Category: Brazil

Economic miracles come and go. Today China is the miracle. It was the “Asian Tigers” in the 1990s and Japan was going to take over the world in the 1980s. But if you go back to the 1970s, Brazil was the miracle country, with economic growth rates equaling or exceeding those of China today. The problem was that it proved unsustainable. The easy explanation is that the price of oil spiked in the 1970s and that killed the boom. But there was more. The Brazilian boom of the 1970s turned out to be narrowly based and fueled by debt. How is it different today?

The first difference is a broader-based political stability. Brazil of the 1970s was ruled by a military government, with a few people making the decisions and setting the priorities. Today Brazil is a full democracy and has been for a quarter century. The rule of thumb is that the test of a democracy is not the first election, but the first election where the opposition takes power peacefully. Brazil has been there and done that.

In fact, they went through extraordinary tests. The first openly elected Fernando Collor de Mello was not only replaced, but actually successfully impeached and yet the institutions of democracy endured. After that, the Brazil government enacted the extraordinary reforms and liberalization of Plano Real that quelled inflation and got the economy moving. The opposition of that time, led by future president Luiz Inácio Lula da Silva (leader of the PT), promised to reverse many of the reforms and privatizations. 

Political risk analysts worried about the ostensibly very leftist PT during the 1990s, but when Lula won the elections in 2002, he quietly maintained the reforms and the economy continued to grow. The political risk from PT has now dropped to something near zero, or similar to the political risk of an opposition party victory in Western Europe or the U.S. and there is no other more radical danger on the horizon. Essentially every viable political movement has had its chance to influence or directly run the government and they all have shown practical support for the reforms.   The most recent Brazilian election, less than two weeks ago, was fairly boring. Boring is good when it comes to politics of stability in countries like many in Latin America. Elections are exciting when one side intends to completely reverse whatever the previous guys did. That bodes well for political stability.

The Brazilian economy is also on a better footing than it was years ago. Many of the large state-owned firms have been privatized, at least partially. (I have been a stockholder in Campania Vale do Rio Doce since 2004, but I have to dump it before I go to Brazil.) Brazil remains a very unequal place, but the Brazilian middle class has grown remarkable. There are now a significant number of reasonably affluent Brazilian consumers. I wrote a little more on both these subjects at the links above. The Brazilian central bank is not as independent as the Fed, but it has behaved in a de-facto autonomous way in defending the currency. Exports are more widely based, although Brazil still exports mainly primary products. Brazil has become a commodities power house. China is now Brazil’s biggest customer, replacing the U.S. in 2009. China takes Brazilian products such as Iron ore, soy and oil. The Chinese are helping to finance Brazilian oil exploration in the deep waters off the coast of Rio de Janeiro (called the pre-sal). Interestingly, the discovery of the potentially massive offshore oil reserves has mitigated some of the earlier enthusiasm for biofuels.

One of the paradoxes of the China trade is that it looks a lot like the old neo-colonial relationship, since Brazil supplies raw material to China and takes manufactured goods. But there is a modern twist. Raw material production today can be very high tech and high value added. This is especially true in agriculture.

In 2008, Brazil essentially paid off that terrible debt everybody worried about for a generation and became a net creditor. Brazilians now own interests in such quintessential American firms such as Burger King & Budweiser and they now have an extensive foreign aid program of their own, especially in Lusophone Africa.

Anyway, it now looks like the Brazilian takeoff has a much stronger base and that this time it may be sustained. I keep on finding out how lucky I am to be going there next year.

The pictures – again they are unrelated to the text, except that they are on my way to FSI where I have been learning some of the stuff I am writing about. Up top is a gnarled old bradford pear. It looks ancient and it is mostly dead, but it is probably not very old. My guess it is that it is significantly younger than I am. I bet it no more than thirty-five years old, probably not even that. Those things live fast and die young, but don’t leave a good looking corpse. Below is a nice, colorful maple.

I have just finished reading a Pew Research Report about Brazil and I am convinced even more that I am lucky to go there at a particularly auspicious time.  The issues I am most comfortable and competent in addressing, environment, energy and economics, are the ones that by far are the most important in Brazil and Brazilians are generally in a good mood. 

