Agrarian Reforms in Brazil - Case Study Example

Running Head: AGRARIAN REFORMS IN BRAZIL Management Consultancy Project Course Code: Lecture’s Name: Date of presentation Agrarian Reforms in Brazil The potential of Brazil to become a significant agricultural player in the global trade market can be attached to the unexploited fertile agricultural land as well as modern agricultural practices. This paper discusses the contribution of agriculture to the Brazilian economic growth and development. Brazil is a major player in the world economy, due its vast resources and manpower. According to Gerd & Rodrigo, 2011, Brazilian agriculturally arable land is only exceeded by China, Australia and the US in terms of size, thus making agriculture to play an important role in the economy of the nation. According to a Policy Brief from OECD, October 2011, the Brazilian government has been able to institute numerous macroeconomic policies successfully through the present and the two most recent presidencies ( World Bank Report. 2009). This had ultimately made the country to realize surprises in the trade balances as well as prevailing over the constant vulnerability of the foreign currency accounts that had a negative impact on access to external credit facilities by various government institutions. Introduction After nearly two decades of economic stagnation, the Brazil has finally emerged from this economic mediocrity by experiencing relatively high economic growth in the decade period of between 2000- 2010. Michael (2009), asserts that most of the Latin American countries, including Brazil instituted economic policy plans and reforms aimed at ensuring both fiscal and monetary soberness, deregulation, economic openness and privatization by mid 1990s. This resulted to a convincing real GDP growth of between 3 and 4% per annum over a period of between 2000 and 2010 (Luciana, 2009). Despite this high and sustained economic growth, Brazil still lags behind other BRIC (Brazil, Russia, India and China) nations. This is primarily due to institutional impediments and other fundamental features that hinder uniform growth throughout all sectors of the economy. One of the basic features that have caused this relative poor performance of the Brazilian economy is that, Brazil is a vast natural full of natural resources, thus making it to experience “natural resource curse” phenomenon. Alfred (2005), asserts that countries which posses abundant natural resources often experience slow growth rate than those with less natural resources base, especially in situations where the main abundant resource experiences an inelastic demand for a primary resource( mostly, agricultural resources). This ultimately forces the resource abundant nation to invest less than other nations with inadequate exhaustible resources. Overview of Brazilian Economy Brazilian economy is characterized by an extensive and well developed agricultural, manufacturing, mining, and services industries. It largely outweighs the economics of other Latin American countries and its presence is being felt all over the world. Since, early 2003, the Brazilian macro economy has been experiencing a steady improvement, building up of its foreign reserves, and subsequently reducing its accrued debt profile through transferring its debt burden towards real denominated and locally held economic instruments ( World Bank Report 2009). By 2008, Brazil had attained the status of a net external creditor as well as being awarded the investment grade status to its own liability. Strong growth was experienced in 2006 to 2008 when the global financial crisis kicked in. Fortunately, Brazil was hit by two quarters of economic meltdown, as global need for Brazil’s commodity based exports shrunk and the external credit withered down. By 2010, investor and consumer confidence was revived and GDP growth reached an all time high in the past 25 years, at 7.5%. Economic measures aimed at taming the high inflation were taken by the authorities thus slowing down growth to 2.7% in 2011 and 1.5% in 2012. Despite this deliberate slow growth rate, Brazil was able to overtake United Kingdom as the world’s 7th largest economy in terms of GDP (Luciana, 2009). Unemployment index is at its all- time low and the Brazils traditionally known income inequality levels have greatly reduced in last two decades. The high interest rates have for a long time discouraged foreign investors. However, large capital inflows from foreign markets over the past few years have led to the appreciation of the Brazilian currency and consequently hurting the local manufacturing industry leading to the government intervention in issues dealing with foreign exchange capital markets including imposing taxes on some foreign investor cash- inflows (Michael, 2009). Agricultural Policy Reforms in Brazil Even while mining, manufacturing and services sectors have shown steep economic growth, agriculture still remains the driving force of the economy of Brazil with about 5.8 per cent of GDP, with agribusiness share at about 23 percent. In year 2009, agriculture accounted for about 19.3 % of the workforce, equivalent to about 19million people, thus contributing immensely to poverty eradication. Due to the sustained growth of agricultural sector GDP, Brazil today boast as the largest newt producer and exporter of varying range of food products: coffee, soya beans, sugar, meat tobacco, etc. Despite weak government assistance to the agricultural producers, as compared to OECD countries, and domestic food consumption that traps over 79% of gross