the brazilian grain system

Chapter 2

The Brazilian Grain System

CONTENTSPage

Overview of Soybean Production and Markets . . . . . . . . . . . . . . . . . . . . . . . . . 27The Brazilian Soybean Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Production and Marketing Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32Marketing Channels and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Organization of the Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35Marketing Practices and Pricing Strategies of Producers . . . . . . . . . . . . . . . 36Government Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Quality Control in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Grades and Grading. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41Sampling and Inspection Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Grading Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Quality Control Through Genetics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Evaluation of Quality in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Incentives for Quality in the Brazilian System . . . . . . . . . . . . . . . . . . . . . . . . 45

Findings and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

FiguresFigure No. Page2-1. Soybean-Growing Regions of Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272-2. U.S. and Brazilian Production and Export of Soybeans as a Share of

World Totals... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282-3. Volume of Soybeans Processed as a Percent of Total Domestic

Supplies: United States and Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302-4. Market Shares of World Soybean Meal Exports: United States and

Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312-5. Cumulative Raw Soybean Export Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

TablesTable No. Page2-1. Production and Utilization of Soybeans in Brazil, 1965-87 . . . . . . . . . . . . 292-2. U.S. and Brazilian Exports of soybeans as a Share of Total Domestic

Supplies, 1965-87 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302-3. Major Destinations of Brazilian Soybean Exports, 1975/76-85/86 . . . . . . . 322-4. Brazil Grades for Soybeans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Chapter 2

The Brazilian Grain System

Brazil produces the three major grains—corn,wheat, and soybeans—that are the focus of thisassessment but is a competitor of the UnitedStates in international markets only in soy-beans. In corn, domestic consumption on theaverage is equal to production, so exports varyhighly with crop conditions. Corn exports haveranged from O to 12 percent; in some years, do-mestic requirements can only be met by import-ing corn.

Likewise, wheat production in Brazil hasbeen small, although production has increasedfrom 1.7 million metric tons (MMT) in 1970 to

5.3 MMT in 1986. However, Brazil’s wheat con-sumption far exceeds production, with importssupplying nearly half of total consumer needs.Brazil is a customer for, not a competitor of,U.S. wheat. This chapter focuses, therefore, onthe Brazilian soybean industry. *

*This chapter draws on the OTA paper “A Comparison of theQuality Factors of the Brazilian and United States Grain Sys-tems,” based on the findings of an OTA study team consistingof Dr. Lowell D. Hill, Mr. Thomas E. Weidner, Mr. Robert A,Zortman, and Ms. Mary J. Schultz (interpreter) that traveled toBrazil in 1987. Dr. Hill integrated the findings of the team intothe OTA paper.

Soybeans in Brazil are produced in the South- Grosso do Sol, Sao Paulo, Paraná, Santa Cata-eastern part of the country. They are grown in rina, and Rio Grande do Sul (figure 2-1). Theseven provinces: Mato Grosso, Goias, Mato majority of soybeans, however, are produced

Figure 2-1.—Soybean-Growing Regions of Brazil

Bahia 1

● Each dot represents 500,000 metric tons

SOURCE: Adapted from U.S. Department of Agriculture, Major World Crop Areas and Climatic Profiles, Agriculture Handbook 664, 1987.

27

28

in the two provinces of Rio Grande do Sul and largest producer (17 percent), followed by ChinaParaná. (11 percent) and Argentina (7.5 percent). Both

Brazil and the United States have dramaticallyEven though the United States dominates increased the production of soybeans over the

world production of raw soybeans (60 percent past 20 years (figure 2-2). U.S. production in-of world production), Brazil is the second creased from 19 MMT in 1964 to 55 MMT in

Figure 2-2.—U.S. and Brazilian Production and Exportof Soybeans as a Share of World Totals

World Production

— U n i t e d S t a t e s

- – - - Braz i l

1970 1975 1980 1982 1984 85/86 87/88 88/89a

50t

40

t

20 —

10 —

0 I1970 1975 1980 1982 1984 85/86 87/88 88/89a

a Praliminwy

SOURCE: 196544: Food and Agriculture Organization, Production Yearbook, various years; FAO Trade Yearbook, various years.iM41WW8& U.S. Department of Agrjculture, Foreign Agriculture Service, Wortd Oilaeed S/tuation and Market H/gh-//ghts, Circular Series FOP 9-SS, September 1988.

29

1986, an increase of 287 percent. During thesame time period, Brazil’s production jumpedfrom 523,000 MT to 16 MMT, an increase ofnearly 3,000 percent.

Exports of soybeans from the United Statesincreased steadily through 1981, when the pat-tern changed. Between 1981 and 1986, U.S. ex-ports ranged from 16.3 to 25.3 MMT. In con-trast, Brazilian exports varied dramatically overthe entire period, with no discernible trend (ta-ble 2-1). The percent of usage exported as rawsoybeans between 1965 and 1976 was similarfor the two countries, fluctuating around a 12-year average of 26.5 percent for Brazil and 33.3percent for the United States (table 2-2). How-ever, this pattern changed for Brazil in 1977,when exports as a percent of raw soybean usedropped below 20 percent and fell to 6 percentin 1978, 1979, and 1982. The contrast betweenthe U.S. and Brazilian export patterns is theresult of Brazil’s emphasis on domestic crush-ing capacity.

In both countries the percent of supply proc-essed annually followed a similar pattern upthrough 1971, with total crush ranging from 47to 73 percent in Brazil, and from 48 to 62 per-cent in the United States (figure 2-3). After 1977,

however, a significant change is evident inBrazil’s strategy. While Brazil increased its per-centage of supply processed domestically to 84percent in 1982, U.S. processing stayed aroundthe same level. Between 1978 and 1988, Brazilnever processed less than 71 percent of its pro-duction. In contrast, the United States neverprocessed more than 51 percent. The increasedproportion of the Brazilian crop used by do-mestic crushers shifted Brazil from an exporterof beans to the dominant force in the worldmeal market.

Brazil’s production of meal and oil increasedat a very high rate, especially prior to 1980. U.S.production also increased, enough to exceedBrazil’s total output, but the relatively rapidgrowth of oil and meal production in Brazil re-flects policy actions to encourage growth inprocessing capacity. While Brazil raised itsshare of the world soybean meal market from3.7 percent in 1965 to 34.6 percent in 1988-89,the United States dropped from 70.2 percentto 15.9 percent (figure 2-4). Brazilian strategieshave resulted in a total crush capacity that ex-ceeds annual production in most years, shift-ing its comparative advantage to meal exportsrather than raw beans.

