May 13, 2016
Brazil: The most feed blessed nation on earth
By ERIC J. BROOKS
An eFeedLink Hot Topic
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From inconsequential production forty years ago, Brazil is now the third largest feed producer and a top three exporter of all major meat lines
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80% of feed is produced in-house by the country's integrators, leaving only a minority of output commercially available on the open market
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Only Brazil responded to five years of historically high feed prices by bringing new farmland into crop production
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Brazil's expanding arable land base helped tame recent bouts of feed crop inflation and prevented serious feed and meat shortages from occurring
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The nearly 200 million hectares of new land Brazil can still bring into production is 2.5 times more than the combined acreage of America's corn and soy crops
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Double cropping, the capacity to expand acreage for another 20 years makes Brazil's feed crop abundance exceeds even that of America
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Brazil will lead global feed, feed crop and meat supply expansion for at least another two decades
Latin America's reputation as a major world supplier of meat and feed would not be possible without its agribusiness superpower, Brazil. It produces more feed -and meat- than the combined output of Latin America's other top five producers (Mexico, Argentina, Chile and Colombia). According to Alltech's Global Feed Survey, at 68.7 million tonnes, Brazil's 2015 output made it the world's third largest feed producer, after China and America. Producing more than twice the feed as fourth ranked India, no other top feed producer plays a more vital role in world meat and feed crop markets.Rapid feed output growth over the last four decades reflects Brazil's own but less known transformation. Today, Brazil is the world's top chicken exporter, a top three exporter of beef and pork, the second largest beef producer and third largest chicken meat grower. It was however, not always like this.
At first, this growth was initially driven by multinational companies producing compound feed. However, from the 1980s onwards, the government introduced policies designed to encourage domestic ownership of the industry. In particular, it began financing domestic pork and poultry producers' vertical integration with feed milling operations.
As a result, domestically controlled integrators like JBS, Sadia and Brazil foods now control a large proportion of feed milling capacity. Another side-effect of the government's pro-integrator policy is that independent mills that sell feed on the open market account for only a small proportion of Brazil's feed production. According to a Journal of Animal Nutrition paper co-written by North Carolina State University researchers and Alltech Chief Innovation Officer Aidan Connolly, '99% of broiler feed is integrated with [poultry] production companies, as is most of Brazil's swine feed, although not to the same degree. This level of integrated production means that 80% of Brazil's feed production is manufactured by the same company that will feed it to their animals.'
From a UN FAO estimated 6.9 million tonnes in 1975, feed output expanded at a 9.2% rate over the next five years, totaling 11.4 million tonnes by 1980. The next 25 years saw feed production increasing at an average 5.5% annual rate, totaling 41 million tonnes by 2005. For the first half of this era, Brazil's rapidly expanding meat demand pulled the industry forward.
Then, from the mid-1990s onwards, the country's meat exports entered a prolonged period of 10% or more annual growth. This kept feed demand growing strongly even as rising meat consumption meant that its domestic demand growth was slowing down.
At that point, an unexpected set of coincidences happened: Thanks to disease outbreaks including FMD in Europe, BSE in the United States and H5N1 avian flu in Thailand, Brazil's beef and chicken exports skyrocketed at a time when domestic meat consumption was also rising strongly. As a result, the years 2005 to 2010 saw feed output growth recover to the 9.1% annual level, as output jumped from 41 million tonnes in 2005 to 58 million tonnes in 2010.
In the years since 2010, a confluence of factors have dragged Brazilian feed milling's growth rate back down to far lower levels. Both in Brazil itself and in its export markets, a serious global recession slowed demand growth for its beef, chicken and pork. Around the same time, having recovered from their respective BSE and H5N1 outbreaks, American beef and Thai chicken were re-introduced into world markets.
Brazilian chicken exports, which grew at 7% to 40% rates over the previous fifteen years, only expanded by -1% to 5% over the past five years. Beef exports are still lower today than they were in 2005. At home, beef and chicken consumption went from 2.5% to 6.0% growth rates in the 2000s to barely keeping pace with the country's 1% annual population growth.
Consequently, based on Alltech Global Feed Survey figures, the years 2011 through 2015 saw feed output grow at a slower 3.6% annual rate. Even so, this exceeded the feed milling expansion rates of America and China, which grew by 1.3% and 0.6% respectively. More important for the world however, is not just Brazilian feed's present growth rate, but its capacity to keep expanding rapidly for decades to come.
This is because Brazilian agribusiness's greatest blessing is its resource base: The fact Brazil has the fifth most arable land in the world (after America, China, India and Russia) does not tell the true story of its overabundance of feed inputs. At approximately 800 million hectares, Brazil's 2016 arable land area is slightly over half that of America's World Bank estimated 1.6 million hectares, India's 1.5 million hectares, or China's 1.1 million. Having opened up previously unopened virgin land in its rainforest and savannah regions, Brazil is the only major feed and livestock producer to have far more arable land in production today than it did in 1970, when World Bank statistics indicate only 300 million square hectares had been made suitable for crop growing.
