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Student Research Journal > Spring 2014 Issue
Spring 2014 Issue

Brazil Farming: The Soybean Frontier

Arlee Sowder

Abstract

This paper investigates the possibility of developing a successful soybean farm in Brazil. The paper discusses the Brazilian culture, methods of communication, religious beliefs, and how women are perceived in the work force, as well as Brazil’s geography and climate, economy and government, and imports and exports. Soybean facts and figures are addressed in the latter part of the paper. The prices of soybeans, the conditions needed for growth, and the impact that China has on the demand for soybeans are discussed. This research ties Brazil and soybeans together, and suggests that a soybean farm should be established in Brazil. By combining ideal soil and climate with rapidly expanding lands and improved transportation infrastructures, investors can successfully enter the soybean industry and gain from exporting to the global market. The analysis indicates that Brazil can successfully support additional soybean farms and that it would be a good decision for investors to fund a soybean farm in Brazil.

Brazil Farming: The Soybean Frontier

In recent years, Brazil has blossomed into one of the world’s most attractive investment opportunities available today. Falling closely behind China, India, Indonesia, and the United States, Brazil has grown into the fifth largest market opportunity across the globe (“Background”, 2012). When it comes to infrastructure and technology development, Brazil outshines all other South American countries. While business investors are pleased with Brazil’s stable political systems and currency exchange, many investors are finding that the broad mineral wealth is becoming more and more attractive to investors. Now, more than ever, farmers are moving to Brazil to share the rich minerals and vast lands (“Background”, 2012). Brazil has become a powerhouse in the production of agriculture, specifically in soybean farming (“Brazil nears U.S.”, 2012). After extensive research and careful analysis, it its evident that Brazil would be an ideal location to start a soy farm.

Insight into Brazil

Before investing in a foreign country, it is important to understand all facets of doing business in that country. By understanding Brazilian ways of life and business practices, an investor can decide if Brazil is the right business venture. When research is laid out, better decisions are made, and plans can be drawn. By gaining insight into Brazilian customs and practices, investors can conclude whether Brazil is right for their business.

Communication

While some educated Brazilians speak English, many only speak the native language, Portuguese. It is typical to find English-speaking Brazilians in more commercialized areas; therefore, when investing in rural farmland, the ability to speak some Portuguese is a tremendous advantage. It is crucial for first-time investors to research whether a translator would be needed or not. By doing so, foreign investors can reduce the risks of offending or misunderstanding Brazilians. As one of few non-Spanish speaking countries in South America, Brazilians take much pride in their uniqueness. Using Spanish, instead of Portuguese, is often viewed as being culturally insensitive and even offensive (”Brazilian”, 2012). As with many Latin countries, verbal communication plays an important role in communication styles. While some might view Brazilian verbal communication as over-emotional or exaggerated, Brazilians do not. Brazilians portray how they feel by expressing it verbally, as well as with body language. Brazilians often use body language in their normal communication. Brazilians are generally tactile, meaning they like to use their sense of touch. In addition to tactility, Brazilians use strong eye contact when speaking to others. The combination of touch and eye contact can sometimes be uncomfortable to other cultures. When visiting Brazil, it is important to get accustomed to these communication styles to avoid acting reserved or intimidated. Brazilians often misinterpret intimidation or passiveness as bitterness or hostility (”Brazilian”, 2012).

Religion

Like the United States, Brazil is a melting pot for different religious beliefs. There are many religions practiced throughout Brazil, such as Protestant, Methodist, and Episcopal. However, many Brazilians claim to be of Roman Catholic faith. In fact, with approximately three quarters of the population practicing Catholicism, Brazil is home to more Catholics than any country in the world (“Brazilian religion”, 2012). Recent studies reveal that 90 percent of the Brazilian population pursues some religious faith, while only one percent of the population does not believe in God or a divine being of some sort. Religion plays an important role in the identity of any country, as well as its culture (“Brazilian religion”, 2012).

