Brazil^[10]

1 Introduction

Brazil occupies about half of South America, covering an area of 8.5 million square kilometres. Most of the territory is located between the equator and the tropic of Capricorn. The wide number of crops grown in the country is a reflection of this large and diverse territory. The most important agricultural regions of the country are the South, Southeast and Centre West.

Cultivated area, according to the 1995/1996 Agricultural Census, is of the order of 50 million hectares, and pasture takes up about 178 million hectares. Major agricultural products are coffee, sugar, soybeans, manioc, rice, maize, cotton, edible beans and wheat. Brazil produces about 20 billion litres of milk per annum and is the sixth or seventh largest world producer. Meat production is of the order of 15 million tonnes, and the country is the third largest producer in the world.

Agriculture comprises about 10 percent of GDP, employs about 20 percent of the labour force and accounts for about 20 percent of export revenue. Soybeans and soybean products, coffee, sugar, orange juice and meat are the most important export products.

Deep transformations occurred in the Brazilian economy during the last decade. The breaking of the inflationary process is a major achievement and induced efficiency-enhancing changes both in the private and in the public sectors. In the public sector, the achievement of long-run fiscal equilibrium has required changes in procedures, particularly as related to policy formulation and implementation. The budget process, which in the past was mostly a non-binding one, is assuming an increasingly important role in the establishment of policy priorities.

These transformations have been extended to trade policy as well. In the beginning of the 1990s, Brazil promoted a major reform of its tariffs and was already engaged in discussions with Argentina for the creation of a free trade area between the two countries. The abandonment of old protectionism in favour of a more liberal stance in trade policy has contributed further to enhance efficiency in the private sector and particularly in agriculture. There is still a long way to go on trade liberalization both in agriculture and in other sectors, but the depth of this process will depend significantly on the willingness of Brazilian trading partners to go along with liberalization and of the outcome of the multilateral trade negotiations.

Agricultural policy has also been subject to major changes over the years. During the 1970s and part of the 1980s, subsidized credit was the most important instrument of domestic support. By the middle of the 1980s, the emphasis on credit diminished, and domestic support was mostly through price support mechanisms, where the government built stocks of a number of products. Analysis of these policies has shown that they had little impact on efficiency and led to higher land prices, more concentration of land ownership and a worse income distribution (Brandão and Carvalho, 1992; Brandão and Rezende, 1989). These policies were mostly abandoned in the 1990s owing to financial difficulties in the public sector, and nowadays, domestic support to commercial agriculture is not significant.

In the beginning of the 1970s, Brazil promoted a complete reform of the agricultural research system, with the creation of Embrapa (The Brazilian Corporation for Public Research) and heavy investment in training of scientists. Most governments since then have kept that as a priority of agricultural policy, and Brazil now has a strong agricultural research system which has been, in large part, responsible for the significant increases in productivity observed in the sector.

Developments in the world economy have also contributed to changes in Brazil. The URA imposed new limits to the types of policies that can be implemented. In the same vein, regional agreements such as MERCOSUR established other restrictions on trade policy. Brazil is also engaged in negotiations for the establishment of other free trade zones, such as that between MERCOSUR and the EU, the Free Trade Area of the Americas (FTAA) and other bilateral agreements, such as the cooperation agreement just signed with Mexico.

There is great demand for social policies, which include initiatives such as land reform and poverty reduction programmes. In view of these, of the fiscal restrictions faced by the Government of Brazil and of the regulations of the international trading system, not much room will be left for the implementation of policies of domestic support, such as those adopted before the 1990s. The context described above, coupled with the fact that Brazil has comparative advantage in agricultural and agriculture-based products, highlights the fact that agricultural trade negotiations have a high priority in the economic policy agenda of the Brazilian government.

2 Experience with implementing the WTO agreements

The implementation of the UR commitments has not imposed any significant burden on Brazil. Most of the reforms (domestic policy and regional agreements) had been made prior to the conclusion of the round and facilitated the achievement of the targets established at the conclusion of the negotiations.^[11]

2.1 Market access

The Brazilian commitments were as follows:

• Most tariffs were bound at the level of 35 percent (Table 1).

• For selected goods, such as wheat, corn, rice, cotton, beef, and dairy, the bound tariff was 55 percent (Tables 2 and 3).

• No use was made of tariffication because domestic prices of imported products such as wheat, corn, rice and cotton were below the corresponding cost, insurance, freight (c.i.f.) import price during the base period 1984-1986.

The bound tariff of 35 percent was chosen in agreement with the other MERCOSUR partners. At that time, this was thought to be the highest value of the CET. It turned out that the agricultural negotiations within MERCOSUR ended up with a maximum CET of 20 percent, with the majority of products having a CET of 10 percent. In consequence, applied tariffs are below tariffs bound in the WTO.^[12]

Table 1. Bound and applied tariffs for agricultural products (%)

Source: AMAD. Author’s calculations.