Table 2-1 .–Production and Utilization of Soybeans in Brazil, 1965-87

Areaharvested Yield Beginning Imports Total Total Ending

Year (1,000 ha) (MT/ha) Production stocks (1,000 MT) supply Exports Crush Food Fd/Sd usage stocks

1965 . . . . . . . . . . . 432 1.211 523 56 0 579 75 282 0 4 9 406 1731966 . . . . . . . . . . . 491 1.212 595 173 0 768 121 395 0 81 577 1911967 . . . . . . . . . . . 612 1.170 716 191 0 907 305 423 0 72 800 1071968 . . . . . . . . . . . 722 0.906 654 107 0 761 66 471 0 89 626 1351969 . . . . . . . . . . . 906 1.167 1,057 135 0 1,193 310 612 0 130 1,052 1411970. . . . . . . . . . . 1,319 1.144 1,509 141 0 1,650 290 932 0 169 1,391 2591971 . . . . . . . . . . . 1,716 1.210 2,076 259 2,336 230 1,700 0 277 2,207 1291972 . . . . . . . . . . . 2,640 1.291 3,666 129 5 3,600 1,023 2,132 0 362 3,517 2631973. . . . . . . . . . . 3,615 1.386 5,010 283 5 5,299 1,788 2,714 0 513 5,015 2641974 . . . . . . . . . . . 5,143 1.531 7,974 284 6 8,164 2,662 4,302 0 603 7,767 3971975 . . . . . . . . . . . 5,824 1.698 9,669 397 0 10,286 3,516 5,516 0 677 9,709 5771976 . . . . . . . . . . . 6,417 1.750 11,230 577 0 11,807 3,328 6,374 0 749 10,450 1,3571977 . . . . . . . . . . . 7,070 1.770 12,514 1,357 0 13,871 2,581 8,661 825 12,067 1,6041978. . . . . . . . . . . 7,782 1.226 9,541 1,604 89 11,433 659 8,882 0 638 10,379 1,0541979 . . . . . . . . . . . 8,256 1.240 10,237 1,054 253 11,545 9,094 0 895 10,627 9181960 . . . . . . . . . . . 9,774 1.727 15,153 918 474 16,544 1,533 13,009 0 920 15,462 1,0821981 . . . . . . . . . . . 8,501 1.788 15,200 1,082 934 17,216 1,502 13,796 0 890 16,188 1,0281982 . . . . . . . . . . . 8,202 1.565 12,836 1,028 1,252 15,116 797 12,728 0 895 14,4201963 . . . . . . . . . . . 8,136 1.813 14,751 696 34 15,481 1,316 12,873 0 1,069 15,258 2231984 . . . . . . . . . . . 9,421 1.650 15,545 223 154 15,922 1,580 12,517 0 1,147 15,244 6781985 . . . . . . . . . . . 10,153 1.800 18,275 678 428 19,381 3,456 13,774 0 1,156 18,366 9951986 . . . . . . . . . . . 9,450 1.492 14,099 995 350 15,444 1,200 12,332 0 1,056 14,568 8561987 . . . . . . . . . . . 9,300 1.666 17,298 856 441 18,595 3,290 13,820 0 1,200 18,310 285

SOURCE: U.S. Department of Agriculture, Foreign Agriculture Service, Forelgrt Agriculture Circu/ar–Oik?eeds and ProductsAVor/d Oi/seed S/tuat/orr and Market Hi@r-Ilghts, Washington, DC, various issues. Reference tables on the major producers and consumers of soybeans and soybean products.

30

Table 2-2.–U.S. and Brazilian Exports of Soybeans as a Share of Total Domestic Supplies, 1965-87

Percent of usage Percent of meal Percent of oilexported as soybeans usage exported usage exported

Marketing year Brazil U s . Brazil U s . Brazil Us.1965 ......, . . . . . . . . . . 180/0 290/o 620/o 180/0 00/0 250/o1966 . . . . . . . . . . . . . . . . . 21 30 77 20 0 161967 . . . . . . . . . . . . . . . . . 38 30 46 20 0 181968 . . . . . . . . . . . . . . . . . 11 30 71 21 0 161969 . . . . . . . . . . . . . . . . . 29 30 75 21 0 131970 . . . . . . . . . . . . . . . . . 21 35 85 23 2 181971 . . . . . . . . . . . . . . . . . 10 34 84 25 2 221972 . . . . . . . . . . . . . . . . . 29 35 22 10 181973 . . . . . . . . . . . . . . . . . 36 37 68 28 16 141974 . . . . . . . . . . . . . . . . . 37 38 72 29 2 161975 . . . . . . . . . . . . . . . . . 36 35 81 26 31 141976 . . . . . . . . . . . . . . . . . 32 37 83 25 35 111977 . . . . . . . . . . . . . . . . . 21 39 81 24 351978 . . . . . . . . . . . . . . . . . 41 79 27 32 201979 . . . . . . . . . . . . . . . . . 6 40 72 27 26 211980 . . . . . . . . . . . . . . . . . 10 42 73 29 35 231981 . . . . . . . . . . . . . . . . . 9 39 28 45 151982 . . . . . . . . . . . . . . . . . 6 45 80 28 37 181983 . . . . . . . . . . . . . . . . . 9 43 27 38 171984 . . . . . . . . . . . . . . . . . 10 45 80 23 37 161985 . . . . . . . . . . . . . . . . . 19 32 80 20 37 141986 . . . . . . . . 8 35 73 24 18 111987 . . . . . . . . . . . . . . . . . 19 39 74 26 37 10SOURCE:U.S.Department of Awlculture,F orelanAariculture Service, Forekrrr Awh.dtureCircula r-01/seeds and PrtiucttioddOflse~S/fuatlon endMarketH/uh-

//ghts, Washington, DC, various issu&. R~ference tables on thernaj~rproducers and consumersof soybeans end soybean products.

Figure 2=3.-Volume of Soybeans Processed as a Percent of Total Domestic Supplies:United States and Brazil (percentage)

90

80

70

60

50

40

30

20

10

1964 1968 1968 1970 1972 1974 1976 1978 1980 1982 1984 19861987

31

100

90

80

70

60

50

40

30

20

10

01965 1970 1975 1980 1982 1984 85/86 87/88 88/89b

b preli~inU’

SOURCE: 1985-84: Food and Agriculture Organization, FAO Trade Yearbook, various years. 198485-88/89: U.S. Department of Agriculture, Foreign Agriculture Service,World O//seed Sltuatlon and Market Highlights, Circular Series FOP 9-88, September 1988.

Western Europe has been a major market for tent proportion of Brazil’s exports, the coun-soybeans of both countries, accounting for 45 try is a large and stable customer for U.S.percent of U.S. exports of raw beans in 1985/86, soybeans. As for soybean meal exports, West-and 84 percent of Brazil’s (table 2-3). Exports ern Europe is the largest market for both coun-to the U.S.S.R. from both countries have var- tries; East European countries are importantied. Although Japan takes a small and intermit- markets only for Brazil.

