April 8th, 2016 Wall Street Journal

SO PAULO deep recession, political chaos and a Zika virus epidemic have brought Brazil low, but the country is still a world-beater in one respect: agriculture.

Brazil’s crop agency, Conab, said Thursday it expects record soybean crop this year and corn crop close to record. The country’s farmers look set to produce record crops of coffee and sugar cane as well this year, while cattle ranchers and chicken and hog farmers foresee reaching new heights for exports.

Given the outlook that Brazil’s economy will contract by 3.7% this year, after shrinking at its fastest pace in 35 years in 2015, the country’s bountiful harvests, plentiful chickens and fattened cows are rare bright spot.

Agriculture was the only sector of Brazil’s economy to expand last year, by 1.8%, while overall gross domestic product shrank 3.8%.

œThe whole world has to eat and Brazil makes its living from agriculture, said Edimilson Calegari, head of the Cooabriel coffee cooperative in the southeastern state of Espirito Santo. œOur farms and ranches are what have kept our economy going during these bad years.

The Brazilian currency’s steep drop last year”30% slide against the dollar”boosted exports and more than made up for declines in commodities prices. That has helped generate foreign-currency reserves and reduce Brazil’s current-account deficit.

Forecasts of Brazilian bumper crops this year might normally be expected to depress global commodity prices, leading to smaller incomes for farmers in South America’s largest nation.

But so far prices for soybeans, sugar and Arabiccoffee have all headed higher this year, due to variety of factors including weather concerns in other commodity producing nations.

Brazil’s currency has made gains against the dollar recently; it is up about 10% since Jan. 22. But with an eye to helping exporters, the nation’s central bank has been intervening in the currency market, with the goal, traders say, of keeping the real from strengthening much beyond 3.60 to the dollar.

That is good news for Brazilian farmers, whose products continue to undercut their counterparts in the U.S. and Europe.

Brazil became lot more competitive last year because of the weaker real, and that really pushed exports up and boosted farmers’ incomes, said NatáliOrlovicin, an analyst at INTL FCStone.

Agriculture offers rare example of Brazilian sector that is globally competitive.The country’s largely inefficient manufacturers are still heavily protected by tariffs and import taxes, but the government took the opposite approach with agriculture.

Starting in the 1990s, it reduced subsidies and eliminated export taxes while increasing investment in agricultural research. Farmers responded with rapid expansion of the areunder cultivation and burst of investment that made them among the most productive and efficient producers in the world.

Agriculture’s clout in Brazil’s economy was highlighted this year when the government of President DilmRousseff floated proposal to reimpose tax on agricultural exports to help close massive budget gap.

The country’s influential agricultural lobby, the CNA, quickly condemned the proposal. The group’s former president, rancher and current Agriculture Minister KatiAbreu, also joined in to criticize the move, which appears to have died quiet death.

Just few years ago, when commodities prices were high and Chinwas vacuuming up Brazil’s iron ore by the boatload, that commodity was Brazil’s export king. The value of the country’s iron-ore sales abroad reached record $41.8 billion in 2011, but plummeted to $14.1 billion last year.

Meanwhile, the value of soybean and soybean-product exports went from $23.9 billion in 2011 to $31.3 billion in 2014. Even as sales retreated to $27.9 billion last year, soybeans still dethroned iron ore as the country’s most valuable export.

œSoy products are the locomotive of Brazil’s agricultural sector, said Endrigo Dalcin, president of soy-growers association AprosojMato Grosso. œIt’s what saved our trade balance last year, and this year I think we’re going to set new record for exports.

˜We need to get the economy going again, create more jobs so people here can eat more and better.

”Mario Lanznaster, hog farmer in the state of SantCatarina

While agriculture remains bright spot in Brazil’s economy, plenty of challenges remain. Among the biggest are inadequate roads, dearth of rail lines and strapped ports, hampering the flow of farm products to market.

The cost of moving soy from the grain belt in Brazil’s the interior state of Mato Grosso to the port of Santos in São Paulo state is close to four times what it costs farmer in Illinois to get his soy crop to New Orleans, according to AprosojMato Grosso.

While the weak real is spurring exports, the government hasn’t done enough to help the agriculture sector and the rest of the economy, said Mario Lanznaster, 75, who raises hogs and sells about 36,000 each year from his farms around Chapecó, in the state of SantCatarina.

He would like the government to build rail line to help bring corn grown deep in the country’s interior to hog and chicken farmers in his state on the coast south of São Paulo. That would cut the cost of feed, he said, and help make pork even cheaper, in Brazil and abroad.

œThere’s no doubt that the weak real helps us, makes us more competitive, he said. œBut Brazilians have to eat too. We need to get the economy going again, create more jobs so people here can eat more and better.