South-Western College Publishing - Economics  
"Brazil is quickly becoming America's bread-basket"
Subject Growth in Brazilian agricultural exports is beginning to worry US farmers.
Topic Supply and Demand; Perfect Competition
Key Words

competition, profit, price, agriculture

News Story

Brazil's ability to produce many agricultural products at low prices is making farmers in other countries stand up, notice, and start to fear the worst. Already the largest exporter of soybeans, Brazil is quickly becoming a world leader in production and export of sugar, coffee, orange juice and cattle products.

Brazil is blessed with abundant natural resources, including many acres of arable land on which to farm. As a result, Brazil's farmers are quickly becoming farmers to the rest of the world.

Part of the problem then rests with what firms will do with Brazil's abilities. Cargill imports sugar from Brazil to mix with corn from the US to produce ethanol. However, since ethanol can be made from almost anything organic that ferments, it can be produced anywhere. Cargill has been discussing importing ethanol from Brazil, a move that upsets farmers in the US. What's worse, the firm is attempting to circumvent US laws to do it. Current US laws impose a $0.54 per gallon tariff on imports of ethanol; this tariff allows U.S. farmers to remain competitive with low-cost imports. However, a Caribbean Basin Initiative allows 7% of the ethanol used in the U.S. to be exempt from the tariffs. Cargill proposes importing the ethanol through a new plant in El Salvador (part of the Caribbean Basin Initiative), which would allow the privately-held firm to import up to 230 million gallons of Brazilian ethanol tariff-free.

As Brazil clears land equal to the size of Maryland each year for agricultural production, Brazilian farmers' costs will continue to fall, and U.S. farmers will continue to worry-with good reason.


(Updated September, 2004)

Questions
1.

Illustrate graphically the impact of Brazilian exports of soybeans to the US on the US market for soybeans. Why are farmers worried?

2. What impact will the tariff on ethanol imported into the U.S. market have on Brazilian ethanol? Illustrate your answer with supply and demand curves.
3. As Brazil continues to increase its production of soybeans and lower the world market price, what might farmers in other countries do with their arable land? Why?
Source Simon Romero. "Brazil's Spreading Exports Worry Minnesota Farmers." The New York Times 22 June 2004, http://www.nytimes.com

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