Agricultural Development in Brazil

The Rise of a Global Agro-food Power

Antonio M. Buainain, Rodrigo Lanna, Zander Navarro

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9781351029728
• Edition: 1
• Topic: Business
• Subtopic: Agribusiness
• Index: Business

In the last few decades, Brazilian agriculture has experienced a seismic transformation, and its contradictory facets have fed different and opposing narratives regarding recent changes. This book covers these changes, exploring the issues from several empirical and analytical angles, including the role of agriculture in the contemporary Brazilian economy, the dynamics of Brazilian agricultural value chains, environmental challenges and the processes of social differentiation.

Brazilian agriculture continues to be viewed in the international literature, either through the lenses of the past century – those of former problems relating to land use and land tenure – or apologetically. This collection of essays aims at updating the current interpretations, providing objective accounting of the main transformations, its determinants, results, contradictions and limitations. As it covers the most relevant traits of Brazilian agricultural and rural development, the book will provide the reader with an encompassing view of contemporary Brazilian agriculture, including the positive and negative sides of the so-called tropical agriculture revolution. It highlights the tremendous economic potential as well as the continuing structural heterogeneity, concentration of production and marginalization of millions of small farmers.

Written in an engaging and accessible style, this book will be perfect for all those interested in learning about Brazilian agriculture. It will be of particular interest to undergraduate and graduate students of economic development, agricultural economics, rural sociology, comparative economic development, rural development and agricultural policies.

1Agriculture, industry and the economy

From extensive farming to a global agro-food power

Geraldo Sant’Anna de Camargo Barros

1 Introduction

The debates on Brazil’s transformation from a typical agro-exporting country to a modern and sustainable developed economy traditionally emphasized the requirements imposed by the urbanization process. The discussions focused prominently on the decisive role played by the domestic industrialization. The policy goal was to promote economic development based on capital formation in the industry anchored on surplus extracted from agriculture and on occasional foreign savings. An intricate and interdependent set of relations, including technological intensification and greater productivity based on an ever-growing trained and educated population – both urban and rural – was one of the basic premises of the desired path to development. The transformation presupposed the need to invest strongly in human capital in order to cope with the increasing complexities of the economic expansion at large. However, as argued below, limited progress was achieved in this relevant area.

The chapter discusses some aspects of the historical framework applied to the development of the Brazilian economy. It also addresses major obstacles to the process followed over time, especially since the 1930s, when several initiatives to promote the country’s industrialization started. The structural transformation was consolidated at the turn of the 1970s. It will be argued that, despite the impressive results obtained, a series of macroeconomic and social challenges were not overcome. Moreover, the stated objective of pursuing an equitable pattern of development was only partially achieved. In particular, the undisputable social aim of building a robust educated society is still far from reality.

From a historical perspective, industrialization depends on savings, which in general originates from agriculture. In the case of Brazil, the main source of savings was, initially, the coffee sector, either through surplus collected from foreign trade or resulting from forced extraction imposed by public policies, e.g. fiscal and exchange rate measures.

Thanks to favourable climate and soil conditions, significant increases in the relative prices of coffee and sugar on the international market and a replacement of slave labour by European and Japanese immigrants, coffee production developed rapidly in São Paulo during the 1880–1930 period. However, after the economic crash of 1929 a different picture emerged. The repercussions of the crash on the international trade of agricultural commodities led to a crisis in the coffee sector. In this context, production incentives were given to promote crop and livestock production – as a result, sugarcane resumed its leadership decades later as a major productive sector.

Following those years, it became clear that industrialization and urbanization, already well advanced, would not be sustained without the support of an efficient agricultural sector. Therefore, in the 1970s major public investment was made in the transformation of agriculture. Until then, agricultural research was carried out by subnational institutes and universities. According to Alves (1979), although agricultural production increased between the 1930s and the mid-1970s, it did so at decreasing and insufficient rates to keep up with demand. Thus, supply gaps emerged causing price pressures to the detriment of the urban population. This situation worsened at the initial phase of the industrialization.