Stimulated by rising domestic meat consumption, exponential growth in meat exports and Chinese demand for its soybeans, by 2007 this had more than doubled to 700 million hectares. Whereas six years of feed crop inflation slowed or stopped the decline in American, Chinese and Indian arable land, the same high corn and soybean prices expanded Brazil's arable acreage to approximately 800 million hectares today.
Brazilian feed and livestock's advantage in untapped but fertile land can be seen in the relationship between its corn production and acreage. From 3.4 million hectares in 1985, corn crop acreage expanded to 8.7 million hectares in 2015, with the land under corn cultivation increasing by 3.3% over this time.
While this partly reflected historically high corn prices in the latter part of this period, it was also driven by an annual 1.7% annual increase or 63% cumulative expansion in Brazil's arable land acreage over these thirty years. Brazil remains unique in being the only major feed crop producer capable of significantly expanding its total crop acreage in response to high meat demand or high feed crop prices. If Brazil had not undergone a flexible, elastic expansion of its feed crop acreage, rising Asian meat demand and China's exponential growth in soybean imports would have created profound food shortages and far worse food price inflation than it did at the time.
What is important to the world is that according to an April 2015 Corn and Soybean Digest estimates, Brazil can expand its arable land area by nearly another 25% or 190 million hectares, to about one billion hectares. A billion hectares nearly equals China's arable land area and amounts to 2/3rd of America's arable land endowment -except that Brazil has 1.1 billion fewer people than China and similar meat consumption levels. It is this huge endowment of arable land to a relatively small population which makes Brazil so vital to feeding the world, whether it be creating feed to export meat or supplying other countries feed crops.
Moreover, with much of Brazil able to enjoy two growing seasons, its arable land is as productive as America or China's larger acreages, which can only grow one crop per year. When one takes into account the ability to double crop much of Brazil's farmland, the country's land and water resources for growing feed crops are comparable to those of the United States, but with 36% or 120 million fewer people.
Because of their vastly higher populations, China and India have only 0.07 and 0.13 hectares of arable land per person respectively, versus 0.4 hectares per person in Brazil. Interestingly, while the amount of arable land per person in Brazil is slightly lower than of the United States, the fact much of Brazil's farmland can be double cropped means that it gets significantly more feed crop production from this land as America does from the same acreage.
Partly because of its lower population, partly because of its ability to do double cropping, Brazil enjoys up to 30% more feed resources per person than the United States -and unlike the US where land under cultivation has been maximized, Brazil can always bring more tropical land capable of growing two corn and soy crops per year into production.
Because it can expand its crop growing land area but the US can only boost harvests by raising crop yields, the lions' share of future increases in world feed crop supplies will come from Brazil. Moreover, with virtually all of Brazil's arable land expansion occurring in the tropical Cerrado or Amazon Basin regions, the proportion of corn and soy growing land that can be double cropped will continue increasing.
For example, according to CONAB, Brazil's agriculture ministry, the number of acres in Brazil's Cerrado region planted with only one corn crop fell 48%, from 740,000 hectares in 2000-01 to 385,000 hectares in 2013 -but the number of hectares double cropped with corn jumped 361%, from 180,000 hectares to 830,000 hectares over that same time. According to a Brown University study, the percentage of Cerrado farmland that is double cropped increased from 2% in 2003 to 27% in 2013. Among all major feed producers, Brazil's unique ability to not only vastly expand its arable land area but also double crop it means that over time, it will become the world's most important food supplier.
That is also why, Brazil is the only major agribusiness supplier that responded to the 2006 to 2012 feed crop inflation era by vastly increasing its arable land under cultivation. World Bank figures indicate that from approximately 600,000 hectares in 2005, high feed crop prices opened up new frontiers, boosting Brazil's total arable land area by 33%, to an estimated 800,000 hectares today.
Going forward, market forces will determine both how quickly Brazil's feed milling output expand -and how quickly it will supply that expansion by expanding feed crop farming into new, northern regions of the country.
Brazilian integrators and policymakers have made it clear that they wish to add more value to Brazilian agribusiness exports. That means that in the future, they will want to export a smaller percentage of the corn and soy crop than they do today, and turn more of it into exportable beef, chicken or pork. This will result in feed production rising by more than the increase in domestic meat demand. This will keep Brazil's feed production growing by around 3% annually; far faster than that of the US or Argentina and as quickly as that of China.
Thus over the next two decades, higher meat production must come almost exclusively from higher crop yields -except in Brazil, where nearly 190 million hectares -an area equal to America's entire corn and soy acreage- is waiting to be brought into feed crop production.
The conclusion is inescapable: Brazil's feed crops, feed mills and fertile land endowment made it possible for billions of people in China, Southeast Asia and the Middle East to eat more meat than their ancestors could ever have imagined -and Brazil will continue doing so for at least another 20 years, when Africa will be ready to take over as the world's feed crop growth driver.
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