Domestic Demand Forces Shift in Crops, Industrial Goods : Brazil Cuts Back on Exports Needed to Reduce Its Huge Foreign Debt

Once a vast expanse of wild grass and bushy outcroppings, this gently rolling terrain in southwestern Brazil today contains miles upon miles of soybeans destined for foreign markets, part of a powerful, national export drive.

Here on the world’s largest soybean farm, created from scratch just 13 years ago, sprouts the flip side of the world’s largest foreign debt--a home-grown Brazilian wealth that has helped this Latin American giant keep up interest payments and even dictate some terms to foreign creditors.

Brazil’s enormous trade surpluses have exceeded $12 billion in the past two years, thanks not only to soybean sales but to massive shipments of coffee, orange juice, cars, textiles, shoes, iron ore, steel, machinery and numerous other items.

The export campaign has accompanied two decades of intensive export-crop cultivation and fast-paced industrial development, brightening Brazil’s economic prospects beyond those of any other nation on this beleaguered southern continent.

Yet just when the fruits of this export-led growth are being realized, the government has come under increasing pressure to concentrate less on selling abroad and more on satisfying home demand.

Forced to Curb Exports

While the need to pay a $105-billion foreign debt is certain to keep export promotion a matter of national survival, Brazilian officials are being forced to curb some exports and increase imports to meet a surge in domestic consumption.

Becoming an export giant has had costs as well as benefits for Brazil. Land that might have been cultivated to feed the poor has instead gone to cultivate export crops.

Fernando Homem de Melo, a leading Brazilian agronomist, reported that per-capita production of basic foodstuffs (rice, black beans, manioc and potatoes) fell 13% from 1977 to 1984, while exportable foodstuffs (soybeans, oranges, cotton, peanuts and tobacco) experienced a 15% jump in per-capita output.

Moreover, sugar cane plantations have occupied millions of fertile acres in a national program begun in the 1970s to replace oil with sugar-based alcohol fuel.

The switch from gas-powered cars has helped to reduce Brazil’s bill for foreign oil (as have increased national oil production and depressed world oil prices) to $5.5 billion last year from a peak of $11.3 billion in 1981. But critics say the proliferation of sugar cane has crowded out less profitable food crops.

To build trade surpluses even higher, Brazilian officials imposed tight import curbs.

Has Caused Scarcities

These are now aggravating scarcities of machinery, industrial parts and other items desperately sought by Brazil’s voracious economy, which last year scored the Western world’s highest growth rate-8.3%. They also have caused friction with the United States and other governments.

In the past, Brazilian policy-makers could give less heed to home markets, generally weak in demand and handicapped by vast poverty in this nation of 135 million people. A prolonged recession in the early 1980s further induced Brazilian producers to look abroad for sales.

By one measure, Brazil’s increasing share of international industry has offered the prospect of more and better jobs for workers and higher quality products on the domestic market. But much of the wealth generated by exports stayed in the hands of rich individuals and foreign-owned firms, increasing the imbalance of Brazilian growth.

According to government figures, nearly half the national income belonged to the richest 10% of the population in 1984. In this respect, the Brazilian example has supported those who argue that development that is good for international trade can have destructive effects inside a poor and populous country.

Since the arrival last year of President Jose Sarney, whose civilian government ended 21 years of military rule, greater official emphasis has been placed on correcting the dramatic income gap. Among Sarney’s first moves was to get a land reform act passed.

Though less sweeping than promised and hobbled by landowners’ resistance, the legislation mandates the redistribution of millions of acres of underused farmland to 1.4 million poor families over four years.

Attack on Inflation

Last February, Sarney launched a shock attack on inflation, which had reached 15% a month. The Brazilian leader froze prices but allowed wage adjustments. This choked inflation but spared workers the income loss usually suffered under more traditional, recession-prone, anti-inflation programs.

Real incomes rose, sending Brazilians on a buying binge. Retail sales have soared 30%, and industrial production is near capacity.

To meet the surge in home demand, Brazilian producers have diverted to local markets beef, aluminum, tractors, shoes and other products that otherwise would have gone abroad. As a result, the government predicts that Brazil’s 1986 trade surplus will be down about $1 billion or more from last year’s $12.5 billion.

Contributing to this fall have been a drop in world commodity prices and $1 billion spent on emergency imports of meat, milk and grains to compensate for poor harvests.