Applied tariffs

In 1998, MERCOSUR countries negotiated a revision of the CET at the request of Argentina, which was facing difficulties in its balance of payments. This led to an increase of 3 percentage points in most tariffs, as can be seen in Tables 2 and 3.

Table 2 contains summary tariff data for milk and milk products. This is one sector where complaints from domestic producers have been strong, particularly in view of EU and United States policies. The bound tariff is 55 percent, and applied rates vary significantly among the different products. The highest rate applies to milk powder and the lowest to UHT milk.

Table 2. Bound and applied tariffs for selected products (%)

Source: AMAD.

Table 3. Bound and applied tariffs for milk and milk products (%)

Source: AMAD. Author’s calculations.

Tariff rate quotas

Brazil has one tariff rate quota for wheat (750 000 tonnes), which in practice has never been applied (annual imports of wheat are of the order of 6-7 million tonnes per annum). Another tariff rate quota exists for apples and pears (10 000 tonnes). The in-quota bound tariff for wheat is zero, and for apples and pears, it is 15 percent. The applied rates for apples and pears have been 10 percent from 1996 to 1997 and 13 percent in 1998 and 1999.^[13] These tariff quotas have not been opened since 1998 because applied rates are lower than the in-quota rate (WTO, 2000, p. 37).

Safeguards and anti-dumping

Since it did not adopt the tariffication process, Brazil cannot resort to the SSG provisions of the Agreement on Agriculture (AoA).

Brazil has now implemented anti-dumping legislation and is prepared to implement anti-dumping measures. In January 1999, the CNA requested an antidumping investigation into exports of milk to Brazil. At the conclusion of the investigation, in February 2001, Brazil imposed an anti-dumping duty on imports of milk powder and whole milk from New Zealand, the EU and Uruguay. This initiative raised effective tariffs on imports to levels even higher than those indicated in Table 2, for example, 41.8 percent on imports from the European Union and 30.9 percent on imports from New Zealand (Bernardes and Netto 2002; Netto and Mustefaga, 2001). The same process led to the introduction of price agreements with companies in the European Union and Argentina. Argentina also agreed to maintain the same tariff lines so as to avoid imports from other countries entering through this country and eventually reaching Brazil or other MERCOSUR partners without any additional charge. This explains, in part, the decline in milk imports observed in 2000 and 2001.

2.2 Domestic support

Domestic support has indeed been substantially reduced after the end of the UR. At present, Brazil is well below its commitments in the WTO, and this is mostly a consequence of fiscal constraints. Tables 4-7 show the levels of domestic support that have been declared by Brazil.

Expenditures with the following programmes are in the Green Box: general services, including research, education, animal and plant health protection, rural extension and infrastructure programmes; credit insurance; environment; regional development programmes; land reform; social programmes; and management and planning. Notice that Green Box total outlays (Table 4) decreased from about US$7.6 billion in the base period to about one-third of this in 1997/98 (last year notified).

Only two programmes were included in the Special and Differential Treatment category: interest rate subsidies on current expense credit for small farmers, and investment credit for all farmers. Despite the fact that expenditures are exempt from reduction commitments, they are way below the base year levels (Table 7), even though an increase is seen since the crop year 1995/96.

Table 4. Green Box outlays (US$ million)

Source: FAO (2000).

The programmes included in the AMS were: price support under the Guaranteed Minimum Price Policy; current expenses and marketing credit; and other support not directed to specific products. While Brazil has presented a schedule of reductions over time, based on the average of the period 1986/1988, the AMS is below the de minimis levels of 10 percent for product-specific support and 10 percent for non-product-specific support. In the crop year 1997/98 (Table 5), product-specific support increased from US$237 million to US$386 million, but this is still only 40 percent of the Brazilian AMS commitment. Nevertheless, the AMS notified by Brazil in this crop year was US$82.9 million dollars associated with support to cotton (US$55.4 million) and wheat (US$27.4 million). In both cases, these values are almost entirely determined by production and marketing credit. Non-product-specific support is below the de minimis, even though outlays in 1997/98 have increased and reached the same level (in nominal terms) as in the base period. This increase was basically associated with production credit.

Table 5. Product-specific aggregate measure of support (US$ million)

Source: FAO (2000).

Table 6. Non-product-specific aggregate measure of support (US$ million)

Source: FAO (2000).

Table 7. Outlays in the special and differential treatment category (US$ million)

Source: FAO (2000).

The fact that production credit is the item appearing most significantly in the Brazilian notifications (even though at levels that are still way below the commitments) is because the high interest rates on commercial credit lines are not consistent with the normal returns from agricultural production. In view of this, the Treasury has been providing a limited amount of funds at interest rates below market levels, and part of these resources is accessible to commercial farmers.^[14]

2.3 Export policies

Despite its option to continue export subsidies under its AoA commitments, Brazil has not granted ongoing export subsidies to agricultural products. The two types of programmes included in the commitments, tax exemption for selected processed agricultural products and special sales of government stocks for exporters, no longer exist.

