www.elikadura21.eus EL FUTURO DE LA ALIMENTACIÓN Y RETOS DE LA AGRICULTURA PARA EL SIGLO XXI: Debates sobre quién, cómo y con qué implicaciones sociales, económicas y ecológicas alimentará el mundo. THE FUTURE OF FOOD AND CHALLENGES FOR AGRICULTURE IN THE 21st CENTURY: Debates about who, how and with what social, economic and ecological implications we will feed the world. ELIKADURAREN ETORKIZUNA ETA NEKAZARITZAREN ERRONKAK XXI. MENDERAKO: Mundua nork, nola eta zer-nolako inplikazio sozial, ekonomiko eta ekologikorekin elikatuko duen izango da eztabaidagaia ‘Export or die’: the rise of Brazil as an agribusiness powerhouse Daniela Andrade Paper # 98 Apirila – Abril – April 24, 25, 26 2017
ThisarticleexplorestherelationshipbetweentheriseofBrazilasanagribusinesspowerhouse, the country’s recent economic upswing and its subsequent crisis.Agribusiness is analysed in the context of the overall dynamics of production,tradeandcapital flowsthathaveemergedsincetheneoliberalpolicyreformsofthe 1990s. Statistical series on the country’s Balance of Payments (BoP),macroeconomicandsectorparametersshowthattheexpansionofagribusinessispartandparcelofapolicy-inducedphenomenonofprimarycommoditiesexportspecialisation,whichconjugateswithBoP fragility, the reproductionofdebtandexternaldependence–thecoreofthecurrentcrisis.
Inthecourseofthe2000s,theexpansionofagribusinessproductionandexportshas boosted economic growth in Brazil, contributing to its rise as an emergingeconomyandamajorplayerintheglobalfoodsystem.Brazilianagribusinesshasbeenpredicatedasstrategicforeconomicandpoliticalpower,includingaplaceinglobal decision-making. Brazil has become amajor supplier of a range of agro-commodities, a leader of the developing countries’ coalition in agriculturalnegotiations at the World Trade Organisation (WTO), and a frontrunner ofagribusinessexpansioninLatinAmerica,andmorerecently,inSub-SaharanAfrica.Important parameters justifying the country’smembership of the BRICS (Brazil,Russia,India,ChinaandSouth-Africa),suchasthelevelofforeignreserves,inflowofforeign investmentsorGDPgrowth,havehingedupontheperformanceof itsagribusiness sector. In 2007, when commodity prices peaked, most of thedevelopingworldsuffered,butBrazilhaditsbesteconomicperformanceinyears,with6.1%economicgrowth.Followingtheoutbreakoftheglobalfinancialcrisisin2008, the economy had a hiccup but continued to flourish – reaching a 7.5%growthratein2010–whileadvancedeconomieswerestill ineconomicdistress.However, even though the agricultural sector has kept breaking harvest andrevenuerecordsuntil today,Brazilplunged intothemostsevereeconomiccrisisofthelast25yearsin2011,whengrowthfellto3.9%,thento1.9%in2012,0.1%in2014and-3.8%in2015,thustechnicallyenteringintorecession.1Withcutsincredit,socialspending,investments,wagesandemployment,theeconomywasinfull-blownrecessionby2016.Howtomakesenseofthat?
1WorldBank,GDPGrowth(Annual%)
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Theseeventscallintoquestionnottheagribusinessexpansion,butitscontextualmeaning–notBrazil’sgrowthassuch,butitspatternsofgrowth.Thequestionisnotaboutwhatwentsuddenlywrongincountry’strajectory,buthoweventshavebeenexplained.Thisarticleexplores the relationshipbetweentheempirical riseof Brazilian agribusiness and its fundamental historical and material sense (oressence),whichisabstractedfromitsrelationswiththebroadereconomyanditslogicofreproductionandaccumulation.
A brief historical overview shows the mutual development of agriculture withnationalcapitalismuntil thetransitiontoneoliberalism.Themainaspectsofthismajoreconomicreorganisationareexplainedintheirhistoricalunfolding,astheysetthegroundfortheadvancementofagro-commoditiesexports.Usingstatisticalseriesfromthecountry’sBalanceofPayments(BoP),macroeconomicandsectorparameters, agribusiness expansion is analysed in the context of the overalltransformations in the patterns of production, trade and capital flows,underpinnedsincetheneoliberalpolicyreformsofthe1990s.
