Brazil’s Economic Outlook
Lately, the media has been covering Brazil extensively, for both good and not so good reasons. Political instability, the Olympic Games, and the Zika virus all dominate the ongoing discussions surrounding the largest South American nation. However, there is a less mediatized and ongoing dynamic in Brazil, which creates optimism about the country’s future. That is the growing industry of food and agriculture.
Commodities in Brazil
Brazil is one of the so-called BRIC countries and the largest economy in South America. Nevertheless, the country has not been immune to the global economic slowdown and the sharp drop in commodity prices. One of Brazil’s leading and most profitable export commodities during the 21st century has been iron ore. However, the price of this mineral commodity has gone down substantially over the last five years. In 2011, iron ore was priced at approximately US$170 per metric ton, whereas today the metric ton trades at about US$50. Furthermore, Brazil’s main commercial partner for both the import and export of commodities, China, is also experiencing an economic slowdown.
In the meantime, Brazil’s food and agriculture industry has been the only economic sector to experience growth during the country’s period of economic contraction. In 2015, while the country experienced a GDP contraction of approximately 3.5%, Brazil’s agricultural sector grew over 1.5%. In fact, Brazil’s main export for 2014 and 2015 was soybeans, representing approximately US$30 billion for each of those two years. The prices of agricultural commodities have recovered from the financial crisis much quicker and remained more stable throughout the last few years. For example, soybeans were priced at around US$500 per metric ton in 2011 and, after a drop in 2015, the current price is of US$420 per metric ton.
Brazil has continued expanding its agricultural farmland, particularly in the state of Mato Grosso, which is located in the center of the country. This expansion has boosted the production of Brazil’s top agricultural commodities for export, such as soybeans, Arabica coffee, corn, and wheat. Similarly, Brazil produces substantial amounts of sugar cane, which is used domestically in the production of ethanol biofuels.
Challenges and Opportunities
The substantial depreciation of the Brazilian Real over the last two years has been a contributing factor to the country’s increase in exports. Furthermore, it has contributed to the continued attractiveness of Brazil as a destination for foreign investors. In fact, Brazil is the largest recipient of Foreign Direct Investment (FDI) in South America. In 2015, Brazil received US$75 billion in FDI, which accounts for more than 40% of the regional inflow. In this regard, the Brazilian Central Bank has been implementing monetary policy in an attempt to stabilize the Real at the current exchange level in order to sustain high exports as well as foreign investment.
As Brazil struggles to restart its economic engine, several sectors could become the country’s fuel for growth during the years to come. Given agriculture’s continued development in the central regions of the country, transportation infrastructure has become essential to lowering costs and maximizing commercial profits. In conclusion, the key sectors for economic dynamism in Brazil are infrastructure development, continued agricultural output, and the creation of a strong middle class, which will drive national consumption. Therefore, these elements represent unique opportunities for domestic as well as international entrepreneurs and investors.