A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
A broad ranging discussion I had with the Ambassador at his office in Buenos Aires last week.
Latin America, beset in the past by debt defaults, currency devaluations and the need for bailouts from rich countries, is experiencing robust economic growth that is the envy of its northern counterparts.
Strong demand in Asia for commodities like iron ore, tin and gold, combined with policies in several Latin American economies that help control deficits and keep inflation low, are encouraging investment and fueling much of the growth. The World Bank forecasts that the region’s economy will grow 4.5 percent this year.
Recent growth spurts around Latin America have surpassed the expectations of many governments themselves. Brazil, the region’s rising power, is leading the regional recovery from the downturn of 2009, growing 9 percent in the first quarter from the same period last year. Brazil’s central bank said Wednesday that growth for 2010 could reach 7.3 percent, the nation’s fastest expansion in 24 years.
After a sharp contraction last year, Mexico’s economy grew 4.3 percent in the first quarter and may reach 5 percent this year, the Mexican government has said, possibly outpacing the economy in the United States.
Smaller countries are also growing fast. Here in Peru, …, gross domestic product surged 9.3 percent in April from the same month of last year.
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?
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.
The BBC recently had an optimistic profile of Brazil’s position on the world stage. The article argues that Brazil has been largely successful at putting its own house in order, and is increasingly seen as a strong force in the international arena as well.
Democracy and democratic institutions have been strengthened. At the same time, Brazil has enjoyed high levels of economic growth, the result of continuity in economic policy that saw inflation remain low and stable, the fiscal situation under control and a floating exchange rate.
Poverty has been significantly reduced, and 31 million Brazilians lifted into the middle class, which in turn has brought about a rapid expansion of the domestic consumer market.
Commercial liberalisation and the globalisation of Brazilian companies are indicative of how Brazil’s economy has modernised. Diversification in the industrial and service sectors has gone hand in hand with the growth of the agricultural sector, highly competitive and with a strong presence in international markets. Brazil today sees itself as a global trader.
Brazil’s nascent position of power in global politics is due in large part to its credibility on issues that affect the developing world, and its status as a leader with the BRIC countries.
Brazil’s voice cannot be ignored on issues of importance to the developed world, such as foreign trade, climate change, energy (biofuels and oil), food, water and human rights.
Then there is the emergence of the BRIC countries, as Brazil, Russia India and China are known, a grouping that has become one of the new players on the international scene in recent years.
Brazil’s traditional diplomatic involvement in multinational organisations has reinforced the image of the country as a builder of consensus, an “honest broker”.
International attention has also focused on Brazil’s ethnic and religious harmony and the role it plays as mediator in more troubled parts of South America.
The article ends on this positive note:
For these reasons, Brazil today, confident and assertive, is seeking to carve a role for itself outside South America as a regional power able to act well beyond its immediate borders…
What is clear is that Brazil’s voice is set to be heard ever louder on the world stage.
For those who might be unaware, Mercosur is a regional trade agreement between Brazil, Argentina, Uruguay, and Paraguay. It is somewhat comparable to NAFTA, though there are some significant differences. Recently, Venezuela has been actively trying to join Mercosur, but before it can, all four member countries have to give their approval. So far the all have given their approval except Paraguay, though there has been some controversy in other countries over admitting Venezuela while Chavez is still in charge. In Paraguay, criticism of Chavez’s action against opposition parties has delayed the approval process.
Now, the leading candidate for the Brazilian Presidency, José Serra, has expressed some of his own concerns over Venezuela’s entry. From MercoPress:
“I want to say something, I think it’s great, very good for me that (Hugo) Chávez should support Ms. (Dilma) Rousseff [Serra's opponent in the presidential elections],” said José Serra talking to Brazilian reporters in Rio Grande do Sul, but warned that this is not positive for Mercosur “because his incorporation would only weaken and discredit Mercosur.”
Serra said that “as we all know, this gentleman likes to persecute and shut down all media that does not support him. Let us not forget also that Mr. Chavez could have won many elections but his debut in politics was as leader of a bloody military coup,” underlined Serra. “Only later was he elected”.
The opposition candidate that leads in public opinion polls went further and said that “not reforming or reviewing Mercosur endangers its very existence. To admit a new full member in Mercosur for political reasons is simply not believable and not acceptable”.
Serra also insisted that the voting system inside Mercosur had to be reviewed. “In the European Union, with a long experience of integration, the country with the largest GDP and most population has a greater participation in the voting scheme; on the contrary in Mercosur all members have the same vote.” This limits Brazil’s international trade policies and “must be reviewed.” Imagine “if Venezuela finally makes it into Mercosur—which is madness—it would have the same vote as Brazil; it’s quite senseless,” said Serra.
The former governor of São Paulo said that Mercosur should aim to become a free trade zone, (instead of a common market) but gave to timetable to achieve such a goal.
One reason for Brazil’s relative success at navigating the current economic crisis is that it maintains US $243 billion in foreign exchange reserves. These reserves have acted as a crisis fund, of sorts, for the Brazilian government. Brazil has been able to use the fund to avoid having to rely on credit lines from international institutions like the International Monetary Fund (IMF).
The reserves gave the central bank credibility when it deployed a number of mechanisms to help exporters, the financial system and the foreign exchange markets to deal with the sudden liquidity crisis, he said, adding that some have been removed and others can continue to be withdrawn.
Brazil’s National Development Bank, or BNDES, will end its extraordinary funding to the Brazilian economy in June, but the private sector should be ready to take over, he said. “I think it’s about time to exit all the crisis structures,” Meirelles said.