Theanalysis shows that the riseofBrazil as anagribusinesspowerhouse ispartand parcel of the economy-wide effects of financialization, sponsored by statemacroeconomic policies. While these policies have created opportunities fortransnationalfinancial–andoftenspeculative–gains,theyhavealsounderminedproductionandexports,particularlyintheindustrialsector,inducingaprocessofprimarycommoditiesexportspecialisation.Asitisdiscussed,reprimarisationhascontributed toBoP fragility, the reproductionofdebtandexternaldependence,whichareatthecoreofthecurrentcrisis.
Agricultureanddomesticcapitalistdevelopment
AgriculturehasmarkedtheeconomicdevelopmentofBrazil,althoughnotalwaysin thesameway: thepatternsofproductionhavetransformed,andsohavetheeconomic and social roles of agriculture. Until the Great Depression in 1930,agricultureandresourceextractionwereatthecentreofdomesticaccumulationandeconomicdevelopment,andagro-extractiveexportscomprised thematerialbasis of Brazil’s relations with the rest of the world. After 1930, agriculturetransformed along with the process of industrialisation and (in the 1990s)financialization;bothprocesseshaveredefinedthedominantsystemofeconomicreproductionandaccumulation.
Whenindustrialproductionbegantodriveeconomicgrowth,thedevelopmentofagriculture was subsumed to industrial expansion. Even if coffee remained thecountry’smainexport itemforat leasttwomoredecades, theforeignexchangegenerated was a source of finance for imports of industrial equipment andmachinery.Yet,thathasallowedtheplantationfarmstocontinueexisting,aswellastheagrarianoligarchy,althoughtheyincreasinglysharedthepoliticalcontrolofthe statewith the emerging industrial bourgeoisie.2 The economic and politicaldominance of the latter became evident when the state placed the policy of‘ImportSubstitutionIndustrialisation’(ISI)attheheartofitsnationaldevelopmentproject.
2Albuquerque,“Aformaçãodaclasseempresarial”
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Inthemid-1960sand1970s,agricultureitselfbegantoindustrialise,incorporatingindustrialtechnologythroughasignificantcreditpackagepromotedbythestate.3Farmswereintegratedwithupstreamanddownstreamindustryasaconsumerofmachineryandagro-inputsandsupplierofrawmaterial forprocessedconsumergoods for the national and international market.4 That was the origin of theBrazilian Agro-Industrial Complex, as progress in farming became linked toindustrial capital anddynamicsof accumulation.5 The substantial and consistentgrowth of agricultural exports in this period shows that ISI and export-orientedagriculturewerecomplementarystrategies.6TheBrazilianindustry,oncedesignedtoservethedomesticmarket,didnotgenerateforeignexchangenecessaryforitsexpansion,thusrelyingontheagro-exportsector.Notably,Brazilbecameoneofthemostimportant‘NewIndustrialandAgriculturalCountries’(NICsandNACs).7
Agro-exports,however,wereaninsufficientsourceofforeignexchange,exposinga structural flaw of ISI. The country increasingly resorted to foreign loans toacquire abroad crucial capital goods. By the 1970s, international creditorswereessentiallyfinancingBrazil’s‘economicmiracle’.
Financialdependence–andthegrowthofexternaldebt–becameaproblemonlywhenBrazil’smain creditor, theUnited States, endured twooil price shocks (in1973and1979),followedbythestockmarketcrashandrecession.Interestratesinglobalcapitalmarketsskyrocketed,practicallyimpedingaccesstointernationalcapital,besidesprovokingadramaticincreaseinthecostofservicingtheexternaldebt. Indebtednessanddebt service suddenlybecame inhibitorsof growth.8 Inface of the greatest recession of all times throughout the1980s, ISI wasabandoned.Thesupportforagro-exports,however,wasmaintainedbythestate9–thistime,nottohelptofinanceindustry,buttoserviceexternaldebt.