According to Pew Research, 62% of Brazilians have a favorable opinion of the U.S and only 7% don’t like us.  Not only that, more than 60% think foreign companies are having a good influence in their country and 75% think that people are better off in a market economy.  This may seem to be no big deal, but I remember that when I was there last time it was our goal to encourage these kinds of attitudes, but we were not having much luck.  It is amazing what a few years of prosperity will do. People’s attitude toward others often is closely related to what they think of themselves. The funny thing now is that Brazilians more often have favorable attitudes toward the market economy than Americans do.

On the foreign policy front, Hugo Chavez is the most unpopular foreign leader among Brazilians and 85% of Brazilians are against Iran getting nuclear weapons.   Of those, 65% are willing to consider stronger sanctions and a surprising 54% might favor military action.

So the country I will be going to next year is very different from the country I left in 1988. I look forward to getting to know the country again – or maybe really for the first time.   I remember last time I was there it seemed the most individuals were happy, but the country wasn’t.  Maybe now everybody will join in.

When I lived in Brazil twenty-five years ago, I was only vaguely aware that the Brazilian agricultural frontier was pushing west. I knew about a significant number of farmers from Rio Grande do Sul moving into western Parana, Mato Grosso do Sul, Mato Grosso & Goias. But Brazilian agriculture was not efficient and I heard the soils out west were acidic, poor and subject to rapid exhaustion. Lately, I have been watching Globo Rural (a Brazilian agricultural TV show) on Internet and have been impressed by what looks like efficient and forward looking agriculture. Today I read a really good briefing article on Brazil’s agricultural miracle. It is a good news story thirty years in the making and it sort of crept up on us such that we didn’t notice. But it is big, a game changing development.

The way I think of a place like the Brazilian states (such as Mato Grosso) story is to compare it to what it must have been like in Ohio in the early part of our Western expansion. Ohio entered the Union in 1803 and at that time was largely potential. Twenty-five years later, it was a settled and very productive part of the United States. The transformation was fast and so big that it was not properly noticed because by the time it was finished it seemed so inevitable. But it wasn’t. The same goes for Brazil.

I went down to the State of Parana last year to look at some Brazilian forestry operations. I was massively impressed. They were taking timber in a sustainable manner and were heavily into improving silvaculture. The Amazon, BTW, is up north and the deforestation is not related to the developments I am talking about. That is a serious problem, but a different one. In fact, good silvaculture and agriculture in the south and central west takes the pressure off the rain forests.

They used to joke that Brazil was the country of the future and always would be. Looks like the future might be now. I have to admit that I was not optimistic twenty-five years ago, but all that I read and see has changed my mind. It gives me lots of hope for turning around what is so far the world’s biggest failure – Africa. Maybe in twenty-five years we will be talking about the African miracle.

Let me excerpt from the story from the briefing from the “Economist” and we can talk about it. You can read the whole thing at the link above.

“In less than 30 years Brazil has turned itself from a food importer into one of the world’s great breadbaskets. Between 1996 and 2006 the total value of the country’s crops rose from 23 billion reais to 108 billion reais, or 365%.

“No less astonishingly, Brazil has done all this without much government subsidy. According to the Organization for Economic Co-operation and Development (OECD), state support accounted for 5.7% of total farm income in Brazil during 2005-07. That compares with 12% in America, 26% for the OECD average and 29% in the European Union.

“Since the biggest single agricultural failure in the world during past decades has been tropical Africa, and anything that might help Africans grow more food would be especially valuable. In other words, you would describe Brazil.

“Since 1996 Brazilian farmers have increased the amount of land under cultivation by a third, mostly in the cerrado. And it has increased production by ten times that amount. But the availability of farmland is in fact only a secondary reason for the extraordinary growth in Brazilian agriculture. If you want the primary reason in three words, they are Embrapa, Embrapa, Embrapa.

“Embrapa is short for Empresa Brasileira de Pesquisa Agropecuária, or the Brazilian Agricultural Research Corporation. It is a public company set up in 1973, in an unusual fit of farsightedness by the country’s then ruling generals. At the time the quadrupling of oil prices was making Brazil’s high levels of agricultural subsidy unaffordable.

