Seed Market and Crop Production Development in Latin America
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LATIN AMERICA UPDATE |
By Allister Phillips
Contributor
This article will outline the development of crop production and the traded seed market in Latin America, with a focus on the leading market in the region, Brazil, examining the current situation as well as the key future trends expected to influence market development in the coming years. Discussion of current market dynamics is important when considering the potential for key drivers in future growth.
Latin America Seed Market Overview
In terms of value, Latin America is ranked third behind North America and Asia, representing 20.1% of the total traded seed market in 2021. While Latin America has been closing the value gap with Asia in the past decade, the value gap with North America has remained relatively static. North American agriculture is significantly technified, utilizing high rates of genetically modified (GM) seed technology, resulting in high market value. GM utilization in Asia is currently confined to cotton and small areas of maize, whereas in Latin America the majority of soybean, maize, and cotton areas are planted with GM varieties. In addition, Latin America has seen expansion of its arable area, principally as a result of development in Brazil, allowing the value gap to Asia to narrow.
Within Latin America, the leading country markets are Brazil, Argentina, and Mexico, after which the value of each country market falls away rapidly. Brazil is the clear leader in the Latin American market, representing almost 63% of the region’s value.
The table below shows the value of the Latin American traded seed market split by crop. Despite soybean being planted on a larger area, maize is the most valuable seed sector, owing to its high rates of technification (the utilization of more GM input traits) and the lack of impact from farmer-saved seeds. Soybean and maize are the only two Latin American seed sectors currently worth more than $1 billion, at the ex-manufacturer level, with Brazil forming 84% and 52.6% respectively of the regional value of these crops.
As previously stated, Brazil is the largest country market in Latin America at $5,308 million in 2021, forming 62.8% of the region’s total value.
Brazil’s position in the wider global market is less dominant in terms of value. Brazil is the second most valuable soybean seed market, after the United States (U.S.), the third most valuable maize seed market, following the U.S. and China, and the third most valuable cotton seed market behind the U.S. and India. In soybean, despite planting a greater area than the U.S., the high price of U.S. soybean seed has resulted in a greater market value than that of Brazil.
GM Seed Technology
Brazil first adopted GM technology in 2003 through the commercialization of GM soybean, followed in 2006 with GM cotton and finally in 2008 with GM maize. Brazil was a relatively late adopter of GM technology in each crop, with the U.S. and Argentina commercializing GM technologies as much as 10 years before launch in Brazil.
In soybean, four key GM technologies are cultivated, Roundup Ready, Intacta RR2 Pro, Intacta 2 Xtend, and Conkesta E3. Brazil plants the world’s largest area of insect-protected soybean, having adopted Monsanto’s (now Bayer) Intacta RR2 Pro, which provides resistance to select lepidopteran insect pests and tolerance to glyphosate, in 2012. Intacta RR2 Pro grew to become the dominant technology in Brazil, reaching as much as 82% of the total Brazilian traded soybean area in 2020. Bayer launched the second generation of the technology in the 2021/22 season through the commercialization of Intacta 2 Xtend, adding additional modes of action for lepidopteran insect control and dicamba tolerance. It is expected that Intacta 2 Xtend was deployed on as much as 320,000 hectares in Brazil in its first year of commercialization. Also in 2021/22, Corteva launched its Conkesta E3 soybeans that possess resistance to select lepidopteran insect pests as well as tolerance to the herbicides 2,4-D, glyphosate, and glufosinate. In 2022, the adoption rate of GM soybean reached 99% of the total soybean area, adding further value into the country’s soybean seed sector.
GM maize technology is more diversified than it is in soybean, with many combinations of insect resistance traits and herbicide-tolerant technologies resulting in a greater number of seed products available for cultivation. Leading maize seed products include Corteva’s PowerCore, Bayer’s VTProMax, and Syngenta’s Agrisure Viptera 3. In the 2021/22 season, Bayer launched novel technology for the control of coleopteran insect pests in the form of VTPro4, a seed product that utilizes ribonucleic acid interference (RNAi) as another mode of action to control coleopteran insect pests. RNAi is a method of post transcriptional gene silencing and is a fundamentally different way to control insect pests compared to the previously commercialized Bt-based solutions. It is estimated that VTPro4 was planted on 202,000 hectares in its first year of commercialization.