The 1980s crisis and the changes it inflicted in the functioning of the economyreflectednotonlythestructurallimitsofISI,butalsothefast-advancingprocessoffinancializationofcapitalismattheglobalscale–aprocessthathasunderpinneda‘worldwideshifttowardsneoliberalism’.10Neoliberalismencompassedahistoricandsystemicreorganisationofthematerialbaseforeconomic,socialandpoliticalreproduction globally.11 The control of financial capital over all spheres ofproduction was a defining character of that reorganisation.12 Before discussinghow the transformations in agriculture were linked to neoliberalism, the next 3Leite“State,PatternofDevelopment”,298
4Graziano“Amodernizaçãodolorosa”,62
5Muller,“Agriculturaeindustrializaçãodocampo”
6Spoor,“PolicyRegimesandPerformance”
7Friedmann,“ThePoliticalEconomyofFood”,45
8Mollo,“ODesequilíbriodoBalanço”.
9Spoor,“PolicyRegimesandPerformance”
10Saad-Filho,“ThePoliticalEconomy”,224
11Saad-Filho,“Neoliberalismo:umaanáliseMarxista”
12Ibid.,65-66
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section explains the key aspects of neoliberalism itself and how it formed newpatternsofgrowth.
Inthetransitionfromthe1980stothe1990s,thestate implementedsuccessivepolicy and institutional reforms in an attempt to gain economic efficiency andrecoverpreviouseconomicdynamism.13Thereformshadanunderlyingidea:thestateshouldfreethemarketfrom(state)regulation,andtransfer(tothemarket)partofitsfunctionsandassets.Thatimplied,amongotherthings,privatisationofstate-owned productive enterprises and services (including financial services),fiscalandlabourmarketreforms,butmostimportant,itincludedtheliberalisationof trade, finance and capital flows. The control of debt and inflationwere alsocentral and led to the institutionalisation of contractionary fiscal andmonetarypolicies.14
In 1994, a major economic plan, named the Real15 Plan finally succeeded tocontain inflation, promoting a ‘virtuous circle of macroeconomic stability andconsumption-ledgrowthfinancedbyforeigncapital’.16Besidestheirroleintaminginflation, combined effects of high interest rates, fixed exchange-rate at anovervaluedrateandtradeliberalisationwerealsohighlyappealingtoconsumers;imported goods were made affordable and available, also forcing an overalldecline in local prices.17 The initial success of the Real Plan helped its mainarchitect – the thenMinister of Finance, FernandoHenrique Cardoso (from theSocial Democratic Party, PSDB) – to the Presidency of the country for twoconsecutiveterms(1995-2003).
At first, the trade deficit did not prevent imports or require a currencydevaluation. Attracted by macroeconomic stability – and liberalised capitalaccount – foreign investments returned to the country, financing the on-goingconsumption,aswellasstateexpenses. 13Saad-Filho,“ThePoliticalEconomy”,225
Keeping high interest rates, the state not only controlled inflation butwas alsoable to regularly sellNational Treasurybondsof thepublic debt in thenationalandinternationalmarket,transformingdebtintoanassettofinanceitsexpenses.Theunprecedentedincreaseinforeignportfolioinvestmentsreflectedtheinterestof the international financialmarket in thehigh levels of financial returnof theBrazilian Treasury bonds indexed to the interest and exchange rates. Yet, therewasnomagictrick:anewindebtednesscyclewasinaugurated.Theexternaldebt– formedearlier throughabundantexternal loans–was graduallybeing repaid,butsubstitutedbyaninternalpublicdebt,incurredbythesaleofTreasurybondsinthenationalmarket.Yet,foreigninvestorswereamongcreditorsoftheinternaldebt.
