Atop a mountain plateau in Brazil’s northeastern Piaui state, Luciano Curioni inspects shriveled corn cobs as dust whirls across his rattlesnake-infested farm that has no water, power or a phone.
Farmers like Curioni are testing the limits of climate and technology, pushing the country’s agricultural frontier into increasingly inhospitable regions, as the world’s fourth-largest farm exporter runs out of arable land. Companies providing solutions, such as Deere & Co., Monsanto Co. (MON:US), and Bayer AG, stand to gain.
Unable to afford acreage in the productive western grain belt where his family has farmed for decades, Curioni invested 3.5 million reais ($1.6 million) two years ago to clear 2,000 hectares (4,940 acres), the equivalent of 2,801 football fields, of virgin savanna near the town of Bom Jesus. A drought this year left him owing 1.3 million reais and nearly drove him into bankruptcy.
“I was about to give up but others here have made money, so I’ll try again -- I’ll be praying more than usual next season,” Curioni said, dodging knee-deep potholes as the wipers clear dust off the windshield of his beat-up pickup truck. “The land here is cheap but operational costs are high, logistics poor and rains are, well, uncertain.”
Driven by rising global food demand, stricter environmental laws and expansion of protected areas, arable land prices have risen as much as sevenfold in some regions over the past decade.
That’s more than four times the return of shares in Petroleo Brasileiro SA, the country’s largest company by market value. The United Nations’ Food Price Index, which is made up of 55 agricultural commodity prices, in August was about double its level a decade ago.
Brazil, which accounts for about eight out of 10 liters of orange juice shipped worldwide, has more than quadrupled its farm exports to $83.4 billion last year, according to the Agriculture Ministry.
“Technology and management, not land, are the future,” former Agriculture Minister Roberto Rodrigues said by phone from Sao Paulo. “The cost in traditional growing regions makes expansion inviable and is pushing the frontier to its limits.”
The winners in this rural transformation are farmers who embrace the latest know-how. After losing 70 percent of his crop to the worst drought in 30 years, Curioni has ordered detailed soil testing and will install satellite-monitored humidity sensors. He also plans to intensify tilling and use more limestone to allow deeper roots so plants can better resist dry spells.
Deere, Monsanto and Bayer AG (BAYN) representatives were unable to comment on their business prospects in Brazil, they said in response to e-mailed requests.
Scientists at companies such as state-run Empresa Brasileira de Pesquisa Agropecuaria are developing seeds more resistant to droughts, most of them genetically modified.
Duluth, Georgia-based Agco Corp. (AGCO:US) is betting on clients like Curioni. The manufacturer of harvesters, tractors and precision farm technology estimates growth of 20 percent this year in Brazil, its fastest-growing market worldwide, said Andre Carioba, senior vice-president for South and Central America, in a telephone interview.
“Brazil’s agricultural map will be redrawn” as a result of rising land prices and the search for higher productivity and returns, said Jose Vicente Ferraz, a partner at Sao Paulo-based Informa Economics FNP consulting firm, who has studied the agricultural property market for two decades.
Mono-cultures such as soybeans and corn that require large land tracts to gain economies of scale will settle in the plains of the center-west and north, while more value-added horticulture such as apples or berries will concentrate in the south and southwest, where land ownership is more fragmented, said Ferraz.
Under-capitalized farmers and less productive ranchers will be bought out, according to Fernando Sampaio, executive director of the Brazilian Beef Exporters Association, ABIEC.
Extensive national parks and indigenous reserves limit the amount of arable land in Brazil. The world’s fifth-largest country by land mass has the biggest share of protected areas of any major food producer, with about 26 percent of its total territory, compared with 12 percent in the U.S., according to the 2011 World Database on Protected Areas.
Brazil currently has 72 million hectares of crop land and 170 million hectares of pasture out of its 850 million-hectare territory, according to estimates by Rodrigues. What’s left to claim are 15 million hectares in places with more adverse climate, lower fertility and requiring more advanced technology to be profitable, such as Mapitoba, so-called because the region covers parts of four states -- Maranhao, Piaui, Tocantins, and Bahia. It forms Brazil’s last agricultural frontier and includes Curioni’s farm.
Expanding cash crops such as soybeans, sugar cane and eucalyptus will displace 10 million hectares of pasture and occupy 5 million hectares of virgin savanna in Mapitoba, Sampaio said.
Much of the cattle industry has low productivity. Brazil’s 198-million cattle herd is more than twice that in the U.S. and produces 22 percent less beef, according to data from the U.S. Department of Agriculture. In addition, low prices have cut profitability. The result will be a drop in output, said Ferraz.
“As output falls, prices will rise over the next two years, prompting a fresh cycle of investments around 2016,” Sampaio said.
As farmers try to recover degraded pastures and move onto weaker soils, sales of plant food are growing in Brazil faster than in China, India and the U.S., according to David Roquetti, head of the fertilizer association ANDA. Demand in Mapitoba is growing by 18 percent annually, he said by phone.
“Brazilian soils require more nutrients,” said Lair Hanzen, head of Brazil operations at Oslo-based Yara International ASA (YAR), which acquired Bunge Ltd (BG:US)’s fertilizer operations in Brazil for $750 million in August. “There is still a long way to go in terms of productivity gains.”
Brazil is by far the company’s fastest growth market, Hanzen said in a phone interview.
As Curioni drives his Chevy from Bom Jesus to his farm, he adds up numbers. He avoided bankruptcy this year after the town’s mayor declared a state of emergency because of the drought, forcing the bank to renegotiate his debt.
During years of good rains his neighbors were able to harvest as much as 60 bags of soybeans per hectare, yields similar to some of the country’s most productive regions. Each bag weighs 60 kilograms (132 pounds).
With 50 bags per hectare at the current price, Curioni says he would net more than 1 million reais. Soybeans for November delivery rose 0.8 percent to $13.235 a bushel at 1 p.m. on the Chicago Board of Trade.
“One good harvest and I’m back in the game,” he says.
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