Pestle Brief - Brasil Agriculture

PESTLE Brief: Agriculture in Brazil

Agriculture in Brazil

A PESTLE Brief by Isabella

(Agriculture in Brazil 2022)

INTRODUCTION

There are many tools that organizations can utilize to evaluate their long-term strategic plan. One of the tools is PESTLE analysis, which can help an organization understand its macro environment or external factors. In this study, I will be using PESTLE analysis to evaluate and analyze each of its components and identify the most important variable to best advise my firm on the investments to consider in the agriculture industry in Brazil. According to International Monetary Fund (2021) report, Brazilian nominal GDP was US$1.833 trillion, while the Gross Domestic Product (GDP) per capita was US$8,570. This ranks the country’s economy size at position nine globally, and position one in Latin America. The agriculture sector in Brazil is one of the leading contributors to the country's GDP, mainly exporting coffee, sugarcane, citrus, and soybean (Statista Research Department, 2022). The country has a huge land for agriculture, allowing the sector to contribute more than 4% of the country’s GDP. Despite this not being a huge percentage, agriculture has created 12% of the country's employment and contributed to the agribusiness sector, helping Brazil's economy to progress. After analyzing the most essential variables, I will highlight the untapped opportunities, identify threats likely to be experienced, and make recommendations to my firm regarding the investments related to the agriculture sector to consider in Brazil.

PESTLE ANALYSIS

POLITICAL – DOMESTIC ECONOMY

The first component is political variables and the study identified domestic economy as the most essential variable. The variable justifies how the political status of a country affects its economic growth. This entails how a government implements policy, promotes political stability, and governs the country. These factors are the ones that determine the development of a country's domestic economy, and they extend to other sectors like Agriculture. According to Oxford University Press (2016), despite Brazil's economy being ranked in position 10 globally and first in Latin America, it faces a lot of challenges due to its huge population. Brazil has the fifth largest population in the world and according to this article, it has one of the economies with unequal distributions of income. As noted earlier in this study, Brazil has three social classes, whereby the upper class represents 10% of the population and earns 47% of the income. On the other hand, the middle class represents 10% of the population and earns 12% of the income, while the lower class represents 20% of the Brazilians and live below the poverty line.

Brazil's domestic economy depends on various sectors to grow and support its citizens. In the 1990s, agriculture and industry were the leading contributors to Brazil's GDP, but they have decreased and were overtaken by other sectors like service, foreign investment, and exports. However, according to Reuters (2017), agriculture was the major sector that created employment, and together with agribusiness, it contributed to 23.5% of the country's GDP. Agriculture has been and still is a key pillar in Brazil's domestic economy. Since 1900, Brazil has been the number one producer of coffee, and up to the 1920s, it was 75% country’s exports. Things have changed and according to Statista's (2019) report, Brazil's major exports are soybean, crude oil, and iron ore and its concentrates, respectively as shown below. I believe agriculture will continue to be a key pillar of Brazil's domestic economy although it's not performing well currently. I also think that these crops will continue dominating the country's exports for a while. The graph below shows the most exported products from Brazil in 2019 in billion U.S. dollars.

Source: Statista report 2019 (https://www.statista.com/statistics/1191541/products-exported-frombrazil/#:~:text=In%202019%2C%20Brazil%20most%20exported,U.S.%20dollars%20worth%20of%20exports.)

ECONOMIC – UNEMPLOYMENT

The second component is economic variables and the study identified unemployment as the most essential variable. Economic variables like unemployment refer to issues that influence the buying capabilities of consumers and factors that affect the functionality and performance of businesses (Luo & Zhao, 2013). When the government, foreign investors, and entrepreneurs create jobs, a country's GDP is likely to increase since citizens will have disposable income to spend. According to Trading Economics (2022), the employment rate in Brazil increased from 56.4% to 55.8% as shown in the bar graph below.