The industrial sector has frequently received government incentives, from the 1930s to the present – protectionist tariffs, overvalued exchange rates, tax and credit subsidies, etc. – and agriculture has traditionally been considered a source of resources – labour, savings, foreign currency, food and fibre, often at controlled prices. Nevertheless, since the 1960s agriculture has benefitted from subsidized credit and price support programmes.¹ The establishment of a national agricultural research system and the creation of rural extension institutions in the early 1970s contributed also to enhancing the sector’s performance. A programme of land redistribution (land reform) and new labour legislation were also simultaneously introduced.

After decades of investment in agriculture and in the industry, a positive picture is observed, i.e., a strong and efficient agricultural sector producing ever-larger volumes at stable or even decreasing real prices. However, the same is not the case with the industry – the sector still shows low competitiveness and efficiency, and is unable to survive when protectionist measures are withdrawn. For many analysts, starting in the 1980s, a ‘deindustrialization drive’ has been under way in Brazil (Bacha and Bolle, 2013). Since then, the country has fallen into the middle-income trap, with a high degree of income concentration. In agriculture, larger and high technology farms (less than 10% of the total), generating three quarters of the sector’s income, have been a stark contrast to the vast majority of farmers living in poverty, with little human capital and making small use of modern technology. Therefore, a major agricultural challenge remains: How can the gap between these two realities of Brazilian agriculture be reduced? The next sections of this chapter present the evolution of Brazilian agriculture in the 1930–2017 period, highlighting some of its links to industry and to the economy as a whole.

2 The development of an agro-exporting economy through industrialization: 1930–1960

Throughout the nineteenth century, the industrial revolution expanded its social and economic impact, particularly in Europe. From a global point of view, at that time Brazil was characterized as an agro-exporting economy. Gold mining was in decline and coffee production was just beginning to expand. From the middle of the century onwards, the building of railways with routes to the ports accelerated in response to the export flow needs of coffee producers. The initial phase of industrialization (wool, cotton, silk, iron and steel, as noted by Luz, 1978) did not prosper much in Brazil during that century. It always involved some form of protectionism, partly as a reflex of the fiscal policy, focused on taxes imposed on agricultural exports.

At the turn of the nineteenth century, the industrial sector still represented only 12% of Brazilian GDP (Bonelli, 2006). The state of São Paulo stood out due to its large coffee resources, which were used to finance the import of both capital goods and raw materials, as well as the recruitment of foreign labour through immigration (Suzigan, 1971). According to Versiani and Suzigan (1990), until the 1920s sectors such as textiles, clothing and shoes, food and beverages met the overall demand created by the coffee industry. These sectors consisted of small factories, most of them operated by middle-class immigrants (Cardoso, 1960).

The following decade saw the establishment of plants for the production of inputs such as pig iron, cement, capital goods tools and machinery, for use in the agro-industry. Suzigan (1988) argues that the role of the state in the industrialization process, however, was negligible until the end of the 1920s. By then, the industry already represented 16% of GDP while agriculture accounted for 38% of the total (Bonelli, 2006). These shares remained stable until the end of the 1950s. Apart from coffee – by far the main source of foreign exchange – there was practically no direct state intervention in agricultural prices (Brandão and Carvalho, 1991).

With the rise of Getúlio Vargas to the presidency of the country, after the revolution of 1930, the structure of power changed – from the old regional aristocracies towards a centralized militarized technocracy. A state-sponsored programme aimed at promoting industrialization (involving exchange rate control, fiscal subsidies and restrictions on imports) was forcefully imposed while somewhat maintaining incentives for the coffee sector, whose resources remained essential for the implementation of the programme.

