2013 GAP Report® – The Brazil-China Agricultural Connection

The Brazil-China Agricultural Connection

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China

A Booming Middle Class Increases Demand

Two decades ago, the Chinese middle class numbered just 2.5 million people. In 2013, due to average annual increases of more than 21 percent, the middle class exceeds 270 million.17 China’s middle class is expected to continue its rapid expansion in the decades to come, topping 950 million — roughly three times the current population of the entire United States — by 2030.18

RISING INCOMES, CHANGING DIETS

As millions of Chinese joined the ranks of the middle class, their diets have improved along with their incomes. Consumption patterns from 1990 to 2010 demonstrate a shift away from grain-based diets to include more meat and animal-based protein.19 The rise in meat consumption increased requirements for feed grains and oilseeds, compounding overall demand for agricultural products.

Figure 11: China Population (1990-2030)

China_Population_WEB_revised

Figure 12: Meat & Animal Protein Consumption in China (1990-2010)
Meat Consumption - China
Figure 13: Grain Consumption in China (1990-2010)
Grain Consumption - China

A WIDENING SUPPLY-DEMAND GAP

Due to favorable government policies, more efficient use of inputs and improved practices, China’s TFP-driven agricultural output increased more than 30 percent from 2000 to 2010.20 This robust average TFP growth of 2.97 percent per year was made possible through significant investments in agricultural research and adoption of improved technologies. China doubled its spending on agricultural research and development from $1.9 billion to $4 billion between 2000-2008 and is estimated to have increased by a further 50 percent during 2009-2010.21

China’s tremendous advancement in productivity, though, is not sufficient to keep pace with projected demand. The combined effects of population and income growth are expected to boost food demand at least threefold by 2030. At the current rate of TFP growth, domestic production by 2030 will only meet 72 percent of China’s food demand, suggesting that imports will be critical for closing the gap between domestic production and demand.

Figure 14: Food Demand Compared to Agricultural Output from TFP Growth in China (2000-2030)
China Food Demand

 

The projection of agricultural output from TFP growth uses Fuglie’s (2013) estimate of average TFP growth during 2001-2010 and assumes this is maintained through 2030. The projected growth in food demand uses UN estimates of population, PricewaterhouseCoopers LLP (PwC) estimates of GDP growth, and estimates of the income elasticity of food demand from Tweeten and Thompson (2008). The income elasticity of food demand indicates the share of the growth in per capita income that will be spent on food. Multiplying the income elasticity with the growth rate in per capita income gives the growth in per capita food consumption holding food prices fixed. Adding this to the population growth gives the total growth in food demand for a given price level.

Brazil

A Growing Agricultural Surplus

Agricultural production in Brazil far exceeds local demand, and the country is a reliable source of commodities for food-importing countries such as China. TFP-driven agricultural output has averaged more than 4.3 percent growth per year for 2001-2010. By maintaining this rate of TFP growth over the next two decades, agricultural output would be more than twice that needed to meet domestic demand, providing a growing exportable surplus.

Figure 15: Food Demand Compared to Agricultural Output from TFP Growth in Brazil (2000-2030)
Brazil Food Demand

 

The projection of agricultural output from TFP growth uses Fuglie’s (2013) estimate of average TFP growth during 2001-2010 and assumes this is maintained through 2030. The projected growth in food demand uses UN estimates of population, PricewaterhouseCoopers LLP (PwC) estimates of GDP growth, and estimates of the income elasticity of food demand from Tweeten and Thompson (2008). The income elasticity of food demand indicates the share of the growth in per capita income that will be spent on food. Multiplying the income elasticity with the growth rate in per capita income gives the growth in per capita food consumption holding food prices fixed. Adding this to the population growth gives the total growth in food demand for a given price level.

WHAT ACCOUNTS FOR BRAZIL’S GROWTH?

Three key factors have contributed to Brazil’s remarkable agricultural output growth.

FACTOR 1 | INVESTMENTS IN AGRICULTURAL RESEARCH AND TECHNOLOGY

Brazil’s success is based on four decades of significant investments in agricultural research and the application of innovative technologies through a public-private partnership administered by the Brazilian Agricultural Research Corporation (Embrapa). More than 76 percent of output growth since 1991 has been the result of growth in TFP.22 Through advancements in mechanization, adoption of improved crop technology and animal-care practices, and application of information technology, Brazilian farmers have demonstrated an ability to produce more with less.