“Embrapa received enough money to turn itself into the world’s leading tropical-research institution.

“When Embrapa started, the cerrado was regarded as unfit for farming. Norman Borlaug, an American plant scientist often called the father of the Green Revolution, told the New York Times that “nobody thought these soils were ever going to be productive.” They seemed too acidic and too poor in nutrients. Embrapa did four things to change that.
First, it poured industrial quantities of lime (pulverised limestone or chalk) onto the soil to reduce levels of acidity. Embrapa scientists also bred varieties of rhizobium, a bacterium that helps fix nitrogen in legumes and which works especially well in the soil of the cerrado, reducing the need for fertilisers.

“Second, Embrapa went to Africa and brought back a grass called brachiaria. Patient crossbreeding created a variety, called braquiarinha in Brazil, which produced 20-25 tonnes of grass feed per hectare, many times what the native cerrado grass produces and three times the yield in Africa. That meant parts of the cerrado could be turned into pasture, making possible the enormous expansion of Brazil’s beef herd.

“Embrapa has recently begun experiments with genetically modifying brachiaria to produce a larger-leafed variety called braquiarão which promises even bigger increases in forage.

“Third, and most important, Embrapa turned soyabeans into a tropical crop. Soyabeans are native to north-east Asia (Japan, the Korean peninsular and north-east China). They are a temperate-climate crop, sensitive to temperature changes and requiring four distinct seasons. Embrapa worked out how to make it also grow in a tropical climate, on the rolling plains of Mato Grosso state and in Goiás on the baking cerrado. More recently, Brazil has also been importing genetically modified soya seeds and is now the world’s second-largest user of GM after the United States. This year Embrapa won approval for its first GM seed.

“Such improvements are continuing. The variety of soya now being planted [in Brazil’s Northeast] did not exist five years ago.

“Lastly, Embrapa has pioneered and encouraged new operational farm techniques. Brazilian farmers pioneered “no-till” agriculture, in which the soil is not ploughed nor the crop harvested at ground level. Rather, it is cut high on the stalk and the remains of the plant are left to rot into a mat of organic material. Next year’s crop is then planted directly into the mat, retaining more nutrients in the soil. In 1990 Brazilian farmers used no-till farming for 2.6% of their grains; today it is over 50%.

“Embrapa’s latest trick is something called forest, agriculture and livestock integration: the fields are used alternately for crops and livestock but threads of trees are also planted in between the fields, where cattle can forage. This, it turns out, is the best means yet devised for rescuing degraded pasture lands.

“The fields of Mato Grosso are 2,000km from the main soyabean port at Paranaguá, which cannot take the largest, most modern ships. So Brazil transports a relatively low-value commodity using the most expensive means, lorries, which are then forced to wait for ages because the docks are clogged.

“Partly for that reason, Brazil is not the cheapest place in the world to grow soyabeans (Argentina is, followed by the American Midwest). But it is the cheapest place to plant the next acre.

Big is beautiful

“Like almost every large farming country, Brazil is divided between productive giant operations and inefficient hobby farms. According to Mauro and Ignez Lopes of the Fundacão Getulio Vargas, a university in Rio de Janeiro, half the country’s 5m farms earn less than 10,000 reais a year and produce just 7% of total farm output; 1.6m are large commercial operations which produce 76% of output. Not all family farms are a drain on the economy: much of the poultry production is concentrated among them and they mop up a lot of rural underemployment. But the large farms are vastly more productive.

“From the point of view of the rest of the world, however, these faults in Brazilian agriculture do not matter much. The bigger question for them is: can the miracle of the cerrado be exported, especially to Africa, where the good intentions of outsiders have so often shrivelled and died?

“There are several reasons to think it can. Brazilian land is like Africa’s: tropical and nutrient-poor. The big difference is that the cerrado gets a decent amount of rain and most of Africa’s savannah does not (the exception is the swathe of southern Africa between Angola and Mozambique).

