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Iowans bid to broaden farming prospects in Brazil Bountiful Brazil lures Iowans with vast farming prospects By JERRY PERKINS Register Farm Editor 11/10/2002 -------------------------------------------------------------------------------- Iowans see the next farm frontier, and it's Brazil.

Kelly Blair sees a way to bring his son into the family farm operation. Gary Gunderson sees a new adventure. David Kruse sees a lucrative investment.

"The opportunity is simply unlimited," said Philip Warnken, an agricultural economist and chief executive officer of AgBrazil in Columbia, Mo., which brokers deals for U.S. farmers looking to invest in Brazil.

Brazil is attracting U.S. farmers because the country has the world's largest remaining tract of virgin land - an estimated 1.35 billion acres - and has 457 million acres of pasture that could be converted to crop production. Combined, that's more than four times the amount of cropland in the United States.

Land in Brazil sells for a fraction of Iowa farmland, say people who have visited Brazil, and production costs are lower. Brazil's tropical climate allows for growing two crops a year in most areas, compared with Iowa's six-month season.

"Iowa farmers are No. 1 on my client list," said Warnken, who organizes three tours a year to Brazil from January through March. Warnken said he has several dozen clients in the U.S. Corn Belt, Canada and southern Africa.

Brazil's fastest-growing and most productive farming areas are located in the vast savanna region of west-central Brazil called the Cerrado - not in the Amazon rain forest as many mistakenly believe.

The Brazilian Cerrado is as flat as a tabletop, Warnken said. Few houses dot the landscape because the farms are so vast - about 2,500 acres on average, Warnken estimates.

Where the land has been cleared and planted with soybeans, green rows stretch to the horizon. Eucalyptus trees planted by homesteaders mark the borders of pioneer farmsteads. Uncleared land is cluttered with scrub brush and a few small trees.

"Before I went down there, I thought they were a bunch of hicks farming the rain forest and fighting off monkeys, but there have been enough people go down there who've seen it and recognize the potential like I do," said Tim Burrack of Arlington, who has visited Brazil twice.

What impresses Burrack most is the Brazilian government's commitment to use agriculture as a vehicle for economic growth. The government provides only a small subsidy for credit, but is funding research to improve crop varieties and extending road and other infrastructure to help link Brazil's interior with ports on the Atlantic Ocean.

"It's just the opposite of what you are seeing here," said Burrack. "This has major ramifications for Iowa. Brazil will continue to grow its agriculture. They're just developing the genetics for their corn and once they start to produce all that corn and get their livestock industry going, we could become a residual supplier in the world."

It costs 20 percent to 25 percent less to produce soybeans in Brazil than it does in the United States, said Iowa native Randall Schnepf of the U.S. Department of Agriculture's Economic Research Service. Higher costs for shipping crops from Brazil's interior to ports on the Atlantic Ocean partially offset this advantage, however.

Soybean and cotton yields in the Cerrado are comparable to those in the United States, although Brazil's corn yields vary widely among regions and seasons. Research to improve corn and rice yields is continuing, however.

The combined exports of soybeans and soybean products from Brazil and Argentina, located next door, now exceed U.S. exports.

Since 1990, Brazil's corn production has increased 40 percent, and the combined soybean production of Brazil and Argentina has more than doubled. During the same time period, U.S. corn production increased 25 percent and U.S. soybean production rose 42 percent.

Like Brazil, Argentina has the potential to increase its agricultural output, but severe economic problems there make it an extremely risky place for foreign investment, experts say.

Iowans such as Burrack who have traveled to Brazil have come back believers in its promise.

Blair, who farms near Dayton, returned with a contract to buy 7,410 acres of Brazilian farmland as a way to bring his son into the family farming operation. Expanding in Iowa would have cost much more, he said.

Gunderson, a farmer from Postville, is selling 1,100 acres of farmland and thinking about using the proceeds to buy 10,000 acres or more in Brazil. Gunderson said he wants to move to Brazil, but "I've got to get my wife convinced first."

A tour of Brazil with Warnken last year "really opened my eyes," Gunderson said. "We just can't compete with their cost of production compared to ours."

Kruse, a farmer and commodity broker in Royal, is putting together what he hopes will be a $12 million investment pool to invest in Brazilian agriculture. The investment is for farmers who see opportunity in Brazil, but who don't have enough capital to invest on their own.

Brazil's farm future wasn't always so bright. Twenty years ago, the Cerrado was considered a wasteland.

Then, in the 1980s, soybean varieties were developed that made it possible to grow beans near the equator. Almost simultaneously, soil scientists discovered how to make the Cerrado's acidic tropical soils fertile.

Those two developments set off explosive growth.