Consistent with the principles of the WTO, Brazil made an efficiency-enhancing policy change in 1996. In that year, the export tax on agricultural and semiprocessed products was eliminated, a fact that has provided an important stimulus to exports of those goods. Furthermore, the export quotas in existence in 1996 for coffee, cocoa and sugar have since been eliminated.

2.4 Export market access

A reduction of trade distortions in agricultural goods is likely to have a large impact on Brazilian exports and, in consequence, on agricultural income, on employment and on productivity. The expectations of Brazil and other agricultural exporters were frustrated in this regard in the WTO Ministerial Meeting in Seattle.

Brazil has since viewed with alarm the new United States agricultural farm bill which has increased domestic support, particularly for commodities of interest to Brazil such as soybeans, cereals and cotton (Womack, 2002). Furthermore, the bill fails to increase market access in sectors of importance for Brazil, such as sugar and dairy.

Despite the observed increase in expenditures, existing estimates indicate that the United States will not overrun its domestic support ceiling in the WTO, although the increase in payments will bring the AMS to about 80 percent of the ceiling (Nelson, 2002). Cotton, dairy, soybeans, sugar and wheat, products of interest to Brazil, are among the commodities with the highest levels of domestic support in the United States (Hart and Babcock, 2001).

One aspect of recent United States policy of particular concern is the Marketing Assistance Loan, particularly for soybeans. Despite the fact that Brazilian soybean exports have been growing, the Brazilian share of world exports could be higher. Existing estimates indicate that world soybean prices would increase if the marketing loans were discontinued or reduced.

In the years 1998, 1999 and 2000, soybean farmers in the United States received, respectively, US$1.3 billion, US$2.9 billion and US$2.8 billion under this programme, comprising 9.7 percent, 22.8 percent and 21.5 percent of the value of production (Hart and Babcock, 2001). Westcott and Price (2001) have estimated the impacts of the subsidy on world prices, acreage and exports. Selected conclusions of their study are as follows:

Soybean plantings are higher with marketing loans through 2 004 except in 2000 ... Marketing loan benefits increase soybean net returns relative to returns to other crops in most years of the simulations, providing an economic incentive to plant more soybeans. In 2000, however, relatively large marketing loan benefits for corn pull away land from soybeans. (p. 17)

Exports of soybeans are increased through 2004, except in 2000 when corn program benefits lead to lower soybean plantings. Exports of soybean meal and soybean oil rise as well when soybean acreage increases as higher domestic crush of soybeans leads to higher production and lower prices in soybean product market. (p. 17)

... when marketing loan benefits shift land into soybeans (2001 through 2004) prices for soybeans are reduced, with the largest impact of 49 cents occurring in 2001 when acreage gains for the crop are highest. (p. 19)

In the simulation, the impact on prices from 1998 to 2000 is minor; the highest is in 2001 when the marketing assistance loan reduces prices by 49 cents per bushel, corresponding roughly to a reduction of 10 percent relative to the baseline with the marketing loan assistance.^[15]

The Westcott and Price (2001) analysis takes into account the following crops: wheat, corn, sorghum, barley, oats, soybean, rice and cotton. The effect of the marketing loan assistance on area planted is larger from 1999 to 2001 with acreage increases of 810 to 1.6 million hectares^[16] relative to the no marketing loan assistance scenario. Inspection of figures 20-24 (p. 16) of their paper indicates that the effects on upland cotton and on soybeans are the largest compared with those on wheat, corn and rice. A similar conclusion regarding exports is suggested by figures 25-30, with the difference that impacts on rice exports are large too. And for prices, other than soybean, the conclusion of the authors is that:

In 1999 through 2001, wheat prices are lowered 4 to 7 cents per bushel in the marketing loan simulation, while corn prices are reduced 3 to 9 cents per bushel in 1999 and 2000 .... Rice prices are reduced throughout the simulation period, with declines of 10 to 20 cents per hundredweight in 2000 through 2005. Simulated price reductions for upland cotton range from 1 to 5 cents per pound through 2002; the years of the largest cotton acreage increase due to marketing loan benefits. (p. 19)

The Organization for Economic Cooperation and Development (OECD, 2001, p. 59) has performed a similar exercise. They have assumed that:

• there were no loan programme payments for other crops and that other countries’ policies remain unchanged; and

• marketing loans are US$49/tonne in 2000^[17]; US$43/tonne in 2001; US$31/tonne in 2002; US$21/tonne in 2003; US$2/tonne in 2004 and zero in 2005.

