Economic and logistical efficiency will once more be critical factors for Brazilian farmers in the 2006-07 season.
“Those who expanded too much will have to scale back. It's imperative to improve the risk management,” says José Roberto Mendonça de Barros, from MB Associates, who is supporting the systematic use of private bonds and rural credit — which until June totaled only $297 million — and the implementation of rural insurance.
According to Barros, the exchange rate should also be cause for concern among farmers. He doesn't expect a significant devaluation of the real (the Brazilian currency) versus the dollar in the short run. “We're not going to see a R$2.80 per dollar rate anymore, unless there's a major financial crisis in the international market.”
Barros stressed that in the past two years, unfavorable exchange rates, weather and sanitary issues have eaten a large share of the agricultural sector's capital. According to the National Confederation of Agriculture (CNA, in Portuguese), the major farmers association in Brazil, the sector income has fallen by $11.3 billion down to $70 billion in the past two years, an average loss of 12.9 percent in farm income.
Barros expects an improvement in the sugarcane and soybean economy in 2006-07 thanks to demand for biofuels. “There also could be some improvement in the beef business, with the end of some embargoes and the return to exports.”
The analyst believes the center-south states, which include Goiás, Paraná, and São Paulo, could recover quicker than other regions, due to better logistics and proximity to ports.
The improvement of the logistical structure in Brazil is also noted by specialists as a huge challenge for farmers in the near future.
About 80 percent of Brazilian roadways are in either poor or bad condition. To repair them would require an investment of $4.37 billion. The federal government has plans to invest only $681 million a year in road recovery until 2009. The total would amount to less than half of what is needed right away to keep the grain trucks rolling.
In the 1960s, when the Brazilian economy was beginning to grow into the ninth largest world economy, the country's leaders invested in new asphalt roads throughout Brazil instead of more costly — but much more efficient — railroad tracks. This led the country to its present dependence on road-based transports rather than trains.
The lack of funding and the use of heavier and heavier trucks on old roads not designed to support them have led to the poor conditions all around the country. The only exceptions are a few roads in the south and southeast regions, which represent less than 30 percent of the distance trucks must travel from some major producing states as Mato Grosso.
According to specialists, the condition of Brazil's ports is not much better. To cope with increases in production and exports, the present storage capacity of about 90 million tons needs to be increased by 45.5 million tons. The total capacity needed for storage in ports, should be of 135.5 million tons until 2011.
There's an immediate demand for $3.4 billion in investments to increase port storage capacity. “The government is taking its time raising this funding,” said Paulo Manoel Protasio, president of the National Association of Freight Users.
Currently, there is no ongoing measure in federal or state governments to solve either the road or port challenges. Continuing delays could, once more, cost farmers international market share, lead them to more insolvency and, continue to hurt Brazilian agriculture — which surely would be welcomed by Brazil's international competitors.