Brazilian Perspective on Global Agricultural/Trade Issues Milton Suzuki Business Development Latin America Bayer CropScience - Brazil
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Agenda Challenges of the New Ag Economy and Consequences for the Crop Science Industry Brazilian agriculture Logistical issues Agricultural Facts and Figures: Soybean Corn Sugar cane (sugar and ethanol) Cotton Coffee
Challenges in the New Ag Economy Growing world population increasing food & energy demand decreasing farmland per capita Need for alternative energy feedstocks increasing demand for renewable energy and biofuel Growing wealth Climate change increasing meat consumption and need for feed decreasing stocks to use Acreage competition between food, feed, bio-energy crops and fiber Price increase of crop commodities yield losses through adverse weather conditions need to reduce greenhouse gas emissions, such as CO 2
Food Supply: A Global Challenge Year World population (billion) Arable land & permanent crops (billion hectares) Farmland per person (hectares) 1950 2.5 2.5 1.3 1.3 0.52 0.52 1975 4.1 4.1 1.4 1.4 0.34 0.34 2000 6.1 6.1 1.5 1.5 0.25 0.25 2025 8.0 8.0 1.5 1.5 0.19 0.19 2050 9.2 9.2 1.5 1.5 0.16 0.16 With limited arable land and a continuously growing world population, the available farmland per capita is expected to further decrease dramatically Source: United Nations
Impact of economic Growth and Prosperity on Consumer Behavior 3,600 3600 3,400 3400 Increase in calorie consumption (in calories per person and day) Industrialized countries Growing production of animal feed (Example oilmeals/-cakes for feedstuffs annual production in million tons) Increase Factor 3,200 3200 Emerging economies Avg. worldwide 2.8 3,000 3000 2,800 2800 Developing countries US 1.7 2,600 2600 2000 2030E 2050E EU 1.6 Processing losses (feed required in kg to produce 1 kg of meat) 8 China 5.5 6 4 2 0 India 1982/84 Brazil 2006/07 Poultry Hogs Cattle 0 10 20 30 40 50 2.6 28.8 Source: United Nations, USDA, Toepfer international, own calculations
Declining Stocks of Key Agricultural Commodities Wheat Corn Rice Supply and demand balance of key Agricultural commodities (in million tons) Production / Consumption 700 660 620 580 540 780 740 700 660 620 440 425 410 395 380 Production Consumption Ending stocks 2004/05 2005/06 2006/07 2007/08E 2008/09E 2004/05 2005/06 2006/07 2007/08E 2008/09E 2004/05 2005/06 2006/07 2007/08E 2008/09E Stocks 160 140 120 100 80 140 120 100 80 60 80 75 70 65 60 Production of key crops wheat, corn and rice falls significantly short of consumption in the 2006/07 growing period As a result, global grain stock levels continue to decline Global wheat stocks are down to the lowest level for the past 25 years Forecasts indicate that stocks of wheat and rice may reach critical levels in 2007/08 Source: The Economist Intelligence Unit, Barclays; USDA, August 2007
Commodity Prices expected to further increase by 2009 Commodity price development of key crops (in US-$/ton) 400 350 ( in %*) Rice +20 % 300 250 200 150 100 Soybean +36 % Wheat +41 % Corn +89 % 50 2005 2006 2007 E 2008 E 2009 E Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 * betw. Q1 2005 Q3 2009 E Source: The Economist Intelligence Unit, August 2007
Increasing Demand for Biofuel 1-2 Folien BioFuel Input Market Biofuel world market Sugarcane Corn Wheat Other Biodiesel Bioethanol 3.6 bn liters 37 bn liters 2005 Oilseed Rape Soybeans Other Political targets for biofuel (in % of total fuel consumption) 30 % 25 % 20 % 15 % 10 % 5 % 0 % 2030 2020* 2020 2020 Actual 2005 Political target 2015 USA Brazil China EU Germany * Target: Blending mandate for petrol (bioethanol) Source: REN21, Renewable global status report, Update 2006; Fortschrittsbericht Biokraftstoffe, Jan. 2007; US Dept. of Energy / USDA
Challenges for the Crop Science Industry Limited arable land coupled with rising demand Safeguard and increase yields from constant land area better resource management (targeted use of crop protection, irrigation technology and fertilizers) increase yields through innovative technologies (hybridization, plant biotechnology) Expand agricultural production in marginal areas new crops with greater tolerance of drought and extreme temperatures Climate change Increase tolerance of plants to climatic variability develop new varieties using state-of-the-art technologies improve plant health and nutrient uptake Research and innovation are the key to mastering the challenges of the New Ag Economy
Brazilian overall situation updated 2006/2007 Population: 194,000,000 27 States and 5,564 cities Overall arable area: 249,030,397 ha: Agriculture 76,697,324 ha and 172,333,073 ha Livestock pasture Irrigated area: 3,630,000 ha -> 4.7% of agriculture area. Arable area (ha) / people: 1.28 # Farms: 5,204,130 -> average surface: 48 ha/farm Source: IBGE
Brazilian Economic Development Gross Domestic Product In 2007, agribusiness GDP had a share of 23,3% of the overall GDP of Brazil 4,7% Agribusiness GDP: US$ 282.18 Bi Brazilian GDP: US$ 1,211.70 Bi
Brazilian imbalanced distribution of GDP per person
Land Utilization Brazil 1970-2006 Area (Ha) 200000000 180000000 160000000 140000000 120000000 100000000 80000000 60000000 40000000 20000000 0 1970 1975 1980 1985 1995 2006 Agriculture Forest Pasturage Source: IBGE 2007
Localization Cotton Soybean & Corn Sugar cane Beef cattle Coffee Chicken Citrus
Logistical Issues
LOGISTICS 2006 by Transportation Genre (%) 25 13 58 4 Roadway Railway Waterway Airway Source: Brazilian Infrastructure Yearbook Exame Magazine (2006/07).