Under Vargas a new institutional framework, compatible with the industrialization strategy, was developed. By the end of the 1950s, a broad system was in place; it included new labour rights, but at the same time increased the control over the decisions taken by workers and their unions. While addressing some issues related to the quality of life of the workers in preparation for the intended thrust towards industrialization, very little was done in terms of their productivity, as evidenced by their low educational level. In 1940, still 56% of the population was illiterate (Figure 1.1). The variable fell slowly to 51% in 1950 (Souza, 1999). Among the rural population, the illiteracy rate was 68% in 1950 (Ferraro, 2012).

Further to the above, in order to boost economic growth, an official credit programme to finance agricultural and industrial production started operating in 1937 under the auspices of Banco do Brasil (Bank of Brazil). Moreover, state or ‘mixed economy’ companies were established in the areas of steel, minerals, engines, chemistry and electricity generation.

Figure 1.1Evolution of rural population (%) and national illiteracy (%) in Brazil between 1940 and 2010.

In the 1950s, public bodies and new regulations were created for the purpose of managing the exchange rate, licensing and financing foreign trade and establishing customs tariffs. During that decade, the automobile industry functioned as the main industrial driver, dragging behind heavy industry (steel, metallurgy, machinery and equipment).

As a result of the policies followed to promote the domestic industrialization, the sector continued to grow. Thanks to government actions that coordinated the use of national (public and private) with foreign savings, which were increasingly necessary considering the desired pace of investment, the industry share of GDP increased from 15% in 1930 to 20% in 1950. In contrast to this performance, the share of agriculture in GDP fell from 36% to 25% in the same period. Thus, part of the population soon faced serious food shortages. Malnutrition and hunger were predominant in some regions of the country, where 70% of the population still lived in rural areas (Castro, 1946; Vasconcelos, 2008). This situation forced the government to gradually turn its attention to agricultural production.

Initially, the government’s reaction was to control the symptoms (high food prices) rather than focus on the causes – the low income of the population and the inefficiencies of the agricultural production structure. Therefore, marketing and food price control bodies were created, culminating with the establishment of the National Food Commission in 1951 (Silva, 1995). The second response, during the 1940s, was to implement a major territorial occupation programme known as the ‘March to the West’. This initiative was adopted because food production in the Southern and Southeast regions, albeit on the rise, was not growing as steadily as the urban population demanded.

An enlightening analysis regarding the development of agriculture in the Southern, Southeast and Center-West of Brazil was developed by Chaddad (2016). In the Center-South, European immigrants were able to transform their socioeconomic conditions from tenants working on coffee plantations in São Paulo in the 1920s and become independent producers. From the late 1950s onwards, small farmers in the southernmost state of Rio Grande do Sul began to plant soybeans and other crops, using inputs that increased the fertility of the soil. In other places, such as in the states of Paraná and Santa Catarina, the production of milk, poultry, pigs and grain, was successfully developed by producers’ cooperatives. Given the level of schooling and certain cultural and social facets of the producers, they have been organized into colonies and cooperatives since the 1920s.

According to Chaddad (2016), since the crisis of 1929 coffee production in Brazil was partially replaced by pastures and other crops. Cattle ranching, which had in turn been an important vehicle for territorial occupation in the colonial period, was boosted by the establishment of pastures in the 1920s and 1930s in areas formerly under forest, which made use of new varieties of grass from Africa (Wedekin, 2017). Slaughterhouses, funded by foreign (British and American) capital, were built in the Southern and Southeast regions, dominating beef exports, which were previously in the hands of Brazilian firms.

As industrialization advanced, the process frustrated those who had perceived it as a tool to raise labour incomes and reduce inequality and poverty. Agriculture’s share of GDP shrank to 18% in the 1950s, whereas the contribution of the industry increased to 26% of the total (Figure 1.2.). Meanwhile, labour productivity in the industry was more than six times higher compared to agriculture (Menezes Filho et al., 2014). However, while agriculture employed 15.4 million people, the industry secured merely 1.8 million jobs (IBGE, 2006a). Thus, the most productive sector occupied a small part of the labour force, and the vast majority were excluded from the direct benefits of the industrializing effort.

Figure 1.2Shares of agriculture and industry in Brazil’s GDP (%), 1947–2013.