One of Embrapa’s foremost contributions is the adaptation of soybeans to tropical regions of the country, quadrupling production from 1990 to 2010.23 Brazil is now second only to the United States in total soybean production.24 Biotechnology innovations along with precision farming — which identifies soil types and topsoil depth and targets inputs very precisely within the field by using information technology embedded in farm equipment — are expected to show further significant yield improvements over the next decade.25

FACTOR 2 | ECONOMIC REFORMS

In the 1990s, Brazil adopted economic reforms that liberalized trade, strengthened market signals and improved the regulatory environment for business. These policy reforms accelerated agricultural development by allowing increased imports and the expanded use of agricultural inputs and technologies, attracting foreign direct investment, and increasing competitiveness and efficiency.26

FACTOR 3 | INFRASTRUCTURE IMPROVEMENTS

Infrastructure improvements are reducing internal transportation costs, allowing soybean production to expand from southern areas near ports into the center-west states, particularly the tropical savanna region of the Cerrado.27 Legislation has been enacted to ensure that land-use expansion is balanced with native vegetation and habitat protection.28 There is a need for continued investment to upgrade roads and railways in order to move agricultural products to cities and ports; expansion and modernization of ports will be necessary to transport increasing volumes of agricultural products to Asia and other parts of the world.

Figure 16: A Leader in Improved TFP: Sources of Growth in Agricultural Output in Brazil (1991-2010)
Brazil Output Growth
Figure 17: Yield Progression, Corn and Soybeans in Brazil (1991-2012)
Brazil Corn & Soy Yields

BRAZIL’S IMPORTANCE GROWS AS A GLOBAL FOOD SUPPLIER

China is Brazil’s largest trading partner. Exports of soybeans to China have grown from zero in 1995 to 22.8 million metric tons in 2012.29 Brazil’s shipments to China in 2012 exceeded the amount produced in the country as recently as 1993.30

Removing barriers to global and regional trade permits efficient distribution of agricultural products from surplus to deficit regions. The importance of trade liberalization will only increase in the future, as demand grows in deficit regions and productivity improvement continues in surplus regions.

Figure 18: Soybean Production and Exports, Brazil (1991-2012)
Brazil Soy Exports

REALIZING THE PROMISE OF TROPICAL AGRICULTURE

Producing more food, fiber and fuel in tropical zones was a challenge in the past because production systems were “transplanted” from temperate regions and not adapted to local agro-ecological conditions. With abundant rainfall, sunlight and the right mix of technology and practices, agriculture in the tropics can be highly productive while still conserving the natural resource base.

Improving the productivity and sustainability of tropical agriculture has been a central mission of Embrapa, farmers and private-sector partners in Brazil since the 1970s. Production of multiple crops in the correct rotations to restore soils and inter-cropping with forest and livestock are among the strategies farmers are adopting. With more complex production systems, farmers need the right mix of credit, training, and support services to realize the promise of year-round, productive agriculture.

Brazil has become a global leader in tropical agriculture because of its supportive policies and partnership with the private sector over many years. It is a comprehensive approach, encompassing agricultural research, education and extension, investments in infrastructure (roads, storage facilities and ports) and new laws, technologies and practices to protect and restore fragile tropical soils. Extending these achievements to other tropical agro-ecological zones in Asia, Africa, and Latin America, including Central America and the Caribbean, will help close the food and agriculture productivity gap facing the world in 2050.


TABLE OF CONTENTS

Executive Summary

The Global Agricultural Imperative

Producing More With Less

The GAP IndexTM

Spotlight on Sub-Saharan Africa: The Productivity Gap

Sources of Growth in Agricultural Output: Variation by Income

The Brazil-China Agricultural Connection

A Policy Voice

The Agricultural Value Chain

Policies in Action: Productivity Along the Value Chain

[1] Comprehensive Value Chain Programs

[2] Investments in Research, Science and Technology

[3] Building Local Capacity and Mobilizing the Private Sector in Developing Countries

Endnotes