Agricultural Trade Liberalization and Brazils Rural Poor - Essay Example

Introduction Brazil, a Latin American nation has been a Portuguese colony before it gained its independence in 1822 after Pedro Álvares Cabal landedthere in 1500. The country was a republic from 1889 onwards and currently the bicameral framework of administration which we reckon as Congress pertains to the year 1824. Currently defined as the Federal Republic, the framework comprises of 26 states and 5564 municipalities. Taking into consideration market exchange rates, Brazil is the tenth largest market and as far as purchasing power is concerned, it is the ninth largest. (CIA, 2007) Brazil has a multiethnic social structure with Roman Catholicism as the dominant religion and Portuguese as the main language. It is characterized by natural surroundings, wildlife diversity, protected habitats. It terms of demography, it is fifth most populous nation in the world and in terms of geographical area it is the fifth largest. Brazil is officially known as the Federative Republic of Brazil. (CIA, 2008) The natives of Brazil are perceived to have descended from the North Asian migrants of around 9000BC. In the beginning due to the already generated high profits from trade with India, Japan and China, Brazil did not evoke much interest in the Portugal colonists. The country was economically exploited mostly for its Brazilwood which provided the red dye. Previously they had established temporary trading establishments which ensured the trade of brazilwood but later permanent settlement ensured the setting up of sugarcane industry. The nation turned out to be agriculture based economy from where the Portuguese exported the agricultural commodities to European nations. With time the most crucial colonial product of Brazil was sugar and this remained equally important till the eighteenth century when there was a crisis as they faced competition from both Dutch and French sugar producers located close to Europe. This led to a fall in the price of sugar. Even gold production declined towards the close of the eighteenth century. The Portuguese administration still kept its integrity by sending bullions to the nation. The nation however has undergone wide scale changes overtime and currently are known as an emerging economy of the world. The changes have occurred in all dimensions including the social, economic and political scenario. Emerging markets and Brazil Emerging Markets is a term which is used to refer to the social and economic operations of a nation which is in its way towards fast growth process and industrialization. China is currently considered to be the largest among the 28 emerging economies in the world. The theory of dependency can be the best one to explain the Latin American countries. Dependency theory mainly established underdevelopment as a historical process. In this theory the metropolitan satellite relationship in the pattern of trade between a developed north and underdeveloped south is examined. If an underdeveloped economy like Brazil or Peru or Argentina is considered the economy is characterized by the simultaneous presence of modern urban and traditional rural sector (Todaro and Smith, 2008). The capitalists make investment on industrial sector but as agriculture occupies the major share of the national income of the economy the proportion of investment with national income is significantly low. In such a situation while economic liberalization takes place the industrial sector of the country can’t compete with the highly efficient industrial sector of the developed countries. So the underdeveloped economy has to play the role of the exporter of the primary goods. On the other hand the LDC has to import machineries and secondary goods. In this way a dependent or center periphery trading relationship is established. This relationship is characterized by the dependence of the periphery (underdeveloped) on the center (developed). (Frank, 1992, 125-139; Dos Santos, 1970) The developments noticed in the economy of Brazil is a component of the fundamental change observed in the global economy. The tools used by the emerging economies like Brazil and China have been the conversion of higher proportion of savings into investments, foreign investments and their emphasis on export led growth. All these have helped assisted these economies in doubling their per capita income figures in almost every decade. Developing markets can present difficult challenges, with poor sanitation, lack of food, housing shortages; and lack of education. But whilst this is happening great opportunities exist in both segments of the market that already have comfortable incomes and the segments that are still aspiring to rise from poverty. Characteristics of an emerging economy Investing in emerging markets poses unique challenges. The lack of liquidity in these markets can be harsh on shareholders since investors in a rush to sell can send prices tumbling. Further to this relatively few shares based in the developing world are listed in the U.S or UK. Drive through the Morumbi neighbourhood and you’ll