Source: Trading economics.com

This can be an indicator that despite the country going through a tough economic moment, other sectors are not doing badly. The employment rate in agriculture is at 9.12 % (Trading Economics, 2022) as shown below.

Source: Trading economics.com

The graph above shows how the agriculture sector employment rate continues to decrease over the years. I believe the major two reasons for this consistent decline are low income from agriculture compared to other sectors and so many people have moved to urban areas to seek better employment opportunities.

SOCIALCULTURAL – DEMOGRAPHIC FACTORS

The third component is socio-cultural variables and the study identified demographics as the most essential variable, which mainly focuses on the size and structure of the human population. Demographic variables include factors like society classes, whereby the country has upper, middle, and lower classes. Other parameters include age, sex, marital status, level of education, level of employment, and others. These factors have been affecting the agricultural sector in Brazil in various ways.

According to the Standard Intelligence Center survey (2021), more than 25% of Brazilian youths between 18 and 32 years are unemployed, and the average age of farmers fall from 48 in 2013 to 46 years in 2017. The study also indicated that more farmers continue acquiring higher education and mostly study agronomy, veterinary medicine, and corporate administration. More farmers are now using online platforms to search for information about farm input, communicate, and market their products. These statistics indicate that different population groups in Brazil continue to use their segmentation to better their lives through Agriculture.

Organization for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO) (2015) report indicated that despite the slower domestic and international economic growth and demand, Agriculture continues to be a key pillar. Most of the segmented population based on demographic characteristics is now shifting to sustainable farming. This has made farmers focus on other crops, such as oilseeds, coarse grains, rice, wheat, sugarcane, and cotton. The graph below shows the major crops likely to be farmed by 2024.

Source: OECD/FAO (2015), “OECD-FAO Agricultural Outlook”, OECD Agriculture Statistics.

TECHNOLOGICAL – GLOBAL POSITIONING SYSTEM (GPS) TECHNOLOGY

The second component is technological variables and the study identified Global Positioning System (GPS) technology as the most essential variable, which mainly helps farmers accurately navigate different areas to collect soil samples and monitor crop conditions. Griffin & Lowenberg-DeBoer (2006, p. 1) argue that the lack of low-cost differential correction has led to the slow growth of GPS use in Brazil. This technology was introduced in Brazil in the early 1990s, and the available differential correction was only a satellite. However, the satellite was too expensive, charging $2,000 annually per unit. Brazil's neighboring country Argentina had a better arrangement with an FM sideband differential correction, charging $300 annually per GPS unit. Most farmers and researchers preferred this, but the US Federal Aviation Agency (FAA) works together with Brazil government to install the Wide Area Augmentation Service (WAAS), which is free (Griffin & Lowenberg-DeBoer, 2006, p. 1). This is likely to reduce the expensive costs incurred by farmers and agricultural researchers in using GPS.

Colussi (2020) found that a huge number of farmers, representing 66.1% use digital technology in Brazil to obtain information on agriculture. The author also justified that 43.3% use digital technology to manage their farms, 40.5% to order inputs and production, 32.7% for land mapping, and 30.2% to predict climatic conditions. However, the research was conducted during the COVID-19 pandemic, whereby the government had imposed various measures, such as restricted movements and social distancing, to prevent the virus from spreading. I believe this is the new norm and the trend is likely to continue since the research indicates that the use of digital tools such as GPS in agriculture led to increased productivity, labor efficiency, better yields, and reduced negative environmental impact. However, the GPS and other technology experienced one common challenge being lack of internet in most rural areas.

LEGAL – ENVIRONMENTAL ISSUES

The fourth component is legal variables and the study identified environmental issues as the most essential variable. This includes laws used by a country or other stakeholders to operate businesses. They are meant to guide the government, investors, consumers, employers, employees, producers, and other stakeholders to conduct business ethically and orderly. For Example, consumer law, discrimination law, copyright law, health, and safety law, employment law, fraud law, and others. However, despite having these laws, business activities always impact the environment in one way or the other. Businesses are supposed to operate ethically and be sustainable to reduce negative environmental impacts. Brazil's government has various environmental laws that protect the environment. Examples are the National Water Resources Policy Act, the National Environmental Education Policy Act, and the National System of Conservation Units Act.