Based on these assumptions, they conclude that:

The withdrawal of such payments leads to lower soyabeans output (initially -5 percent) and increases the output of maize (initially +2 percent) and wheat (initially +1 percent). These production changes have temporary impacts on export levels and world prices. Initially world prices of soyabeans are 6 to 7 percent higher while world maize price are 3 percent lower. However, these effects are eroded by 2004 as markets adjust. (OECD, 2001, p. 59)

2.5 Regional agreements

The most important regional agreement in which Brazil is involved is MERCOSUR, whose other members are Argentina, Paraguay and Uruguay. In addition, Chile and Bolivia are members of the free trade area, but do not share the common external tariff. The implementation of this agreement was an important step in trade liberalization in Brazil. The Treaty of Asuncion, which created MERCOSUR, was preceded by several other agreements between Brazil and Argentina. In view of this, its implementation was relatively easy, with quick and significant progress taking place particularly in the liberalization of intrazone trade. Progress in the implementation of the customs union has also been significant. Nevertheless, difficulties were encountered during the negotiations and in implementation, as indicated below.

• Brazil was more willing to accept lower values for the CET in selected agricultural products (wheat, maize, dry milk, rice and meat) than Argentina. The Brazilian position finally prevailed. The acceptance of this on the part of Argentina was a strategic decision to prevent Brazilians pushing for higher tariffs on industrial goods, particularly capital goods and computer goods.

• For computer and capital goods, there is a transition period until the CET is fully implemented.

• Since Brazil adopted a floating exchange rate in 1999, several trade disputes with Argentina took place. The large devaluation that followed the new exchange rate regime reduced imports from Argentina (and other countries as well) and put additional pressure on the balance of payments of that country. This led to restrictions of Brazilian imports based on non-tariff measures such as sanitary and health concerns. An important dispute was in regard to Brazilian exports of poultry.

• The major constraint to further development of MERCOSUR is macroeconomic. A solution of the current problems in Argentina must precede any actions to deepen MERCOSUR and resolve pending issues. Nevertheless, the spectacular increase in trade after the creation of MERCOSUR is an assurance that the four countries are still committed to this regional agreement.

2.6 Sanitary and phytosanitary standards

The SPS agreement has not affected Brazil adversely. The Ministry of Agriculture, through the Secretariat of Agricultural Defense, guarantees good standards of sanitary and phytosanitary quality. Nevertheless, the Brazilian Government, exporters of agricultural products and agricultural producers, are concerned with the implementation of the agreement, particularly in regard to issues for which more than one interpretation is possible.

One illustration of these concerns was the statement by a Canadian authority of the existence of bovine spongiform encephalopathy (BSE) in Brazil, a fact that was proven false but which caused short-term losses.^[18] As Brazilian meat exports increase, this becomes an area of concern, particularly now that the country is making large progress in the elimination of foot-and-mouth disease.

Fruits and vegetables are another area of concern. Brazil has great potential to export tropical fruits but faces restrictions mainly in the United States and Japan owing to the existence of the fruit fly. Costly procedures are implemented to ensure that fruits such as mangoes and papaya meet the standards of these countries. There are cases where the costs are unduly increased owing to unreasonable requirements, such as that which requires a USDA employee to supervise production locally at the expense of domestic producers or traders.

2.7 Trade-related intellectual property rights

Since 1997, Brazil has a plant protection law. This legislation has been prepared within the framework of UPOV and extends protection to derived varieties. This is the only form of plant protection in the country, since the 1996 law of industrial property does not include protection of live organisms.

The National Service of Variety Protection of the Ministry of Agriculture has the task of registering new varieties and of developing the efforts necessary for the implementation and enforcement of this legislation.

Embrapa took the leadership in the process of preparation and is taking an active role in its implementation. The involvement of this corporation in this process is largely explained by the lack of legal forms of protection of new varieties that are developed by their researchers. This legislation is likely to increase the incentive for the private sector to invest in agricultural research and certainly will facilitate partnerships between the private and the public sectors for the development of new seeds.

This legislation has received criticisms mainly from some NGOs but the public or even interest groups, such as farmers’ associations, did not oppose the legislation. The general perception seems to be that, otherwise, the public sector would not have enough resources over the long term to maintain its commitments to agricultural research and that, otherwise, the private sector would not invest either. There is a clear understanding that the competitive position of the country will not be maintained without a strong agricultural research system.

3 Review of food and agricultural trade

Brazil is a mature exporter of agricultural commodities. The country sells a diversified basket of goods to all regions of the world. The composition and the volumes of Brazilian trade in agricultural products have not been influenced significantly by the implementation of the Uruguay Round Agreements by Brazil or by other countries. This is, to a large extent, a consequence of the fact that the main achievement of the round was a new discipline to international trade, but little de facto liberalization took place as a result of the negotiations

The main events shaping the structure of agricultural trade were macroeconomics and domestic policies, such as the unilateral tariff reform of 1990 and the implementation of the Southern Common Market (MERCOSUR). The tariff reform reduced the average level of applied tariffs from 32 percent to 14 percent, with agricultural tariffs ranging between 0 percent and 10 percent.^[19] The level of tariffs was further adjusted to cope with the commitments of MERCOSUR negotiations.

