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Brazil's the new big bean on the block

(Monday, March 8, 2004 -- CropChoice news) -- Kevin Diaz, Star Tribune (Minneapolis-St. Paul), 03/07/04: CUIABA, BRAZIL -- The road to the future breadbasket of the world does not go through America's heartland.

It's being paved instead through the heartland of Brazil's Mato Grosso state, where vast stretches of new farmland can be had for $150 an acre, and good farmhands like Noel Garcia de Farias are happy to make $1 an hour.

The road -- Hwy. 163 -- meanders about 1,200 miles north to the Amazon River port of Santarem, where Minnesota-based Cargill opened a new export terminal last April. The highway is mostly dirt, but the Brazilian government, looking to cut transportation costs, is racing to pave the whole route.

To some American farmers, it looks like a race to the bottom.

Brazil, long a leading exporter of sugar, citrus and coffee, is emerging as the world's leading low-cost producer of major farm commodities once hardly associated with the tropics. Now, it is threatening the United States' standing as the world's farming superpower, a development that could have profound consequences for rural America.

Brazil has the world's largest commercial cattle herd and is closing the gap with the United States in corn production. But a more dramatic milestone has all of farm country buzzing: Brazil's exports of soybeans -- the world's most important source of vegetable protein -- have now surpassed those of the United States.

More ominous, Brazil is expected to convert another 50 million acres to crops in the next 10 years. That's an area the size of Minnesota, and most of it will be new soybeans.

"Their potential for growth scares me," said Ron Obermoller, a Minnesota corn and soybean grower who toured Brazil in January.

Occupying almost half of South America, Brazil still has at its disposal unused cropland of scrub grass and rainforest larger than the U.S. acreage of corn, soybeans, wheat and feed grains combined.

The interior savanna, called the cerrado, covers more than 510 million acres -- an area larger than the Upper Midwest. Less than one-fourth of it is currently in economic use.

American farmers, by comparison, have little space to grow. In fact, while the trend in the United States is to take land out of cultivation for recreation and conservation, Brazil is opening up an area of cropland the size of Maryland -- each year.

"The size of their fields blows my mind," said James Perkins, who operates a 2,400-acre farm in Kansas. "It's just soybeans for as far as the eye can see."

Obermoller, president of the Minnesota Corn Growers Association, counts on rising world living standards to absorb much of Brazil's farm growth. But others wonder how much longer U.S. farmers will be able to match the low-cost competition from Brazil.

Trends of last decade

Brazil's advantages in cheap land, low wages and inconsistent regulatory oversight rankle a lot of American farmers. Other critics say Brazil's growth is fueled by pirated U.S. biotechnology and the annual loss of thousands of square miles of tropical rainforest.

But for now, the only thing slowing down Brazil's expansion in farming is its vast size and poor transportation infrastructure. And that disadvantage is gradually disappearing under the fresh asphalt on Hwy. 163.

The alarm is being sounded not only by farmers, but by economists and policymakers who recognize the importance of the U.S. farm economy to the nation as a whole.

Low prices at the farm gate mean higher taxpayer subsidies from Washington, D.C.

While rising world food production also means lower consumer prices in the supermarket, the shadow of Brazilian competition is just beginning to be felt in rural America, particularly Minnesota, the nation's seventh-largest exporter of farm goods.

The competition

As Brazil gobbles up more of the global export market, some worry that it could become to farming what China is becoming to low-cost manufacturing, and what India is becoming to offshore information technology.

"Brazil is the 800-pound gorilla of farming," said U.S. Sen. Norm Coleman, who has joined a procession of Minnesota officials to Brazil in recent months. "From the perspective of agriculture, they're the competition."

Minnesota Agriculture Commissioner Gene Hugoson's visit to Brazil in January underscored what is at stake.

"When world soybean prices start moving with the rain forecasts in Mato Grosso," he said, "I need to know why."

Mato Grosso represents the frontier of the farming expansion in the cerrado, on the southern edge of the Amazon River basin. From the capital city of Cuiaba to Lucas do Rio Verde in the north, fields of soybeans stretch from horizon to horizon, earning the area the designation of "soybean ground zero."

Two decades ago, the area was a tropical ranching backwater, too disease-ridden and acidic to plant major crops. The introduction of lime, pesticides and new seed varieties has changed all that. Its flat expanses make it every bit as suitable for mechanized crop production as Iowa or Minnesota.