THE BRAZILIAN SOYBEAN INDUSTRY

Most of the soybeans in Brazil are produced Yields decline due to the increased double-in the two southern states of Rio Grande do Sul cropping, which requires shorter season vari-and Paraná. Mato Grosso and Mato Grosso do eties and less than optimum timing in plant-Sul, in the north, have increased their output ing. Currently, yields in Rio Grande do Sul areto tie for second place. Rio Grande do Sul has about 70 percent of those in Paraná Double-been producing soybeans for many years and cropping in Rio Grande do Sul is at the marginhas more problems of disease and soil fertility for sufficient season length to mature boththan the newer areas. crops.

In the southern states, small farms are becom- Farther north, the longer season in Matoing even smaller as inheritances are divided. Grosso do Sul and Mato Grosso allows more

32

Table 2-3.—Major Destinations of Brazilian Soybean Exports, 1975176-85186”(in 1,000 MT/percent of total in parentheses)

WesternDestination year Europe Japan China U.S.S.R Mexico Iraq Others b Total

1975 . . . . . . . . . . . . . . . . .

1976 . . . . . . . . . . . . . . . . .

1977 . . . . . . . . . . . . . . . . .

1978 . . . . . . . . . . . . . . . . .

1979 . . . . . . . . . . . . . . . . .

1980 . . . . . . . . . . . . . . . . .

1981 . . . . . . . . . . . . . . . . .

1982 . . . . . . . . . . . . . . . . .

1983 . . . . . . . . . . . . . . . . .

1984 . . . . . . . . . . . . . . . . .

1985 . . . . . . . . . . . . . . . . .

1986 . . . . . . . . . . . . . . . . .

2,727(81.8)1,966(54.0)1,551(60.0)

565(85.8)

506(79.3)1,332(86.0)

697(481)

(9.1)

(73.5)1,169(74.9)2,874y&y

,

44125

(3.4)

(2.3)

(0.3)

(0.2)

(5.6)

(0.3)

(0)

(4.2)

(0)212(61)114

32(0.7)309

(11.9)

(2.9)

(2.7)

438(131)1,162(31.9)

552(21.3)

(4.9)

(7.1)118

(7.6)

(34.3)255

(50.9)128

(9.9)

(0)

(0)NA

(0)122

(3.4)

(2.7)

(0)

(0)

(2.7)218

(15.0)178

(35.5)116

(9.0)347

(22.2)

(0.6)NA

(2\;229

(6.3)

(0.8)

(6.5)

(7.1)

(l.1)

(2.3)

(4.4)

(3.5)

(2.9)383

(11.0)83

3,333

3,639

2,587

659

638

1,549

1,450

501

1,295

1,561

3,491

1,198(83.6) (9.5) – – – – (6.9)

aBmziilm marketing year for soybeans is April-March.blncludes c o u nt r ie s n ot reportin9.

SOURCE: 1975-85: unpublished Brazilian tables (CACEXk 1988: USDA-FAS, BraziiAnnual Oifseeds Report; unpubilshed, Feb.27, 19S7.

double-cropping and produces wheat yields ofabout 3,000 kilograms per hectare under irri-gation. The returns justify installation of irri-gation systems for wheat. During the dry sea-son, the land is then readied for soybeans asthe rainy season starts. If the rain is delayed,the irrigation system is in place, at minimal costto give the soybeans a good start as well. Forthese reasons, the northern expanding areashave a potential for increasing average yieldsand total production in Brazil.

Erosion is a problem in these recently clearedlands, however, although considerable effortsare being made to control it. Erosion is moreserious than in Rio Grande do Sul, where fewefforts are being made on the small farms tocontrol erosion. Government policies and edu-cational programs are oriented toward in-creased terracing and crop rotations as a meansof reducing erosion and maintaining longerterm productivity.

Yields have also increased as varieties im-proved. As an example, 20 years ago farmerswere fortunate to obtain 65 bags from 2.4 hec-tares. They are now harvesting 100 bags fromthe same area. The oil and protein content havedeclined as yields increased. Average oil con-tent 20 years ago was 20.5 percent; now it iscloser to 18.5 percent. No attention is paid tothese quality characteristics in the selection ofseed. Yield is the primary concern and in manycases the only criterion.

Production and Marketing Technology

The technology of production and culturalpractices in Brazil are quite parallel to thoseof the United States. The same types and brandsof combines, tractors, and cultivators are seenin Brazilian soybean fields as in the U.S. Mid-west. The transfer of technology by privatefirms from the United States is rapid and ef-

33

Photo credit OTA Brazil Study Team

Erosion can be a problem in recently cleared lands. Terracing and crop rotations are used to reduce erosionas seen here in the province of Paraná

fective. Farmers appear to know as much aboutproduction practices as U.S. farmers do. Farmsizes and production costs and efficiency varywidely. Estimates of production costs for Bra-zil are difficult to generalize because of thediversity of farm sizes and types. Much of thesoybean production is found in specializedcropping areas, and beans do not appear to begrown in any systematic rotation in the stateof Paraná.

Brazilian technology of handling, drying, andstorage is generally similar to that of the UnitedStates, with some exceptions. Little on-farmstorage exists, requiring that nearly all soybeansbe delivered into the market channel at harvestand that the market channel have sufficientstorage capacity. With large crops of corn andsoybeans in the same year, pressure on stor-

Photo credit: OTA Brazil Study Team

Cultural practices and production technology are verysimilar to those of the United States. Here a BraziIian

farmer uses a self-propelled combineto harvest his soybeans.

34

age capacities may force exports of raw graineven though grain may be re-imported later inthe season. The lack of on-farm drying and stor-age have an important influence on marketingand pricing strategies (discussed later in thissection). Most of the storage capacity for soy-beans at country elevators and processingplants is provided by large, flat buildings ofmetal, block, or concrete and/or steel bins. Thevertical concrete silos with multiple bins socommon in the United States are less frequent.

Much of the harvest arrives at 14 to 18 per-cent moisture levels, requiring drying, usuallyto 13 percent. Grain dryers are very commonat every country elevator and processing plant.Nearly all are fired with wood, and some largerfirms have integrated the production and proc-essing of wood and fuel for their dryers. Thecost of handling and the labor involved in fuel-ing grain dryers with logs seems large but, giventhe relative cost of wood and fossil fuels, woodis obviously an economically viable alternative.

Grain handling equipment, dump pits, legs,and belts are all similar to those in U.S. eleva-tors and processors. Truck hoists are seen lessfrequently and are limited to larger facilities.At smaller elevators, the large straight trucksare often unloaded by hand without benefit ofhoists.

Flat storage facilities vary in design, but sev-eral seen by the study team had belt or chainconveyors below the floor and tractors wereused to move grain to the conveyor after binlevels dropped below the gravity feed. Metalbins and some of the small concrete block silosare equipped with augers. Portable augers arealso in evidence. Cleaners are nearly alwaysavailable for inbound grain, but seldom neededon outbound. Cleaning outbound grain evenfrom flat storage is reportedly seldom neededto meet the l-percent limit on foreign material.