see luxury homes and one of the city’s best hospitals. But head just two blocks further and you will find yourself in Paraisopolis, one of the city’s main slums. This is why many business executives see the Brazilian market in equally divergent terms. Another factor to be considered in emerging markets is the markets the companies wish to enter. Markets in these nations are often fragmented with few national brands. An example of this in another nation is China, when the brewers began to enter the market attempting to take a slice of the highly profitable market. However what the global brands found was that China was not ready for Global brands but local brands. In order for the brewers to compete they realised they had to tackle one region at a time and not treat the country as a whole. Other companies have realised the importance of being local too, for instance HSBC uses the catch line, ‘the worlds local bank.’ Organisations branding strategies and portfolios need to be tailored to the reality of the fragmented market. The market place in emerging economies differs from that in the West in that the markets are predominantly younger. In the West we are faced with pension shortfalls and escalating healthcare due to the longevity of the average persons life span. In developing nations people are not living as long so there is less demand for products aimed at retirement level consumers. While only 21% of the population in the U.S is under 14 that figure reaches 29% in Brazil. (86% Solution, Kamini Banga, Vijay Mahajan) Distribution networks in Brazil must be built utilising the available options before enhancing them further. Organisations need to develop methods of bringing the products to the people. It is of advantage to be based in the emerging economy or have strong consultants who can report on the current market trends and method of entry. Organisations need to address the issue of distribution networks reaching the fragmented market. Challenges in an emerging economy While companies may be tempted to produce second-rate products for the developing world, they must be aware that the consumers are very demanding, expecting high value for their scarce cash. Products and services must also be tailored towards local culture and traditions. Companies wishing to move into emerging markets must ask themselves how can you modify or create products and services designed for the local conditions of developing markets? How can you build consumerism and use social networks to build markets for your products? Emerging markets also differ as their needs are not the same. Income and cash flow are not as strong as developed nations. Emerging nations still tend to buy small rather than bulk buy as they do not want to tie up liquid cash in household goods. Living conditions and access to space can also be a problem so products often have to be scaled down to suit the emerging market. Although young people are globally attuned, the youth in emerging markets are not as liberal as the developed world and tradition and religion still play strong factors. Products have to be designed and marketed with this in mind in order to gain advantage in the market place. Infrastructure in developing nations is a challenge often facing organizations they are usually underdeveloped and in need of major investment. Transport networks do not exist, power supplies can be temperamental, along with clean water and sanitation not always being guarantee. Brazil was given a further boost with the announcement of the 2014 world cup; this has led to greater funding towards infrastructure as the country decides how to cope with the 1000’s of travelling supporters. Airports and trains are being developed along with the creation of new roads and rail networks. One of the main challenges to organizations wanting to compete in Brazil is the Technological factor. Many people still do not have access to a telephone. Although Brazil is now the 5th largest PC market and a hub for banking technology and software it is still a poor nation with millions of people requiring much more basics than acquiring a new PC. Technology can also be a benefit and with none in place it allows companies with already developed systems to transfer them without going through the same processes as the already evolved markets. Up to date technology is available now across the globe (if it can be implemented). Trade, investment and migration markets Immigration and trade: Immigration in Brazil has played a very important role in the framework of human population in the country as well as its history and. Immigration has played a deciding role in its culture, racial issues, multi-ethnic society, economy and education. The doors had opened during the 19th century when people from Italy, Portuguese, Germany, Spain, Asian countries (especially Japan) and the Middle East nations began to settle down here. Most of the current natives have been descendants of the Portuguese colonists and African slaves. This increased mainly with the opening of ports in Brazil. The Europeans arrived to occupy sections of land and turned into