"From 1900 to 2000, no crop in the world had greater growth than soybeans in Brazil," said Warnken, who has written a book on Brazilian agriculture. "It didn't receive the publicity of the Green Revolution, but if you're an aggie, you have to be impressed."

Blair toured Brazil earlier this year with one of Warnken's groups and was amazed at what he saw. "There's too much opportunity not to look at it," he said. "You can take $1,000 an acre of your equity in your land here and buy 10 times the land down there."

Pioneer farming in Brazil isn't easy. There's a different language - Brazilians speak Portuguese - and a different culture. Blair said he has learned that "tomorrow could mean next week, next month or next year."

Credit can be hard to come by, irrigation permits that allow year-round farming are difficult to secure, and several years are needed to build fertility in Brazilian soils.

Phillip Baumel, the Charles F. Curtiss Distinguished Professor of Agriculture at Iowa State University, has visited Brazil to investigate the competition for Iowa's farmers.

"Do your homework and don't pay too much for your land," Baumel warns farmers contemplating an investment in Brazil.

Baumel also advises farmers to locate near one of the huge hog operations springing up in Brazil or to raise hogs themselves to add value to their corn and soybeans. Having a nearby market for corn and soybeans will cut some of the higher transportation costs found in Brazil.

It could take as long as 10 to 15 years to get a farm operation rolling in Brazil, Blair said, but he's taking the long view.

"My ancestors left Scotland when things looked better in Iowa," said Blair. "Maybe the same thing is true for Brazil now."

Gunderson is finishing up this year's harvest - his best ever at 175 bushels an acre - and then will test the farmland market to see how much his land near Postville will bring.

He thinks he can buy savanna land for $40 an acre, which he can clear and get ready for production for another $125 an acre. Or, he said, he could buy land for $400 to $500 an acre that is ready to produce soybeans at 70 bushels an acre and corn at 160 to 170 bushels an acre.

In Iowa, the average price for an acre is $2,400.

More people, dealerships

Gunderson said he was impressed with the rapid growth of Brazil's frontier.

"We were in a town that was a wide spot in the road five years ago," he said. "Today, there are 25,000 people living there and Case IH and John Deere dealerships."

Illinois-based CNH Global, parent company of Case IH, has a tractor and combine factory in Brazil.

The company reported a 15 percent increase in its tractor sales and a 9 percent increase in its combine sales in Brazil in 2001 compared with 2000. Those increases were greater than what it saw in its North American divisions, CNH said.

"One of the things that is helping now is the devaluation of the Brazilian currency so farmers are earning well and the agricultural economy is doing well," said Jeffrey Walsh of CNH. "Brazil is very much a growth economy."

Deere & Co. of Moline, Ill., also had larger increases in agriculture equipment sales in Brazil than in North America.

"Brazil is a fast-growing market for us," Deere spokesman Ken Golden said. "We have five times as many dealers in Brazil as we did in 1996."

Kruse, who owns CommStock Investments Inc. in Royal, said the goal of his investment pool, called Brazil-Iowa Farms, is to take U.S. capital and invest it in Brazil, where farmers expect a 20 percent annual return on their investment.

Kruse said he expects many Iowa farmers will want to invest in Brazilian agriculture.

"Brazil is where we're going to expand Iowa," Kruse said.

Laureate helps in growth of Brazil's Cerrado

Pedro Sanchez won the 2002 World Food Prize for his work helping to boost soil fertility in Brazil and later in Africa.

Sanchez's 20 years of work in Brazil was financed with about $40 million from the U.S. Agency for International Development.

When he was in Des Moines last month to receive the prize, Sanchez said Brazil had millions of acres of savanna, scrub brush and trees growing in tropical soils.

Countries with a tropical climate such as in Brazil have greater potential for agriculture than the temperate zones where Iowa is located because the tropical climate has a longer growing season that allows for double-cropping, Sanchez said.

However, he discovered that the subsoil in the Cerrado, the savanna region of west-central Brazil, contained toxic aluminum. Roots stop growing when they hit the aluminum.

"One of our students figured out how to do deep liming, then another figured out that gypsum would work" to neutralize the aluminum, Sanchez said.

Techniques also were developed to boost soil fertility.

"That's what domesticated and tamed the Cerrado," Sanchez said.

Corn yields shot up to 100-200 bushels per acre in the first three years of farming in the region. Then, new varieties of soybeans and upland rice were brought in.

Brazil's government built roads and subsidized fertilizer use. Pioneer farmers moved in and started working on large tracts of land.

"The whole point of the development of the Cerrado was that people thought that these acid, tropical, red soils were no good for agriculture," Sanchez said.

"The soil there is not as good as it is in Iowa, but once we learned how to manage those tropical soils and the proper policies were put in place, everything changed."

-- Anonymous, November 10, 2002

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Wow! Can you get pizza delivery and cable?

-- Anonymous, November 10, 2002