“Brazil imported some of its raw material from other tropical countries in the first place. Brachiaria grass came from Africa. The zebu that formed the basis of Brazil’s nelore cattle herd came from India. In both cases Embrapa’s know-how improved them dramatically. Could they be taken back and improved again? Embrapa has started to do that, though it is early days and so far it is unclear whether the technology retransfer will work.

“A third reason for hope is that Embrapa has expertise which others in Africa simply do not have. It has research stations for cassava and sorghum, which are African staples. It also has experience not just in the cerrado but in more arid regions (called the sertão), in jungles and in the vast wetlands on the border with Paraguay and Bolivia. Africa also needs to make better use of similar lands.

“Still, a word of caution is in order. Brazil’s agricultural miracle did not happen through a simple technological fix. No magic bullet accounts for it—not even the tropical soyabean, which comes closest. Rather, Embrapa’s was a “system approach”, as its scientists call it: all the interventions worked together. Improving the soil and the new tropical soyabeans were both needed for farming the cerrado; the two together also made possible the changes in farm techniques which have boosted yields further.

“Systems are much harder to export than a simple fix. “We went to the US and brought back the whole package [of cutting-edge agriculture in the 1970s],” says Dr Crestana. “That didn’t work and it took us 30 years to create our own. Perhaps Africans will come to Brazil and take back the package from us. Africa is changing. Perhaps it won’t take them so long. We’ll see.” If we see anything like what happened in Brazil itself, feeding the world in 2050 will not look like the uphill struggle it appears to be now.”

Brazilian television had a report  about their parks and how they are poorly maintained.  It was a good PR for the U.S. The headline says “[Brazilian] parks are abandoned.” The subhead makes the comparison that “Preservation of the national heritage in the USA is a tradition that goes back to the 18th Century.” They praised our park system and said that it would be good if the Brazilian parks became more like ours. 

The American National Park system is the oldest and the best in the world. We sometimes take our parks and national forests for granted until we think about it or compare it with others.

One of my goals when I get to Brazil is to visit their national parks.  I have already been to three of them:  Iguacu falls, Aparados da Serra & Lagoa do Peixe. But that was before I took decent pictures or wrote up my experience. Anyway, there are thirty-two national parks in Brazil.  That shouldn’t be impossible to see all of them in three years, but some are very remote. (I have to admit that I have not visited all, or even most, of our parks in America. Of course, we have more of them. That may be something to do when I retire. You can even get a special old folks’ pass.)  

I think that I may perform a useful service if I visit Brazilian parks and do a reasonably good job of documenting the visit. There just is not a lot of good information available about some of them, especially in English. A big problem for the Brazilian parks is money. They evidently have a kind of moral dilemma about charging for admission and letting private profit-making firms have concessions within the parks. Some people think this is a task government should do. But, since it is clear that the government cannot or will not support the maintenance of the parks and the infrastructure to support visitors, Brazilians are looking for other models. Despite the fact that we also complain about lack of money, the American mixed system works.

One of the persons interviewed said that the only thing worse than charging admission and letting private concessions make money at the parks is not doing that and letting the parks decay and go unused by the people. The Brazilian model for making the parks work is the Foz da Iguacu. This is one of the biggest waterfall in the world (maybe the biggest, depending on how you measure), so it starts off with many advantages for attracting tourists.  (You can see how pretty it is from the picture up top) At this park they charge admission and have granted concessions to hotels, helicopter tour operators etc. As a result, it is a nice place to visit and a model for others.

Chrissy & I visited the falls back in 1987. As I recall, the infrastructure was okay, but not great. Like so many other things in Brazil, it seems that they really have come a long way. My memory of the time is hazy. I wasn’t there very long. I was coming down from Brasilia and got stuck in Curitiba airport for a long time, so Chrissy got there first and saw more of the place. I remember best a little trivia. More water flows over these falls than over any other in the world, but it is not really one falls, more a series. The year-around warm weather, wet conditions and constant spray makes the area around the falls is a paradise for frogs. But the swift water isolates frog populations on islands and peninsulas, so that many species and sub-species have developed. If you are interested in frogs, this is the place to be. For the herpetologist the impressive waterfalls are just a bonus.