Transportation in Brazil from farm to mar-ket to export point is primarily by truck. Al-though rail is available, it appears to be rela-tively inefficient and does not account for muchof the long haul from Mato Grosso do Sul andMato Grosso, where railroads have not beenbuilt or do not connect the important produc-tion and consumption points. For example,beans from Mato Grosso maybe transportedover 1,500 miles to the port at Paranagua. Asrail facilities are not available for this, the high-ways are heavily stressed with large trucks mak-ing long hauls to the port and the processingplants in the major processing regions of thecountry. The location of the ports and theexport-directed flow of the raw and processedproducts require large quantities of transpor-tation services. Congestion in truck deliveriesis evident, with waiting lines at country eleva-tors, processing plants, and port elevators.


Grain dryers are used at every country elevator andsoybean processing plant. Brazil uses wood in fueling

the dryers instead of fossil fuel.


Transportation from farm to export facilities is primarilyby truck. Soybeans maybe transported over 1,500 miles

from farm to port. Heavy congestion at portfacilities is common.

35

Technology at port facilities is also modernin most instances, with high-speed belts andlegs. In general, relatively few bins are avail-able for separate storage, even at the port. Flatstorage and large silos are common, providingless opportunity for blending diverse lots seg-regated into separate bins according to quality.

Marketing Channels and Practices

Nearly all beans are delivered direct from thefarm to the first handler at harvest time. Mostgo through a country elevator, but many godirectly to a processing plant. A high propor-tion of these beans must be artificially dried,and farmers have neither drying nor storagefacilities on farms. All the conditioning is there-fore conducted at the first handler, i.e., thecountry elevator or the processing plant. Soy-beans are also delivered direct to processors,where they are put into storage in the condi-tion desired for processing.

Since up to 95 percent of annual productiongoes into Brazilian soybean processing plants,the market channel is directed toward supply-ing these plants with their monthly crush re-quirements. Many of the older and smallerplants are unable to maintain this flow throughthe market channel and operate only during arelatively short season as a result. Those withadequate storage or access to country elevator


Modern technology at port facilities with high-speedbelts and legs for shiploading is common. Here a ship

is being readied for loading at Paranagua, Brazil.

storage are able to generate 80 to 85 percentof their rated capacity. The strategy is to fillstorage space as rapidly as possible at harvesttime and then to feed this into the crushingplant at a uniform rate.

Soybean exports are more seasonal in Brazilthan in the United States, and the harvest timesurplus moves into the export channel. Beanexports are therefore concentrated in a rela-tively short season, with over 75 percent mov-ing into world markets between April andAugust and over 90 percent by the Septemberfollowing spring harvest. In contrast, cumula-tive exports from the United States follow a uni-form monthly pattern, with an almost constantpercentage exported each month (figure 2-5).

Most deliveries from Brazilian producingareas to the port are transported by trucks. Thehighway system is severely taxed during theharvest period, with long hauls to ports as wellas processors. Most of the newly developingproduction areas in the north do not have crush-ing facilities, and even domestic destinationsmay require truck transport of over 1,000 miles.

The meal market is oriented toward export,with 73 percent of 1986 production of meal go-ing out of the country. This emphasis controlsnot only crushing rates and margins but trans-portation and facilities as well.

In general, local cooperatives think of them-selves as brokers for the farmers. Although theymay technically take title to the grain, they donot consider themselves merchandisers. Thisis a technical issue. When they sell back to back(i.e., a sale offsets a purchase), they considerit as a brokerage activity. Income is derived pri-marily from discounts and drying charges, com-missions, storage income, and charges for re-lated services. Limited blending was reportedby several country elevators, but blending wasclearly not a major source of income for grainhandlers.

Organization of the Industry

The processing and exporting firms are a mix-ture of cooperatives, independent private firms,and multinationals. All the major multinational

36

Flgure 2-5. Cumulative Raw Soybean Export Shares

100

10

(1 =April, Brazil; 1 =October, United States)

n I I I I I I I I I I2 3 4 5 6 7 8 9 10 11 12

Months

SOURCE: Office of Technology Assessment, 1989

grain companies are involved in some phaseof assembly, processing, and marketing grain.A large share of the processing and local as-sembly is done by cooperatives, several ofwhich are organized into regional and nationalentities providing coordination from input sup-plies to final products in many agriculturallyrelated products.

ABIOVE, the Trade Association of Oil Proc-essors, reported just over 80 active soybeanprocessors in 1987. The Trade Association isrelatively young, having been in operation onlyabout 5 years. However, it appears to be quiteactive in lobbying and influencing political de-cisions as well as in servicing trade-relatedproblems.

Brazil’s crushing industry was characterizedby many small-scale plants in the late 1960s andearly 1970s. But expansion of crush capacityin the late 1970s and early 1980s created an in-dustry dominated by large (1,200 to 2,000 MTper day) modern plants. The facilities are con-centrated in the states of Paraná and Rio Grande

do Sul. New soybean acreage in Mato Grossodo Sul and Mato Grosso thus places additionalstress on the transportation system for movingsoybeans to processors or to ports. Processingtechnology in the newer plants is identical tothat in the United States, relying on the solventextraction process, Many plants are integratedinto production of final products packaged forretail at the same plant location as the receiv-ing truck dump for raw soybeans.

Marketing Practices and PricingStrategies of Producers

As noted, the lack of farm storage results invirtually all soybeans being delivered directlyfrom the field to elevators or processing plants.In some cases, they may be delivered directfrom farm to the port, but the majority of thesoybeans delivered to ports are sold througha local cooperative or private elevator and de-livered in the elevator’s name. Some beans aresold direct in the farmer’s name, but this wouldbe true only for larger farms.

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Soybean processing is dominated by large modern plants. Processing technology using the solvent extraction processis identical to that in the United States.

Several merchandising opportunities areopen to the farmer, although not as many asin the United States. Cooperatives provide man-agement advice and pricing information. Ingeneral, producers have five marketing optionsavailable:

1. They may sell at the spot or current bidprice and receive payment immediately(usually within 48 hours).

2. “A-Fix-A” and similar programs withdifferent names are a form of the “delayed

are priced at the elevator. The farmer hasfrom 6 to 12 months in which to price. Dif-ferent buyers set different time limits, andmost agree that the limit is negotiable.Some buyers indicate that they would ne-gotiate across crop years, although sellersseldom want to delay pricing that long.This A-Fix-A grain is sometimes bid lowerthan the posted bid at the time of pricing,to compensate for storage costs. Most ele-vators do not have a specific charge for“price later” or “delayed price” contracts.

price” concept used in the United States. 3. Farmers may sell on a - deferred priceUnder this, the farmer receives an advance agreed upon at the time of delivery, with(the amount varied from 40 to 70 percent payment to be made at the deferred date.of the value among those seen by the study For example, the soybeans might be deliv-team) on which interest is paid until, at a ered in April with price set according today of the farmer’s choosing, the soybeans a July price, with payment made in July.

