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Domestic Consumption ’ s Impact on Export Potential in Brazil February, 2012

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.

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Domestic Consumption ’ s Impact on Export Potential in Brazil February, 2012

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  1. Domestic Consumption’s Impact on Export Potential in Brazil February, 2012

  2. 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”

  3. Brazilian Economy Brazil Highlights Real GDP Growth (% p.a) • 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) Source: BCB / Macroconsulting

  4. The strength of internal consumption Motorcycles sales Automobile sales by type Thousands Thousands Soybean Oil Consumption Soybean Meal Consumption Million Million Source: Andav/USDA

  5. The strength of internal consumption For the farmers, internal consumption is minimizing our logistical problems! Geographical problem: distance to ports Soybean Basis: MatoGrosso x CBOT (BRL/ bag) 3 2 4 1 Brazilian soybean Premium – May Delivery 1.600Km 1 2.011Km 2 2.000Km 3 1.891Km 4 The multimodal alternatives can still be further developed • Monopoly on Railroad operations • Waterways and railroads still unexplored *Average discount price in region versus CBOT Source: Rabobank, Bloomberg

  6. 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 Net return $65 acre $315 acre Payback period 5,7 Years Land Price $675 acre $1,900 acre + 180% Source: IMEA

  7. 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) Pasture Currently with crop production Total area Amazonforest Pantanal Cerrado Indianreservation 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

  8. 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.

  9. 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

  10. Final messages • At moment the major competitor of Brazilian exporters is Brazilian consumption • Intensive use of land - The next revolution will be in the cattle beef chain • For the continuation of Brazilian agricultural growth, we have to face two sleeping giant: LABOR COST and COMMERCIAL TARIFFS

  11. Famato - Mato Grosso Farm Bureau Thanks! Seneri Kernbeis Paludo Executive Director Who we are What we do • Focus on the farmers needs • Policy Advocacy • Research and dissemination of knowledge • Market development • Communication and public relation • Leadership, training, information and education 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.

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