Brazil to reap bumper agribusiness harvest

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The development of the cerrado into arable land will benefit Brazil far more than its oil discoveries.

When big reserves of pre-salt oil were found offshore Brazil, then-president Lula compared the discovery to a lottery win. However, perhaps the real prize has been sitting inland all the time. In many ways, Brazil’s agricultural industry looks a far better bet than its petrochemical dalliance.

Consider demand. In an increasingly populated and richer world the demand for grains is set to outstrip GDP growth for years to come. Demand for oil is still strong of course, but it is less of a one-way bet. In the US, for the first time, demand for gasoline has dipped (since 2009) and green taxes and fuel efficiencies are tempering the once unquenchable thirst for oil.

Substitutes exist for oil – shale gas, renewables including bio-fuels – and are proliferating and becoming more efficient. These trends in supply also favour Brazil’s agricultural industry because aside from Brazil’s cerrado the world is not discovering new arable land, whereas advances in energy technology are still leading to fresh discoveries of huge shale oil and gas reserves.

Technology will drive both industries, of course, but the return on investment is already proven in agriculture. Brazil has the ability to transform barren land into productive farmland and is at the forefront of seed research that will continue to benefit not only its frontier lands but should help build profitable ventures in Africa. Brazil also leads in deep-water drilling, but the sheer levels of capex needed to monetize these investments is eye-popping and the results are so far less proven, certainly in the sense of commercial viability.

And whereas the Brazilian government is squarely in the middle of its oil industry, it is private industry that is developing its agriculture. Large-scale, efficient farms have been and are being created with a focus on cost that should make them world leaders. Once the infrastructure is improved, and that improvement is coming, Brazil will have a truly world-class and profitable export industry that will benefit the country for years to come. While the value of Brazil’s offshore oil bounty looks ever more questionable, its productive heartlands look ever more of a blessing.