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4. Farmers may store the grain at an agreed-upon storage cost at the country elevatorand sell at their option at a later time.

5. Farmers may sell to the Government at theestablished minimum price, with deliveryto a country elevator or a public ware-house. Payment is made at time of delivery.

Of the five alternatives, the A-Fix-A conceptis most extensively used. Some elevators andprocessors report as much as 80 to 85 percentof their receipts are purchased on A-Fix-A. TheGovernment minimum price was not effectivein most of the state of Paraná when the studyteam visited because the market price in gen-eral was above the minimum, or at least the real-ized market price was above the realized mini-mum price offered by the Government. In areasmore remote from the processing plants andexport ports, the Government minimum price—identical throughout Brazil—is much more at-tractive because of transportation costs.

Marketing strategies are heavily influencedby the economic situation in Brazil and by thepersonal financial picture of the individualfarmer. In most cases an immediate sale is nec-essary, or at least an advance against the A-Fix-A, in order to pay off operating loans. Infla-tion and high interest rates have put farmersin a financial squeeze; with low prices, theyhave no choice but to obtain early payment forthe soybeans in order to repay loans and creditextended by the marketing firms or banks.

At the country elevator, hedging is virtuallynonexistent. Several people interviewed by thestudy team reported that the practice was ille-gal; others said that Government regulationsmade it extremely difficult; still others statedthat hedging was illegal except for that portionof the grain that would eventually be exported.Regardless of the degree of Government con-trol over hedging or the legality, almost no mer-chandisers or processors hedge their purchasesof beans. They almost universally agree that nolong position would be allowed on the ChicagoBoard of Trade, primarily because of the Gov-ernment’s need to control currency movementbetween the United States and Brazil. Hedg-ing is not important to most elevators because

Photo credlt: OTA Brazil Study Team

Cooperatives provide management advice and pricinginformation. COAMO, one of Brazil’s largestcooperatives, uses sophisticated marketingprocedures and provides individual booths

where farmers can confer withtheir merchandisers.

they either sell immediately after purchase,back to back, or they act as brokers. Thus, theirrisk is minimized in terms of future pricechanges. The rapid inflation rate also mini-mizes the danger of losses through purchasesof grain, since prices rise almost continuouslyover time.

Prices for soybeans at the port or in the cen-tral merchandising offices in Sao Paulo are gen-erally expressed in U.S. dollars, and are quotedin terms of cents over or under the ChicagoBoard of Trade. In the country, the price is de-rived by backing off costs of f.o.b., freight, esti-mated shrinkage, brokerage, and taxes, and isquoted to the local farmer in Brazilian cruzados.The value of soybeans in Brazil is determinedby export values, processor needs, marketingcosts, and the influence of Government mini-mum prices for raw beans as well as for oil atthe retail level.

Government Policies

Several Government policies have a directorindirect effect upon the quality of soybeans inthe domestic and export market. The Govern-ment minimum price is administered by the

39

Commissao de Financiamento da Producao(CFP) and announced prior to planting in or-der to encourage production of the major crops.It is adjusted during the year to account for in-flation and in response to political pressures.This is in contrast to U.S. policy administeredby the Agricultural Stabilization and Conser-vation Service, where price is fixed prior toharvest and remains unchanged. Officials inBrasilia indicated some problems with their ad-justment policy, primarily political pressure tochange prices beyond the automatic inflationadjustment. The Government is also involvedin setting maximum prices for vegetable oil inorder to maintain internal supplies at reason-able prices for consumers.

If the farmer chooses to sell to this buyer, theGovernment takes title, pays the farmer throughthe elevator, and in 4 to 6 months auctions offthe inventory by closed bid at the various loca-tions where grain is stored. Storage must bein Government-approved warehouses, withpayment to the elevator according to the inven-tory it holds. The Government disposes of allof the grain it owns through the public auctionroute, so that it does not carry inventory acrosscrop years.

Corn and soybeans eligible for price supportand storage require guarantees of quality as theygo into storage as well as periodically duringstorage. There is no Federal agency with in-spection capability. The Brazilian WarehouseAct (Law 1102, Nov. 11, 1903) transferred theauthority for inspecting storage warehouses tothe individual state governments. Only CFP andits financial agents inspect warehoused grain.The Bank of Brazil is conscientious in this in-spection since the grain is pledged to them ascollateral for loans to CFP.

Imposto Sobre Circulacao de Mercadoria(ICM) is the major tax influence on Braziliansoybean exports. The literal translation is “taxon circulation of merchandise. ” This is a value--added tax and is organized so that it is a per-centage of the increase in value between thepurchase of a product and its sale. Most inputssuch as fertilizers and herbicides do not havea tax.

Grain and grain products are almost alwaystaxed, but these taxes differ between locations.For example, crushers who buy soybeans in SaoPaulo pay the ICM tax immediately. If they sellinside the state, they must pay a 15-percent tax;if they buy in one state and receive in another,they only pay 12 percent. If the soybeans aremoved to the second state for crushing and themeal is sold there, crushers pay the differencebetween 15 and 12. If the meal is exported, thenthe tax rate changes again. Cooperatives do notpay the tax when they receive and sell soybeansbecause they are considered to be the farmer’sagents and not actually merchandising.

The tax is organized and regulated at the na-tional level, but funds go to the individual states.Sometimes this is reallocated down to thecounty, but never into the national coffers.States must all adhere to the national percent-age although there is still some flexibility inadministration. For example, some states allowpayment of the tax to be delayed as much as30 to 90 days, thus providing benefits to firmsthat wait for devaluation of currency as wellas receiving interest on the unpaid tax. Thisis consistent with circulations demonstrated bythe large cooperative, COAMO, where the man-ager included interest on the ICM tax as partof his income in determining margins and pay-ments to producers.

Soybean export restrictions were first im-posed in 1973, giving domestic crushers firstaccess to the soybean crop while improvingcrush margins by lowering the domestic soy-bean price. The ICM tax was levied on exportsof soybeans and products as well. Export re-strictions have now been lifted and the Gov-ernment currently requires only that sales belicensed.

Taxes on raw beans, meal, and oil have beenadjusted in recent years to equalize the rela-tive profitability among raw beans and the twomajor products. The ICM tax is 11.1 percenton meal, 8.0 percent on oil, and 13.0 percenton raw beans. The tax on raw beans is assessedagainst the f.o.b. price minus freight costs. Mealand oil are taxed at wholesale values, includ-ing assembly and processing costs of raw beans

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used by the processor. Processors and exportersare convinced that under present price relation-ships, taxes provide equal penalty for all formsof soybean exports.