Macroeconomic instability has influenced Brazilian trade in agricultural and nonagricultural products. Agriculture has been particularly affected by the perverse combination of a high real interest rate and an appreciated currency, which depressed producer prices and increased significantly financial costs.

3.1 Agricultural and food trade balances

Table 8 shows a summary of Brazilian trade in agricultural commodities in the period 1985/2000. It can be seen that after 1994, the levels of imports and exports of both agriculture and food have increased, but net exports have decreased between the first and second periods. Needless to say, the data do not suggest any association between the conclusion and implementation of the Uruguay Round and trade of agricultural products. It is worth noting also that net exports of food have decreased slightly more than net exports of agriculture from period (A) to period (B).

Table 8. Agriculture and food trade (annual averages), million constant US dollars

Source: FAO.

Figures 1 and 2 have more detailed information. The following aspects can be noted:

• The value of Brazilian agricultural exports declined steadily after 1977 to its lowest value in 1991, when a change in trend was observed (first graph in Figure 1). From 1991 to 1997, export growth took place at a rate of 2.9 percent per annum, but after that, growth was negative because of the overvaluation of the Brazilian currency and because of lower commodity prices.

• The value of Brazilian agricultural imports has declined steadily between 1977 and 1991. From there on, the value of imports has remained approximately constant.

• The share of agricultural exports in total exports declined from about 70 percent in 1973 to 23 percent in 2000. However, during the period 1991/1998, the share increased from a low of 25 percent to 30 percent. This took place despite the appreciation of the real exchange rate in the period (see Figure 2).

• After reaching a record high in 1977, the agricultural trade surplus declined and remained relatively constant after 1986 (see first graph in Figure 1). Despite the fact that its share in exports is diminishing, agriculture is one of the sectors that contribute most to the inflow of net foreign exchange in Brazil.^[20]

Figure 1. Trends in Brazil’s total agricultural trade.

The aggregate data give further support to the hypothesis that the impact of the Uruguay Round agreement, if it existed at all, was relatively less important for Brazil than domestic events (tariff reform of 1990), treaties signed between Brazil and Argentina during the decade of the 1980s (Pereira, 1996) and the implementation of MERCOSUR in 1995 (Brandão, Rezende and Pereira, 1996).^[21] The basis for this claim is of course the fact that the increase in exports started well before 1995, and exports have even fallen (although due to price, not volume trends) after 1998.

Figure 2. Exchange rate trends in Brazil, 1975-2000.

3.2 Exports

Table 9 shows exports of selected agricultural products during the selected subperiods of 1985/2000 (see also Appendix Table A1). On average, these products comprise about 80 percent of the total value of Brazilian agricultural exports. Their share declines in the period under analysis (from 82 percent to 79 percent) but with important changes in individual products. Coffee and cocoa (not shown in Table 9) underwent the most significant reduction, whereas that of sugar declined less. Exports of the soybean complex now account for about 42 percent of Brazilian agricultural exports, and other products such as meats and orange juice have a significant position in the basket of exports.

Table 9. Agricultural exports by commodity

Source: FAO.

The data in Tables 9 and A1 allow for the following comments:

• Exports of the soybean complex were irregular during this period, but have been increasing since 1991. Low world prices of soybean products largely explain the reduction in the export value after 1997. At the end of 1996, the government removed the export tax on soybeans, and this had a large effect on exports of soybeans without any significant negative effect on exports of meal or oil.

• The spectacular increase in the volume of soybean exports between 1995 and 2001 (from 3.5 to 15.6 million tonnes) is largely a consequence of significant increases in productivity. After 1999, when Brazil adopted a flexible exchange rate regime (see Figure 2), exports of all products of the soybean complex were further stimulated.

• Meats comprised about 20 percent of agricultural exports in 2000, increasing from about 10 percent during the decade of the 1980s. As can be seen in Figure 2, exports show a strong upward trend after 1990 pushed by poultry and beef. Exports of pig meat are also steadily increasing, even though they are still a small part of meat exports. As can be seen in Table 9, the increase in the value of exports of the meat complex is largely accounted for by quantity changes, since all prices have diminished in recent years.

• The expansion of both the beef and poultry sectors is associated with significant technological improvements in the genetics of the herds, with investment in pasture (for beef) and with the introduction of modern management techniques. After the discontinuation of the subsidy to agricultural credit at the end of the 1980s, livestock producers had to look to modern technologies to reduce costs of production and maintain competitiveness.

