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Domestic Consumption’s Impact on Export Potential in Brazil February, 2012 Facing a new world "I'm excited to meet Mickey. It's always nice to meet a world leader who has bigger ears than me" For my daughter Mickey Mouse is a true world leader, but he is not alone… Kai Lan is a children's television show, that teaches how to speak in Mandarin 40% increase in Visas for China and Brazil “rapidly growing economy, huge population… and fastest growing middle classes” Brazilian Economy Brazil Highlights • Although affected by the global downturn of recent years, the next five years are forecasted to be a period of steady growth and continued stability Real GDP Growth (% p.a) 9% 8% 7% 4.3% • One of the 10 biggest economies in the world • Conservative monetary and fiscal policies (i.e. control of government expenses and inflation targeting) • Credibility from international governments and financial community • Significant growth in direct investments • The current government has strong public support Source: BCB / Macroconsulting 3% 3.0% 2% 2006 2007 2008 2009 2010 4.5% 4.5% 3.5% 2011 2012e 2013e 2014e 2015e Consumer Inflation (% p.a) The strength of internal consumption Motorcycles sales Automobile sales by type 2,500 4,000 Gasoline/Diesel 3,000 1,500 Thousands 1,000 2,500 2,000 1,500 1,000 500 500 16 6 14 5 Million 10 Source: Andav/USDA Exports Dom. Cons. 3 2 1 0 Exports Dom. Cons. 2010 2009 2008 2007 2006 2005 2004 4 12 6 2003 2000 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 2011 Soybean Oil Consumption Soybean Meal Consumption 8 2002 0 0 2001 Thousands 2,000 Million Flexfuel 3,500 The strength of internal consumption For the farmers, internal consumption is minimizing our logistical problems! Geographical problem: distance to ports Soybean Basis: Mato Grosso x CBOT (BRL/ bag) 10 5 3 2 Oct/11 Mar/11 Aug/10 Jan/10 Jun/09 Nov/08 Apr/08 Sep/07 Feb/07 Jul/06 Dec/05 May/05 Oct/04 Aug/03 Mar/04 -5 Jan/03 - -10 4 1 -15 -20 Brazilian soybean Premium – May Delivery 50 0 Source: Rabobank, Bloomberg *Average discount price in region versus CBOT 2011 nov 2011 ago 2011 mai 2011 fev 2010 nov 2010 ago 2010 mar 2009 dez -150 2009 set Monopoly on Railroad operations Waterways and railroads still unexplored 2009 mar -100 2007 out The multimodal alternatives can still be further developed 2008 dez -50 2008 set 4 1.891Km 100 2008 jan 1 1.600Km 2 2.011Km 3 2.000Km How the production can meet demand? Let´s do some math… Conversion cost: $370 acre Profitability (new area) Local Price Yield gross revenue $9,5 bu 40 bu/acre $380 acre Production cost $315 acre Net return $65 acre Payback period 5,7 Years Land Price $675 acre $1,900 acre + 180% Source: IMEA Agricultural Farmland in Brazil The greatest amount of available arable land along with a abundant rainfall level gives Brazil an unbeatable combination. Brazil has the potential to more than double its grain area only by converting current pasture land. Brazilian Land Availability Breakdown (Million hectares) Virgin area (1) 420 15 Pasture 84 851 29 303 Total area Amazon forest Pantanal Cerrado Indian reservation Available land Note: (1) Approximately 70% of the total gross area can’t be used in agriculture and has to be destined to legal reserves Source: Embrapa and FNP - Elaboration Macroconsulting Currently with crop production A new route to the north New routes and north ports According some studies the exports through north ports will increase more than 500% in the next 10 years; Main routes: BR 163 North/South railroad But also it will be easier to reach the Brazilian northeast region. We´re not in heaven…yet! The Brazilian tax system is shoddy, marked by over taxation Despite the improvement, the transport system is still lagging behind, with tremendous inefficiency and high costs Labor cost is increasing at fast pace International commercial tariffs are still impeding the entry of Brazilian products into overseas market Final messages 1. At moment the major competitor of Brazilian exporters is Brazilian consumption 2. Intensive use of land - The next revolution will be in the cattle beef chain 3. For the continuation of Brazilian agricultural growth, we have to face two sleeping giant: LABOR COST and COMMERCIAL TARIFFS Famato - Mato Grosso Farm Bureau Thanks! Seneri Kernbeis Paludo Executive Director Who we are What we do Established in 1965, represents more than 26,000 Focus on the farmers needs landowners and farmers in the State of Mato Grosso. Policy Advocacy To achieve our goals, we are present in 86 counties and Research and dissemination of knowledge split the work between SENAR, Rural Unions and IMEA. Market development These four entities together form the Famato System. Communication and public relation Leadership, training, information and education