A Government agency known as CACEX hasresponsibility for export licenses, quotas, andcredit. CACEX is an independent, politicalagency within the Bank of Brazil, with a direc-tor appointed by the Minister of Finance or,in some cases, by the President. It is thereforea very high-level Government agency withpower to control imports and exports withinthe import and export bank of Brazil, Grain isone of many products it handles.

Another organization with a broad range ofinfluence in Brazilian exports and gradingstandards is Conselho Nacional do ComercioExterior (CONCEX). This is not a Governmentagency but an association of private traders andGovernment agencies. It is a board of exportersacting in an advisory capacity. The resolutionsit passes establishing grades for corn and soy-beans are a resolution of that board, not offi-cial Government policy. It has considerablepower as an advisory group to CACEX, but does

not carry governmental authority within itsown organization.

In addition, the Ministry of Agriculture hasestablished a separate set of standards for cornand soybeans for domestic trade. The directtranslation of the opening sentence is “By thepowers I have under law — I approve thefollowing specifications for the marketing ofsoybeans and grains. ” These then carry theweight of Government as official grades for do-mestic transactions, but apparently are not en-forced within commercial channels.

The Federal Government has no direct rolein inspecting or analyzing grain quality. Stateagencies evidently have responsibility for in-spection of products crossing state lines, butimplementation on grain is sporadic at best.CLASPAR, from the State of Paraná, is an ex-ample of these agencies. The CLASPAR inspec-tion brochure states that grades have been de-veloped in cooperation with the Minister ofAgriculture. These are official documents butthey do not follow the national or CONCEXgrades, and enforcement in commercial chan-nels seems to be optional.

QUALITY CONTROL IN BRAZIL

No objective data are available to verify qual-ity differences in soybeans from the UnitedStates and Brazil. Limited data from foreignprocessors have indicated that Brazilian beanshave a higher oil and protein content, less for-eign material, and lower moisture; but they alsohave lower test weight and problems with oilquality due to the presence of red dust. Dataof the Japan soybean processing associationprovide the only known historical series. The14-year average oil content for beans from Bra-zil was 20.13 compared with the U.S. averageof 19.17 percent. The quality of Brazilian beansalso exceeds that of the United States on thefactors of splits and foreign material. U.S. qual-ity exceeded that of Brazil on the factors of testweight, protein content, free fatty acid, anddamaged kernels.

However, these averages conceal consider-able year-to-year variability and provide noinformation on the differences among vesselswithin any given year. These data do not pro-vide conclusive evidence of quality. For exam-ple, no information is given with which to judgethe reliability of sampling methods. It is notclear whether analysis was made on an “as-received” basis or on clean beans at zero mois-ture. Without data from individual samples, sta-tistical tests cannot be conducted for the sig-nificance of the differences.

A recent study conducted by the U.S. Depart-ment of Agriculture (USDA) and the AmericanSoybean Association provides a more con-trolled experiment. The results of analysis ofsamples collected during a 1-year period from

4 1

European ports were mixed on the relativevalue of U.S. and Brazilian soybeans. The ab-stract concluded:

In general, soybeans from Latin Americancountries showed higher oil and lower proteincontent than U.S. soybeans. Argentine soy-beans showed high levels of split beans. Soy-beans received from Brazil were uniformlygraded as Sample Grade due to the presenceof 4.0 percent red dust in the samples.

The number of samples per vessel was smalland the study did not report statistical reliabil-ity of the estimates. The problem of nonunifor-mity and segregation in the vessel was not ad-dressed in either set of data. If segregationproblems and variability during loading are lessin Brazilian shipments than in U.S. ones (quitelikely, given inbound quality controls), sam-pling at destination is especially important toobtain statistically sound comparisons.

These surveys indicate that Brazil soybeanscontain less foreign material and moisture thanU.S. beans. It would appear that oil content ishigher in Brazil beans, but it must be recog-nized that oil and protein values vary widelyin Brazil (as well as in the United States) de-pending on region of the country and crop year.Estimates of average oil content in Brazilranged from 18.5 to 19.5 percent, with the stateof Rio Grande do Sul having 18.5 and with oillevels increasing in northern regions.

Two weeks of interviews with Brazilian farm-ers, grain handlers, and Government agenciesplus personal observations throughout the mar-ket channel demonstrated that differences inpractices and policies undoubtedly result infewer quality problems related to foreign ma-

terial and storage molds in Brazilian beans thanin U.S. beans. A review of quality-related han-dling practices and incentives provides a ba-sis for evaluation.

Grades and Grading

The Ministry of Agriculture has the legal au-thority to establish grades. CONCEX, the in-dustry/government trade association, providesa system of grades and standards for soybeansthat is identified as Resolution No. 82. This reso-lution identifies four grades, but these are notthe basis for the export contract. The CONCEXexport grades are shown in table 2-4. Regard-ing split or damaged seed coat beans beingspecified for grade 1 only, it was explained thatgrade 1 is primarily for seed beans, and thatdamaged seed coat is not important for beansfor processing but only for use as seed, In addi-tion, green-colored beans are limited to 1, 2,5, and 10 percent, respectively, for grades 1through 4.

CONCEX standards define each of the gradefactors as follows:

Foreign material and impurities are definedas all material passing through a 3 millimetersieve (7.5/64 inches). All material other thansoybeans remaining on top of the sieve, includ-ing all seed coats that have separated from thebean, are also considered foreign material andimpurities.

Brokens/splits are defined as all splits andpieces of kernels handpicked from the sampleremaining on the 3-millimeter sieve.

Damaged kernels are kernels and pieces ofkernels that are not almost perfect in color andshape.

Table 2-4.—Brazil Grades for Soybeans (percent)

Foreign material PericarpGrade Moisture Splits Damage and impurities damage b

No. 1 . . . . . . . . . . . 14 10.0 2.0 1.0 15No. 2 . . . . . . . . . . . 14 20.0 4.0 1.5 —No. 3 . . . . . . . . . . . 14 30.0 6.0 3.0 —No. 4 . . . . . . . . . . . 14 40.0 8.00/0 5.0 —

with 5°/0 H Dalncludes Seed mat broken loose frOm the kernel.blncluded only for No, 1 beans as a measure of quality for beans to be sold for seed.

SOURCE: CONCEX Resolucao No. 82 (export grades) June 5, 1973, Rio de Janeiro, P. Vl, Article XV.

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Nearly all soybeans are exported under theAssociation Nacional Dos Exportadores deCereais (ANEC) Contract No. 41, which is acombination of the four grades established byCONCEX. The quality specifications of ANECare referred to as Brazilian Export Quality Soy-beans. This contract specifies maximum mois-ture of 14 percent; foreign material at 1 per-cent, with discounts allowable up to 2; damagedbeans maximum of 8 percent, of which 5 per-cent maximum may be heat-damaged. Brokenbeans have a maximum allowance of 30 per-cent. A blank is left on the contract for enter-ing oil content, but it is not part of the languageautomatically.