The changing picture is reflected in Cuiaba, which has grown in 30 years from a decaying gold-rush town to a sprawling metropolis of malls and apartment buildings.

Cuiaba and nearby Rondonopolis have the potential to reshape the worldwide food markets in ways that have been compared to a long-ago Minneapolis or Chicago, where world commodity prices are still largely determined.

"Brazil will be setting the price for soybeans in the future," said Seth Naeve, a soybean extension agronomist at the University of Minnesota. "You could think of them as OPEC."

Virgin cerrado land can be put into production for about $350 an acre, a fraction of what it costs in Minnesota. An equatorial climate also permits two or three crops a year.

Despite oversize farms of 10,000 acres or more in Mato Grosso, it is not uncommon to see tractors and other farm machinery that are undersized by U.S. standards. Jobs that are mechanized in the United States are often done by hand in Brazil.

The simple reason: hands cost less.

On a recent trip to Brazil, Jerry Anheluk, a North Dakota cattle rancher, noticed a Mato Grosso farmhand using a long rope to guide a silage spout. "For a $1 an hour," Anheluk said, "who needs hydraulics?"

Inexpensive labor

Actually, farm workers can be had in Mato Grosso for $90 to $200 a month, double that if health care and housing costs are added in. For that, they work six days a week -- seven during the harvest season.

In a region where most of the crop is trucked over bad roads, truckers come cheap, as well.

Feliz Bal di Sarelli, driving a semi full of soybeans down Hwy. 163, said he would get about 10 percent of the freight bill, less than half the rate truck drivers get in the United States.

To cut expenses, he sometimes lives out of the truck during the two- or three-day wait to get unloaded. A fold-out gas stove under the trailer bed permits him to cook his own meals on the road.

Many other Brazilian truck drivers live out of their rigs with their wives and kids.

Environmental regulation, or the lack of it, is another significant Brazilian advantage.

Environmentalists have long decried the destruction of the Amazon rainforest, although Brazilian officials say they are strictly enforcing new rules that limit how much forest landowners can clear.

More than 87 percent of the Amazon basin is kept as natural preserve or in Indian reservations, according to the Brazilian government. Mato Grosso farmers say they intend to conserve their natural resources. But they balk at external international controls.

"The sentiment here is that North Americans and Europeans burn fossil fuels like crazy, but we're not allowed to cut down a few trees," said Chris Ward, a Mato Grosso farmer.

A recent U.S. Agriculture Department report estimated that Brazil can open up an additional 420 million acres of cropland "without any additional deforestation in the Amazon basin."

By comparison, total U.S. croplands are estimated at about 250 million acres.

Brazilian agriculture is also shrouded in controversy over genetically modified (GMO) crops.

American industry officials have alleged that Brazilian farmers routinely pirate GMO biotechnology from the United States, such as Roundup Ready pesticide-resistant soybean strains. That allows them to avoid royalty payments to Monsanto and other U.S. biotechnology firms.

The non-disclosure also gives them a big advantage with exports to the European Union, which largely bans GMO crops from the United States.

Asphalt dreams

A billboard in Cuiaba proclaims asphalt as the key to Mato Grosso's "future prosperity."

More than 300 miles of dirt roads were paved in Mato Grosso last year, more than had been paved in the past eight years. Another 1,500 miles are to be paved by 2006.

Since his election last year, Mato Grosso Governor Blairo Maggi has made it a top priority. With good reason: He's the state's biggest soybean producer.

Most of the work is being done on Hwy. 163, Cuiaba's link to the Amazon River port of Santarem. The distance is equivalent to trucking soybeans from Minneapolis to New Orleans. In good weather, the trip takes three or four days. In bad weather, it's largely impassable.

Shipping soybeans to Santarem on a paved highway will save Mato Grosso growers like Maggi an estimated $20 a ton.

The importance of the highway is such that the soybean growers and traders who use the road have formed a consortium among themselves and the state of Mato Grosso to speed the paving.

When it's finished, the main users -- Cargill, Archer Daniels Midland and Bunge -- will finance the road through tolls.

"Here, road building is a private enterprise, not a government project," said Ward, who farms outside the city of Rondonopolis.

American producers are taking note of the massive road-building projects in Brazil, because until now, Brazil's daunting transportation challenges -- bad roads and limited railways -- have been the main factors keeping U.S. farmers competitive.

Despite Brazil's great cost advantages in land and labor, a U.S. Agriculture Department study found that the price of a bushel of Mato Grosso soybeans delivered to Holland is merely 2 percent cheaper than a bushel from the U.S. "heartland."