Geography

Brazil is located in Eastern South America, bordering the Atlantic Ocean. With approximately 8.5 million square kilometers, Brazil is slightly smaller than the United States. Brazil is the largest country in South America, sharing boundaries with every South American country except Chile and Ecuador. Brazil claims approximately 8,000 kilometers of coastline, giving Brazil the ability to easily import and export by way of the sea (Central Intelligence Agency, 2012). Refer to Appendix A. The climate in Brazil is mostly tropical, though more temperate further south. The terrain in Northern Brazil is flat to rolling lowlands. Other areas consist of plains, hills, mountains, and coastline. Also, Brazil possesses many natural resources, such as gold, iron ore, nickel, phosphates, timber, and other rare earth minerals. These natural resources are attractive to many investors, making Brazil increasingly popular. On the other hand, Brazil faces some natural hazards. The Brazilian region is often troubled with reoccurring droughts, particularly in the northeast, and floods and the occasional frost in the south (Central Intelligence Agency, 2012).

Government

The Brazilian government is much like the United States government, in that the states are given control over some issues, but the federal government has the final say. The Federation of Brazil is comprised of 26 states. Like Washington D.C. is to the United States, Brasilia is home to the Brazilian federal district. Brasilia is also the capital of Brazil (“Brazil government”, 2012). Brazil’s federal government is divided into branches: the executive, the judicial, and the legislative branches. Under the executive branch, Dilma Rousseff serves as president or chief of state. The president is selected by the people, and can serve up to two four-year terms. The judicial branch consists of eleven people, appointed by the president, who serve lifelong terms. The legislative branch is an 81 member Senate. Each member is elected to staggered eight-year terms. Lastly, the Chamber of Deputies is a group of 513 members elected by the people of Brazil. It is evident that government and elections are immensely important in Brazil. There are approximately 21 different political parties within the country (Central Intelligence Agency, 2012).

Currency

The Brazilian currency is called the Brazilian real. The plural for “real” is “reais.” The real became Brazil’s official currency in 1960. It was introduced by Portuguese settlers, and its meaning is ‘royal’. Over time the real has changed, and in 1994 it was sub-divided into smaller units. The real is now known as the modern real. Brazil often uses U.S. dollars when making international transactions. One U.S. dollar equals close to 2.03 Brazilian reais (“Convert U.S.”, 2012).

Economy

Due to developed manufacturing, agriculture, mining, and service sectors, Brazil is improving its recognition in the global market. Brazil’s economy exceeds all other South American countries, and has consistently improved its stability. Since 2003, Brazil has worked hard at building up foreign reserves and reducing its debt. In 2008, Brazil faced financial crisis when recession struck and the global demand for Brazilian commodities plummeted. Shortly following the decline, Brazil began to rebuild its economy again. In fact, Brazil was one of the first transpiring markets to start a recovery from the previous recession. In 2010, consumer confidence was lifted, and the gross domestic product (GDP) increased to 7.5 percent (Central Intelligence Agency, 2012). Even after facing global challenges, Brazil’s economy has averaged at least 4 percent annual growth over the past few years. Fortunately, Brazilian property rights and corruption rankings are relativity low compared to other countries around the world. Brazil weathered the economic downturn, and benefits tremendously from rising prices of Brazilian commodities. Today, the Brazilian real is stable and the middle class is progressing (“Brazil”, 2012).

Labor Force

Brazil’s labor force consists of approximately 104 million workers. It is estimated that about 20 percent of Brazilian laborers are in the agricultural sector. However, the majority of workers have service occupations. As of 2012, unemployment has increased to almost seven percent, which is an increase of one percent since 2011 (Central Intelligence Agency, 2012). In 2011, the minimum wage rate in Brazil was 545 reais. The Brazilian government has forecasted a raise in minimum wage to approximately 623 reais, which is equivalent to 344 U.S. dollars per month. The wage rates are set according to budget plans, inflation, and economic growth (Rabello & Marotto, 2011).