It is interesting to note that ANEC qualityspecifications used in export trade do not matchthose of any one CONCEX grade. For example,allowable foreign material is the same as CON-CEX No. 1 grade, but broken beans is equiva-lent to the No. 3 limit, while damage uses thelimit established by CONCEX for grade No. 4.Despite the fact that most Brazilian beans moveinto the domestic processing market (in 1986only 8 percent of total usage was exported asraw beans), the quality factors used through-out the domestic market are those identifiedin the ANEC export contract. The limits onwhich country elevators based discounts forforeign material, damaged beans, and brokenbeans were often those limits established in theANEC contract, not those of the Ministry ofAgriculture or CONCEX. The primary devia-tion from the contract was by processors and/orelevators that specified 13-percent moisture (in-stead of 14 percent) as the maximum, based ontheir experience with storability.

The domestic standards, established by theMinistry of Agriculture for the domestic mar-ket, contain only one grade. This grade followsthe ANEC contract with the exception of thefactor Esverdeados (green-colored beans), inwhich case it is equivalent to the CONCEX No.4 limit.

Sampling and Inspection Procedures

Grading and inspection at port elevators areconducted entirely by private inspection agen-


No Government inspection agency exists for gradingand inspection of Brazilian grain. Private inspection

agencies, such as SGS, provide this service.

cies. No Federal inspection agency has respon-sibility for grading or inspection equipment.It was reported that 12 private inspection agen-cies were operating in Paraná including SGS,Thionville, Intertek, and PKB. The majority(some estimate as much as 95 percent) of in-spections are done by the SGS InternationalAgency for Product Inspections. The privateinspection agencies led by SGS influence soy-bean quality throughout the market channel.Their control of outbound beans and meal gen-erates the opportunity and requirement forthem to control inbound products under theircontracts with buyers and sellers.

Most of the soybean exports from the portof Paranagua moved through a pool arrange-ment serving as a public elevator for storageand handling. Thus the majority of soybeanscoming into the port are inspected by SGS onthe basis of grade factors in the ANEC contract.This is rigorously enforced. The study team wastold repeatedly and emphatically that anytrucks not meeting contract specifications onmoisture and foreign material would not be al-lowed to dump. This statement was reinforced

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by records from SGS identifying by name, num-ber, and quality characteristics 15 trucks thatexceeded allowable limits and were refused per-mission to unload. These trucks were forcedto return to a nearby firm that could bring thesoybeans back into grade requirements throughdrying or cleaning. SGS has complete author-ity over inbound and outbound quality at theport.

Each state has an inspection department thatinspects processed and raw products. All prod-ucts crossing state lines must be inspected bythe originating state agency, which may alsobe called on to inspect public warehoused grain.CLASPAR (the agency in the State of Paraná)is apparently not highly regarded by the indus-try, and its reliability and accuracy were fre-quently disparaged by firms interviewed by thestudy team. The CLASPAR inspection is notused for transaction purposes, but the agencydoes inspect Government-warehoused grainunder contract with CFP.

The purpose of the inspection requirementis not clear. Apparently grain moving acrossstate lines is supposed to be accompanied bya weight and quality certificate, There areweight limits on the highways for trucks. Forsoybeans moving to the port of Paranagua, des-tination quality determined by SGS is the ba-sis for payment. Origin inspection and analy-ses are often conducted by shippers for theirquality control information, but payment isbased on destination quality. This differs fromthe United States, where some contracts specifyorigin weights and grades, while others requiredestination weights and grades. Soybeans mov-ing to destinations other than Paranagua dosometimes move on origin grades, dependingon the firms involved and on contract specifi-cations—not unlike U.S. processors and coun-try elevators.

The restrictions on inbound quality at the portthat are carried throughout the market chan-nel result in the majority of the crop meetingthose conditions or better when moving in themarket channel at any point past the first han-dler. The storage is primarily at the local ele-vator and the beans are conditioned for safe

storage at that point. Little deterioration in qual-ity and few losses occur during the months thatfollow.

The question of blending at country eleva-tors has been an important issue in discussionsof U.S. quality. While some elevators in Brazildo engage in blending, it is on a very limitedscale. One large cooperative with flat storageindicated to the study team that one-half of thestorage was filled with 14-percent beans andthe other with 12-percent beans to permit blend-ing. The same firm cleaned the beans beforeand after the dryer, and screenings were dis-posed of or sold back to local feeders. Giventhe large size and small number of storage fa-cilities and the separate bins both at the coun-try elevator and at the export house, blendingis extremely difficult. At the same time, cur-rent standards and discounts provide little in-centive to blend or create physical facilities nec-essary for blending.

The system of pooling inbound soybeans atthe port elevator without identification ofowner eliminates the opportunity for the indi-vidual exporter to blend to the contract maxi-mum. Blending (i.e., pulling from several binssimultaneously) is controlled by the operationsmanager of the public elevator under direct su-pervision and control of SGS. Any soybeans de-livered will lose their identity within the pool,and the quality loaded at export depends onthe quality of beans available to the public ele-vator operator. Since nearly all beans in stor-age are equal to or better than export quality,opportunity for blending is extremely limited.Export contracts are largely based on factorsequivalent to a one-grade system.

Inspection procedures in the country varywidely, depending on the care and accuracyof the person doing the sampling and analysis.The study team noted frequent instances of non-representative sampling methods, carelessnessin handling the sample, failure to properly sub-divide the sample, and a lack of clear defini-tion of individual grade factors in the trainingprogram. Similar conditions can be found atcountry elevators in the United States.

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Grading Equiptment

Equipment is not standardized and appar-ently no regular checks are made of equipmentby a central authority in Brazil. The accuracyof sampling for movement between elevatorsis probably not a serious problem in that thelow levels of foreign material and moisture andlack of large-scale blending makes grain muchmore uniform within trucks or sublets. Conse-quently, even carelessly taken samples are prob-ably representative of the total lot, or at leastsufficiently representative that it would not ex-ceed the grade limit if reinspected.

Even sampling methods by SGS at the portelevator are less sophisticated and systematicthan required in the United States. Samples ofinbound trucks consist of one or two probestaken in one corner of the truck, accompaniedby observation during dumping at the dumppit. Samples are taken at the port on outboundsoybeans by grabbing handfuls off the belt orrunning a pan through a falling grain stream.These would not be considered representativesamples by most statistical standards, but ap-pear to be adequate to meet the needs andpreferences of the foreign buyer.

Foreign buyers have the option on the ANECcontract of requesting their own inspector tobe present. However, sampling methods aresimilar for all inspection agencies. The contractspecifies that weights and grades are final asper seller’s inspection agency.

Quality Control Through Genetics

New soybean varieties in Brazil must be ap-proved by a commission appointed by the Min-ister of Agriculture. There are in fact two com-missions: one for the southern part of Braziland another for the remainder of the country.They test and approve varieties for release ineach region. The commissions are composedof one representative each of the Ministry ofAgriculture, EMBRAPA (the National SoybeanResearch Institute), the State Research Orga-nization, the State Extension Service, and Bra-zilian seed producers.