production, agribusiness accounts to over 39% of exports from Brazil and a trade surplus of $77.5 billion in year 2011, and is $142.1 billion in 2012. This is in sharp contrast of the fact that Brazil was a net food importer two decades ago (Gerd & Rodrigo, 2011). Agricultural sector in Brazil has benefited from intensive structural and macroeconomic reforms instituted by the past government starting in the early 1990s onwards, with the aim of achieving a better and reliable economic stability reduction of inflation, and market expansion. These strategic reformed by the government have ushered in modern competitive agricultural practices, thus reducing production costs and some government interventions have gone a long way in controlling prices of key commodities such as wheat, sugar and coffee. Under the Lula rule (2003-2010), the Brazilian government has expanded the credit services through the simplification of the tax system, coupled with a social policy targeting the underprivileged members of the population. This has spurred local investment and as well as increased domestic consumption (Luciana, 2009). The Evolution of Agriculture Reforms in Brazil Growth and development of agricultural and agribusiness in Brazil is majorly dependent on exports, which make up for 30 percent of the entire agricultural production. The increased competitiveness in the agriculture sector can be attributed to a number of reasons including availability of agricultural credit facilities, increased investments in tropical agricultural research which has over the years led to increased productivity (Beatriz, Heredia, Leonilde, & Moacir, 2012). The mean annual rate of growth of total agricultural productivity was estimated at 3.3 percent in the period between1985-2002, and 5.7 percent in the year 1998 to 2002. This was way above the estimated growth rates in US agricultural sector at 18 percent. Despite of the availability of labor natural resources and favorable weather, agribusiness in Brazil still faces momentous internal and external handicaps. In the internal arena, agribusiness and producers are faced with insecurity related to the volatility of the exchange rates, lack of properly defined land rights, rigid framework regarding to research and marketing of produce, logistical bottlenecks as result of poor infrastructure especially in rural areas. In the external environment, subsidies and trade barriers programs imposed especially in developed countries, significantly affect Brazilian agrifood exports especially to the US. It is in this regard that the Brazilian government through the ministry of Commerce have embarked on a serious and aggressive campaign aimed at lobbying at the World Trade Organizations (WTO) forums, championing high profile trade disputes concerning the developed Third World nations as well as spearheading in the creation a G-20 association of both developed and developing nations (World Bank, “Land Reform Policy Paper”, 2012). Current Trends in Brazil The Land Reform Significant reforms in agriculture were introduced by the Cordoso presidency in 1995, which moved priority check to family farming and land reforms in the efforts of curbing food insecurity and rural poverty. In his administration, Cardoso introduced Agrarian Organization Programs concerning the land reforms, where over half a million people were settled in impounded land. According to (Alfred, 2005)The Brazilian government created the Ministry of Agrarian Development charged with the task of implementing the land acquisition policies as well as sorting out the skewed land ownership in the rural areas of country. The government funding to the agrarian programs increased from 6% in the Sarney administration to 45% in of the net total budget on farm programs in the Lula presidency. According to a Presidential column distributed President Rousseff’s Planalto Place, termed land reforms as “necessary to build a country with justice, food security and peace in rural areas” drastic land reform actions have contribute immensely in eradicating extreme poverty among the land less as well as decongesting the periphery Favela of major Brazilian cities, creating a mutual win- win situation among all the stakeholders involved. According to the statistics indicated in the Presidential column, a million plots have been given out over the last forty years, under the land reform framework, with over 60 percent of them being given out under Lula presidency (Alfred, 2005). Changes in the Agricultural Sector as a result of Policy reforms Agricultural sector in Brazil has experience tremendous growth as a result of the action by the government to halt the import substitution plan: which led to policies aimed at favoring local production of commodities over other competing nations, for instance imposing a high import tariff. The current growth can also be attributed to the increased productivity especially as a result of modernization of farm operations. In the recent past, there has been an export boom in agricultural products, with the export commodities shifting from the traditional tropical produce such as, orange juice, coffee etc, towards meat and meat products, soya beans and sugar. Although most of exports are destined to OECD countries in Europe, fastest export growth has been recorded in states outside the OECD brackets, notably Russia and China. For several years now, agribusiness sector has surpassed manufacturing sector, as seen with the booming agricultural food products exports, thus offering crucial benefits to the Brazilian economy. However, this growth has