Joaquim Bento de Souza Ferreira Filho: State policies stimulated large farm development in Brazil

31 July 2018 - The objective to generate revenues for the state budget through agricultural trade gave rise to the agricultural land expansion in the Cerrado region (Central region of Brazil) in the 1970s. State policies provided incentives to convert these vast land areas into farmland and to produce tradable agricultural products, especially soybeans. The conversion of the Cerrado was probably the biggest and the fastest land-use change in human history. This fact caused an extraordinary change in the landscape and stimulated the emergence of large scale farming oriented to fulfil the state program of import substitution. Joaquim Bento de Souza Ferreira Filho, Senior Professor at the "Luiz de Queiroz" High School for Agriculture, University of São Paulo, Brazil, explained to the reasons behind this development and the role large scale farms are playing in the Brazilian economy.

What was the role of public policies in the development of large scale farming in Brazil?

Economic policies for agriculture turned Brazil from a coffee exporter in the 1970s to one of the most
important agricultural exporters in the world today. The import substitution policies, which supported the expansion of large farms in Brazil, required agriculture to fulfil different roles: to generate inflows of foreign currencies through exports; to supply food at stable prices; to supply labor for the industry and so on. The expansion in the new agricultural areas occurred predominantly through large farms. The provision of rural credit was seen as a key element of support for the modernization of the Brazilian agricultural sector. One of the objectives was to provide rural credit to small producers but it was not achieved on a wide scale because, among other factors, it was too costly for financial institutions to manage small loans. Instead, large producers obtained loans more frequently. That is how large modern commercial farms, specialized mostly in planted pastures and soybean plantations, started to appear.

What are the main structural characteristics of agriculture in today’s Brazil?

Farmland is concentrated in the hands of large farms. Around 70% of the farmland area is occupied by 5% of the largest farms and around 3% of the area is owned by the 50% of the smallest farms. While the number of farms of more than 10 hectares in size increased since 1975, the number of farms smaller than 10 hectares remained relatively stable. However, the total farm area owned by farms below 10 hectares was 7.8 million hectares (in 2006), and for farms above 1,000 hectares - 150 million hectares, out of a total of 333.7 million hectares of the farm area. Notice, that I refer to total farm area, and not planted area. The large farms (1,000 hectares and more) are mostly specialized in the production of cotton, sugar cane and soybeans. The interesting fact is that the demand for soybeans in Brazil itself is quite low; the production of this crop is mostly export-oriented. In the 1970s, Brazilians recognized soybean production and export to Asian countries as a business opportunity. Small farms (100 hectares and less) mostly produce vegetables (potatoes, tomatoes, pumpkins, onions, cassava), watermelons, peanuts, beans, and poultry meat.

Do large farms in Brazil exhibit higher efficiency and productivity than their smaller counterparts?

Yes, large farms show higher land productivity in most products. Medium and large farms account for the largest share of crop production. Besides, large farms are characterized by low labor intensity and higher negotiating power against input suppliers. Large farms are able to invest into new technologies and know-how, because they are more capital intensive than small farms. Large corporations (including foreigners) increasingly enter agriculture and livestock production in Brazil. At the same time, big farms are often accused of having negative effects on the environment such as exploitation of natural ecosystems through expansion of farmland operations. By the 1990s, more than half of the Cerrado region was transformed into pasture or farmland.

Do you think that large corporate farms have a long-term perspective?

It is hard to say because these super large farms coexist side by side with a very large number of small farms. I think that economic forces will likely change the balance in favor of an increase in the number of large farms in the future. But I also think that there are some limits for growth of the large farms. Areas of 100,000 hectares are really difficult to manage.