Themainownersoftheinternaldebtbondswerenationalinvestors,particularlypublicandprivatebanks.Nonetheless,theirinvestmentswereoftencoupledwithexternal borrowing, thus also linked to a foreign creditor. With interest rateshigher in Brazil than in the rest of the world, national banks and firms werestimulated toborrowabroad,andto investnot inproductionbut inpublicdebtbonds. As a consequence, the external private debt skyrocketed from less thanUS$10billionin1990toUS$116billionin1998.20However,onceacquiringpublicdebtbonds,nationalbanksandfirmsperverselyconvertedprivateexternaldebtintopublicinternaldebt.Since1994,theinternaldebthasescalated.21
The rapid increaseofdomestic assetsownedby foreigners (including thepublicdebt, state-owned enterprises and services) engendered an immediate rise ofoutflow of profit and dividends earned by foreigners. Income outflowwas alsoenhanced by the interest paid on external private loans. Income repatriation,morethanthetradeofgoodsandservicesdeficit,becamethelargestburdenofthe current account of the BoP – a burden that, in the 1980s, mostlycorrespondedtotheinterestpaidonthepublicexternaldebt.
In thetimespanof fiveyears, thecurrentaccountdeficitexpandedfromUS$0.7billion in 1993 to US$33.4 billion in 1998. Evidently, this translated into astructuralandself-propellingvulnerabilityofthedomesticeconomy, increasinglydependentonabsorbingexternal savings to finance itself.TheBrazilianexternalexposure was exacerbated in the context of great instability of internationalfinancialmarkets,affectedbyasequenceofcurrencyandfinancialcrises(Mexicanin1994,Asianin1997andRussianin1998).In1999,Brazilbecamethecentreofacurrencycrisisofitsown:foreigninvestors,fearingthegovernmentwouldfailtofinancetheBoPdeficitandprovokeanexternaldefault,promotedamassiveassetsale(ora‘capitalflight’),whichledtothecollapseofthedomesticcurrencyanddepletion of foreign reserves. National banks and firms, fearing currencydevaluation itself, anticipated the payment of their external debt, consumingforeign reserves of the Central Bank – which, in turn, resorted to interest rateincreasetostimulatethereturnofforeigncapital,yetpromotingfurtherrecessionandunemployment.
Erupting only five years after the start of theReal Plan, the crisis exposed theflawsof thenewgrowthmodel,ofwhich the statewas themainagent.Yet, its
20AuditoriaCidadãdaDívida,ABCdaDívida,18
21Ávila,“Dívidainterna”,6
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core premises were maintained or deepened as ‘solutions’ to the crisis itself.President Cardoso’s policy response consolidated the macroeconomic policyregime ‘tripod’:22 1) rigid monetary policy, tied to inflation targets and highinterestrates;2)fiscalpolicyattachedtoambitiousannualtargetsoftheprimaryfiscal surplus, aiming to compensate thenominalpublicdeficit and3) a floatingexchange rate regime, which allows the currency to fluctuate according to themarket.Thistripod,aswillbeseenbelow,hasbeenmaintaineduntilthepresent.
Although the tripod policy regime intended to stabilise the public debt, thecurrentaccountandpreventthereturnofinflation,itwasstructurallylimited.AsMolloandSaad-Filhoexplain,currencydepreciationfavouredthestabilisationofthecurrentaccount,butbroughtinflationbackandincreasedthedebtservicing.The debt was difficult to stabilise, as interest rates could not be significantlylowered,beingamechanismtocontrolinflationandattractforeigncapital,aswellasavoiditsoutflow.Highinterestratesimposedahighcostofservicingthedebt,besides constraining growth and investment.23 That has limited fiscal revenue,leavingthestatewithlittlechoicebuttoraisetaxesandcutspending.24 Inbrief,thecountryhadfallenintoa‘macroeconomicpolicytrap’.25
ThepolicytrapcreatingBoPinstabilityanddependenceonforeigncapitalwas,infact,political.Whilepremisedupon thecontrolofdebtand inflation, ‘technical’measures introduced by the Real Plan have in fact driven the process offinancialization of the Brazilian economy, including of the state’s finances. Thathas inaugurated structural changes in theworkingsof theeconomyas awhole.The following section returns to the issue of agriculture and agribusiness,revealing how its role within the broader economywas re-defined in the early2000s.