farmers. From 1824, Central European immigrants came to settle here. There were German immigrants during this period and they were essentially comprised of poor peasants and the retired soldiers of Napoleon’s army. Most of the immigrants settled with lands, livestock and seeds for developing and earning a living. Gradually more Europeans were brought in to harvest coffee, a cash crop. Apart from the wide growth of population and ethnic diversity, another crucial impact of immigration was the Atlantic slave trade. This was essentially the impact of forced immigration where several African tribes were forced be transported to this land and made to work in the plantations. Even the Brazilian government perceived that encouraging European immigration could bring on progress and encouraged the Portuguese, Spanish and German immigrants. This was also a result of the crises in both political and economic spheres in Europe. Although the agrarian economy required the black hardy Africans workers, Europeans were encouraged to immigrate to act as substitutes since slavery has been abolished in 1850. The south and south eastern provinces witnessed the development of the agriculture, industry and services sectors. Japanese immigrants also formed a majority of inflow in the 20th century and settled in the South. (Gudmundson, 1984) In the previous ten years Brazil has doubled the exports to European Union. All the emerging nations like India, China and Brazil do undergo challenges to bring down poverty but a new ray of hope leading to prosperity do exists parallel to the challenges. Export led growth in most cases require open markets or an open global economy. The WTO (World Trade Organization) framework also had a major role to play here as it ensured the open markets for these economies. The agricultural businessmen from Brazil, the manufacturers from China and software engineers from India have led a new definition to the competition around the world. The matter of fact is that though the trade liberalization and the process of growing global challenge have caused growth in export earning and economic growth in Brazil, a major part of population are deprived of the benefits of trade liberalization. That is due to the presence of some typical socioeconomic and institutional conditions. First of all the rural areas are subject to the problem of acute poverty. Hence it goes without saying that people who belong to this class will find attending the technological training classes as difficult for them to attend. Hence the rural education system is followed by marginalization of rural population. Only the people who have solvency can afford the technical and educational benefit. Those who have to remain busy all over the day for bare necessities can hardly afford the education. So they cannot reap the benefits of the new technology introduced within the country. (Moore and Schuh, 2002) The problem lies in the structure. The rural informal workers about whom we are hereby discussing are engaged in the works like sharecroppers, independent small and marginal farmers, tenants and agricultural day laborers. The thorough vision would reveal that a vast population in that country owns a negligible share of the total arable land and the richest class (20% of population) occupies the 88% of the land. In this type of institutional situation what should the informal unskilled workforce do? Would they struggle for their existence to earn bread and butter to satisfy their hunger or should they go to school by bunking job and hence fasting? There is no change even after the liberalization and hence the situation has remained equally gloomy. (Amanda and Patel, 2003) Investments Now we consider the case from a different perspective. Once the countries like Brazil, Argentina, Peru etc and other developing countries with large size are entrapped in the quagmire of the declining terms of trade they require thinking some alternative way out in an open economic system to solve the problem of declining terms of trade. There are different economists with different policy prescriptions. There are some groups of economists who argue in favor of Foreign Direct Investments (FDI) to be an optimum solution of the economy – “Foreign direct investments have played an important role in many but not all of the most successful development stories in countries such as Singapore and Malaysia and even China” (Stiglitz, 2002, 67). According to their version while an underdeveloped economy adopts the policy of allowing foreign direct investment in the country it would supplement the domestic saving and utilize its productive capacity efficiently. Moreover, the import export gap can be wiped out by the foreign direct investment. The foreign direct investment can transform a primary good exporting country into a secondary good exporting country by the transfer of technology and technical knowledge by providing training. Hence the economy may face a sustained growth by the impact of liberalization. This was theoretically proved by the work of Jones. (Jones, 1965, 551-572) The course of development of different countries