Agriculture, despite registering a significant spatial expansion, faced several challenges in keeping up with the rapidly growing demand due to urbanization and industrialization. The 1940s saw a real increase of 35% in the price of food in the city of São Paulo. In the following decade a further price boost was observed, this time reaching 42%, according to surveys carried out by FIPE (Institute for Economic Research Foundation) and FGV (Getúlio Vargas Foundation). The food price increases had negative impacts on the living conditions of the population, especially on those families that moved quickly to urban areas but were unable to find employment in the industrial sector.² Given this situation, price controls – of both, food and industrial goods – were reinforced. According to Oliveira (1984), domestic food price control, together with an overvalued exchange rate of the national currency, resulted in a high taxation on agriculture. The overvaluation was estimated at its highest in 1964, i.e. 42%; in 1974, it was still relatively high at 34%.

3 Preparing agriculture for industrialization and urbanization: 1960–1990

The 1960s and, in particular, the 1970s were very intense in terms of macroeconomic and sectoral policies. The period was marked by remarkable rates of economic growth and became known as ‘the Brazilian miracle’. Agriculture was required to supply food and raw materials to the urban areas; at the same time, agricultural production and conditions of life in the vast countryside also claimed for outside support given the historical shortcomings affecting them. Rocha (2013) shows that income concentration increased after 1960, resulting in poverty levels close to 70% of the population in 1970. In rural areas it was even higher – close to 80%. According to Neri (2012), the Gini index of income concentration in Brazil increased in the 1960–1970 period, from 0.535 to 0.581. The illiteracy level was 34% of the population on that occasion. In the 1960s, CEPAL concluded that industrialization had failed to bring the desired social progress (Bielschowsky, 2009). Thus, it recommended the adoption of an agrarian reform programme with the expectation that access to land would lead to greater efficiency in agriculture, and hence a reduction in the poverty level.

As a result, and in response to the existing situation, the government began to implement mechanisms to deal with the so-called agrarian question, which involved labour relations and land use in the countryside. Laws that sought to regulate the rural labour market (already applied in cities since the 1940s), including social security, were enacted. Some laws also established a set of sophisticated procedures to implement land redistribution. Over the years, the effect of these measures was an increase in the wage rate, thus resulting in some cases in a replacement of labour by machines, whose costs were mitigated by subsidies granted to rural investment credit (Rezende, 2006). The sum of these effects, together with the possibility of exploring economies of scale, were a strong stimulus to the persistent increase in farm size, particularly in the case of large-scale rural establishments.

According to Alves and Pastore (1980), the agricultural policy was oriented to increasing production through land expansion and productivity growth. Land reform was restricted to specific cases in which the agrarian structure...

Table of contents

• Cover
• Half Title
• Series Information
• Title Page
• Copyright Page
• Contents
• List of editors and contributors
• Introduction
• 1 Agriculture, industry and the economy: From extensive farming to a global agro-food power
• 2 Rural Brazil: The demise of its agrarian past, 1968–2018
• 3 Agricultural development in Brazil: The role of agricultural policies
• 4 The restructuring of Brazilian agri-chains: The role of value chains
• 5 Global competitiveness of the Brazilian agri-food sector: Strategies and policies
• 6 Innovation and development of Brazilian agriculture: Research, technology and institutions
• 7 Bioenergy and biofuels in Brazil
• 8 Agriculture and the environment: A conflictive and ambiguous antinomy in recent Brazilian development
• 9 Rural Brazil: A social and economic space without farmers?
• 10 Employment and forms of occupation in rural Brazil: From minifundio-latifundio to regulated rural labour market
• 11 The fate of family farming under the new pattern of agrarian development in Brazil
• 12 Structural heterogeneity in rural Brazil: Three regional cases
• 13 Challenges of current land governance in Brazil: Beyond the historical, political and social demands for land reform
• 14 Intellectual trajectories about the Brazilian agrarian transition
• References
• Index