From The Illinois International Review, Spring 2006
Brazilian Soybean Production and the Challenges of a Post-Modern World
Peter Goldsmith, Associate Professor and National Soybean Research Laboratory Fellow in Agricultural Strategy, Department of Agricultural and Consumer Economics, University of Illinois
The story of the Brazilian soybean industry begins within the broader context of the rise of soybeans as a key protein source for livestock and a key oil source for the food industry. Very few soybeans were grown world-wide before WWII. The original genetics come from China and were adapted to the U.S. as a feedstuff for a fast industrializing poultry industry. For example in 1961, world soybean production was only 12% of today’s production and the U.S. represented 70% of that total. Soybeans’ success in the U.S., combined with the rise of the poultry sector in the Southern U.S., created research interest in developing a soybean that could be grown at lower latitudes. Researchers quickly developed varieties adapted to the longer growing season and hotter climates by focusing on the role of photo-period in a soybean’s growth and development.
This became the opening for the Brazilians. Researchers took the low-latitude technology and developed their own germplasm that could be deployed in the Southern three states of Brazil, Rio Grande do Sul, Santa Catarina, and Parana. So Brazil’s soybean industry began in the South of the country in the late 1960’s. Like the U.S., it supported both soybean processing and poultry production in the region. (Brazil has always been one of the world’s leading beef producers. But cattle in South America are grass fed (pasture) not grain fed as is the case in the U.S. So Brazil’s soybean meal is not used as a feedstuff for their large cattle herd.)
The development of the lowest-latitude varieties begins the real story of the Brazilian soybean complex. Compared to the Southern part of Brazil, Cerrado farming could take advantage of huge economies of scale. Much of the land was in a native state and could be easily cleared, or was in pasture and could be easily converted to soybean production. U.S. agricultural development began before the age of mechanization. The U.S. Midwest was settled using the concept of a section (640 acres), where 80 acres was sufficient to support a homesteading family. Brazil’s Cerrado region has none of that legacy. Brazil’s rapid growth in the late 1980’s arose because of readily available large tracts of arable land, soybean technology that produced yields equal to the U.S., and mechanization that allowed managers the ability to operate effectively. This gives Brazil some of the lowest operating costs per hectare in the world.
In only two decades, Brazil now produces over 50 million metric tons of soybeans, is the 2nd largest producer (24%) in the world, and is the #2 exporter (33%), mostly serving China and Europe.
As everyone who has taken a course in economics knows, there has to be demand as well as supply. Over the last 40 years, there has been a shift in food consumption patterns from directly consuming grains to more meat-based diets. In 1961, the average annual per capita consumption of poultry and pork was 8.04kg. By 2003, it has almost doubled to 15.63 kg. Most of the shift from grains to meat now occurs in developing countries. At the same time Europe, a large meat consuming region, shifted its feed demand to imported soybeans as a result of problems (e.g. BSE) associated with feeding animal-derived proteins. Europe imports about 23% of the world’s soybeans.
The reason many consumers in the developing world are shifting their diets from grain to meat is because the income elasticity of meat is relatively high. That is, as consumer incomes rise, the first aspect of their lifestyle that changes is their diet. And more often than not, that consumption change involves a shift to animal protein. Across all countries, a 1% rise in income increases poultry consumption by 78% and pork consumption by 48%. For individual countries, these values are much higher.
Soybean oil demand has also increased as there has been a shift in consumption away from raw foodstuffs to more processed foods. Part of this shift in demand is due to: changes in lifestyles--more convenience foods; shifts in consumption location, eating more food away from the home; and simply shifts in preferences, preferring the eating experience of more processed food products. Finally, consumer health concerns associated with cholesterol in the 1970s (from animal fat) and saturated fats in the 1980s (from palm oil) has made soybeans the preferred oil ingredient for food manufacturers.
Of great concern is the environmental impact of soybean production as land changes from a native state to agricultural production. There are now 91.4m hectares planted with soybeans in the world. The soybean crop occupies 6% of the world’s arable land and is the fastest growing major agricultural crop. The cropping practices with respect to soil erosion, water quality, biodiversity, and chemical use become increasingly important because the scale of the activities has grown so significantly.
Land used for soybeans has continued to increase at a rate of 5.36% per year over the last five years, more than three times world GDP growth per capita during the same period. Of the 19.3k square kilometers of new soybean land every year, 75% are in two countries, Brazil and Argentina. Brazil is expanding its soybean land 8.4k square kilometers per year and Argentina 6.1k square kilometers per year. Argentina’s expansion, though, involves mostly switching from other crops, while Brazil’s expansion involves land use changes of native ecosystems or pasture.
The Brazilian government is challenged by the need to develop its own country and alleviate poverty, and agricultural productivity and exports are critical elements. It holds the largest reserve of arable land in the world. It sees parallels with the U.S. and Europe and their history of land use practices and use of private property rights to facilitate development.
At a global level, the demand for food is unrelenting. Brazilian agricultural leaders ask, who is going to meet those needs, if not them? They look to a food insecure Africa and feel they have the technology to bring more food production to their low latitude regions as well. Thus the dilemma: preservation versus production, and how to go about striking a balance.