Brazil is the world's fifth largest country in population and area, and 80% of the population lives in urban areas. This makes the country venerable to various environmental issues since they are mainly caused by human activities. The first issue is deforestation. Due to the increased population in the country, Smith (2015) argues that people have been cutting down trees in the rainforest areas to grow soy and cocoa since they are producing huge yields. The country has been trying to fight against deforestation and in 1965, it passed its first Forest Code, a law that required landowners in the Amazon to maintain 35 to 80 percent of their property under native vegetation (The Nature conservancy). Below shows a part of the tropical rainforest, Amazonia where trees have been cut down.

Source: guentermanaus/shutterstock.com

The second issue is illegal poaching, and this has affected indigenous species, forcing the government to categorize them as endangered species. For example, jaguars, and songbirds. There are no specific laws against illegal poaching, but NGOs such as the wildlife trade monitoring network are working with the government to protect flora from poachers. The third issue is waste disposal which mainly occurs in urban areas. In 2010, the Brazilian government developed a National Solid Waste Policy to reduce waste produced and promote sustainable solid waste management. The last environmental issue is climate change. It is becoming more challenging to practice sustainable agriculture due to climate change in Brazil (Garrett et al., 2018). Some areas like Cerrado which is dependent on many farmers due to the huge yield of soy have become warmer and drier, affecting agricultural production. Brazil's government has shown commitment to addressing climate change as it adopted the Paris Agreement and submitted its Nationally Determined Contribution (NDC) to the United Nations Framework Convention on Climate Change (UNFCCC) in 2016. Below is an image of one of the farms in Cerrado.

Source: https://news.mongabay.com/2020/02/cerrado-in-crisis-one-brazilian-farm-family-commits-to-sustainable-soy/

ECOLOGICAL – LAND DEGRADATION

The last component is ecological variables and the study identified land degradation as the most essential variable. Ecological variables refer to the ecosystems operating in a certain competitive environment to survive. Examples of the ecosystem in this context include the government, farmers, investors, consumers, and others. When these ecosystems engage in various activities like Agriculture, the physical environment is affected leading to land degradation, climate change, pollution, deforestation, and other natural disasters. In Brazil, land degradation has been an issue and different stakeholders like the cattle ranchers on Trans-Amazonian Highway have tried to minimize it. Buainain & Garcia (2019) outlines that the major cause of land degradation in Brazil is deforestation. Land degradation has long-term effects on the environment, such as loss of soil fertility, soil erosion, destruction of other species' habitats, and others. This leads to poor agriculture production and raises the cost of production as farmers have to use fertilizers and other pesticides due to these effects caused by land degradation. The image below shows an area in Amazon Brazil, where trees have been cut down to create land for farming leading to land degradation.

Source: https://www.dw.com/en/brazil-amazon-deforestation-hits-new-high/a-61717387

OPPORTUNITIES:

One of the major opportunities that my firm may have is investing in Agribusiness. I would urge my firm to invest in Agribusiness in Brazil since as noted from the analysis, many people are moving to urban centers to seek employment. This means that in the near future, the demand for food and other farm produce will increase. The firm can be buying produce from farmers and be distributing them in large and densely populated urban centers. The firm can start research programs and focus on sustainable farming. The data and information collected can be used by the Brazilian government and the firm be paid to create awareness. The firm has also an opportunity of farming crops that seems to be dominating the export market, such as oilseeds, coarse grains, rice, wheat, sugarcane, and cotton.

