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June 24, 2002

Original: Portuguese
Translation: FTAA Secretariat



Name “Liberação Comercial e Agricultura Familiar no Brasil” (Trade Liberalization and Family Farming in Brazil) (Fernando Homem de Melo)
Organization REBRIP Working Group on Agriculture
Country Brazil

Rio de Janeiro, April 30, 2002

Free Trade Area of the Americas Secretariat
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In “Liberação Comercial e Agricultura Familiar no Brasil” (Trade Liberalization and Family Farming in Brazil.), Professor Fernando Homem de Melo, Chair of the Economics Department at FEA-USP (São Paulo University) and researcher at FIPE (Institute for Economic Research Foundation), attempts to explain the radical shift in Brazilian economic policy since 1990, when the nation became involved in international policies geared towards the opening of markets. The author specifically attempts to identify how such a change in economic policy has affected Brazilian agriculture, mainly with respect to family farming.

In order to identify the effects that the policies aimed at opening markets had on Brazilian Family Farms, the study had to use a methodology focusing on crops produced by family farms. Since the effects of the policies were reflected in the market prices of the products. This, by extension, required that Brazilian agriculture be presented as a heterogeneous set of goods divided basically into two sub-sets, one being goods for foreign trade (import and export) and another destined for the domestic market.

In the article, products are identified as having come from a family farm when the total area of the farm is 100 hectares or less. Based on 1995/96 agricultural census data, it is clear that Brazil’s major agricultural products are for domestic consumption, although not all are food stuffs, as is the case with tobacco. Special census estimates, provided by INCRA (National Institute for Colonization and Land Reform.), confirm this classification.

Homem’s hypothesis is that economic policy changes introduced beginning in 1990, and especially those that occurred after 1994 under the Plano Real, damaged the profitability of the agricultural sector as a whole, and family farms in particular, due to their negative impact on prices and products. However, the author does not limit his analysis to a comparison of the new situation with that of the closed economy prior to 1990. After all, that model showed clear signs of collapsing. On the contrary, he considers a different combination of fiscal, monetary, currency exchange, and trade policies in effect in the 1990s that could have led to economic stability and prevented the mistakes and excessive costs resulting from the adopted policy.

Among the major characteristics (or mistakes) of the post-1990 policy were extremely high interest rates, overvalued exchange rates, and extremely low tariffs on imported goods. Among the positive outcomes generated under the policy is the reduction of tariffs on imported agricultural inputs. The overvaluation of the Real vis a vis the “Anchor” currency in the midst of inflation kept export goods from benefiting the most from the change in economic policy. Family farm products were adversely affected by the combination of policies, mainly due to excessive reductions in import tariffs that did not take into consideration the protectionist agricultural policies of industrialized nations. In addition, the effects of substitution, especially on consumption, were quite significant. The decrease in the price of wheat, for instance, had a severe impact on several family farming products (beans, cassava, and potatoes, among others).

The empirical part of the article examines the effects on prices charged, cultivated area , production, and the values of 22 agricultural products in Brazil, 12 from family farms and 10 from large-scale farms. The conclusion is that the 1990s were extremely difficult for Brazilian farmers, despite being relatively favorable as far as international prices were concerned. The country saw a sharp reduction in prices paid to producers. This reduction was even more drastic in the case of family farm products (-4.74% per year). Products from large-scale farms enjoyed favorable prices on the international market and, thus, experienced less of a drop in prices.

However, regardless of the drop in prices, the total amount produced by family farms grew at a significantly higher rate than that of large scale farms (3.7% per annum as compared with 2.6% per annum, respectively.) Even so, there was a 2% per annum reduction in cultivated land in the family-farming sector. Between1989 and 1999, the number of hectares used for growing the 12 family-farming products decreased by 1,320 hectares, which is, by no means, a negligible statistic. In fact, according to census data, 906,000 family farms were lost between 1985 and 1995. It should also be noted that the crisis intensified after 1995.

Finally, family farming performed outstandingly well with regard to total yield obtained, which led to lower production costs, helping to explain the sound performance of Brazilian family farms. This fact, aided somewhat by the opening of the market (thanks to lower input prices), has assuaged the effects of the economic policies of the 1990s.

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