31 May, 2010

Brazilian agribusiness at the crossroads

Sergio Abranches

The Brazilian agribusiness is at a crossroads. After a success story it is now running the risk of loosing quality markets due to bad social and environmental practices.Brazil has become the largest market for about a dozen of pesticides that have been banned in the U.S. and the European Union because they are hazardous to human health. One of the largest Brazilian newspapers, the Estado de São Paulo, has a story (Port) showing that producers are using large amounts of these pesticides. It also shows that the Federal regulatory agency, Anvisa, is delaying a ban on these products responding to pressure from politicians and producers. Brazil has, for instance, imported 1.84 thousand tons, in 2008, and 2.37 thousand tons, in 2009, of Endosulfan, an organochlorine chemical that has been banned because of its acute toxicity, potential for bioaccumulation, and role as an endocrine disruptor.

The Brazilian agricultural industry has a story of success and spectacular growth over the last twenty years. Brazilian agricultural export commodities are more technologically advanced than locally manufactured goods. But the progress on animal and plant genetics, as well as several other technological gains were not accompanied by comparable advances in sustainability and corporate social responsibility. The Brazilian agribusiness is a major vector of deforestation in the Amazon, the savannah (Cerrado) and the Atlantic rainforest. The Federal labor authorities, the Federal Prosecutors, and the Federal Police have detected a large number of cases of forced labor in several Brazilian farms and ranches. Several large exporting companies fail to manage their supply chain, buying products originating from illegally grabbed and cleared land.

Tolerance to bad environmental and labor practices leads to a generalized view that Brazilian commodities are of low social and environmental quality. There are, however, producers that do adopt good sustainability practices. But, as there is no segregation between commodities produced according to the best practices and the rest, the good are mixed with the bad. All one can see is the ugly face of the business.

Some segments of the industry have only adopted better practices after facing concrete threats to their exports. Amazon soybean exports were such a case. The major trading companies were forced by their larger consumers to adhere to a moratorium on soy produced on deforested areas. Greenpeace targeted larger Brazilian soy consumers, such as McDonalds, to persuade them to stop buying Amazon soybean. The threat of a ban on Amazon soy led the trading companies to adopt better supply chain management practices, and to commit to the moratorium. This has effectively reduced the contribution of soybean production to Amazon deforestation.

The Brazilian beef wholesalers and slaughterhouses have not yet learned the lesson though. In spite of having committed to steps to ensure that the meat they sell does not contribute to further deforestation, most of them have failed to control their supply chain as promised.

It was also a report from Greenpeace, Slaughtering the Amazon, that triggered the decision of large supermarket chains like Walmart, Carrefour, and Pão de Açúcar to suspend contracts with suppliers found to be involved in Amazon deforestation. Leading shoemakers, including Timberland, Nike, Adidas, and Clarks have also decided to bar leather producers associated with Amazon deforestation from their supply chain.

A few days ago, the Brazilian government, in consultation with U.S. Federal authorities, has just suspended all shipments of beef to the United States, after the U.S. authorities recalled 40 tons of corned beef from large wholesaler JBS Friboi. Samples of the corned beef showed an amount of the antiparasitic Ivermectin exceeding the tolerance level established by the U.S. Food and Drug Administration (FDA).

JBS is one of the signatories of the beef accord, and has failed so far to trace the beef it sells along the supply chain, to ensure it is not contributing to Amazon deforestation. The Brazilian Development Bank, BNDES, has provided generously subsidized finance to its activities, although it obviously fails to meet minimum sustainability requirements.

The Brazilian cattle industry has been a technological and commercial success case. Brazil has become the largest world beef exporter over the last decade, winning over major competitors such as Australia, New Zealand and Canada. Brazilian commodity exports have been the decisive factor behind the country’s trade balance surplus. The trade balance for the manufacturing industry displays a large deficit, while the balance for agriculture shows a significant surplus.

But this story of technical and business success has also its dark side. The Brazilian Agricultural elite responds to the interests of the median producer. They refuse to advocate the adoption of best practices of production and supply chain management as an industry wide strategy. On the contrary, they are trying, for instance, to change the Brazilian Forestry Code to reduce the area of forest protection, and to open the way to further deforestation in the Amazon. They have also lobbied the Federal regulatory agency, Anvisa, to delay the ban on acutely toxic pesticides. Now they justify overusing toxic products because it is not forbidden by the government.

The head of the major agricultural trade organization has openly attacked rules to enforce labor rights, health and safety. By doing so the Agribusiness trade associations are defending the worst practices, rather than working together with farmers and ranchers to raise the bar on product quality, sustainability and CSR practices, as tools to enlarge their markets and profitability.

The labor rules that have been described as excessively bureaucratic, burdensome, and costly by the Agribusiness leadership are simply elementary rules of civilized business practice as the O Globo columnist, Miriam Leitão has showed recently:

“Overall 3o thousand workers were found working in conditions analogous to forced labor in the farms inspected [by the Federal authorities].”

What are these unbearable rules criticized by the Agribusiness elite?

“The company has to provide drinking water to workers. This is one of the 252 rules the Labor Ministry has issued regarding farming practices. Why did the authorities consider it necessary to mandate such an obvious behavior? Because they found workers in 451 farms working without an adequate source of drinking water, between 2003 and 2008. (…)

Other examples of basic humane rules that are often disregarded by employers: housing facilities should provide bathrooms; before each meal workers should have where to wash their hands; housing units should be separated by gender; family housing cannot be collective; a worker shall not pay for the tools or the safety equipment he uses; if there is an accident the worker has to get immediate first aid care. (…) The reports from the monitoring groups who visited near 1,800 farms, since 2003 show that what should be normal labor practice on a civilized society is frequently ignored in several rural properties”. (Miriam Leitão, on her column Against the facts).

I’ve been to a soybean farm area in the savannas (Cerrado) of the state of Minas Gerais, where farmers are desperate about the lack of water. The Brazilian Savannah is a source of water. Water is usually abundant there. Why is it now lacking? Because of deforestation and the devastation of the riparian vegetation. Water sources were not protected. Farmers have also polluted and provoked the erosion of riverbeds and overused water on badly specified irrigation projects. Now they’re trying to get legislation to transform protected neighboring areas into farmland, to have access to the abundant and clear water, as well as to the fertile land of the reserves.

Brazilian export agriculture is threading a very dangerous path. The very short-term gain obtained through unsustainable practice may soon turn into an economic and commercial disaster. The political attitude of its leaders induces the worst practices in the industry, instead of encouraging the adoption of best practices as part of overall business strategy. One that might ensure its sustained competitiveness in global markets.

We are entering an era in which supply chain management will be dictated by the consumer, rather than the producer.  The quest for technical, social, and environmental product quality is an unavoidable trend. Businesses that do not follow this trend will run the risk of being segregated to rogue markets, low quality niches, and marked as low quality suppliers.

The leading Brazilian agribusiness companies, the ones that have already adopted better and sustainable practices as a competitive strategy, are being only too complacent with the risk of accepting such a retrograde political leadership. Trade barriers will be raised against their products. Product recalls will increase. Brazil will loose the best portions of the global commodity market.

Is this really the goal of the Brazilian agribusiness?

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