Brazil and New Zealand may have enjoyed 60 years of diplomatic relations, but the enormous country remains something of a wilderness for all but the most determined when it comes to agri-business investment there.
A Mystery Creek Fieldays panel hosted by NZ Trade and Enterprise (NZTE) provided companies interested in entering the Brazilian agri sector some valuable insights into the opportunities and the challenges within its enormous borders.
Northland farmer Murray Douglas and his family have been running dairy operations in Brazil for 14 years, milking over 3000 cows across two operations. After arriving as a “naïve gringo” he said, it is only now the enterprise is starting to perform strongly, overseen by his son Roger.
“Brazil has a deficit of milk, and the opportunity is to produce quality milk at scale. The milk price runs 25% ahead of NZ’s, at about $12.50/kg milk solids at present, and it is priced monthly so you can make a lot quickly, but it can also turn around quickly,” he said.
Josh Wheeler, chief operating office for dairy auditor QCONZ, said Brazilian farmers are moving to more confinement-type operations and are quick adopters of technology.
However, a challenge often faced is a very high incidences of mastitis, affecting as much as 20% of the herd.
He said Brazil has proven to be a tough market for the auditing company and early movers have to be fast movers in the market, as competitors are quick to mimic business plans and move to usurp the early innovators.
His company has unexpectedly enjoyed considerable success, however, with the Milkbar calf feeder, after trialling it in a joint agri-tech shipment sent over several years ago.
But the depreciation of the Brazilian real has made importing products more costly in recent years, coupled with policies that place heavy tariffs on imported products and reward companies choosing to produce domestically.
“You will be well rewarded for opting to manufacture in Brazil.”
This comes in the form of tax breaks and subsidies.
Both he and Douglas cautioned about the high level of bureaucracy and the importance of dotting all i’s and crossing t’s when completing any level of form filling.
“The banking system is also quite challenging and there are multiple tax systems. Getting debt funding with a decent amortisation period that is over two years can be very difficult,” said Douglas.
Vendor financing is a common source of capital for those seeking to grow their business, while much of the seasonal funding available is more geared around cropping operations than dairy milk cheques.
He said while many may believe Brazil is all about chopping down trees and rainforest destruction, there are in fact many rules limiting that, and what can and cannot be felled.
Awareness of market perceptions is growing, as are rules around proving the source of meat and milk, which means environmental standards are catching up, albeit not to NZ’s level yet.
He emphasised the words his son had told him when he first took on the family’s Brazil project.
“He said you must realise we are focused on being a Brazilian farm business, not a NZ farm business in Brazil.
“You need to have a very clear focus on why you are there. It is not a get in-get out opportunity, you have to commit to the long term. And unless you have experienced Brazil, our comprehension of its scale is unknown.”
Pedro Simao, NZTE’s São Paulo-based agribusiness development manager, emphasised that “Brazil is not for beginners”.
“But if you commit, it offers a huge opportunity based on the number of cattle. But it’s a big, complex market that can be challenging if you do not do your homework.”
Giuliana Silveria, CEO of the Latin America NZ Business Council, said there was little chance NZ would see a free trade agreement with Brazil anytime soon, with more hope in the future offered through the CCTP agreement that already includes Chile, Mexico and Peru.