Such specialists as Michel Alaby, director of the foreign trade studies center in Sao Paulo, say Brazil’s surplus could slide as low as $8 billion next year. Brazil paid $9 billion last year in interest on its foreign debt.

Domestic shortages, meantime, pose a serious political problem for the government, threatening to erode the enormous popularity Sarney achieved with the anti-inflation plan.

Confiscated Cattle

Worried especially about a scarcity of meat--caused not just by higher demand, but by ranchers’ refusal to slaughter cows at frozen prices--the government sent armed policemen onto three ranches in October to confiscate several thousand cattle.

Farm organizations accused Sarney of “anti-democratic” action motivated by gubernatorial and congressional elections.

Some Brazilian entrepreneurs believe that the country can satisfy growing demand at home without sacrificing foreign sales.

They argue that expansion of both exports and internal supplies is possible, given the potential for productivity gains and the availability of land. Only 50 million of an estimated several hundred million arable acres in Brazil are cultivated.

“There’s quite a bit of confusion created by demagogic politicians who complain that we are exporting at the expense of feeding our own population,” said Olacir Francisco de Moraes, a multimillionaire builder who ventured into farming and developed a 120,000-acre soybean farm here named Itamarati. “The problem has been a weak domestic market. Now we’re trying to strengthen it. But this doesn’t mean we have to stop exporting.”

Now the government appears to be giving priority to internal over external markets. In August, it announced agricultural measures clearly favoring domestic over export crops.

Under the new program, price supports for such Brazilian staples as rice, black beans, corn and manioc will be raised, more bank credit made available for planting these food crops and buffer stocks formed.

Shift to Other Crops

Already there are signs the new policy is having its intended effect. Bankers and farm groups report that growers have begun to shift from soybeans into corn and rice in several southern and western provinces.

Also in August, Sarney unveiled a plan to plow tax revenue and profits from hoped-for sales of state-run companies into a new fund for transport, electric power, social welfare and education projects. The alcohol program, meantime, has been slowed, reducing the need for new sugar cane fields.

Up to now, foreign investment has helped power Brazil’s growth and its export drive. Car makers and other multinationals were attracted to the country by cheap labor and by supplies of steel, aluminum and other natural resources.

They pictured Brazil as a low-cost production base, shipping machine parts and other manufactured items to the world--a vision that became reality as industrial parts surpassed agricultural products in total export value.

Brazil received more direct foreign investment than any other developing country--more than double the amount received by Mexico, which was the second-largest recipient.

In contrast with other Latin American states, foreign loans were invested wisely, financing hydroelectric dams, aluminum complexes and other expensive projects now going into operation.

Ironically, in the midst now of an economic boom, Brazil’s business community has fallen into a mood of uncertainty which has choked new foreign investment.

Investment Declined

Multinationals are speeding up profit remittances rather than expanding. New foreign direct investment in Brazil has slumped to less than $100 million this year from $1 billion in 1984.

Objections to price controls and to a mounting number of other administrative regulations partly explain this reversal. In addition, would-be investors perceive a rise in nationalist sentiment.

Brazil’s dispute with the United States over a law that restricts the activities of foreign computer makers has stirred doubts about future receptivity to foreign investment here.

Exports are still important for the government, psychologically as well as economically. Brazilian officials believe that the nation’s debt bargaining position has been bolstered by its strong trade performance. Sarney and his aides have shown a sense of self-assurance in dealings with the International Monetary Fund and creditors.

But the Sarney administration is now offering to let its trade surpluses shrink, pledging to import more from the United States and other countries in return for lower interest rates and longer repayment terms on Brazil’s foreign debt.

“We have trade surpluses with just about everyone in the world, except some of the oil-producing countries,” said Alvaro Alencar, a senior finance ministry official handling international relations. “If we could reduce our debt costs, we would not have to maintain such a high trade surplus and could increase our imports.”

Commercial banks agreed in July to another debt rescheduling and are considering the resumption of voluntary lending to Brazil next year. But foreign governments continue to refuse to roll over Brazil’s official debt because of Sarney’s unwillingness to sign an IMF agreement.

Brazilian officials say they do not need the IMF, though they are agreeable to some sort of “enhanced-surveillance” arrangement with the fund.