bears testimony to the immensely important role of inflow of foreign capital (in form of foreign direct investment and technology transfer) in the process of economic development. Since the mid 1970’s it is found that the foreign capital in the form of direct foreign investment has contributed to technology transfer and fostered export growth in the economies like Brazil and Mexico. Ideological factors: The military high command of Brazil unlike that in Argentina and Uruguay did not feel it necessary to justify their involvement or interference in political matters of the state – “the military had a long standing concern in politics, expressed in its ‘moderating function’, and convinced itself that it enjoyed the legitimacy to take on the role of government”. (Heinz and Frühling, 1999, 142) From the time the nation has assumed power, it enjoyed some kind of a democracy for nineteen years although it was an imperfect one. According to military education a lot of emphasis was laid on the essence and the values of one’s fatherland, a reunification spirit, neutrality towards materialistic commodities and honesty. Cadets learn that they are not just in a superior position compared to the civilians but also they are a better individual in terms of moral essence. The national security doctrine of Brazil in the political sense was the only essential doctrine for Latin America. Economical factors In 1994, the then Finance Minister implemented the Real Plan, an economic liberalisation named for the newly launched currency, the Real. The plan called for abolition of state control of wages and all indexing to inflation, lowering of tariffs and barriers to international investment and a massive sell-off of state-owned enterprises in nearly every sector. The Real Plan was successful immediately and attracted huge amounts of international investment while raising the living standards of millions of Brazilians. With its product exports in 2005, Brazil passed the 100 billion US dollar threshold for the first time and is now considered the leading nation in Latin America and is considered as a guiding light to other neighbouring emerging nations. Brazil has experienced strong growth in 2007 in view of the demand for raw materials. High prices for raw materials benefited exports especially since the Real appreciated against the U.S dollar and the Euro, however the Real has now slipped to R$2.46 (09th October) from a peak R$1.56 to the dollar in August, wiping off almost a 1/3 of the value. Since June more than r$20bn has been withdrawn from Brazils liquid markets as investors try to cover losses from across the globe and the majority of which in developed markets. The Banco Central Do Brasil is Brazil’s highest monetary authority and the country’s governing body in finance and economics. In the first year of the new presidents election in 2003 he decreased inflation to 16% while today’s inflation stands at an all time low of around 5.7% which firmly indicates a safe and secure economy in which to invest. Social and economic inequality has been reduced but still has to be addressed, according to the World Bank, Brazil is second only to South Africa in a world ranking of income inequality. The North East of Brazil contains the single largest concentration of rural poverty in Latin America. The cost of living in many areas of Brazil is much lower than in most European destinations and currently stands at 20% of that in the UK. Economic Expansion: Brazil is expected to become self sufficient in oil reserves next year and could also have a potential multibillion dollar oil industry to evaluate. This would be a major factor in Brazil becoming one of world’s biggest players. The increase in profitability of certain major Brazilian companies (Unibanco, private sector bank and Electropaulo, power suppliers) as well as the successful expansion of international companies has all boosted the economic prospects of the country. Developers are now beginning to move into Brazil in a major way as property is providing excellent growth opportunities. The developers are also promoting the tourist industry and investing millions in infrastructure and new holiday resorts. President Lula’s policies encompass strong internal investment as well as funding from the USA to improve economic structure and entice tourism to Brazil, while continuing to encourage large foreign businesses to establish themselves in Brazil. Social factors The social structure and culture of Brazil has been essentially influenced by the cultures of Europe, Africa and the indigenous settlers of Africa. All these variety of elements have combined to develop a complex framework. The major influence comes from the culture of the Portuguese. The inhabitants of Portugal brought forth the language, religion (Catholic) and even the colonial styles of buildings among the Brazilians. (“Discovery of Brazil”, 2008) Social factors like education are managed at the levels of Federal Government, States, District, and Municipalities. This is done according to the Federal Constitution and the 1996 General Law of Education in Brazil. The