China Food Demand Boosts Brazil Growers’ Profits

Brazil growers will reap healthy profits from the 2010-11 grain crop, despite the high cost of getting goods to port, because strong demand from China is supporting prices, consultants MB Associados said.

Despite the downward correction in world commodities prices in the past week, futures prices of commodities from grains to iron ore are still historically firm, economist Jose Roberto Mendonca de Barros, founder of MB Associados, told Reuters in an interview on Nov. 18.

Mendonca de Barros said the force behind these firm prices was real demand from China and not speculation.

“The big change is the following: the real salaries of Chinese workers at the base of the labour force pyramid are rising 20 per cent annually and will probably continue rising in the coming years,” he said.

“It’s a paradigm shift in Chinese growth.”

Brazil is one of the world’s lowest-cost producers of agricultural commodities but loses much of its competitive edge before goods even reach the port, because of its dilapidated and underdeveloped infrastructure.

China became Brazil’s leading trade partner last year, unseating the United States.

“Look, when you have millions of people earning 20 per cent more a year, demand for food rises 30 per cent a year. So, Chinese demand – soy is the most obvious case – is exploding because there is more money in the hand of the end consumer,” Mendonca de Barros said.

Seemingly insatiable Chinese demand for soybeans kept a floor under prices this year despite record crops in all three main producers – the United States, Brazil and Argentina, he said.

“The Chinese sold strategic stocks of various grains and food inflation is still above 10 per cent,” he said.

China has begun to import other crops such as corn over the past year, which should support prices. He said the Chinese have imported more than one million tonnes of corn this year, something that has not happened in over a decade.

“The fundamentals of expanding demand will con-t inue. The Chinese will import corn. This is a structural change,” he said, adding that considering China’s limits in arable land and water, it will also likely start importing more meats, another area where Brazil’s agriculture excels.

Brazil is the world’s largest chicken and beef exporter as well as the globe’s main sugar, coffee and orange juice shipper.

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