Imports and Exports

The flow of imports and exports in and out of Brazil has rapidly increased over the past years. In 2011, Brazil exports reached an astonishing 256 billion dollars. Brazil is known for exporting commodities such as transport equipment, iron ore, soybeans, and coffee (Central Intelligence Agency, 2012). Brazil exports an estimated 12 percent of its goods to China, while only exporting around 10 percent to the United States (“Facts”, 2012). When it comes to imports, Brazil brings in approximately 219 billion dollars in imported goods (Central Intelligence Agency, 2012). Brazil imports generally consist of machinery, chemical products, oil, and electronics. Brazil receives an estimated 18 percent of its imports from the United States, and only about 14 percent from China. Brazil works closely with other import partners such as Argentina and Germany (“Facts”, 2012).

Transnational Issues

Although Brazil is on the rise and continually attracting new investors, it, too, has its conflicts. The major issue in Brazil is drug abuse and violence. Brazil is widely known for smuggling illegal drugs and firearms. Globally, Brazil is the second largest consumer of cocaine. Brazilian territory is often used as a station or meeting ground for transporting drugs and weapons to surrounding countries. In recent years, the increase in drug-related violence and weapon laundering has threatened the safety and reputation of the Brazilian communities. As these dangerous activities continue, the Brazilian government is working hard to put an end to such behaviors (Central Intelligence Agency, 2012). By eliminating corruption, Brazil will be safer for its people, and more welcoming to foreign investors.

Women in Business

It is increasingly typical to see women entering the business world and making significant progress, especially in Brazil. In Brazil, businesswomen are treated fairly and with respect. However, it is still rare to find women in senior management positions or higher-level positions in Brazilian-owned companies. Although businesswomen are well respected, it is typical for Brazilian men to use ‘old world’ traditions. For example, a man would not allow a woman, even a highly positioned businesswoman, to pay for a meal. In addition, businesswomen in Brazil can expect to be complimented on their appearance and fashion (“Women”, 2012)

Soybean Production in Brazil

Brazil’s rich soil and tropical climate create superb conditions for farming. Agriculture has always been a large industry for Brazil, and over the past years, it has continued to grow into an agricultural empire. In fact, Brazil is ranked as the third largest agricultural exporter in the world. With the United States and the European Union ranked first and second in agricultural exports, Brazil is quickly catching up. Corn, pork, and cotton are the major commodities produced by Brazil and the country ranks as the second largest producer of soybeans (USDA, n.d.). Investors and farmers increasingly recognize the growth potential in Brazil’s soy farming, and they all want a piece of the pie.

About Soybeans

Soy has been grown for over 3000 years in Asian countries. Currently, soy is being cultivated worldwide, and more so in South American countries like Brazil. Soy has rapidly become more popular and it serves many purposes. Soy is widely used because it is one of the few plants that provides complete proteins, meaning it contains all eight amino acids. It is estimated that 85 percent of the world’s soybeans are processed into meal or oil. The processed soy is used for a number of purposes, from food ingredients to biodiesel fuel. For many years, the United States has dominated the soy industry. However, Brazil has grown into a fierce competitor due to the world’s increasing demand for soy (“Soy facts”, 2012).

Areas of Production

Brazil is predicted to become the number one soybean-producing country in the next few years. This is due to Brazil’s large amounts of arable land and water resources (“Soy facts”, 2012). Northern areas, such as Mato Grosso and the Amazon region, are serving as vast lands for soybean growth. The Amazon region offers boundless farmlands and indispensible natural ecosystems that are perfect for the cultivation of soybeans. Refer to Appendix B. The “Cerrado”, located in the Amazon region, is one of the world’s largest tropical rainforests and sizeable savannahs. The Cerrado is home to approximately 27 percent of the acreage currently cultivated for soybean production. Due to enormous pastures and relatively low land prices, pioneering farmers and investors are converting cattle ranches into soybean farms. The Foreign Agricultural Service (FAS) predicts that the pattern of land conversions and development of soybean farms will continue throughout northern Brazil over the next few years (USDA, 2004). As the demand for soy continues to rise, so will the amount of land needed for production.