government undertakes the public system of healthcare while private healthcare system provides merely acts as a complement. Despite all one cannot ignore the health related problems like children mortality, non transmissible illness and deaths caused by transportation suicide and violence. Carnival festival is quite common in Brazil and comprise of colorful parades and lively songs. This occurs once a year. The celebration takes place in different cities bearing different regional characteristics. Festivals like Boi Bumba and Festa Junina are also popular. Brazilian Cinema has made its own mark and reached great heights in recent years. Fields like literature is also largely influenced by the Portuguese. In terms of religion, diversification also exists but Catholics are still dominant. However the number of Protestants is increasing. The government respects differences in the practice of religions. Political factors and Brazil’s international relationship: There are three components of politics on which the federation is based: States, Municipalities and Federal Districts. Voting is mandatory and there are four political parties: the workers’ party, Brazilian Social Democracy Party, Democrats and the Brazilian Democratic Movement Party. It is a presidential frame of administration and the form is a republic characterized by democracy. Latin America is both politically and economically led by Brazil. It is merely due to the social and economic issues that the nation has not become globally renowned and powerful. Brazilian governments followed both an industrial policy led by the State as well as an independent foreign policy. Brazil has also stepped forward to make the relationship with other South Americans nations stronger. It has also been involved in diplomatic relationship with the United Nations and the Organization of American States. It is an emerging power across the globe and a leader among the developing nations. According to the constitution of Brazil, the country would stand for the cultural, social, political and economic integration of Latin American countries. Concluding remarks: international relations One of the utmost benefits of trade liberalization and openness of the economy has been felt in Brazil. Owing to economic benefits, China, India and Brazil have been undergoing cuts in tariff rates. Industrialized nations of Europe have been liberal to the exports of developing nations. The Doha Conference asks the nations like Brazil to look into the interests of the poorest nations as well as remain competitive among the developing countries. Although Brazil has many strengths it does not have the cash influx of either India or China, nor does it have those countries strong education systems, cheap labour force or access to capital. The Macroeconomic environment in which Brazil operates shows healthy growth rates and the push towards free trade within aligned countries can only be positive. In 2009 the BRIC nations will be holding a summit on global financial architecture as economic power begins to shift from the U.S and Europe. The emergence of collaboration between the BRIC nations will be positive for them allowing them to pull resources and gain advantages. One of the recent agreements over technology will allow Russia and Brazil to cooperate in a new Satellite program. Russia has satellites and Brazil launch their won rockets in North Eastern Brazil. The Brazilian economy has recently begun to boom, so much so that Brazil is now rated as the 9th largest economy in the world. After years of economic hardship the country is now emerging on the global scene and becoming a player as its mining, agricultural, service and manufacturing sectors expand. Brazil recorded a 4.5% growth rate in 2007 and that figure should increase this year with the economy showing no signs of slowing down. REFERENCES 1. Amanda, C. and Patel, R. 2003, Agricultural Trade Liberalization and Brazil’s Rural Poor: Consolidating Inequality: Report: Global Policy Forum, August 2. Bellos, A. 2003. Futebol: The Brazilian Way of Life. London: Bloomsbury Publishing plc 3. CIA, 2007, Brazil, available at: https://www.cia.gov/library/publications/the-world-factbook/geos/br.html#Econ (accessed on January 15, 2009) 4. CIA, 2008, People: Brazil, available at: https://www.cia.gov/library/publications/the-world-factbook/geos/br.html#People (accessed on January 15, 2009) 5. “Discovery of Brazil”, 2008, Government of Brazil, available at: http://www.brasil.gov.br/ingles/about_brazil/history/xvi_cent/ (accessed on January 15, 2009) 6. Dos Santos, T. 1970. The Structure of Dependence: American Economic Review, 60 (2), May 7. Frank A. G. 1992. 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Economic Openness and the Marginalization of Small Family Farmers: Aligning Curriculum To Meet the Needs of Rural Adolescents in Brazil; Paper Presentation: Annual Meeting: Comparative and International Education Society 12. Stiglitz, J. 2002, Globalization and Its Discontents, New York: Norton and Co  13. Todaro, M. and S.C. Smith, 2008. Economic development, London: Longman group Read More