Competing for the shelves of the world, by Ligia Dutra

Ligia Dutra

In 2020 two cotton sector entities, Abrapa and Anea, together with Apex-Brasil, set up a representation office in Singapore and consolidated an ambitious internationalization project. You may be asking yourself: if cotton is a commodity and the Brazilian product is essential to supply world demand, why would the private sector spend money and effort in this endeavor? The Brazilian cotton producers case shows the change of mentality paradigm the agricultural sector is experiencing.

In the past, when it came to exports, essential requirements for a producer amounted to improving productivity, standardizing quality and having a low price. The huge demand for their products would do the rest, since buyers were looking for what they needed. Currently, the three standards of productivity, quality and price is only a minimum reference for entering the market. Once inside, there are major competitive challenges to differentiate and expand profit margins, as Brazilian cotton growers have realized.

Even under current high demand and soaring commodities prices in the international market, the need for greater internationalization is a matter of fact. It is necessary to have a presence at the destination market, to promote products and to know local consumers. The competitiveness of present day world agricultural exports depends on it.

The trade balance data provides an overview of that issue. Between 2000 and 2020, agricultural exports grew from US$ 20 billion to US$ 100.8 billion, which accounts for an incredible 389% expansion. The demand for agricultural products was strongly driven by developments in China, a country responsible for 33.7% of everything we sold to the world last year. But the growing interdependence of national production with China’s growth is concentrated in just three products (soy beans, beef and cellulose) which, in 2020, totaled 82% of the 34 billion in sales.

The great concentration of the export basket in some products, to a few destinations, can be seen in many ways, but it is a clear sign that there is an unexplored potential for Brazilian agribusiness on the world’s shelves.  The sector is doing a lot, however it is possible that in the next 20 years we could see more goods and more destinations reflected in the trade balance data.

Of course a general analysis of the export agenda does not provide an in-depth view of the diverse challenges that each of the Brazilian agricultural sectors faces in the international market. Cotton growers, for example, already occupy the second position in world exports, having quite diversified destinations, so the untapped potential is not evident. But organizations that represent the sector refer to another problem: Brazilian cotton achieves a high degree of quality and, despite being well accepted by international buyers, receives a lower value than its main competitor, American cotton.

Buyers have no perception of the differential quality of the Brazilian product. Conversely  American cotton is better known and its quality  is widespread on the international market. The American cotton fame is not mere chance but the result of years of trade promotion and physical presence at destination markets. US cotton growers have marketed their product, cultivated customers, and built market reputation through their 17 overseas offices and representatives.

According to Abrapa, the distorted perception or lack of knowledge about the Brazilian product, which accounts for American cotton preference, causes the national producer a loss of US$ 127 per hectare of planted cotton. Whatever value the sector fails to gain is the untapped business potential. This shows that internationalization is a necessity even for large commodities in a high demand scenario. Product differentiation for the consumer is an important process in adding value and conquering new markets.

For products that do not yet occupy a large share of exports, international presence is even more important to leverage business opportunities and differentiate the product for consumers. That idea guided the Brazilian Confederation of Agriculture and Livestock (CNA) internationalization project.

Aiming to help the export agenda of less traditional sectors, CNA established a representation in Shanghai a year ago. The idea behind this decision to have representation abroad is, to a large degree, similar to the motivation of the cotton sector opening their office in Singapore. It is necessary to take a leading role in the international market, promote products, establish long-term relationships with buyers and final consumers.

The location chosen for the first representation abroad is justified by the enormous capacity for diversification that the Chinese market has. Chinese consumers know very little about the foods produced in Brazil, as they are rarely present on supermarket shelves already flooded with international brands. Rural producers are also unaware of the immense business opportunities that the country offers beyond soy and beef. Therefore, local presence has proved to be essential to change that reality. The more I engage in leading CNA’s project of presence in China, the better I understand challenges and opportunities therein. Therefore, I am certain other Brazilian entities and companies need to follow the same path.

The national agricultural sector is too vigorous to be restricted to buyers who knock at their door. The good moment for exports should serve as a stimulus for long-term projects. The greatest challenge is to get out of the comfort zone that high commodity prices bring to the sector and, in fact, compete for the world’s shelves with food, fiber and energy produced by “made in Brazil” agribusiness.

Lígia Dutra is the International Relations Director of the Brazilian Confederation of Agriculture and Livestock (CNA)

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