THREATS:

Brazilian agriculture poses multiple threats that include unsustainable agricultural activities, land degradation, deforestation, illegal poaching, climate change, low-cost differential correction, huge population, and insufficient laborers in rural areas. More laws will need to be implemented to keep others from being able to use the Amazon for their benefit. Climate change is inevitable and will only continue to get worse with time. There are some threats that you cannot control and have to deal with as they present themselves.

RECOMMENDATIONS;

I would recommend my firm research on the identified challenges to help the Brazilian government acquire important information to disseminate to farmers. For instance, advise them to practice crop rotation, increase crop diversity, and use cover crops to promote sustainable agricultural activities. I also recommend my firm to consider using digital tools such as GPS since the analysis shows it led to increased productivity, labor efficiency, better yields, and reduced negative environmental impact.

REFERENCES:

Buainain, A. M., & Garcia, J. R. (2019). Agriculture and the environment: a conflictive and ambiguous antinomy in recent Brazilian development. In Agricultural Development in Brazil (pp. 139-151). Routledge.

Colussi, J., (2020). Research Shows the Profile of Brazilian Digital Agriculture During the Pandemic. Farm Policy News. https://farmpolicynews.illinois.edu/2020/08/research-shows-the-profile-of-brazilian-digital-agriculture-during-the-pandemic/

Garrett, R. D., Koh, I., Lambin, E. F., De Waroux, Y. L. P., Kastens, J. H., & Brown, J. C. (2018). Intensification in agriculture-forest frontiers: Land use responses to development and conservation policies in Brazil. Global Environmental Change, 53, 233-243.

Griffin, T., & Lowenberg-DeBoer, J., (2006). Potential for Precision Agriculture Adoption in Brazil. Purdue University.

International Monetary Fund (2021). Brazil: Latin America Hit by One Inflationary Shock On Top of Another. https://www.imf.org/en/Countries/BRA

Luo, Y., & Zhao, H. (2013). Doing business in a transitional society: Economic environment and relational political strategy for multinationals. Business & Society, 52(3), 515-549.

OECD/FAO. (2015). Brazilian Agriculture: Prospects and Challenges. OECD-FAO agricultural outlook 2015.

Oxford University Press (2016). Things you didn’t know about Brazil’s economy. https://blog.oup.com/2016/08/10-facts-economy-brazil/

Reuters Staff (2017). PDATE 1-Agriculture adds jobs, and helps lead Brazil's economic recovery push –CAN. https://www.reuters.com/article/brazil-agriculture-idAFL1N1O50SI

Smith, B., (2015). Brazil: Environmental Issues, Policies, and Clean Technology. https://www.azocleantech.com/article.aspx?ArticleID=547

Statista report (2019). Most exported products from Brazil in 2019(in billion U.S. dollars). https://www.statista.com/statistics/1191541/products-exported-from-brazil/#:~:text=In%202019%2C%20Brazil%20most%20exported,U.S.%20dollars%20worth%20of%20exports.

The Nature Conservancy (n.d.). Brazilian Amazon: The Forest Code: Using Law to Protect the Amazon. https://www.nature.org/en-us/about-us/where-we-work/latin-america/brazil/stories-in-brazil/brazils-forest-code/#:~:text=In%201965%2C%20Brazil%20created%20and,farm%2020%20percent%20of%20it.

The Standard Intelligence (2021). Center Millennials and the Nem Nem Generation. MindMiners.

The Statista Research Department (2022). The agriculture industry in Brazil – Statistics & Facts. https://www.statista.com/topics/5838/agriculture-in-brazil/#dossierKeyfigures

Trading Economics (2022). Brazil Employment Rate. https://tradingeconomics.com/brazil/employment-rate#:~:text=Employment%20Rate%20in%20Brazil%20averaged,percent%20in%20August%20of%202020.

Wikimedia Foundation. (2022, July 18). Agriculture in Brazil. Wikipedia. Retrieved July 26, 2022, from https://en.wikipedia.org/wiki/Agriculture_in_Brazil

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