weeks, millions of Indians, like their compatriots around the world, will be glued to the television, cheering for their favorite World Cup teams. Among the South American teams are traditional favorites, Brazil and Argentina. But other teams from the region include Uruguay, Paraguay and Chile. All these countries are football superpowers, with a long history of producing players who dazzle with their stylish play: eyes-in-the-back-of-the-head passing, bicycle kicks, dancing and dribbling past three or more defenders before scoring. The names of Messi, Kaká, Tévez and Forlán will echo off fans’ lips well after the finals.

In India, meanwhile, fever for those South American fútbol stars tends to fade once the games are over. Yet there is an important reason why enthusiasm for South America should persist beyond the World Cup: The Mercosur trade bloc of countries – Brazil, Argentina, Uruguay and Paraguay are the world’s emerging agriculture superpowers. They are already shipping their tremendous surpluses worldwide and, as agriculture outsourcing hubs, have the potential to meet India’s food needs in the coming decades.

South American surpluses, especially in oilseeds, pulses and sugar, will feed the growing food deficits in much of Asia, with shrinking arable land and expanding populations.

First some geographical context, since South America – unlike Canada and the United States – generally doesn’t appear on the Indian radar. Brazil is three times the size of India. It is even larger than the continental United States. Yet its population is about that of Uttar Pradesh and Uttarakhand. Argentina is nearly the size of India, with a population equivalent to New Delhi, Mumbai and Kolkata. Uruguay, sandwiched between Brazil and Argentina, is about the size of either Karnataka or Gujarat, three and a half times the size of Punjab, yet it holds less than half the population of Bangalore or Ahmedabad.

Flying from India to cities like Buenos Aires, Montevideo or Sao Paulo, located in the South Atlantic seaboard, is quicker than getting to California. All these Mercosur countries lie in the tropical and temperate latitudes where a wide range of crops can be grown, outside the zones of hurricanes, earthquakes or volcanoes.
What makes the agribusiness fundamentals so great in these countries?

  1. Farmland is abundant, and scale farming on parcel sizes of more than 1000 hectares the norm. Many farms are 4000 hectares and larger. The soil quality is extremely good. Soybean yields, for example, are 3 to 4 tons per hectare; corn yields range from 5 to 12 tons per hectare; and rice yields total more than 7 tons per hectare.
  2. While crop yields are at least two to three times greater than those in India, the cost of farmland is only a fraction of Indian prices. Most farmland comes with clean property titles.
  3. Agribusiness is well developed, analogous to the IT sector in India. A large pool of qualified agronomists – experts in soil science and management – conducts ongoing research in the most effective and efficient farm practices. Argentina introduced the technology of direct-seeding, which improves soil and moisture conservation, and which other nations now use. Harvard has selected leading South American agribusiness models as case studies in its own research.
  4. The Mercosur countries use the same or similar cutting-edge farm machinery and technology – the “no-till drill,” for example – found in the United States, Europe and Australia. A network of service providers assists with planting, harvesting and other aspects of the farming process. Logistics and supporting transport infrastructure are well developed.
  5. Agribusiness remains in private-sector hands; governments provide no farm subsidies. In some instances, the government taxes agriculture revenue; yet farming remains a profitable activity. So there is an ongoing imperative for innovation and efficiency to sustain the profitability.
  6. All the Mercosur countries have abundant fresh water, with networks of streams, lakes and perennial rivers. Rainfall occurs predictably throughout the year, which means there is little, if any, necessity for groundwater pumps.
  7. South America has 26 percent of the world’s freshwater and just 5 percent of the world’s population. Population growth rates are below replacement rates, so over the next 40 years, there will be little demographic pressure on water resources.

With these advantages, the Mercosur countries enjoy large agriculture export surpluses and ship 60 to 90 percent of their annual production to such countries as China, Vietnam, Korea and Japan. India imports their grains, edible oils and sugar.
On the socioeconomic front, Mercosur countries are democracies, with relatively little ethnic, religious or racial conflict. Cultural values, such as emphasis on family and relationships, resemble those in India. Indians will find a good business fit while operating in these countries. The Mercosur governments are dedicated to attracting responsible foreign investment and industry.

In South America, various combinations of buy/lease farming options are available, and annual financial returns can exceed 20 percent or more. In addition, farm portfolio managers in South America (akin to financial portfolio managers) can manage an agriculture operation for a fixed fee per hectare, plus a share of the profits. This would suit those Indian investors who know nothing about farming but do care about output and returns, and don’t want to deal with purchasing equipment or hiring personnel. Indian agrochemical companies like United Phosphorus and Excel Crop Care, and farm equipment players like Mahindra are reaping rewards from the South American agriculture market.

It is a fact that India’s domestic production cannot keep pace with the growing demands for more and better-quality food. It is time that Indian companies and investors look at South America for “backward integration” into farming operations. To use a World Cup analogy, it’s time to score goals for India’s food needs.

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