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JAPAN –BRAZIL Agribusiness and Logistics Infrastructure

Explore the complementarities and competitive advantages in the agri-food sector between Brazil and Japan, highlighting the trade balances, top exporters, and challenges in transportation and logistics.

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JAPAN –BRAZIL Agribusiness and Logistics Infrastructure

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  1. MARCOS S. JANK • JAPAN –BRAZIL • Agribusiness and Logistics Infrastructure JAPAN-BRAZIL BUSINESS COUNCIL Tokyo , Japan | 29th July 2018

  2. Marcos Jank (Resume) • Senior Professor of Global Agribusiness at INSPER • Chair Professor of the Luiz de Queiroz Chair on Integrated Agri-Food Systems at ESALQ-USP (Cycle 2019) • President of the Asia-Brazil Agro Alliance (ABAA), an initiative to enhance the profile of Brazilian agribusiness in Asian economies, located in Singapore (2017-19) • VP of Corporate Affairs and Business Development of BRF Asia-Pacific (2013-16) • CEO of the Brazilian Sugarcane Industry Association (UNICA) – (2007-12) • President of the Brazilian Institute for International Trade Negotiations (ICONE) - 2002-07 • Board Member of RUMO Logistics, COMERC Energy, and at the International Food Policy Research Institute (IFPRI) in Washington DC

  3. Japan and BrazilCompetitive Advantages in the Agri-Food Sector Huge complementarities between Brazil and Japan!

  4. Agricultural trade balances by region (constant value) Eastern Europe & Central Asia (8% p.a. since 2013) Western Europe (-1%) Sub-Saharan Africa (7%) Middle East & North Africa (5%) South and East Asia (5% p.a.) Source: OECD-FAO Agricultural Outlook 2018-2027, OECD and FAO. Constant values for 2004-2006.

  5. Expansion of the Brazilian agricultural frontier Decades of 1970 and 1980 based on tropical R&D, official rural credit and intervention prices 1995 - 2017 1985 - 1995 1975 - 1985 1965 - 1975 Decades of 1990 and 2000 Efficiency (productivity/scale), sustainability, deregulation and stronger demand before 1965

  6. Top Agri-Food EXPORTERS in the World (value in US dollars) 2018 (%) CAGR % EU 12% 4% USA 10% 4% Brazil 6% 5% China 6% 7% 4% 3% Canada Indonesia 3% 4% Australia 3% 5% Thailand 3% 3% Argentina 2% 1% Mexico 2% 8% India 3% 8% Source: USDA and UN Comtrade Data BRAZIL ranks 3rd on world ag exports  high growth rates and competitiveness

  7. BRAZIL Agri-Food Exports by Destination Asia receives 53% of Brazilian Agri-Food exports 3% Africa 6% USA and Canada 7% 19% Latin America 8% 9% Middle East 13% 5% Europe 18% 15% Asia ex-China 43% 37% China and HK 11% 4% Source: MAPA (Agrostat). Note: “Asia ex- China”’ includes East, South and Southeast Asia, Russia, and Central Asia, but excludes China; “Europe”’ includes the European Union, the European Free Trade Association (EFTA), and Eastern Europe. Definition of Brazilian agribusiness according to MAPA, which includes 2,949 products.

  8. BRAZIL - JAPAN Total and Agri-Food TRADE BALANCES Total exports (8% p.a.) Total imports (5% p.a.) Agri-Food exports (9% p.a.) Total Trade Balance Source: MAPA (Agrostat) • Note: Total and agri-food EXPORTS include the value of fuel ethanol exports on ETBE from the US to Japan.

  9. BRAZIL - JAPAN Brazilian Agri-Food EXPORTS to Japan 2017 (%) CAGR % Others Orange juice Forest products Soybean (bean and meal) 8% -2% Coffee 5% -1% 1% 10% 12% 5% Cereals (corn) 2% 15% 55% 2% Ethanol 20% 14% 28% 0% Poultry Source: USDA Data and “Japan Biofuels Annual 2017”’, UN Comtrade • Note: Ethanol EXPORTS include the value of fuel ethanol exports on ETBE from the US to Japan.