State control roadway conditions BR 163 Between Nova Mutum and Lucas do Rio Verde - Mato Grosso State Road between Campo Novo do Parecis and Sapezal-MT
Privatized roadway conditions Under toll charging
Railway Density (Brazil vs. USA) Railway Density Km / 1,000 Km² Brazil 3.4 USA 29.8
LOGISTICS Trend to 2025 by Transportation Genre (%) 29 6 33 32 Roadway Railway Waterway Airway Source: Brazilian Infrastructure Yearbook Exame Magazine (2006/07).
Soybean
Facts on Brazilian Soybean Logistic issues: High transportation costs from farm to harbor due to precarious roads. Part of the production profit is lost by transportation. Bio fuel: From Jan. 2008 on, adding 2% of vegetable oil in diesel has become obligatory. This requirement, will raise to 5% by 2012, which consequently, will lead to higher demand for soybean oil. Asian countries are demanding more soybean (by 5% / year), due to population growth and purchasing power (cheaper protein source) World wide industrial consumption is increasing by 20% / year demanding more production and keeping the commodity price high Exchange rate is not favorable for the Brazilian Real (R$) x Dollar (US$), but the commodity price is historically excellent (12.90 US$/bushel)
Brazilian Soybean area (Ha), yield and exportation (Ton) 1999/00 2006/07 000 Ha 000 Ton 25000 60000 20000 50000 15000 40000 30000 10000 20000 5000 10000 0 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 0 Source: Agrianual 2007 Area (Ha) Yield (Ton) Export. (Ton)
Soybean BRAZIL / Area and Yield Actual 2000 2007 Forecast 2007-2012 Million ha milhões ha 34 32 30 28 26 24 22 20 18 16 14 12 38,4 14,0 Área Area Produção Yield 52,0 42,2 18,5 16,3 50,0 21,4 51,5 23,3 55,0 22,1 58,6 20,7 62,4 22,0 67,6 23,5 73,5 24,7 78,8 25,5 83,3 26,2 87,6 26,8 90 80 70 60 50 40 30 20 10 Million Ton milhões t. 10 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0 Source: Agroconsult. Organização e Projeções 2007-2012: Agroconsult
Bio-diesel National Program Regulatory Milestone Law nº 11.097/2005 Lays down a minimum percentage of bio-diesel within diesel 2005 to 2007 2% (facultative) Potential of 840 million L / year 2008 to 2012 2% (obligatory) 5% (facultative) Market = 840 million L / year Potential = 2,5 billion L / year 2013 on 5% (obligatory) Market = 2,5 billion L / year Source: Petrobras
Corn
Facts on Brazilian Corn 13 Million ton or (24%) is designated for animal feed In average, Brazilian productivity is 3.500 Kg/ha The entire yield grew from 51 to 54 Million Ton within last two years. Corn production is designated majority to supply internal market, instead of exportation. However, the exportation has increased on last two years, achieving 7 Million Ton. Two harvests are done: Main harvest from September until January and the second harvest from February until May/June Input and technology are being adopted in latest seasons.
