Why is Brazil the new America? Hint: water.
While the US farm belt is mining its groundwater, Brazil is expanding production and lowering the cost of raising food.
If you would like to get a firsthand peek at the bright future of Brazil, but you don’t have $7,500 for a business-class fare to Rio de Janeiro, you can learn almost as much, while having less fun, by making your way to Henry County, Ill., just east of Moline.
Drive around and take a good look at the worst drought in half a century. Remind yourself as you look at the desiccated fields that the US Department of Agriculture (USDA) predicted a record corn crop for 2012.
It didn’t turn out that way. Current best estimates are that the US corn crop will fall by one-sixth. As a consequence, the price of corn has risen by 60 percent to an all-time high. Meanwhile, this year’s corn crop in Brazil is up 27 percent year-over-year. Brazil’s farmers are growing rich as American farmers go broke.
The USDA’s chronic optimism notwithstanding, as you look out over the brown fields of Henry County, many of which have already been harvested for low-value silage, you see the future of American farming. It is a little understood that in much of America’s farm belt, water is in chronically scarce supply. In eight states, the Ogallala (or High Plains) fossil aquifer provides the irrigation required to prevent the return of John Steinbeck’s 1930s Dust Bowl.
In other words, American agricultural output is supported by the hydrological equivalent of deficit spending. The Dust Bowl was not dampened by greater rainfall, but by the invention of more powerful pumps that could lift water from deep underground. The Ogallala is a wide but shallow aquifer that was formed in the last Ice Age and has been drained every year since the 1930s to a far greater degree than it can be recharged by natural rainfall.
What does this have to do with Brazil? As I spell out in my new book, "Brazil is the New America," Brazil is the world’s superpower of water.
Half a lifetime ago, when I was in college, a shortfall in the US corn crop would have spelled disaster for Brazil. In those days, Brazil was a food importer. The Brazilians believed what all the temperate-centric agronomists told them – that tropical countries could not produce grains. But then something astonishing happened. Brazil transformed itself from a major agricultural importer into the world’s largest exporter of five major crops. As the Frank Sinatra song underscored, it had long been known that “there is a lot of coffee in Brazil.” What no one knew 35 years ago is that Brazil had the capacity to become the breadbasket of the world – even for what were once thought to be exclusively temperate climate crops.
While experts from the temperate zone were dismissing even the possibility that a tropical country could become a major agricultural power, the Brazilians created Embrapa, (Empresa Brasileira de Pesquisa Agropecuária), a technical firm associated with the Brazilian Ministry of Agriculture. Embrapa devised ways to turn Brazil’s vast Cerrado savanna into a highly productive region. Among other things, they engineered a new breed of grass that greatly increased pasture yields, allowing Brazil to become within a few decades the world’s largest producer of beef.
Embrapa also invented new tropical versions of temperate crops like soybeans and corn. The new Embrapa versions ripened faster in the tropical sun and were more resistant to pests. These short-cycle crops mature eight to 12 weeks faster than the original temperate versions, making it possible for Brazilian farmers to produce two crops a year rather than one as in most of the United States’ grain belt
Embrapa also helped pioneer “no-till” farming in which the soil is not plowed before sowing and the crop is not harvested at ground level. As of 2010, Brazilian farmers were using no till techniques for over 50 percent of their grain crops. By 2002, the overall average yield for soybeans in Brazil (2.6 metric tons/hectare) surpassed the average yield in the United States (2.4 tons/hectare or about 36 bushels per acre). More significantly, the cost of producing soybeans in Brazil fell to about $6.23 per 60 kilogram bag (one bushel equals 27.22 kilgrams) just 50 percent of the US level of $11 72.
By 2004, the United Nation's Food and Agricultural Organization (FAO) declared, “Brazilian farmers are practicing one of the most advanced and sustainable agricultural systems in the world.”
Now US meat companies have turned to Brazil to buy corn for their feedlots, a first installment on what will undoubtedly be a major relationship in the future.
There was certainly plenty of scope for Brazil to expand production. According to the prominent Brazilian economist, Antônio Delfin Netto, over 90 percent of the increase in Brazilian agricultural output over the past three decades has been due to improvements in total factor productivity, with less than 10 percent attributable to increased use of land, labor, and capital. In other words, while farming just about everywhere else is experiencing falling returns, the returns to agriculture are rising in Brazil.
Brazil produces a quarter of the world's soybean exports on just 6 percent of the country’s arable land. The UN estimates that Brazil has 400 million hectares of arable land, of which only 50 million are currently in production. In other words, Brazil has 865 million acres of unused arable land – more than twice as much unused arable land as the 382 million acres the US has in crop production, according to the USDA.
In a world of 7 billion people, most of whom live in regions that are already water-scarce or soon will be, Brazil is destined to become in the 21st century version of what the US was in the 20th century. Brazil is richly endowed with natural resources that are growing more valuable by the day.
– James Dale Davidson, an investment writer and founder of the National Taxpayers Union, is co-author of several books offering predictions about the future. His latest book is "Brazil is the New America: How Brazil Offers Upward Mobility in a Collapsing World."