• Orange juice concentrate still accounts for 10 percent of the value of agricultural exports. The sector, whose expansion has been associated with a sequence of severe frosts that affected orange production in the United States, has lost strength. This is because orange production in the United States has moved to frost-free areas and because of the tariffs on orange juice concentrate in that country. Nevertheless, the sector has been able to maintain the real value of exports approximately constant since 1991 but with an increase of 34 percent in the volume exported. The recent performance is also accounted for by changes in volumes, since prices have decreased. As shown in Table 9, prices of orange juice concentrate have declined, on average, 18.7 percent between the periods 1990-1994 and 1995-2000, while quantities increased 12 percent.^[22]

• The value of coffee exports declined to about a third of its value in 1980. The volume exported has been approximately 950 million tonnes per annum since 1990. Competition abroad, declining prices, high indebtedness of producers and instability in domestic policy explain in large part this performance.

• Sugar exports have been increasing steadily since 1991. The value declines in 1999 and 2000 due to low prices were not compensated by increases in volume. Despite this, the increase in the volume exported has been impressive over this period: from 1.6 million tonnes in 1990 to 12.5 million tonnes in 1999 (dropping to 6.7 million tonnes in 2000 owing to a poor crop in the state of São Paulo).

Table 10 displays the destination of Brazilian exports since 1991. The EU has the largest share (average of 46 percent), followed by the North American Free Trade Agreement (NAFTA) countries (average of 12 percent) and MERCOSUR (average of 5 percent). The average share of the rest of the world is 37 percent. The share of MERCOSUR exports doubled from a very low base between 1991 and 1993, following several agreements with Argentina (some of which were signed before MERCOSUR). Nevertheless, MERCOSUR is not an important destination for Brazilian agricultural exports. NAFTA and the EU are important destinations for Brazilian exports, but both have a declining share. The EU still receives the largest part of Brazilian exports (54 percent in 2001). Nonetheless, there is an impressive increase of exports to other regions of the world, probably reflecting the fact that high protection in traditional markets is halting growth there.

Table 10. Destination of Brazilian exports (%)

Source: Ministry of Development, Industry, Commerce and Tourism.

In summary, agricultural export revenue comprises about 30 percent of total export revenue in Brazil. The country has a diversified agricultural export basket that is shipped to all regions of the world. The analysis of the data does not show any evidence of positive impacts of the Uruguay Round agreement on exports. Growth started in the beginning of the decade of the 1990s, much before the conclusion of the trade talks, and the evidence does not suggest any changes during the implementation period. This lack of response stems from the fact that the AoA did not produce significant reductions in protection for the commodities where Brazil has a comparative advantage, such as sugar. Agricultural export subsidies continue in OECD countries, domestic support is still high in those countries, and tariff escalation remains a problem in various sectors, such as coffee and soybeans.

3.3 Imports

We turn the analysis now to imports. The value of Brazilian imports of agricultural products is a small and decreasing fraction of total imports, as can be seen in the second graph of Figure 1. In 2000, they accounted for 8 percent of the total. Agricultural imports are not significant from the point of view of the balance of payments, much less as a source of tariff revenue for the government.

In the year 2000, Brazil imported US$1.441 million of cereals, with wheat accounting for about 71 percent of the total, rice 10 percent and maize 14 percent. This is the largest individual component of the basket of Brazilian agricultural imports. Another important product is milk, not so much because of the value of imports but because of the large number of producers and the domestic political pressure that they exert on the government. Imports of dairy products have raised concerns among producers over the years, especially because of the subsidies in the EU and import barriers in the United States.

Table 11 shows imports of selected commodities in selected subperiods of 1985/2000. Notice the increase in the value of imports of wheat, rice and milk during the entire period, but, as is the case with exports, this is largely determined by changes in volumes since unit values have declined during the entire period.

Table 11. Agricultural imports by commodity

Source: FAO.

In Appendix Table A2, which shows constant dollar values of Brazilian imports of cereals and milk, it can be seen that the real value of milk imports decreased after a peak of US$425 million in 1995. The decline in the value and in the volume of imports is quite significant. Despite the reduction in value, imports of wheat increased in volume, as shown in Table 11. Imports of rice have been roughly constant since the beginning of the 1990s. Despite the increase in imports of maize in 2000, this does not seem to be a permanent change. Table 11 shows that average quantities have remained roughly constant between 1990-1994 and 1995-2000. Furthermore, in 2001 (not shown in the table), not only did imports of maize decline to around US$60 million, but exports increased to a record level of US$500 million. This is likely to have been influenced by the devaluation of the Real after 1999 (Figure 2).

Table 12. Origin of Brazilian imports (%)

Source: Ministry of Development, Industry, Commerce and Tourism.

The origin of Brazilian imports is displayed in Table 12. It can be seen that the majority of imports come from MERCOSUR countries, mostly from Argentina. The share of MERCOSUR imports has increased during the period shown in the table; if one takes a longer-run perspective, the increase is even greater. The average import share from NAFTA countries is 14 percent, from the EU 14 percent and from the Rest of the World 17 percent. Although more concentrated than exports, the share of the other regions is relatively large too, reinforcing the idea that Brazil is a global trader in agricultural markets. Notice also that the share of the rest of the world has remained roughly constant after 1997.