Corn / Brazil Yield and Consumption Actual 2000 to 2007 Forecast 2008 to 2012 75 70 65 Yield - Year growth rate: + 5,2% Consumption Year growth rate: + 4,3% 63,0 66,0 69,5 60 55 50 45 42,3 47,4 42,1 42,1 51,2 54,2 46,9 57,6 49,2 60,2 51,0 53,2 55,5 57,9 40 35 36,1 35,3 36,4 37,3 38,2 38,9 40,0 40,6 43,5 30 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Million Ton milhões t Produção Yield Consumo Consumption Source: USDA. Projeção 2008-2012: Agroconsult
Million Milhões ha ha 17 16 15 14 13 12 11 10 42,3 13,0 Area +2,5% Área Yield +5,1% Produção Corn / Brazil Planted area and Yield Actual 2000 to 2007 Forecast 2008 to 2012 69,5 66,0 63,0 60,2 16,0 57,6 15,7 54,2 15,3 51,2 14,9 47,4 14,5 14,2 42,1 42,1 14,0 38,9 13,2 35,3 12,8 12,7 12,3 11,6 70 65 60 55 50 45 40 35 30 25 20 15 10 5 Milhões t. Million Ton 9 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 - Source: IBGE; Projeção 2007-2012: Agroconsult
Corn demand in Brazil Chicken Aves Swine Suínos Million milhões Ton t. 16 14 12 10 8 6 4 10 50,3% 15 Million milhões Ton t. 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 2,9 34,0% 3,9 2 0,5 - - 2006/07 2012/13 2006/07 2012/13 Annual growth rate: + 7,0% Source: USDA. Projeções: Agroconsult Annual growth rate: + 5,0%
Sugar cane Ethanol and Sugar Production
Facts on Brazilian Ethanol production / trade 25% of ethanol (anhydrous alcohol) is added within regular gasoline Within the current season 7,1 million ha are being harvested. The forecast is to reach 10,4 million ha in 2012/13 In average the sugar production provides 30% of profitability, whereas ethanol provides 26% 2007 the Brazilian automotive industry produced 1,8 million cars. Of this amount, 1,4 million was flex fuel, in other words, 78%. Billion Liters Year Production Consumption Exportation 2006/07 (actual) 17,5 11,8 3,5 2012/13 (forecast) 37 25 7
Sugar cane growth regions 2007/08 Legal Amazon 359 sugar mill plants currently operating + 67 being built/enlarged until 2011 85 sugar mills within North/Northwest region 274 sugar mill plants within center-south region Ethanol exportation main ports Source: MMA.gov.br, Unicamp, Unica
Domestic vehicle sales milhões unidades Million units 3,0 2,5 2,0 1,5 1,0 Growth rate from 2007/08 to 2012/13: 4,0% per year. Growth rate from 2000/01 to 2006/07: 4,5% per year. 2,1 2,2 1,8 1,9 1,8 1,7 1,4 1,5 1,5 1,4 1,3 1,4 0,9 2,3 2,0 2,4 2,1 2,5 2,2 2,6 2,3 0,5 0,4-0,0 0,0 0,1 0,1 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08* 2008/09* 2009/10* 2010/11* 2011/12* 2012/13* Vendas Internal Internas sell (total) Totais Veículos Flex fuel FlexFuel vehicle Source: Anfavea Agroconsult
Facts on Brazilian sugar production / trade Sugar production reached a record last year with 28,3 million Ton. 64% (18 M Ton) of overall production was exported From 2008/2009 on the forecasted production rate tends to grow around 1,6 % per year and the exportations trends to follow the same rate Almost 65% is designated to soft drink industries (Coca Cola, PepsiCo, Antarctica ) Historically the sugar/ethanol production ratio was 55/45, but it changed to 50/50 in 2007/2008 and trend to reach 36/64 in 2012/2013
Brazil: Sugar production Production Growth Rate 2007/08 to 2012/13: 1,7% per year Production Growth Rate 2001/02 to 2007/08: 6,8% per year 35,0 30,0 28,0 28,3 28,5 28,8 29,4 29,9 30,4 30,9 25,7 Milhões de toneladas Million Ton 25,0 20,0 15,0 10,0 23,4 22,5 19,2 16,2 9,1 9,5 9,8 9,7 9,6 9,5 9,3 9,1 9,2 9,3 9,4 9,6 9,7 5,0-2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08* 2008/09* 2009/10* 2010/11* 2011/12* 2012/13* Consumo Consumption Produção Production Source: UNICA, Agroconsult
Brazilian Sugar cane growing area: actual and forecast 1000 ha 11.000 10.000 9.000 8.000 7.000 Actual 6.355 6.646 7.168 8.064 Forecast 8.558 8.981 9.447 9.941 10.404 6.000 5.000 4.559 4.945 5.434 4.000 4.007 3.000 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08* 2008/09* 2009/10* 2010/11* 2011/12* 2012/13* Source: Conab. Agroconsult
Cotton
Facts on Brazilian cotton yield Brazil stands out with one of the highest productivities worldwide By using a high rate of technology, yield and quality are being improved Financial difficulty deprivation of capital remains an issue Climate adversity within last two years (e.g. due to global warming) Market perspectives further drive area growth GMOs are no reality so far