Roads to Riches

As soybean expansion moves into the northern region of Brazil, transportation becomes a concern. The Amazon region is rural, and the few roads that exist do not meet the needs of large, heavy farm equipment. While this region of Brazil is developing farmlands, the roads are being improved and railways expanded. These new transportation infrastructures will make northern Brazil much more attractive for investors, as well as improve movement of soybeans for export. The 2016 Summer Olympics has triggered the expanded development and construction of Brazilian roadways, which will greatly benefit Brazilian farmers. In addition to roads and rail transportation, farmers are using the Amazon River for transportation. The Amazon is an underutilized method of movement for soybean export. The Amazon River is very accessible for large cargo barges. In fact, at some places the river stretches 20 miles wide and the main shipping channel is greater than 360 feet deep. In the early 2000’s, the Amazon River was only used to move around 2 million tons of soybeans, which is less than 10 percent of the country’s total agricultural exports (“The Amazon”, 2004). The Amazon River is being utilized to move soybeans, as well as other cargo, much more frequently today. While the cost to move products in Brazil still remains relatively high compared to the United States, freight rates have begun to decline. In 2003, the freight rates for major soybean regions decreased by an average of 35 percent. Since then rates have continued to drop due to improvement and expansion of transport infrastructures. All in all, improvements in all modes of transportation will increase freight competition, which will bring added values and lower costs to getting soybean crops to market (“The Amazon”, 2004).

Conditions for Soybean Growth

Soybeans have been Brazil’s major crop for many years, followed by corn. Soybean and corn serve as turnover crops for one another, meaning they are planted in the same fields during opposite seasons. It is easy to understand why soybean is the major crop in Brazil, as it is easy to grow in Brazilian conditions. Corn is much more technical to grow because it requires more fertilizer and nitrogen. However, soybeans can grow well in poor tropical soils. If rainfall permits, soybeans will be planted in September, which marks the beginning of the summer crops. Much of Brazil has warm nights, so Brazil’s climate is extremely favorable to soybean production. Experts predict that the weather patterns for the coming year will generate widespread production for the Brazilian soybean harvest in 2012 (Favarao, 2012). The warming waters of the Pacific Ocean make for an evenly distributed rainy season across South American farmlands. Because weather conditions for the United States next year do not appear promising, the world is looking to Brazil for soybean demand to be met. However, as with any crop, soybean production is at risk of failure due to unpredictable weather or natural disasters (“Brazil nears”, 2012). The vast farmlands, rich soils, and ideal climates in Brazil make soybean farming an attractive investment.

China’s Impact

Today, soybean is perhaps Brazil’s most liquid cost crop. During any given year, China purchases approximately two-thirds of Brazil’s soybean exports. Analysts say that Brazil has already pre-sold an estimated 35 percent of the 2013 soybean crop (Wiser, 2011). The Chinese are driving up the demand for soybean exports in Brazil, because Chinese countries do not have vast lands to grow enough soy to provide for their ever-growing population. China uses the majority of soybeans it buys for livestock feed. Livestock is then slaughtered for meat for the Chinese consumers. In addition to feed for livestock, the Chinese use soybeans for vegetable oil. China’s history in buying soybeans indicates that the Chinese will continue to keep the Brazilian soy farmers in business. China imports approximately 18 billion dollars in agricultural commodities each year (Wiser, 2011).

Soybean Prices

At the beginning of November 2012, the daily soybean price per metric ton was around 1,250 Brazilian reais. In US dollars, that converts to approximately 595 dollars. One bushel of soybeans is currently priced at 16 US dollars, which is close to 33 Brazilian reais. Analysts predict that the price of soybeans will continue to climb, making soybean farming an attractive industry (“Soybeans daily”, 2012).