As previously stated, initial adoption of GM maize technology in Brazil occurred 10 years behind the U.S. and Argentina, however adoption increased sharply since that time. However, it was only in the 2021/22 season that adoption rates rose to the 95% level, jumping from 88% the year before, and adding significant value into the Brazilian maize seed sector.
The Brazilian GM cotton area has more doubled than since 2016, driven by total cotton area expansion in the country as well as increasing rates of GM utilization. The leading cotton seed products include Bollgard II Roundup Ready Flex and Glytol LibertyLink TwinLink, as both products provide resistance to select lepidopteran insect pests and tolerance to glyphosate, while Glytol LibertyLink TwinLink also includes tolerance to glufosinate. As with maize and soybean, GM cotton utilization saw an increase in the 2021/22 season, rising by nine percentage points to form 99% of the total Brazilian cotton area.
Seed Market Drivers
As with the majority of the world’s traded seed areas, areas in Brazil are influenced principally by supply and demand of harvested grains and oilseeds, weather, and commodity prices. Crop demand can be further subdivided into domestic utilization or for export. Brazil has positioned itself as a key exporter of maize and soybean, with exports increasingly becoming a prominent driver of crop production.
The table below shows Brazil’s maize balance for the previous 10 years. During this time, the data shows that not only has the Brazilian maize harvested area increased, but so has average yield, leading to increased production. Domestic consumption has also risen during this time period, with feed use growing by an average of 3.3% per annum and food, seed, and industrial (FSI) use growing by a CAGR of 3.7%.
In the seven years from 2012-2019, the country’s two most populous animal sectors, cattle and swine, have grown at an average yearly rate of 0.2% and 0.6%, respectively per year, increasing demand for grains for feed.
In the same 7-year period, the human population of Brazil has increased to arrive at 211.8 million people in 2019, which has led to growing grain demand. This has been compounded by Brazil increasing utilization of maize as a feed stock for bioethanol production.
While the total volume of maize being directed to the country’s FSI and feed sectors has been increasing, the percentage of total domestic production that these sectors represent has been declining over this period. In 2012, domestic consumption accounted for 64% of total maize production, while exports only accounted for 31% of production. However, since 2012, Brazil has experienced increased exports, due in part to increased demand for grains from countries like China, Brazil’s position as an attractive source of grain improving, and because of logistical improvements to Brazil’s infrastructure. In 2022, the percentage of maize being consumed domestically fell to 58% of total production, while imports have risen to 40%.
Exports have become a key driver of Brazilian maize production, not only has the country increased production to meet export demand, but the country has improved its infrastructure to allow greater volumes of grain to reach export ports. A good example of this is the completed paving of the BR163, a key highway taking harvested grains and oilseeds from the center of the country to river ports in the north. Paving was completed in 2019, allowing trucks to navigate the route more easily, especially in times of rain. In late 2020, the Brazilian Government committed a further $587 million to improve the road.
As the data shows, export volumes have been increasing to date, and in the current 2022/23 marketing year Brazil is expected to have exported more maize than the U.S., an untypical situation, as historically the U.S. is the greatest exporter of maize. This situation is explained by U.S. maize production in 2022 falling by 8.9% (from a lower planted area), lower barged grain movements to the Gulf of Mexico due to low Mississippi water levels that affected exports, strong Brazilian production (+7.8%), and the Chinese authorizing more Brazilian maize exporters.
The fundamentals of the development of the Brazilian soybean sector mirror the maize situation closely, with the only major difference being that in soybean, yields have remained broadly static in the past 10 years. An almost doubling of harvested area is a key factor in production rising from 82 million tonnes to 153 million in 2022. Since 2012, domestic consumption has risen at an average yearly rate of 4.1%, driven by the country’s soybean crushing demand. The Brazilian National Energy Policy Council (CNPE) has recently approved an increase to the country’s biodiesel blending mandate, through which the minimum level of biodiesel that can be blended into the country’s diesel composition will rise from 10% (B10) to 12% (B12), effective April 2023. The CNPE has also approved plans to gradually raise Brazil’s blending mandate by 1% each year until a B15 blend is achieved in April 2026, the pull-through of which will increase demand for domestically produced soybean.