Yield (Kg/ha) Actual 2000 2006 and Forecast 2007-2012 2012 2.500 drought Annual growth rate (% per year) 2.000 1.833 1.898 Austrália 0,7% kg/ha 1.500 1.000 1.346 1.241 909 1.521 1.337 1.054 966 Brazil 2,5% China 1,5% USA 3,0 % Índia 12,4% 500 539 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: USDA 2007-2012: Agroconsult
Cotton Global Growing Area Actual 2000 2006 and Forecast 2007-2012 2012 Annual Growth Rate 12,0 10,0 Índia 0,7% milhões ha 8,0 6,0 4,0 2,0 China 0,4% USA- EUA (-1,3%) Paquistão 0,5% Brasil 9,3% 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Austrália 22,9% Source: USDA; Projeção 2007-2012: Agroconsult
BRAZIL - Area and Yield Actual 2000 2006 and Forecast 2007-2012 2012 2,0 2,6 2,8 1,8 1,6 Area Tx. Cresc. Growth Área = Rate 9,3% = 9.3%/year Tx. Cresc. Produção = 12,0% Yield Growth Rate = 12%/year 1,9 2,2 2,4 1,60 1,72 2,6 2,4 2,2 2,0 milhões ha Million ha 1,4 1,2 1,0 0,8 0,9 0,85 0,8 0,8 0,75 0,74 1,3 1,5 1,5 1,3 1,17 1,10 1,0 1,09 1,10 0,85 1,7 1,25 1,37 1,50 1,8 1,6 1,4 1,2 1,0 0,8 0,6 milhões t Million Ton 0,6 0,4 0,2 0,4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 0,0 Source: USDA Agroconsult
Coffee
Facts on Brazilian coffee yield Manual harvest is getting more and more difficult due to high costs and labor laws requirements. Otherwise, mechanic harvest is taking place in medium and large farms Domestic consumers are willing for coffee quality improvement (e.g. Global Coffee Shop chains like Starbucks) Strong requirements to produce Certified coffee in order to attend the European and Asian market (traceability by certification agencies) Number of organic coffee producers are increasing as a structured niche market serving the needs of selected consumers, with high value added coffee
Coffee value chain Processing Tasting classification Pack Harvest Toasted bean Dry Coffee shops Exportation Commercialization Harvest
Brazilian Coffee area (Ha), yield and exportation 1999 2006/07 000 Ha 000 Bags* 2450 60000 2400 50000 2350 40000 2300 2250 30000 2200 20000 2150 10000 2100 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 0 Area (ha) Cons. (Bags) Yield (Bags) Export. (Bags) Source: Agrianual 2007 * 1 bag = 60 Kg
Facts on Brazilian Livestock Brazilian livestock exportation is increasing due to meat quality improvement Internal purchasing power has been increased within Brazilian population conducting to more meat consumption Swine and chicken are mainly produced in cooperation with slaughterhouse by small farmers and became a profitable alternative of income Milk production in 2007 was 8,77 million litters. 4,4 million litters was for crude consumption and 4,37 million litters for industry (butter, yogurt, powder )
Beef cattle production (Million ton) Growth rate per year 2007/08 2017/18: 2,5% Actual Forecast Lower border Upper border Source: Brazilian Agriculture, Livestock and Supply Ministry
Swine production (Million ton) Growth rate per year 2007/08 2017/18: 1,9% Actual Forecast Lower border Upper border Source: Brazilian Agriculture, Livestock and Supply Ministry
Chicken production (Million ton) Growth rate per year 2007/08 2017/18: 3,3% Actual Forecast Lower border Upper border Source: Brazilian Agriculture, Livestock and Supply Ministry
Outlooks According to Food and Agriculture Organization (FAO), the Brazilian current land utilization takes 78 million ha and still have 300 million ha arable area as potential Apart from the natural resources (favorable weather, water, soil and land to be explored), there is an auspicious scenario in agribusiness deals to next coming years In short-term, Brazil should get benefits due to commodities prices elevation within the international trade market, specially coffee, sugar and soybean. Within last two decades, technology evolution drove to yield improvement, representing one of the successful agriculture entrepreneur history After Gov. credit subsidies ceased, farmers had to invest in professional management, improve crop technology and be open to the international market
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