  10. BRAZIL - JAPAN Brazilian Agri-Food EXPORTS to Japan 2018 (%) CAGR % Poultry Cereals (corn) 28% 0% Ethanol Coffee 20% 14% 15% 2% 12% 5% Soybeans 1% 10% -2% 8% Forest products Others -1% 5% Orange juice 2% 55% Source: USDA Data and “Japan Biofuels Annual 2017”’, UN Comtrade Note: Ethanol exports includes ethanol on ETBE exported from the USA to Japan.

  11. JAPAN AGRI-FOOD IMPORTS Market Access and Challenges for Brazil Note: Soy complex (beans and meals). Japan has a requirement for a maximum polarization of 97.99% for raw sugar with tax free (beyond that there is a tariff of around US$ 200,00/ton). Brazil has a minimum pol of 99%. FMD (Foot and Moth Disease): Japan specific requirements.

  12. Brazil Railway Sector Overview Brazil transportation matrix is still dominated by roads as rail network is currently largely inefficient and underused. Despite having a railway network with app 30,000 km, Brazilian railway sector is underused and dominated by iron ore transport in few railways Compared to other geographically sizeable countries, Brazil has both the lowest rail network size and density Railway accounts for only 10% (excl. iron ore) of total transported cargo, compared to more than 40% in relevant peers Due to the lack of investments, the average speed of Brazilian trains is the lowest amongst its peers Source: ANTT, Wall Street Research Reports and Lafis. .

  13. Inland Transportation Ocean Logistics – Critical Bottleneck for Brazil Agro Sector Transportation is the major bottleneck for Brazilian agriculture: high costs, limited shipment capacity and high average shipment time. Aside from large distances (1,000 - 2,000 km), Brazil’s transportation costs (>2x greater than US) are explained by a predominant road system… Soy Transportation Matrix (% of RTK) Example of Logistics Cost to export Soy to China (US$/ton) Rail+Barge US$30/ton Cost to transport one ton of soybean to China (US$/ton) Truck US$85/ton Sorriso Santos US$36/ton 2 Total Cost Brazil: US$108 US: US$66 Water …high inland transportation costs end up reducing the Brazilian competitiveness in exports relative to other main exporters New Orleans Road Road Source: CONAB, Wall Street Research Reports and CNT. Train Train Water US$23/ton

  14. Logistics – Relevant Rail Projects Brazil has limited agri export corridors (in addition to trucks), with limited geographic overlap… Current Projected Ferrogrão Fico Fiol Rumo …there are four main rail projects in study, all directed to give alternatives to the agribusiness, supporting its significant growth perspectives. Source: CONAB, Wall Street Research Reports and CNT.

  15. Logistics – Railway Share for Selected Products Railway in Brazil has a lot of space to improve its share the total agri exports (Soybean, Soymeal, Corn and Sugar). Million Ton Railway Share 45% 45% 45% 43% 45% 42% Source: Comexstat.

  16. Logistics – Railway Share for Selected Products Railway in Brazil has a lot of space to improve its share the total agri exports (Soybean, Soymeal, Corn and Sugar). million ton 38% 36% 33% 34% 36% 39% 34% 37% 36% 39% 41% 37% 56% 61% 51% 60% 60% 62% 44% 55% 57% 59% 58% 68% Railway Share Source: Comexstat.

  17. CONCLUSION Main Challenges • Move forward the JAPAN-MERCOSUL FTA negotiations. • ANIMAL PROTEIN: open the Japanese market for BEEF, address the PORK “gate price” and expand POULTRY exports. Revert the course to low value ag commodities. • SUGAR AND ETHANOL: establish the most ambitious ethanol program in the world: 55-60% reduction of GHG emissions with no blending mix, moving to E-10. Work together with Brazil on new technologies for hybrid vehicles using ethanol engines and hydrogen cells fueled by ethanol. On sugar address the requirements for maximum polarization levels. • NEW PRODUCTS: explore new segments such as tropical fruits, eggs, dairy. • INVESTMENTS AND COOPERATION • Japan-Brazil long-term partnership in agri-food. Started more than 100 years ago with the Japanese migrations: horticulture, ag coops, PRODECER (JICA) etc. • Today more than 600 Japanese companies are present in Brazil. • New cycle of investments and cooperation, specially in logistics infrastructure. Note: PRODECER  Japanese–BrazilianCooperation Program for Cerrados Development.

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