Overall Analysis

After reviewing the research on Brazil and soybean farming, it is clear that a soybean farm in Brazil would be a smart investment. With ideal land and climate conditions, Brazil’s soybean industry can flourish. In addition, Brazil’s stable government and growing economy can successfully support farmers and agricultural progress. Because soybeans are in high demand across the world, particularly in China, there is room for more soy farms in the industry (Wiser, 2011). Due to the expansion of farmlands in the Amazon region, a start-up soy farm could be successful in both the local and global market; however, focusing on a global market could prove to be more profitable and consistent. As transportation continues to improve, soybean freight can be transported in more effective and cost efficient ways, which makes exporting more attractive. As in any business, there are potential risks and issues involved in starting a new business venture in Brazil. In this case, unpredictable weather, as well as the drug and weapons trade, poses risks. The risks of bad weather, natural disaster, and fluctuation in price can negatively affect a farm. In terms of personal safely, Brazil is relatively safe. Smuggling of drugs and weapons is common throughout Brazil, but authorities are dedicated to protecting the people (Central Intelligence Agency, 2012). The positive aspects of soy farming in Brazil outweigh the negative risks and issues. Such risks and issues are not avoidable wherever investors choose to go. By understanding Brazilian culture and gaining knowledge of soybean production, a soybean farm in Brazil can be a great investment with increasing profits.

Conclusion

As an emerging country, Brazil’s key characteristics are increasingly attracting investors. When all the facts are examined, it is clear that Brazil would be a great place to establish a soybean farm. Many factors, from its democratic government to its rich soils, make ideal grounds for agricultural business. Brazil’s similarities to the United States give it a “home away from home” feel for many American investors, which is an important characteristic. If the budget permits, a soybean farm in Brazil would undeniably be a smart investment.

References

Background to business in Brazil. (2012). Retrieved from http://www.worldbusinessculture.com/Brazilian-Business-Style.html

Brazil. (2012). Retrieved from http://www.heritage.org/index/country/brazil

Brazilian communication styles. (2012). Retrieved from http://www.worldbusinessculture.com/Brazilian-Business-Communication-Style.html

Brazil government. (2012). Retrieved from http://www.celebratebrazil.com/brazil-government.html

Brazil nears U.S. soybean crop size (2012). Retrieved from http://www.agriculture.com/news/crops/brazil-nears-us-soybe-crop-size_2-ar25190

Brazil religion. (2011). Retrieved from http://www.brazil.org.za/religion.html#.UHx8co4tV_c

Central Intelligence Agency. (2012). The world fact book: Brazil. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/br.html

Convert United States dollars to Brazilian real | USD to BRL. (2012). Retrieved from http://themoneyconverter.com/USD/BRL.aspx

Facts and figures. (2012). Retrieved from http://www.worldbusinessculture.com/Business-Facts-and-Figures-on-Brazil.html

Favarao, M. (2012). Soybean planting, Brazil style. Retrieved from http://cornandsoybeandigest.com/soybeans/soybean-planting-brazil-style

Rabello, M.L. & Marotto, T. (2011). Brazil may increase minimum wage. Retrieved from http://www.businessweek.com/news/2011-11-22/brazil-may-increase-minimum-wage-to-622-73-reais-in-2012.html

Soybeans daily price. (2012). Retrieved from http://www.indexmundi.com/commodities/?commodity=soybeans&commodity=soybeans

Soy facts. (2012). Retrieved from http://www.soyatech.com/soy_facts.htm

United States Department of Agriculture. (n.d.) Brazil. Retrieved from http://www.fas.usda.gov/country/Brazil/Brazil.asp

United States Department of Agriculture. (2004). The Amazon: Brazil’s final soybean frontier. Retrieved from http://www.fas.usda.gov/pecad2/highlights/2004/01/amazon/amazon_soybeans.htm

Women in business. (2012). Retrieved from http://www.worldbusinessculture.com/Women-in-Business-in-Brazil.html

Wiser, M. (2011). China drives demand for soybeans. Gazette (Des Moines Bureau). Retrieved from http://thegazette.com/2011/02/20/china-drives-demand-for-soybeans/

Appendix A

Appendix B



Arlee Dee Sowder is a senior pursuing a degree in Logistics and Supply Chain Management with an anticipated graduation date of Summer 2013. She is a member of Delta Mu Delta and Phi Theta Kappa Honor Societies. Arlee’s hobbies include photography, baking, and hiking.



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