4 Food security developments

Food security issues in Brazil cannot be associated either with the Uruguay Round agreement or with the behaviour of imports or exports. The main exports of Brazil are not staples. Imports of most cereals and milk are a relatively small proportion of domestic supply. For example, in 1999, according to FAO data, imports of milk accounted for 9 percent of domestic supply, and imports of rice accounted for 12 percent. The significant exception to this is wheat, where imports account for 81 percent of domestic supply. It is important to note also that these shares have been increasing since the beginning of the 1990s.^[23]

Nevertheless, the country has a large number of undernourished people. According to FAO, in the period 1997-1999, there were 15.9 million undernourished people, corresponding to about 10 percent of the population. This number is slightly below the corresponding numbers for the period 1990-1992, 19.3 million and 13 percent, respectively. This reinforces one part of the hypothesis raised here, namely that there has been no significant negative impact of the Uruguay Round on food security.^[24]

5 Brazilian interests in the negotiations

Considerations in Sections 2 and 3 highlight the fact that a new round of negotiations may bring significant gains for an exporter of agricultural products such as Brazil. Commodities where the country has a comparative advantage receive high levels of overall assistance in OECD countries, in the forms of high (and in some cases, increasing) domestic support, low market access and persistent export subsidies. Thus, negotiations focused on the “tripod”, whose three legs are export subsides, domestic support and market access, will be supported by Brazil. Non-trade concerns and special and differential treatment shall be taken into account as appropriate (WTO, 2001).^[25] Nevertheless, the increasing volume of Brazilian exports that are now going to developing countries indicates that too many exceptions and special considerations may harm Brazil in the long term. Moreover, the inclusion of non-trade concerns will overcomplicate the negotiations, reduce the likelihood of significant liberalization of trade, and increase the likelihood of a piecemeal agreement where the strongest will benefit most during implementation.

This is a point that cannot be overemphasized. Disputes in the WTO are costly and demanding, and it is in the interests of all developing countries to have a simple and transparent agreement. Many developing countries have had past experiences with their own domestic policies that show how complicated and non-transparent rules give rise to rent-seeking and, after all, benefit the richer and more powerful. This must be avoided by all means in WTO negotiations.

The statement below indicates that this position has support in the Brazilian Government.

Some developing countries are being misled to believe that they will only achieve their developmental goals through non-trade concerns and policies. This is not true in our view. Non-trade concerns, particularly those in some developed countries, should not be identified with the rightful exceptions needed by developing countries. Solutions to these exceptions will be addressed in the negotiations through special and differential treatment ... Developing countries should bear in mind that a reform in agriculture that addresses, at the same time and with the same level of commitment, the needs and specificities of small island states, emerging economies, NFIDCs, economies in transition, least developed countries, one-crop economies, rural development, maintenance of landscape, rural employment, the role of women in agriculture, etc. will most likely go nowhere. Rules will be fragmented, weak and no predictability will be possible. With a scenario like this only the strongest and the most powerful will prevail.^[26]

The following aspects constitute the core of the Brazilian interests in the negotiations:

• elimination of export subsidies and of all mechanisms to circumvent prohibitions;

• reductions in tariffs and expansion of tariff rate quotas will be sought, particularly in products such as sugar, orange juice, meat, soybean oil, processed coffee and others;

• reduction of tariff escalation;

• reductions in domestic support that distort trade is high on the Brazilian agenda. A revision of the current box system is needed with a sharper definition of trade distorting and non-trade distorting support.

In this regard, a reassessment of the definition of export subsidy is needed, since most trade-distorting domestic support will have an impact on exports and on world prices. One example is the marketing assistance loan in the United States, which recognizes the trade distorting nature of the programme and includes its expenditures in the Amber Box. This support translates itself into more exports from the United States, displacing competitors in other markets, and as such, it has impacts that are similar (if not equal) to an export subsidy and thus should be included in the Red Box.

Another example of the difficulties associated with this box system is the United States Production Flexibility Contracts. These payments are not associated with current production levels and are considered non-trade distorting (Green Box). However, they reduce the cost of capital for farmers and provide an incentive to increase production. In the United States, the introduction of these payments together with the elimination of the set-asides and the marketing loan assistance have given a tremendous boost to soybean production and exports after 1998.

The new United States farm bill, the Farm Security and Rural Investment Act of 2002, underlies the importance of taking this issue seriously in the negotiations. Counter cyclical payments and changes have been introduced, and revisions of acreage and yields have been allowed for the determination of direct and countercyclical payments. Leaving aside the fact that domestic support to most crops of interest to Brazil have increased, the allowance of revisions to acreage and yield show that neither the direct nor the counter-cyclical payments are entirely decoupled. Farmers know (or expect) new acreage and yield revisions in the next farm bill in 2007. In order for them to take advantage of those, they must produce now, increasing supply and exports from the United States.

