Agricultural Trade Liberalization and Brazil’s Rural Poor: Consolidating inequality

Amanda Cassel and Raj Patel | 08.01.2003

August 2003, Policy Brief No. 8

Executive Summary

Everything about Brazil is big—its area, its population, its economy, its inequality. The poorest Brazilians live in rural areas, working in and around agriculture. This report surveys the history and trajectory of Brazilian agriculture, and its experience under liberalization of agriculture. The data, assembled from the Brazilian government, World Bank, United Nations and scholarly sources, suggest that liberalization, rather than redressing the inequality that has persisted in rural Brazilian life, has cemented it.

The liberalization process began with the first structural adjustment programs. As a result of the debt crisis at the outset of the 1980s, Brazil signed its first structural adjustment deal with the International Monetary Fund in 1982, followed by another in 1988. In the agricultural sector, the result was that rural credit, producer price supports, and marketing services virtually disappeared after 1987. Despite heterodox efforts to stabilize the economy without raising interest rates, by temporarily freezing prices (Cruzado Plan 1986, Bresser Plan 1987), both inflation and interest rates spiraled out of control for much of the decade. In addition, with the removal of regulations on prices, the cost of land soared, making it even more difficult for the poor to acquire and retain land.

Liberalization had a predictable and negative effect on prices: world prices for Brazil’s major crops, including its principal exports coffee and sugar, have been falling since the early 1980s. Poor farmers who attempted to enter the agro-export markets alongside profitable large producers were hit hardest by this trend because of their vulnerability to loss. In addition, prices for crops on the domestic market have fallen almost as drastically. From 1980-1991 alone, real producer prices for both domestic crops and exports were cut in half. Prices have continued to drop in the 1990s. Over the last thirty years, rice prices have declined 53% and maize prices by 60%. Again, the rural poor suffered, as rice and maize are two of their principal crops.

In 1991, Brazil entered MERCOSUL, also known as MERCOSUR, or the Southern Cone Common Market. It called for all members to eliminate tariff and non-tariff barriers to trade by 1994, with a few exceptions granted for vital commodities. The agreement also specified reductions in support for agricultural production. Brazil and Argentina, the regional giants, pushed for its formation and have been its principal beneficiaries. Brazil’s exports have grown significantly since its implementation, and it is by far the largest exporter in the group. At the same time, competition from Argentina in certain sectors, most notably wheat, has driven Brazil almost entirely out of the market. Since the inception of MERCOSUL, Brazil has begun importing more food.

The last twenty years have seen a surge in the number and power of grassroots social movements in the rural sector. Small farmers have banded together to survive hard times, and landless people have taken agrarian reform into their own hands.

Brazil joined the World Trade Organization upon its formation in 1995. The WTO was formed out of the former GATT (General Agreement on Tariffs and Trade) as a governing body over international trade rules. The Uruguay Round of the GATT, 1986-1994, gave rise to the formation of the WTO and mandated major reductions in tariffs, export subsidies, and domestic price supports. Developing member countries, including Brazil, were to reduce import tariffs and export subsidies by 24% and to reduce domestic price supports by 13.3%, both over a period of ten years. By joining the WTO, Brazil agreed to extend market integration from a regional to a global level. The Uruguay Round contained a specific Agreement on Agriculture that requiredunprecedented liberalization of agricultural markets. As predicted, trade liberalization increased Brazil’s international trade. But it also increased Brazilian farmers’ exposure to the fluctuations of international prices.

Brazil is currently in negotiations with the U.S. and other Latin American countries over the creation of a trading bloc that would reach from Canada to Chile, essentially expanding NAFTA to the rest of the continent. The FTAA would involve more of the same for Brazil: lower tariffs, taxes, and export subsidies, and more competition from abroad. Competition would now come from the United States, which is hesitant to hold itself to the same standards. So far, the U.S. government has refused to eliminate the billions of dollars in subsidies it provides to its farmers. If the FTAA goes through without stronger anti-dumping provisions and major cuts in U.S. farm subsidies, Latin American farmers will be even more threatened by cheap food crops pouring in from the North.

Against this backdrop, the conditions of the poorest Brazilians remain grim. While estimates for poverty in Brazil range from the World Bank’s 20% to UNICEF’s 32%, with rural poverty twice as high as urban poverty (a conservative World Bank estimate placed rural poverty at 41%), authorities agree that the reforms of the 1990s failed to improve the lot of Brazil’s poor. Small farmers were hardest hit by the changes, unable to withstand the price fluctuations that came with trade liberalization and the elimination of price controls. In addition, despite the fact that Brazil is a food exporter and enjoys the world’s 10th largest economy, 10% of Brazil’s people are hungry; half of the poorest live in rural areas, where food is grown.

Brazil is infamous for its income inequality. The UNDP’s Human Development Report in 2003 found that Brazil had the greatest inequality among middle income countries, and was surpassed on the global level only by Sierra Leone. For the past twenty-five years, throughout the period of trade liberalization, Brazil’s GINI coefficient has held fast at around .59 or .60, settling at .61 in 2003. Putting these trends in words, the data show that the poorest 10% of the population receives just 0.7% of total income, while the richest 10% receives almost half.

This situation is particularly severe for Brazil’s rural population. Rural workers include independent small farmers, sharecroppers, tenant farmers, and agricultural day laborers. They are Brazil’s poorest and most vulnerable sector, and they depend upon the land to produce the crops that are their livelihood. Yet, at last count, 40% of farmers shared a mere 1% of the land, while the richest 20% owned 88% of the land. Despite an feeble attempt at land reform during the 1990s, land tenure has not become more equitable over the last two decades. The Landless Workers’ Movement (MST) estimates that there are 20 million landless people in Brazil (4 million families), while 7 million more barely survive as squatters, sharecroppers, and migrant workers. In large part, the continuing poor distribution of land is due to liberalization policies that favor large-scale, technologically-advanced, export-oriented agriculture rather than small farmers growing for local markets.