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Will Brazil really gain by the unregulated
liberalization of agricultural markets?
Paul-Florent Montfort, momagri
Second largest producer and exporter of soybeans, the largest producer and exporter of meat, the largest exporter of ethanol and the world’s leading coffee producer, Brazil is an undisputed player on the world agricultural market, to the point where it is even known as “the world’s biggest farm”. Boasting a vast surface area of fertile land, Brazil is a winner as a result of the liberalization of agricultural markets, which is a central theme at WTO negotiations. Brazil’s dominant position on export markets and its highly competitive farms could provide it with the best portion (along with a few other countries) of a future market without barriers or subsidies.
Yet, several clues suggest that unregulated liberalization may not generate the benefits expected, even for a giant agribusiness such as Brazil.
As a country where economic inequalities are the highest in the world, the former Portuguese colony must confront severe poverty and the threat of hunger, despite their exceptional performance in agriculture, a social challenge which most likely will not be aided by liberalization; on the contrary. President Luiz Inacio Lula da Silva’s government has implemented interventionist policies to tackle this key social issue, Brazil’s two major agricultural and food policies: the food purchase program and the policy for restricting land purchases, which demonstrate that the path chosen is somewhat contradictory.
Brazil has every interest in promoting a liberalized world wide market in which its agribusiness firms can extend their full power. However, the economic and social characteristics as well as the targets in terms of development are such that the gains will not result in improving the lives of the people who need it most: farmers and landless peasants. How then can we reconcile the economic interests of Brazilian agriculture in a global market with the social interests of a developing country? Brazil seems to have found the answer: promote the liberalization of trade whilst addressing its negative effects through appropriate governance and regulation.
A state program for the purchase of agricultural produce from small producers
A country with 200 million people, Brazil is among the most populous countries in the world ... and the most affected by poverty. In the early 2000s, a quarter of its population lived on less than $1 a day; today, despite government efforts, almost a fifth of its population still lives below the poverty line – almost 40 million people! Most of them still suffer from hunger because, according to a Brazilian study, nearly 40% of Brazil's population was affected in 2006, more than 70 million people. The recent crisis has not improved the situation.
Yet, this poverty is predominantly rural and as the height of absurdity of our time, as in Brazil, most people suffering from hunger in the world are ... farmers.
What effect would a policy for the liberalization of unregulated markets have on the situation of these poor farmers? It would undoubtedly worsen their fate. Indeed, market laws endorse the competitive and eliminate those who are not. In many cases, this mechanism is beneficial because it helps clean up the market by keeping only the best products at the best price. However, this principle only applies within certain limits; when it results in removing the activity of the poor, especially small family farms, on which the survival and that of many millions or even billions of people directly depend, these market rules must be abandoned in favour of the law of common sense.
With support from the FAO, in January 2003, President Lula established a state program for the acquisition of food, the Programa de Alimentos Aquisiçao, PAA, aimed at small producers to help them escape the vicious circle of poverty. The principle? Buy crops from small farmers at guaranteed competitive prices and redistribute them as part of public food aid to the poorest (residents of favelas, etc..), while building a strategic food reserve. Between 2003 and 2008, one billion U.S. dollars have been invested in the purchase of 2 million tons of agricultural and food produce to be distributed to 70 million hungry Brazilians. By guaranteeing the purchase at a stable predefined price, the government secured the income of more than 100 000 local farmers, allowing them to modernize their operations and diversify their production, making it more competitive.
Admittedly, the path to the complete eradication of hunger in Brazil is still long; however, this program has the merit of killing two birds with one stone by addressing both the root of the hunger problem as well as its consequences. Seven years later, whilst the effectiveness of the PAA remains relative, its significance is as strong as ever: develop subsistence agriculture in a country largely turned towards agricultural export markets.
A very restrictive policy regarding land purchases
The problem is the same for land. As a downside to its policy for the intensification of farming and agricultural liberalization, Brazil is also subject to a rush for its agricultural assets by foreign capital, as seen on the African continent. In its desire to boost its agricultural sector, the former Social Democratic government facilitated foreign agricultural capital contribution, allowing foreign companies to take control of thousands of hectares of land in Brazil.
According to the National Institute for Colonization and Agrarian Reform (INCRA), 5.5 million hectares of land, 55% of which are in the Amazon, are held by foreign owners. A situation that was not about to disappear, until the recent law changes, and according to the local newspaper Folha de Sao Paulo, in 2008, foreign investors and landowners bought on average 12km ² of farmland per day 2008.
In a law enacted in summer 2010, the Brazilian government whistled the end of the game, limiting the amount of agricultural land purchasable by a non-Brazilian to a maximum of 5000 hectares. According to the author of the bill, Ronaldo Vieira Junior, "the lack of control [over purchasers] and the land area [acquired by foreigners] are among the reasons which led the government to challenge the 1994 Act and to seek its revision”. Objective: maintain control of an asset which increasingly appears to be a strategic issue.
Obviously, this policy will primarily serve the interests of large national owners, allowing them to guarantee their control over land in Brazil and thus capture the boon from international markets, as a replacement for foreign industrialists who settle there. Whatever happens, this measure depends nevertheless, on a strong commitment to monitor and control by a government otherwise committed to liberalism.
Agricultural protectionism? Maybe ... But in any event, these two recent policies demonstrate that a country that has theoretically the most to gain from the liberalization of agricultural markets, is not the last to regulate. A “good sense” policy, which raises the question: if a country like Brazil implements policies to regulate agricultural markets via the purchase of agricultural and food commodities at guaranteed prices and legislation limiting the purchase of land, which other country still has an interest in the unregulated liberalization of agricultural markets?
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Advocating for
agricultural market
regulation and global
food governance | |
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