By BRUNO RESCK*
The euphoria surrounding agriculture, especially soy, the green gold of the XNUMXst century, could become another scar of a raw material export cycle
The history of Brazil can be told through several economic cycles from the arrival of the Portuguese in 1500 to its late industrialization in the mid-1782th century. Cycles of opulence and decadence that left their scars throughout time and space. Those who visit Ouro Preto in Minas Gerais are enchanted by the hundreds of 1789th century buildings, such as the Basilica of Nossa Senhora do Pilar, built in the Baroque style with rich gold ornamentation, or the mansion that today houses the Casa dos Contos Museum, an old Palace built between 1700 and 1850 to be the residence of João Rodrigues de Macedo, tax collector for the Captaincy of Minas Gerais and one of the richest men of that period. Gold extraction between XNUMX and XNUMX generated great fortunes and, after the cycle, left a trail of decadence and stagnation.
Manaus, capital of Amazonas, and Belém, capital of Pará, experienced opulence during the Rubber Cycle between 1860 and 1912 and competed for the title of “Paris of the Tropics”.[I] Manaus was the first city to be urbanized in Brazil with running water, telephone, telegraph, planned streets and the first capital to receive electricity. The rubber cycle left an architectural complex that symbolizes the opulence of Belle Epoque in the region such as the Teatro Amazonas, Palácio Rio Negro, Alfandega de Manaus, Palácio Antônio Lemos, Teatro da Paz among other sumptuous constructions that symbolize the economic power generated by the exploitation of rubber.
With the advancement of Asian production (thanks to seed smuggling by the Englishman Henry Wickham), rubber produced in the Amazon region loses competitiveness and the cycle of strength and wealth ends leaving bankruptcies, abandonment of rubber plantations, unemployment and decline. “The Amazon had ceased to be the 'Eldorado' of the arigó and was once again ostracized as peripheral spaces abandoned by international capital, after it had made the most of the natural and human resources that were there to serve it.”[ii]
We can cite other examples of the boom and bust in the economy, such as the Coffee Cycle (1800 to 1929), which brought prosperity to producers, reflected in the mansions in the corners of the state of São Paulo and Rio de Janeiro, materialized, for example, in the construction of the Theater São Paulo Municipal Building built in 1911. During this period, coffee was Brazil's main export item and the USA was its main buyer, absorbing around 80% of national production. As a result of the New York Stock Exchange crash in 1929, the USA stopped buying our coffee, leading the sector and the country into a deep economic crisis. The 1929 crisis would also lead to a debacle in another center of prosperity in Brazil: the south of Bahia, Ilhéus, a cocoa producer.
The thread that unites the different cycles of wealth and regional decline in Brazil's economic history is the production of commodities for the foreign market. Historically, the country's economic activity was guided by the primary export sector. The country went through a process of late industrialization, which began with the implementation of Basic Industry in the first Vargas government and developed following the principle of import substitution financed, to a large extent, by foreign capital. In the 1980s, industrial production represented 21,8% of national GDP.[iii]
However, from 1978 onwards, after “fifty years of extraordinary development, a major financial crisis struck”[iv] paving the way for the country's adherence to the neoliberal agenda of the Washington Consensus from the 1980s onwards. Since then, Brazil has embraced with the force of dogma the neoliberal ideology that basically consists of: (i) reforming and reducing the State through reduction in public spending and privatization of state-owned companies; (ii) commercial openness and, (iii) financial openness.[v] Over these forty years of neoliberal experience, the country has undergone a severe process of deindustrialization and a continuous primarization of its export agenda, with emphasis on the agribusiness and mining sector.
Norwegian economist Erik Reinert in his work How rich countries got rich, and why poor countries stay poor,[vi] when analyzing the path taken by developed countries, he highlights that the principles of a “diversified economy, less dependent on agriculture and raw materials” is a lesson that has been forgotten in recent decades. In this work, the author highlights a kind of “standard” used by rich countries throughout the development process since the XNUMXth century in Holland, Venice and England.
