The US has been the world’s leading exporter of corn, soybeans and wheat for the past 40 years, but Argentina and Brazil have recently made great inroads. Research shows the two countries still boast huge potential for growth in these commodities, although the issue of biotech acceptance will play a key role in determining future performance. Aaron Priel reports.

“Since 1990, Argentina and Brazil have sharply increased agricultural output and have gained global market share for several major commodities, particularly soybeans, often at the expense of the United States,” according to a report by the USDA’s Economic Research Service.

Since 1990, soybean production has more than doubled in Argentina and Brazil. Argentina’s wheat and corn production are up 57% and 105% respectively, and Brazil’s corn production has increased by 40%. In contrast, according to the USDA, soybean and corn production in the United States have expanded by about 42% and 45% during the same period, while wheat production has declined. The report notes that soybean production in Argentina and Brazil has expanded faster than domestic use, contributing to rising exports and growth in global market share. “Combined soybean-and-product exports, in soybean equivalents, for the two countries is expected to account for nearly 50% of world trade in 2001, up from 40% during 1989-91, and easily surpassing the United States’ 35% share,” USDA says.

During the same period, Argentina’s average share of the global corn and wheat trade have more than doubled to 13% and 10%, respectively. Even more striking is the dramatic reversal in Brazil’s corn trade, switching from average net imports of almost 1 million tonnes per year during the 1990s to projected net exports of nearly 3.7 million tonnes at present.

USDA comments that the dramatic growth in production and trade has caused policymakers and market participants to consider its origins, sustainability, and potential for future expansion. “Increased South American supplies have no doubt contributed to the low international commodity prices seen in recent years, which have squeezed market returns to US producers and prompted large government payments. South American field crop output will clearly have an ongoing influence on US farm exports, prices, incomes, budgetary outlays and programme options,” the report notes.

USDA’s Economic Research Service (ERS) evaluated the prospects for future area and yield growth, noting the following findings:

  • Economic and political reforms undertaken by Argentina and Brazil during the early and mid-1990s underpinned their surge in agricultural output;
  • Economic and policy reforms and improved transportation and marketing infrastructures in Argentina and Brazil have lowered  production and marketing costs and enhanced transmission of international market signals;
  • Strong international commodity prices of the mid-1990s provided a powerful incentive to invest in agriculture and expand production;
  • Improved crop varieties and cultural practices suitable to the soils and tropical conditions of central Brazil helped large-scale mechanised agriculture expand into Brazil’s vast, undeveloped interior regions;
  • With their abundant land and good climate, Argentina and Brazil are naturally low-cost producers of soybeans and other crops.

ERS research into potential growth of Argentina’s and Brazil’s agricultural production suggest the following:

  • Brazil, and to a lesser extent Argentina, still enjoys tremendous potential to expand area devoted to agricultural production;
  • In Brazil, infrastructure development will remain critical to the pace at which land resources are brought into productive use;
  • The evolution of livestock-field crop tradeoffs is likely to drive developments in Argentina’s agricultural sector;
  • Argentina and Brazil have significant potential to increase yields for several field crops, particularly corn.

The report asserts that Brazil is projected to be the world’s leading importer of wheat, starting in 2000/01 at 7.2 million tonnes and extending throughout USDA’s baseline projection to 2010. It notes that Brazil’s wheat production has dropped since production subsidies and some import barriers were removed in the early 1990s. “In contrast to soybeans, corn, and more recently cotton, Brazil’s predominantly tropical setting has prevented the expansion of most small grain production beyond the southernmost States. Continued population and gross domestic product (GDP) growth are expected to bolster demand for wheat products well into the future,” according to the report.

Other aspects noted in the report maintain that an estimated 20% of Argentina’s 2001 corn crop and 90% of its soybean crop were planted to biotech varieties, as producers have sought to capture the significant cost savings associated with biotech crops. “Given Argentina’s adopting rates of biotech corn and soybean varieties, and a lack of sufficient storage capacity under the identity preservation (IP) system, the additional costs incurred in implementing an IP system would likely limit Argentina’s potential to capture a market niche for non-biotech corn or soybeans.”

In addition, the Government in Brazil currently prohibits commercial planting of genetically modified crops. However, the strong incentive to benefit from the cost savings available to biotech  soybeans likely contributes to significant illicit use of biotech seeds in Brazil’s South. “The share of biotech soybean plantings in the South has been estimated by various trade sources at between 20% to 40%. The situation is quite different in the isolated Center-West region, which can make a much stronger claim to biotech-free status for its soybeans.

The USDA report concludes its evaluation by commenting that Argentina and Brazil face several potential bottlenecks to growth. “These include large public and agricultural sector debt in both countries, poorly functioning domestic credit institutions, and high interest rates that limit the amount of credit available to all but large-scale agricultural producers.”

By Aaron Priel, correspondent