July 6, 2016

In recent years, Brazil stopped being one of the most exciting countries in the news, in terms of GDP growth and has become a risky and doubtful place for the international market opinion. This change was very clear when The Economist published in 2009 the famous cover “Brazil takes off” where Christ the Redeemer launches from the Corcovado Mountain. Following that in 2013 the same magazine published on the cover “Has Brazil blown it?” where the Christ statue flies around wildly, and recently in 2016 the cover “Brazil’s fall” with the subtitle “Dilma Rousseff and the disastrous year ahead.” In other words, Brazil was the country of growth in 2009, doubt in 2013 and crises in 2016.

More evidence of this, was the rating downgrade by the biggest three agencies S&P, Moody’s and Fitch, putting Brazil in the “Junk” category.

However, in a country where the economy shrunk around 3.5% according to the last forecast from the Brazilian Central Bank in March 2016 and where pessimism is widespread, one sector has distinguished itself by presenting growth in the middle of turmoil, offering great opportunities for foreigner investment: Agribusiness.

Agribusiness has always been important to the Brazilian economy, accounting for 22% of its GDP, integrating part of industry and exports. According to the United States Department of Agriculture (USDA), Brazil is the largest producer of orange juice, sugar and coffee, the second largest producer of beef and soybean, and the largest exporter of these commodities globally. Brazil also has a strong production and export industry for corn, poultry, cotton and swine. Therefore, according to the WTO (World Trade Organization), Brazil is the fourth largest food exporter in the world.

In a country in crisis, exportation becomes an economic priority, allowing Brazil to explore new markets, trading goods produced with a more favorable exchange rate and bringing new money to the economy. Likewise, Brazil’s Central Bank forecasts that exports will increase 6% this year due to agribusiness production.

Even though the depreciation of the Brazilian Real weakens the domestic economy, it opens two big opportunities to the international markets. First, as mentioned above, Brazilian exports will generate more revenue in US Dollars. Secondly, foreign investors can find a unique opportunity to buy companies and assets at cheaper price than it was a year and half ago. Similarly, when we talk about agribusiness, we are referring to one of the most valuable assets that a country can have: its land. In the case of cropland, an investor can buy it in Real and produce crops with revenue in dollar. Even a processing unit can generate directly or indirectly revenue in dollars, depending on exportation capacity.

Another opportunity in the crisis is that producers and entrepreneurs are having a hard time financing their production because of the bank conditions in the country. They used to have lines of credit with low interest rates and flexible terms, however, that is now over. Thus, investors can have a very important role in proving liquidity for the production chain such as loans and securitization to growers and businessmen.

One advantage of agroindustry in Brazil is that production has a bigger scale compared to other countries. It is very common to find a farm over 10,000 hectares (or 24,000 acres) and slaughterhouses that slaughter 500 to 1,000 heads per day. Therefore, when compared with an average farm in the State of Iowa in the United States that, according to Iowa State University, is usually 140 hectares (345 acres) in size, Brazil has a competitive advantage that offers bigger returns on investment due to its scale.

To illustrate this particular moment in the Brazil’s agribusiness, a division of China’s Shanghai Pengxin Group Co. bought 57% stake of soybean trader and biodiesel maker Fiagril Ltda for $286 million (about 1 billion Brazilian Reais). According to Bloomberg, it was the biggest deal of a Brazilian agricultural company by a Chinese corporation.

Although all the information presented above emphasizes the opportunity for investment in agribusiness, its potential is not restricted to the present moment. Future projections are positive, whether in land availability, production efficiency or services for those in production. As an example of this, nowadays Brazil uses around 52 million hectares (128 million acres) for production and it will reach 61 million hectares (151 million acres) by 2022 according to FIESP (São Paulo’s federation of industry). It’s important to mention that this will be achieved without violating the environmental protection laws, ensuring preservation. Moreover, the lawmakers have already acknowledged that Brazil needs a more flexible law for foreign land ownership, which would bring more investments to the country.

In the same projections by FIESP, agribusiness production in Brazil is expected to grow 44% in agriculture and 14% in livestock by 2022. The climatic conditions are favorable for grain production because growers can plant and harvest twice a year. Consequently, it’s not a surprise that the OECD (The Organization for Economic Cooperation and Development) says that Brazil will be responsible for supplying 40% of the growing demand in food, fiber and energy in the world.

The truth is that agribusiness has always been Brazil’s competitive advantage; it has the perfect weather conditions, soil and large territory for a variety of uses. Also, the sector is completely vertically integrated with industry and technology to keep production upscale. Thus, despite all the adversity in the domestic economy and the low commodity price in the global market, Brazil is still growing in production and in revenue year after year. Therefore, there is no better moment for foreign investors to turn their attention towards this sector and gain from what Brazil has to offer.

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Gabriel Prado de Barros comes from a family of ranchers in Mato Grosso, Brazil. He servers as Business Director of Business Development for KGN Consulting Company focusing on agribusiness investment and holds Master’s Degree in International Business from Hult International Business School.