The reason: the significantly higher costs of transport over long distances and rough terrain.

"Once they get their transportation and [crop] disease problems under control, they'll kick our rear ends," said Perkins, the Kansas farmer.

Brazil's soybean exports -- and its price advantage -- are expected to grow dramatically as it develops a network of roads and river channels to feed Mato Grosso grain into the Amazon River, which is much closer to Europe and the Panama Canal than Brazil's South Atlantic ports.

International grain traders such as Cargill are poised to help. Already, the Minnesota-based multinational has more than 120 plants, warehouses, port terminals and farms in Brazil. It counts more than 90 buying stations and employs more than 5,000 people.

Illinois-based Archer Daniels Midland and New York-based Bunge are also are major players. John Deere tractors can also be found all over Brazil.

Critics say that the foreign investments of the multinational grain traders undercut farmers back home. Cargill sees its role as helping feed the entire world.

"Whether it's Brazilian or American soybeans, the world needs both," said Bryan Edwardson, Cargill's director of public policy in Washington, D.C. Even amid record Brazilian production this year, Edwardson notes, soybean prices are the highest they've been since 1997.

At Santarem, Cargill was not alone in its interest in developing an inland waterway to the world. Other private entities sought a piece of the action, including Brazil's own Maggi conglomerate.

Maggi's father got into soybeans in the early 1970s, when President Richard Nixon imposed an embargo on U.S. soybean exports.

The Nixon embargo -- a reaction to domestic grain shortages tied to massive Soviet grain purchases -- is widely credited with jump-starting Brazil's soybean industry.

Winners and losers

Jim Call, a farmer from Madison, Minn., stood surrounded by 15,000 acres of soybean plants on the Fazenda Girassol, a single farm in Mato Grosso. It was late January, about a month before the Brazilian harvest.

Call, chairman of the Minnesota Soybean Research and Promotion Council, went to Brazil a skeptic about Brazilian agriculture. He returned a little less so.

He looked over a leafy verdant plant, filled with meaty pods of healthy beans. "These are the best soybeans I've ever seen," he said.

Although Call doesn't think Brazil spells "doom and gloom" for Minnesota farmers, he sees where the road to the future is headed.

"Yes, they're going to be the No. 1 soybean producer in the future," he said. We're just going to have to deal with it."

How to deal with Brazil's green revolution is now Topic No. 1 in American farming.

With an eye on Brazil's infrastructure improvements, U.S. farmers have been lobbying Washington to upgrade the nation's water transportation system, particularly the locks on the Upper Mississippi River up to Minneapolis.

They also are pressing for research and development funding to maintain slight U.S. advantages in biotechnology, crop yields, disease resistance and grain quality.

"As I look around this country, they do have some big farms," said Ronald Jacobsen, president of the Minnesota Soybean Growers Association, who was on the same trip as Call. "But I have yet to see anything that matches our ability."

Some experts say that American farmers are going to have to compete on innovation -- finding new products like ethanol and biodiesel -- and quality, not volume.

"Our growth will have to be in processed food products, not bulk commodities," said Remy Jurenas, of the food and agriculture section of the Congressional Research Service. "That's the future."

American farmers also place their hopes on rising world consumption of meat and other high protein foods that rely on soybeans.

"The demand side is just as phenomenal as the supply side," said Jim Palmer, executive director of the Minnesota Soybean Growers Association. "The world is eating better. You need to overlay what the Chinese import over what the Brazilians export."

A race no one can win

Although exports and competing in the global marketplace will always be a part of U.S. agriculture -- America can't possibly eat all the food it produces -- most observers agree that American farmers can't chase the world export market to the bottom indefinitely. This "race to the bottom," as Iowa farm economist Marty McVey once described it, may be a race that nobody can "win."

"Winning is worse than losing," said University of Minnesota agricultural economist Richard Levins. "The winner is the one that can grow the absolute cheapest soybean, and that person is going to have a terrible life -- giving up on environmental policies and working themselves to death. It's just not going to be any fun."

But then again, that's business. Minnesota farmers have largely benefited from the world grain trade, and now the cerrado in Mato Grosso -- with its ever-expanding tracts of soybean fields -- is a big part of it.

"It's no different than in any other industry," said Cargill's Edwardson. "The pressure to be the low-cost producer is not a fun endeavor in any competitive environment. But it's a big world, and it's a global marketplace."