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"

Kai Lan is a children's television show, that

teaches how to speak in Mandarin

For my daughter Mickey Mouse is a true world leader, but he is not alone…

40% increase in Visas for China and Brazil “rapidly growing economy, huge population… and fastest growing middle classes”

Brazilian Economy

• 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

• 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

Consumer Inflation (% p.a)

Real GDP Growth (% p.a)Brazil Highlights

Source: BCB / Macroconsulting

The strength of internal consumption

Soybean Meal Consumption Soybean Oil Consumption

Motorcycles sales

Thousa

nd

s

Source: Andav/USDA

Thousa

nd

sM

illio

n

Mill

ion

Automobile sales by type

For the farmers, internal consumption is minimizing our logistical problems!

Source: Rabobank, Bloomberg

Geographical problem: distance to ports Soybean Basis: Mato Grosso x CBOT (BRL/ bag)

Brazilian soybean Premium – May Delivery

*Average discount price in region versus CBOT

3

2

4

1 1.600Km

2.011Km

2.000Km

1.891Km

3 2 4

1

Monopoly on Railroad operations Waterways and railroads still unexplored

The multimodal alternatives can still be further developed

The strength of internal consumption

How the production can meet demand?

5,7 Years5,7 Years

Let´s do some math…

Conversion cost: $370 acre

Profitability (new area)

$9,5 bu 40 bu/acre $380 acre

Local Price Yield gross revenue

Production cost$315 acre

Net return$65 acre

Payback periodPayback period

$675 acre $1,900 acre

Land Price

+ 180%Source: IMEA

Agricultural Farmland in Brazil

Totalarea

Amazonforest

Pantanal Cerrado Indianreservation

Availableland

851

420

15

303

29

84

Virgin area (1)

Pasture

Currently with crop production

Note: (1) Approximately 70% of the total gross area can’t be used in agriculture and has to be destined to legal reserves

Brazilian Land Availability Breakdown (Million hectares)

Source: Embrapa and FNP - Elaboration Macroconsulting

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.

A new route to the north

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.

New routes and north ports

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

Established in 1965, represents more than 26,000

landowners and farmers in the State of Mato Grosso.

To achieve our goals, we are present in 86 counties and

split the work between SENAR, Rural Unions and IMEA.

These four entities together form the Famato System.

Who we are

Focus on the farmers needs

Policy Advocacy

Research and dissemination of knowledge

Market development

Communication and public relation

Leadership, training, information and education

What we do

Famato - Mato Grosso Farm Bureau

Thanks!Seneri Kernbeis Paludo

Executive Director