In concluding this section, it is important to stress the trade distortions that are embedded in the current domestic support measures of the United States and other countries, and the urgent need to take up this issue in the next round of negotiations.

6 Conclusions

This paper contains an overview of selected agricultural trade issues concerning Brazil and an analysis of the interests of the country in the multilateral negotiations. The main objective of the new trade agenda will be the establishment of firm ground for the full realization of the country’s potential in agriculture. Over the last two decades, macroeconomic issues distracted the attention of policy-makers who could not properly appreciate the role that trade in agricultural and agriculture-based products could play in the achievement of a sustainable path of economic growth, in reducing poverty through the creation of jobs in agriculture and in agriculture-related activities, and in contributing to the balance of payments.

In this new round of negotiations, the country faces an entirely different situation, with inflation under control, significant advances in domestic sector policy and also significant advances in trade policy. The tariff reform of 1990 and the implementation of MERCOSUR have had a number of different impacts on the agriculture sector. The level of protection is low. The average applied tariff on agricultural goods, in 1999, is 13 percent, and the average bound tariff is 37 percent. For comparison, the average tariff in OECD countries (OECD, 2001) is 62 percent.^[27] Furthermore, the standard deviation is about one-third of the average, indicating a relatively low dispersion in the tariff schedule. While the sector has had to deal with adjustment problems caused by increased competition from abroad, productivity increases have strengthened the sector’s potential to compete. Brazil’s interest in the multilateral negotiations will be to exploit its agricultural potential by focusing on the traditional areas of export subsidies, domestic support and market access.

In concluding the paper, it is important to highlight the fact that as it is now a mature exporter of agricultural products, Brazil’s interests in the new round of negotiations lie mostly in the core areas of elimination of export subsidies, increased market access (less tariffs, increasing tariff quotas, reducing tariff escalation) and a complete change in the approach to domestic support. The current box system is not serving the trading system as well as previously anticipated at the conclusion of the Uruguay Round negotiations. The revision must take into account the fact that policies included in the Amber Box, and some in the Green Box, directly influence exports and depress world prices, causing damage to other exporters of those products. At the least strict value, limits should be imposed on all types of domestic support.

References

Bernardes, P.R. & Netto, V.N. 2001. Pecuária de Leite: Medidas antidumping mudam o rumo do setor leiteiro. Informativo Técnico da Revista Gleba, CNA, March.

Brandão, A.S.P. & Carvalho, J.L. 1992. The Political Economy of Agricultural Pricing Policy: Trade, Exchange Rate and Agricultural Policies in Brazil, World Bank. Comparative Studies.

Brandão, A.S.P. & de Rezende, G.C. 1989. Land prices and land rents in Brazil. In A. Maudner & A. Valdés, eds. Agriculture and government in an interdependent world. Dartmouth, International Association of Agricultural Economists, Dartmouth Publishing Company.

Brandão, A.S.P., Lopes, M. de R. & Uma, L.V.P. 1996. Análise quantitativa dos impactos do MERCOSUR sobre o Brasil. In A.S.P. Brandão & L.V. Pereira, eds. MERCOSUR: Perspectivas da Integração. Fundação Getulio Vargas Rio de Janeiro.

FAO. 2000. Chapter on “Brazil”. In FAO, agriculture, trade and food security. Vol. II, Chapter 3. Rome.

Hart, C.E. & Babcock, B.A. 2001. Implications of the WTO on the redesign of US farm policy. Center for Agricultural and Rural Development. Iowa State University, Briefing Paper 01-BP 32, May.

Nelson, F.J. 2002. Aligning US farm policy with world trade commitments. Agricultural Outlook, January-February: 12-16.

Netto, V.N. & Mustefaga, P.S. 2001. Pecuária de leite, novos desafios para o setor leiteiro, CNA.

OECD, 2001. Agricultural outlook 2001-2006. Paris.

Pereira, L.V. 1996. Tratado de Assunção: resultados e perspectivas. In A.S.P. Brandão & L.V. Pereira, eds. MERCOSUR: Perspectivas da Integração. Fundação Getulio Vargas Rio de Janeiro.

Westcott, P. & Price, M.J. 2001. Analysis of the US Commodity Loan Program with Commodity Loan Provisions. Economic Research Service/USDA. Agricultural Economic Report No. 801, April.

Womack, A.W. 2002. 2002 Farm Bill - Options and implications, USDA Agricultural Outlook Forum 2002, Speech Booklet 6.

WTO. 2001. Agriculture Negotiations. The issues and where we are now, WTO briefing document. October.

WTO. 2000. Trade policy review: Brazil. 27 September 2000 (WT/TPRS/75).

Appendix Table A1. Brazilian exports of selected agricultural products, constant US$ million

Source: FAO.

Appendix Table A2. Brazilian imports of selected products (constant US$ million)

Source: FAO.