As I wrote earlier, I am learning what I can about Brazil and improving my Portuguese by watching Brazilian television via Internet.  This is another of my exercises.  Readers not much interested in Brazil can feel free to skip it. How will Internet change the way politics is done in Brazil?  How can social networks bring officials closer to citizens?  Doctor of Sociology and political scientist Rodolfo Texerira and marketing consultant Claudio Torres talk with Alexandre Garcia about those things on this TV Globo Program.*

Alexandre started off by pointing out that during the World Cup, most journalists weren’t really watching the game but rather paying attention to their computers to get results and comments.  He asked if the new age of social media would separate people further from reality.

Rodolfo thought that the opposite was happening.  Before the Internet, politicians could MORE easily not interact with the people.  The communication was one way and passive.  Now it is engagement.   He pointed out that 40 million Brazilians have access to Internet, either at work or at home, and that this number is growing.   (Unfortunately, a majority of the big users of Internet today are two young to vote, many under fourteen.)

Political parties get free TV airtime in Brazil, but the exposure is national there are lots of candidates and if you do the math, the average candidate has two seconds on TV;  probably not enough to even say his name.   Most candidates don’t have any real TV time.  Internet gives them a place to explain their program to the local people who are interested.

Many of politicians have been resisting the use of new media.  They like the old fashioned, maybe slower paced, methods.  But this is probably only a short term phenomenon.   The new media may make politics less personal in the physical sense, but will make it more personal in the informational sense.  It may also expand the idea of engagement.   Pre-internet, there was a specific time for politics on TV.  Today people can engage when they want.

Claudio contrasted the old days with the emerging new paradigm.  In the old system, candidates were essentially engaging with the media and the citizen – the voters – were merely spectators.    Now citizens are more involved.  They are sometimes engaged directly with the candidates or at least with their folks.   He thinks that Internet makes politics more personal and perhaps less party based.  He also noted that even among the lowest classes (DE) 21% have access to Internet.  Claudio used the example of Obama.  He mentioned that Obama really didn’t use the Internet to convince people to vote for him.  Rather, Internet was a way to recruit volunteers and activists.  They were on the Internet convincing their friends and contacts to vote for Obama.   He said that this has the added effect of giving volunteers something useful and engaging to do.   A young person interested in helping out before Internet would be relegated to the boring work of handing out leaflets or calling on the phone.  Internet makes them players.  It is more fun and helps keep them in the organization and motivate them to action.

Alexandre asked where people find the time to get so involved in blogging, tweeting etc.  Claudio explained that he has incorporated a lot of the social media into his daily life, so that he is often connecting and communicating.

IMO – this is the same sort of discussion we could have in the U.S.  Brazil seems different mostly in the extent of Internet participation, except for one thing.   The Brazilian electoral system is not like ours in that candidates are connected to parties.  Internet creates more personality for candidates.  In America this merely accentuates something that already is part of the system.  Introducing more candidate personality into a party based political system may have more profound implications.

* Como a internet vai mudar a maneira de se fazer política no Brasil? Como as redes sociais podem aproximar mais os governantes do cidadão? O doutor em Sociologia e mestre em Ciência Política, Rodolfo Teixeira; e o consultor em marketing digital eleitoral, Cláudio Torres, são os convidados de Alexandre Garcia.

I am watching Brazilian news programs (through the wonders of Internet) to learn more about Brazil and improve my Portuguese. I especially like “Globo Rural” about agriculture and environment. But it is time to step it up. If I don’t take notes, I will certainly forget, so am taking notes on some of the – for me – more interesting and evergreen topics. Today I watched the “Globo News Painel” about the profile of the Brazilian middle class (Qual o perfil da nova classe média brasileira?). Tonico Ferreira was the host.  Guests included, Waldir Quadros – Economist/Unicamp (State University at Campinas),  Bolivar Lamounier – Augurium Consulting & Jose Pastore Sociologist from University of Sao Paulo.  