This “standard” that would be “emulated” by different countries can be summarized as: (a) a strong industry; (b) monopoly on a given raw material and; (c) overseas trade (exports). It brings a quote from economist Friedrich List that exposes the centuries-old policy adopted by England of importing raw materials and exporting industrialized products. Erik Reinert mentions the thought of Alexander Hamilton (First Secretary of the Treasury of the United States) who in the XNUMXth century strongly recommended the defense of the industrial sector as a necessary condition for the development of the USA. Norway, Japan, Germany and Korea are other examples of countries that have used such industrial policies for economic development.
Erik Reinert explains to us the concepts of “perfect competition and diminishing returns” and “imperfect competition and increasing returns”. Well, “perfect competition” is characteristic of primary goods (commodities) and means that the producer does not control the price of the items he produces, that is, the “market” determines the price when selling his product. According to Erik Reinert, this condition is called diminishing returns: “as production expands, after a certain point, more units of the same factor – capital and/or labor – will produce additional and smaller quantities of product” .
On the other hand, in a manufacturing industry, “the evolution of costs goes in the opposite direction. Once production was mechanized, the greater the production volume, the lower the cost per unit produced”. In other words, the development of a new product, for example, a new television model, requires high investments in research and technology, however, its large-scale manufacturing significantly reduces the production cost. Therefore, industrial companies and advanced service providers need to conquer large shares of the market, as the greater the production volume, the lower the costs. These companies are able to influence, to a large extent, the prices of what they sell. Economists call it “imperfect competition” and “rising incomes.”
Analyzing the predominance in the production of products with increasing or decreasing returns can be a good alternative to verify the technological sophistication of the productive fabric of a given country. A powerful empirical analysis tool is the Atlas of economic complexity. Developed by Harvard's Kennedy School, the atlas makes it possible to analyze the export profile of a given country and measure the degree of technological sophistication. The Atlas developed the economic complexity index that takes into account the complexity of each country's exports. Through this index it is possible to establish important correlations between per capita income levels and economic complexity.
Economist Paula Gala[vii] highlights that from the use of the economic complexity index, what was suggested by classical development authors becomes clear empirically: “rich countries (center) specialized in imperfectly competitive markets and poor countries (periphery) specialized in markets of perfect competition.
Noting the limitations in comparing countries with such different histories and economies, an interesting exercise is to analyze the volume and complexity of Brazil and Germany's exports. Let’s take the year 2021 as a reference. According to the Atlas, Brazil in 2021, had a GDP per capita of U$7.696, exported a total of U$335 billion and reached 70th place in the economic complexity ranking. On the other hand, Germany had a GDP per capita of U$51.203, exported a volume of U$2,02 trillion and ranked 4th in the economic complexity index.
Germany's export volume of agricultural products was US$139 billion, representing 6,9% of its total exports, while Brazil exported US$123 billion in agricultural products, representing 36,8% of the country's total exports. . That is, according to the Atlas, in the agriculture sector, Germany exported US$16 billion more than Brazil in 2021. Now, isn’t Brazil “the country of agriculture”? Don’t we see every day in the mainstream media that “agro is pop, agro is everything”? Germany is remembered for its large technology, chemical and luxury car companies. Brazil builds an image that it is the country of agriculture.
It is clear that we are one of the largest exporters of agricultural products. But it is necessary to check in detail the composition of these countries' exports to understand how Germany generates more wealth in the agricultural sector in relation to Brazil. The main export products in Germany's agricultural sector are: dairy products, paper and cardboard, wood, food preparations, meat, coffee and beverages. In turn, Brazil's export basket in the agricultural sector is predominantly made up of soybeans, meat, sugar, coffee, corn and wood pulp. The difference is clear. Even in the agricultural sector (primary sector), Germany exports products with a certain degree of processing, that is, industrialized products with high added value.
In contrast, Brazil has specialized in exporting products with low industrial processing and, therefore, low added value. Coffee is a good example to understand this difference. While Brazil exports coffee beans, Germany has the largest roasting industry in Europe[viii], mastering roasting technology, blend and equipment for the consumption of this drink, adding value to its export list.