not been sufficient to wipe out the problems of income inequality and rural poverty experience in majority of the Brazilian countryside. It has also led to increased concerns on the related environmental impacts, particularly the effects on the Amazon forest (Gerd & Rodrigo, 2011). Poverty levels in rural areas in Brazil has dropped considerably over last two decades, however it is still more than 38 percent and the situation among the bottom 20 percent of the households in rural area is that they live below the extreme poverty line. On the environmental aspect, Brazil has destroyed a forest cover equivalent to the size of United Kingdom. This has been lost as a result of commercial ranching schemes that cause most of the deforestation and the traditional slash and burn practices among majority of the small scale subsistence farmers Majority of deforestation is as a result commercial ranching and the only solution is to encourage the ranchers to maximize on forage per unit area (Gerd & Rodrigo, 2011). Impact of the current agricultural policies in Brazil Brazil government extends relatively low financial support to its agricultural sector, which includes financing general activities and services to agriculture such as agricultural education and res as well as supporting the producers. According (Michael, 2009), in the year 2010 to 2011, support to producers in Brazil was an average value of 3 percent of the gross farm receipts, a rate that is very low when compared to the 30 percent rate extended to OECED countries. This agricultural producer support was extended as part of preferential credit to the agricultural sector. Justification of the program was that it helps the producer to offset the increased interest rates and the legacy of instability in macroeconomic sector. A different rationale was than a special treatment in the sector will go a long way in serving the social objectives, where affordability of credit facilities is a vital element of funding income generation among the rural poor (Beatriz, Heredia, Leonilde, & Moacir, 2012). Other than extending service loans to producers, the Brazilian government embarked on a program of instituting mechanisms aimed at shoring producer prices, such as intervention purchases( where the states opts to buy agricultural products when their prices fall below an acceptable price) or commodity loans. This support is however, not sustainable over a long term development agenda. A large share of assistance is therefore, being towards subsiding producers, as well as spending in areas of agricultural, education and research, and rural infrastructure (Luciana, 2009). Benefits of Open and Liberalized Markets to Brazil Given that the Brazilian government has instituted laws and policy reforms that liberalized the agricultural sector, it is worth mentioning that the actual benefits of open market will be felt when reforms are carried out in other countries especially the OECD states markets. Presently, exporters of agricultural products from Brazil into OECD countries face a number of trade barriers, notably; Increased tariffs in key markets such as beef, poultry, sugar and tobacco Escalation of tariffs according to the degree of processing carried out on the produce, particularly processed foods. Non tariff measures such a phyto- sanitary regulations impede market reach. This is a persistent problem with meat products, where there are some countries which have banned Brazilian meat products as a result of foot- and mouth disease scare. Tariff rate quotas (TRQ) which tend to discriminate certain import countries. Conclusion It is important for a country to consider appropriate target policies for various sectors. For some farming households in Brazil, agricultural extension programs to boost farming skills and technique are necessary for them to achieve their desire competitive edge. More so it is crucial for the government to look forward to the long- term future needs which most of the time lies outside agriculture, thus there is a need for facilitation of broad income diversification and the exploitation of non- agricultural opportunities. Investment at personal level through training, and credit facilities can be crucial in fostering rural development. In general, Brazilian government have instituted important policy reforms that have largely benefited the agrifood sector as well as raising incomes and lowering poverty levels. What is essential or is for the government to shift focus to more long term investments such as proper land reforms, infrastructural development, training research and extension, while targeting also the general economy- wide social economic policies. Works Cited Alfred, P. (2005). Brazilian politics: reforming a democratic state in a changing world. Cambridge (U.K.): Polity Press. Bank, W. (2012). “Land Reform Policy Paper”. Washington DC, USA. Bank, W. (2009). “Project appraisal document to Brazil for Land-Based Poverty Alleviation project. New York, US. Beatriz, H., Heredia, B., Leonilde, M., & Moacir, P. (2012). Regional Impacts of Land Reform in Brazil. Gerd, S., & Rodrigo, F. (2011). Negotiated Agrarian Reform in Brazil:principles and practice. Tecer Mundo Editores, . Luciana, O. (2009). Fighting for a Voice: Support for Land Reform Versus the Landless Workers Movement. A Framing Analysis of the Brazilian Press , 23. Michael, L. (2009). Land Reform in Developing Countries: Property Rights and Property Wrongs. Network):, F. (. (2011). Global Campaign for Agrarian Reform. Commentary on land and rural development policies of the World Bank . Read More