Millions of Brazilians have moved to something like a real middle class lifestyle in the last decade. Research shows around 30 million. There has been a great reduction of absolute misery, according to panel members. They pointed out that many of these people are no longer poor, but that they are still not very secure. Most of the mobility has been from the very low to the not so low. The panel members agreed that they are not yet looking at a middle class society as we have in the U.S. or Western Europe, but in some ways this initial movement is more satisfying to the people involved.  In fact, as aspirations come to outrun results, richer people might feel that progress has been less advantageous.

Some progress came from better return/profitability of work, i.e people were paid better. But a key factor was the economic reforms and currency stabilization gave people the ability to save. Stable currency gave security that allowed people to save and plan. The big inflation Brazil experienced before created a cash, fast-turnover society. Families couldn’t buy on credit, because nobody wanted to sell on credit w/o charging fantastic risk premiums. On the other hand, they couldn’t really plan to buy later because they had no idea what kind of prices they might face later and they were never sure if they could ever catch up.

I was in Brazil during one of the great inflations and I recall how it was nearly impossible to comparison shop. If you noticed something in one shop and the next day saw it in another for a higher price, you couldn’t usually tell if price were higher in the second shop or if the general price had just gone up. I remember thinking at the time that high inflation was corrupting for a culture. It create a nation of gamblers and threw even prudent people into a casino state of mind. IMO the better habits that we are seeing these days are evidence of that, as people are behaving much more responsibly and prudently now that inflation is under control. A reasonable ability to anticipate future events is a prerequisite for a stable and good society.  

A panelist pointed out that the difference between TYPES of consumption of the upper, middle and lower classes has diminished.  Much of this has to do with generalized technological and economic progress. The rich person might have better quality clothes, mobile phones or refrigerators, but now most people have those things. This was not true in the past. There is a kind of threshold.  There is a huge difference between those who have and those who don’t. After that threshold has been cross, the relative differences in quality matter much less.

Brazilian sociologists divide their society into classes A, B, C, D & E based on income. Classes AB make up around 10% of the population, make most of the big decisions and pay most of the taxes. When Brazilians in earlier times called themselves “middle class” they really meant the lower rungs of this AB group. The new middle class in actually the one in the middle, class C. Class C makes up around 50% of the Brazilian population and account for around 68% of the total jobs. The panel was mostly talking about changes within this class C and movement into it from lower classes. The new middle class family has family incomes from around 1200 – 4800 Brazilian Real (about $650-2600).  This doesn’t sound like much money but it allows much greater consumptions.  The Commercial Federation of Sao Paulo estimates that from 2003-2010 the increase in consumption among classes CDE double that of AB. 

Brazil has significant social mobility, but it remains a country of great inequality. Much of the mobility has been in the lower part of the pyramid. The problem has been what we would call human capital and it will probably get worse. People achieve mobility by hard work, cleverness and gumption, but such things will take most people only so far.  You can open and operate a small shop if you have the above characteristics plus some common sense. But as you get bigger, you need things like accounting skills, for example. Of course, you need specific skills for professions or technical work. To make the jump to AB, poorer people need education and specific skills, increasingly technical skills.  The educational system and their life experience tend not to give them these skills. The panel agreed that Brazil needs to step up its investments in human capital. Brazil, in many ways, is in the same position relative to the countries of the world, as its class C citizens are to the other classes. The country has achieved impressive gains in development, but many of those big gains have come because of the high prices of commodities that Brazil produces mixed with the good effects of economic reforms made in the 1990s (the Real Plan).  I will not say that “this was the easy part.” That would incorrectly diminish the extraordinary success. But we can recognize that the skills and techniques that brought Brazil so far in the last decade and half may not be the skills and techniques the country needs to move forward from here. 

Another pitfall is ordinary infrastructure. Brazil has underinvested in roads and facilities. This is already creating problems for continued growth. This is easy to overlook if you drive around the Southeast on what seem to be very good and not especially crowded roads in the countryside, but if you turn off the highway the pavement often stops and maybe there is no bridge.  Anyway, what was good enough won’t be good enough tomorrow.  The better you get, the better you have to get to keep on going.

Success changes the rules of the game and often what got you here won’t keep you going. That goes for individuals and for whole societies.