Combined, exports from the agricultural sector and the mining sector represent 64% of the volume traded by Brazil in 2021, demonstrating a strong dependence on the primary sector for the country's trade balance. Brazil has specialized in perfectly competitive markets of low complexity and diminishing returns. Brazil's agriculture is pop, but what makes our agriculture pop, to a large extent, are the chemicals, seeds and machines produced by developed countries such as Germany, USA, Japan, China and Canada.
According to Agribusiness Atlas,[ix] three conglomerates (DuPont, Syngenta and Bayer) dominate 60% of the world seed and pesticide market. In the agricultural equipment and machinery sector, few corporations share the market among themselves. The global market is dominated by three actors: the American corporation Deere & Company is the market leader; it is known for its biggest brand, John Deere. CNH Industrial belongs to the Fiat group; its twelve brands include Case, New Holland, Steyr, Magirus and Iveco. The third largest player is AGCO, from the USA, with Gleaner, Deutz-Fahr, Fendt and Massey Ferguson. These three companies share more than 50% of the global market[X].
There is a consensus among developmental economists: every developed country can be an agricultural power, but being just an agricultural power has not left any country developed. Commodities and low-sophistication services tend to have diminishing returns and are not produced in complex networks (like industrialized products) and the “aggregate productivity of an economy tends to decrease when it focuses excessively on activities of this type”[xi].
The role of agribusiness in the country's trade balance and in the dynamics of the country's internal economy today is undeniable. But the history of the economic development of rich countries shows us that the primary sector played an important role in climbing the rungs of the ladder of economic complexity, contributing to the development of productive forces and generating better jobs and income for the population.
The euphoria surrounding agriculture, especially soy, the green gold of the XNUMXst century, could become another scar of a raw material export cycle. The current historical period with the dispute for global hegemony between China and the USA and the need for an energy transition can open a window of opportunity for Brazil to break the cycle of exporting raw materials and importing industrialized products through a consistent policy of (re)industrialization of the country.
*Bruno Resck, geographer, is a professor at the Federal Institute of Minas Gerais (IFMG) – Advanced Campus Ponte Nova.
Notes
[I] As a tree hidden in the Amazon, it led Manaus and Belém to its peak and decline. See this link.
[ii] Antônio Filho, FD; The Opulence and Misery of the Rubber Empire in the Brazilian Amazon: a geographical look through Euclides da Cunha and Ferreira de Castro. In: X Meeting of Latin American Geographers, 2005, São Paulo. Abstracts – X Meeting of Latin American Geographers. For a Latin American Geography. From the labyrinth of loneliness to the space of solidarity. São Paulo: USP-FFLCH-Deptº of Geography, 2005. v. 1. p. 76-76.
[iii] Fiesp OVERVIEW OF THE BRAZILIAN PROCESSING INDUSTRY 17th Edition Last updated January 11, 2019. See this link.
[iv] Bresser Pereira, The political and economic construction of Brazil: Society, economy and State since Independence. Editora 34, São Paulo, 2021 (https://amzn.to/48dQOPX).
[v] Victor Leonardo de Araujo, Denise Lobato Gentil. FHC's first government (1995-1998): Neoliberalism in full view. In.: Victor Leonardo de Araujo, Fernando Augusto Mansor de Mattos, The Brazilian economy from Getúlio to Dilma. São Paulo, Hucitec, 2021 (https://amzn.to/469gFGS).
[vi] Erik Reinert. How rich countries got rich, and why poor countries stay poor. Rio de Janeiro, Contraponto, 2016 (https://amzn.to/489LgpH)
[vii] Paulo Gala. Economic development: division of labor, increasing returns and complexity. Rio de Janeiro, Contraponto, 2017.
[viii] CBI – Center for the Promotion of Imports from developing countries: https://www.cbi.eu/market-information/coffee/germany/market-potential
[ix] Atlas of agribusiness: facts and figures about the corporations that control what we eat. Maureen Santos, Verena Glass, organizers. – Rio de Janeiro: Heinrich Böll Foundation, 2018. See this link.
[X] Atlas of agribusiness. Op. Cit.
[xi] Paulo Gala. Op cit
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