He added that while multilateral credit lines can be complementary, the crisis showed there are two major problems. First, the IMF would struggle to cope with the sheer volume of demand, and secondly, that the need during the crisis was proven to be higher than had been expected.
Brazil is an agricultural powerhouse and a world leader in exports of soybeans, sugar, orange juice, and coffee. It is also one of the top producers and exporters of cotton, poultry, and beef. This trend of Brazilian dominance in agriculture seems poised to continue with an expected 8.5% increase in production for grains, legumes, and oilseeds, as well as a 1.5% increase in the amount of land currently under cultivation. Additionally, the coffee crop is expected to increase by 14.4% this year over last.
The production of grains, legumes and oil-seeds this year will be 8.5% greater than in 2009, according to the latest estimate. The previous estimate based on data from January indicated the total crop would reach 143.4 million tons.
Land under cultivation will grow by 1.5% compared with 2009, eventually reaching 47.9 million hectares, said IBGE.
The crop boost this year can be attributed mainly to the 17.4% increase in soybean production and 2.6% increase in corn.
Soybean is the chief crop production of Brazil, accounting for just under half of the total grain and oil seed output.
Soy, corn and rice, the three main crops, occupy 81.5% of all the cropland in the country.
Soybean production this year will reach 66.9 million tons, thanks to improved climatic conditions and the increase in the area under cultivation, while the corn harvest is forecasted in 52.4 million.
Brazil, the world’s top grower and exporter of coffee, will produce 2.8 million tons of beans this year which is 14.4% more by volume than last year.
These positive agricultural numbers bode well for Brazil’s overall economic output since agricultural revenues are a relatively high (compared to the Europe and the US) 6.5% of the country’s overall GDP.
The agricultural output of India over the next 3 decades could be severely curtailed if water shortages are not addressed. The populist measure of giving Indian farmers free power has resulted in rapid depletion of groundwater supplies for agriculture. I saved Andy Mukherjee’s Bloomberg columns from 2 years go where he wrote about problems created from lack of wastewater treatment/underpricing of piped water and from a switch to biofuels.
The recent monsoon which has been below normal in India (June precipitation was the lowest in 80 years), have not only caused heartburn in agricultural circles, but also have led to fights breaking out in urban areas over access to reduced water supplies.
Going forward, India faces 2 serious challenges with water supplies for agriculture, both beyond its control:
1) Climate change is causing rapid melt in the Himalayan glaciers “suggesting that the Ganga, Indus, Brahmaputra and other rivers that criss-cross the northern Indian plain may become seasonal rivers in the near future as a consequence of climate change with important ramifications for poverty and the economies in the region.” At least 400 million farmer livelihoods are at risk.
2) Plans to divert water from the Brahmaputa by the Chinese government to feed its parched western/northwestern regions. Even though this is denied in official circles, there is little doubt that this will not be carried out knowing the CCP’s penchant for grandiose-projects like Three Gorges and preventing rain from falling during the Olympic opening ceremony. Moreover, Tibet – China’s Water Tower
is also the source for the Ganges river’s 2 major tributaries – the Kosi and the Gandaki. Attempts to “bottle those rivers” by official apparatchiks cannot be ruled out. The consequences for Indian agriculture are too staggering to contemplate.
Bottomline: Lower riparian states like India, and Iraq as mentioned in a recent NYTimes article, besides various countries in the Middle East and Africa, are almost guaranteed losers in the coming wars over water.
And the, Winners: Fresh Water paradises like Brazil, Argentina, Uruguay – perfect candidates for being India’s Agricultural Outsourcing providers. South american rivers like Amazon, Orinoco, Sao Francisco, Parana, Paraguay and Magdalena rivers contain more than 30 percent of the earth’s surface water. Add to that the Guarani Aquifer – the world’s single biggest groundwater source.
It is worthwhile for executives in India’s food and agriculture sector to keep these considerations in mind as they make plans for future growth and business contingencies.
Recession or no recession there are no holidays or time-offs for eating…
As Indians get richer, more of them will eat higher quality food – and about few hundred million will step up from 1/2 to 3 meals a day. Brazil is one of the few places where massive areas of land can be brought under cultivation
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what we’re doing is buying land in Brazil, and the other one is buying land in Canada, and we’re starting to farm it. In Brazil, greenfield, in Canada, existing farms, because if I’m right, agriculture is going to be one of the great industries of the next 20 years or so, 30 years…
What we’re doing, because we see a good future for agriculture, we’re buying some of the land, and fertilizing it, and irrigating it, and turning it into farmland— raw land into farm land— clearing it, which we will farm and hopefully make a lot of money from farming it. And then some day, we’ll probably sell the farms— that’s the plan.
“We’re still going to eat probably. We’re still going to wear clothes probably. You know nobody – Farmers cannot get loans for fertilizer right now. So the supply of everything is going to continue under pressure. Uh the inventories of food are the lowest they’ve been in 50 years. We have serious supply problems developing for many mining goods, oil, agriculture. So even if demand goes flat or down as it did in the 30s as it did in the 70s you can still have a nice market.”
“My immediate response is it doesn’t pass the ‘laughtest’,” a senior Indian official told Reuters.
Brazil said it wanted deeper cuts. “This is only the secondday of the talks here, so we imagine there is room formanoeuvre to reduce them further,” a Brazilian diplomat said.
Brazil and India are key to the negotiations because theUnited States and the European Union want big developing economies to open up their markets in industrial goods as well as farm products in return for their agriculture reforms.