The procedure for testing includes 2 yearsof preliminary testing inside the organization


Sampling methods by SGS are less sophisticated andsystematic than in the United States. Samples ofinbound trucks, for example, consist of one or two

probes in one corner of a truck.

that is developing the variety, followed by 1 yearof intermediate testing at five locations in Bra-zil. The best lines from these 5 locations aresent for final testing at 10 locations over a 2-year period. The commission then meets to dis-cuss the characteristics of each variety and de-cide which will be released. The decision is thenpublished in the official newspaper. The Com-mission reviews criteria of yield, stability, dis-ease resistance, and agronomic characteristics.A variety will not be released unless it is equalto or better than the two varieties selected asthe standard.

The two varieties for the standard are selectedto represent four maturity groups. The best two

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varieties in each group become the standards.One variety is selected for its highest yield, thesecond because it is the most popular currentlybeing planted in the region. Oil and protein con-tent are identified, but release of new varietieshas not been restricted for lack of higher oiland protein. Brazil has the potential for con-trolling varieties to meet a gradually risingstandard of quality with respect to oil and pro-tein, but, in practice, this criterion is not beingapplied.

Evaluation of Quality in Brazil

Quality, past the farmer’s deliveries, is quiteuniform throughout the market channel. TheANEC contract is equivalent to a numericalgrade with only one set of quality limits. Meet-ing these limits assures soybeans at 14-percentmoisture, and less than l-percent foreign ma-terial. Blending opportunities are, therefore,limited.

A few samples of soybeans and corn collectedat random from country elevators indicate thegenerally high quality of Brazil grain with re-spect to cleanliness and moisture when gradedon USDA standards. Moisture was below 14percent with one exception, test weight wasabove 57.6 pounds per bushel, and broken cornand foreign material below 1.0 percent with oneexception. Stress cracks were high on corndried with heat, and breakage susceptibility onthe Wisconsin Breakage Tester varied from 6.3percent (considered very good by U.S. stand-ards) to 35.5 percent (still good for high-temperature-dried corn). These samples ex-hibited a high proportion of hard vitreous en-dosperm, indicating a harder corn with flintancestry.

Incentives for Quality inthe Brazilian System

premiums and discounts for quality differen-tials are controlled by the market. There areno Government-decreed price differentials,which vary among grain handlers and process-ing firms. Shrink factors for moisture are gen-erally uniform, but drying charges vary amongfirms. In many instances, processing plants use

shrink-plus-drying charges that are less thanactual weight reduction due to water removal.(Shrink is the loss of weight due to removal ofwater. The quantity of wet grain is adjusted tothat quantity remaining after drying to basemoisture by subtracting “shrink.” A charge isassessed to cover the cost of drying.) Managerswho recognized this explained to the study teamthat moisture was controlled by weather so their“premium” for wet grain did not function asan incentive but only as a better price to thefarmer.

The premium for delivering soybeans athigher moisture levels is offset by the neces-sity of safe storage and long-distance transport.The elevators do not make a concerted effortto deliver soybeans at moisture levels above the13- to 14-percent base.

Blending to achieve contractor grade limitsis not common in Brazil. Country elevators, andto some extent processors, describe themselvesas handlers or merchandisers for producers.Their responsibility is to condition producers’soybeans to meet the ANEC contract condi-tions. Unlike U.S. firms, their income is derivedfrom payment for services rather than fromblending to generate a high-priced shipmentfrom lower-priced receipts. Since nearly all soy-beans move on the ANEC contract factor limits,the quality in the market is sufficiently uniformto provide little opportunity for blending. Witha fixed base for moisture there is little incen-tive to blend for that factor. Foreign materialfrom the farm is generally removed by the firsthandlers. In contrast, foreign material and bro-ken beans from U.S. farms are generally storedwith the beans and used for blending to gradelimits. The small number of large-volume stor-age bins in Brazil, and the small number ofgrade factors relative to the United States, en-courage storing and marketing all soybeans ata very uniform quality.

Strict control of inbound and outbound qual-ity at the port by SGS eliminates the opportu-nity, if not the incentive, for blending inboundand outbound at the port elevator. Qualities areextremely uniform. Since identity of individ-ual lots of grain is not maintained, there areno benefits from efforts to blend during vessel

46

loading. SGS refusal to allow off-grade grain schedule of premiums for soybeans below 14-to be unloaded from inbound trucks provides percent moisture and below l-percent foreigna strong economic incentive for country ship- material. His philosophy was that producerspers to deliver soybeans with grade factors de- generating beans of greater value should be re-low maximum to provide a margin of safety. warded and this incentive would serve to en-

The emphasis on quality was illustrated forcourage the better farmers to deliver higher

the study team by a processor with a publishedquality beans to his plant.

FINDINGS AND CONCLUSIONS

Soybean quality in Brazil is influenced by sev-eral regulations, agencies, and marketing prac-tices, beginning with a government/industrycommittee approving new soybean varieties fordistribution. Quality in the context of intrinsicvalue is not an explicit criterion in approvalof new varieties, but oil and protein contentare noted in the evaluation.

The majority of soybeans are processed inBrazil by crushers whose capacity exceeds to-tal production of beans. There is thus strongcompetition for available supply, delivered toprocessors or elevator storage at harvest. Sea-sonal surpluses of soybeans move into the ex-port market. Export taxes have been adjustedto equalize the profitability of exporting soy-bean meal v. raw beans, but the excess crush-ing capacity and local demand for oil make itunlikely that Brazil will become a major ex-porter of raw beans.

Grading, inspection, and issuance of exportcertificates are conducted by private inspec-tion agencies, following specifications in ex-port contracts. Quality factors used through-out the industry generally follow the exportcontract established by the trade organizationANEC.

Almost all soybeans leave the farm at harvest,and drying and cleaning are done at the firstpoint of receipt, at the farmer’s expense. Thusmost soybeans enter the market channel andstorage in good condition. Strict enforcementof the export contract quality specifications in-bound to the port is an additional incentive forshipping to meet or exceed quality require-ments. Trucks not meeting the contract qual-ity specifications—especially on moisture andforeign material–are not allowed to dump.

The technologies of production, harvesting,and marketing in Brazil are similar to those inthe United States. A higher proportion of soy-beans move to market at harvest time and arestored in larger commercial facilities than inthe United States. The large flat storage facil-ities and simple grade standard reduces the in-centive for blending.

The end result of the Brazilian system is uni-form, clean, dry shipments of soybeans to mar-ket. Differences in practices and policies resultin fewer quality problems (foreign material andstorage molds) than in U.S. soybeans. Andbased on information from other studies, theoil content in Brazilian soybeans is higher.

the brazilian grain system

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