Withlittlemarginforpolicymanoeuvre,re-adjustingthecurrentaccountbecameamatterofeither ‘exportordie’–asappealedPresidentCardoso in2001attheswearing in ceremony of theMinister of Development, Sérgio Amaral.26 In thatcontext, the agricultural export sector was re-launched as the country’s bestasset.27 Until the mid-1990s, however, the sector was highly indebted, havingbeenbadlyhitbyinflationandasequenceofunsuccessfulinflation-curbingplansthat sent false signals to investors.28With the stabilisation of inflation, though,accesstocreditandnewinvestmentswerestimulated.Also,intheharvestseason 22MoraisandSaad-Filho,“Daeconomiapolítica”,508
of 1995/96, the rural debt was renegotiated and partly assumed by the state(whichconverteditintopublicdebtbonds).29Furthermore,inSeptember1996,alargefiscalincentiveforexportwasputintoeffectwiththeapprovalofalaw(LeiKandir)thatexoneratedprimaryandsemi-manufacturedproductsfromtradetax(‘ICMS’).30
With the exchange rate devaluation in the early 2000s, the agricultural exportsectorwas ready to takeoff. Thecountryadoptedanaggressiveposition in thenegotiations at the World Trade Organisation (WTO) to increase access ofBrazilian agro-exporters to international markets. In 2002, Brazil launched twolandmarkdisputes(whichitwonin2005)againstUSandEUsubsidies.31Brazilianexportsbegantoreachnewcommercialpartners,particularly,China.FavouredbyincreasingAsiandemand,agribusinessexportsincreased50%from1999to2003–whileagribusinessimportsdecreased17%–thusgeneratingasubstantialsurplusthatbegantocounteractthetotaltradebalancedeficit(Figure1).
38 MAPA, Brazilian trade balance and Agribusiness trade balance series: 1989-2014. 39 MAPA, Agronegócio brasileiro em números 40 Annual Agricultural Harvest Plan (Plano Safra) available at the MAPA website
(http://www.agricultura.gov.br), (author’s estimate).. 41 Economist Intelligence Unit, “The Global Power of Brazilian” 42 Garcia, “A Internacionalização de Empresas Brasileiras” 43 Morais and Saad-Filho, “Da economia política”, 507 44 UNCTAD, “Transnational Corporations, Agricultural Production”, 117
45 Ibid., 64-66. In the manufacturing sector, which received 35% of investments, 80% accounted for
the industry of semi-processed material. Ibid. 46 International Investment Position (IIP) Series, available at Brazilian Central Bank
(https://www.bcb.gov.br) 47 Gentil and Araujo, “Divida Publica e Passivo” 48 Ribeiro e Silva Filho, “Investimento Externo Direto”, 33-34, based on UNCTADstat data. 49 Arezki et al., “What Drives the Global”, 1 and Ghosh, “The Unnatural Coupling”, 78 50 Sauer and Leite, “Agrarian Structure, Foreign Investment” and Wilkinson, Reydon, and Di
54 Carneiro, “O Desenvolvimento Brasileiro Pós-crise” 55 Ibid. 56 Carneiro, “O Desenvolvimento Brasileiro Pós-crise”, Delgado, "Especialização primária como
limite"; Paulani, “Acumulação sistêmica, poupança externa" and Moreira and Sebag, "Um novo padrão exportador”.
Therearetworeasonstoargueso.First,becausespecialised,ratherthanbroad-basedexportcapacityisitselfnecessarilyweaker.Themorespecializedtheexportbasket,themorefragilethetradebalance.Second,because–asdiscussedabove–thegreatertheeconomicgrow,thesteeperisthedeclineoftheindustrialtradebalance,makingagro-commodityexportstructurallyineffectiveto 57 AGROstat, Agribusiness series per product: 1997-2015 (author’s estimate) 58 IPEAdata, Terms of exchange, index (2006 = 100)
59 Paulani, “Acumulação Sistêmica” and Bresser-Pereira, “The Dutch Disease”. ‘“Dutch disease”, a
term coined by this newspaper [The Economist] in 1977 to describe the impact of a North Sea gas bonanza on the economy of the Netherlands. This malady involves commodity exports driving up the value of the currency, making other parts of the economy less competitive, leading to a current-account deficit and even greater dependence on commodities’. The Economist, "It's Only Natural"
60 Paulani, “Acumulação sistêmica”. 61 Hennings and Mesquita, “Capital Flows”, 105 62 Ibid. 63 Anderson, “Crisis in Brazil” 64 Brazilian Institute of Geography and Statistics (IBGE), Investment rate series: 1947-2014
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