As with maize, the proportion of production consumed domestically has fallen in the past decade, declining from 46% in 2012 to 37% in 2022. Conversely, exports as a percentage of production have increased from 51% to 61% in the same period.
In Brazil, the soybean area is currently forecast to rise by 4.9% to a record 43.5 million hectares, driven by high trading prices, good profitability of production, and an early start to the planting period. In addition, domestic demand from the country’s biodiesel producers is to remain high following the extension of the B10 mandate, which when it expires, will require the country to move to a B12 mixture as of April 2023.
The Brazilian maize area is forecasted to grow by 2.1% to 22.0 million hectares, a record area. It is expected that the recent trend of a greater proportion of the total Brazilian maize area being cultivated in the safrinha season is to continue. In 2022/23, 77% of the total maize area is forecast to occur in the safrinha season. High crop prices and strong demand from domestic and international markets have fueled maize area growth in 2023, although growth has been held back by high input costs resulting in some Brazilian growers moving to other crops, particularly soybean. Domestic demand is being driven by the country’s feed and bioethanol sectors.
In Argentina, despite initial forecasts describing a larger soybean area driven by greater forecasted profitability, principally due to soybeans’ lower input costs, the latest data shows the area is to decline by 0.6%. The country’s maize area is expected to fall by 1.9% to 10.4 million hectares (including forage). The area is expected to decline through growers being disincentivized to cultivate due to high input costs and declining growing conditions.
The Argentinian sunflower area is expected to rise by 15.0% to 2.3 million hectares, driven by strong profit from the previous season’s crop and current high sunflower and sunflower oil prices. Sunflower, in the current season, reportedly offers the greatest profit margin of any row crop in Argentina and has likely taken some area away from soybean and maize cultivation.
The potential increased value of Latin America’s seed market in 2023 is being driven by strong performance in Brazil. The combination of larger planted areas of maize and soybean, combined with greater use of higher priced seeds, and the positive impact of currency exchange into U.S. dollars, is likely to result in significant value increases. In the 2022/23 season, it is expected that areas of Intacta 2 Xtend will increase from 320,000 hectares to 2.4 million hectares, driving value increase. The same proliferation in deployed area is expected for Conkesta E3. The positive growth expected in Brazil will be partially offset by the weak performance of Argentina. Planted areas of both maize and soybean are estimated to have declined, taking value out of the country’s seed market. Argentina’s sunflower area is forecast to have greatly increased, but not at a level required to replace the value lost from lower maize and soybean areas.
Future Development
The future development of Brazil’s seed market is likely dependent on the country’s ability sustain or grow its agricultural exports, driving demand for Brazilian produced crops. Prior to 2022, Brazil was already the leading exporter of soybean, and in 2022 overtook the U.S. as the greatest exporter of maize, although this may be reversed in the short-term depending on U.S. area development and production in 2023. It is likely that Brazil will continue to expand its arable area and consequently the production of key grains and oilseeds, with the ultimate end point of becoming the world’s leading exporter of both maize and soybean. While exports are likely to be the principal driver of crop production, domestic demand and consumption will also be an important factor.
At present, AgbioInvestor expects that the Brazilian maize and soybean areas will increase by an average rate of 2.5% and 2.2% per annum to 2032. During this time, the value of the Brazilian seed sector will not only be driven by greater planted area, but the adoption of new seed technology that is sold at a higher price. For example, Coretva is aiming to position its Conkesta E3 trait on as much as 35% of the Brazilian soybean area by the end of the decade.
In addition, the spread of GM technology into other crop sectors is expected in upcoming years. HB4 drought-tolerant and glufosinate-tolerant wheat, developed by Bioceres, has been approved for cultivation by Brazil’s biosafety regulatory agency, CTNBio. This follows Brazil’s decision to authorize imports of wheat flour derived from HB4 wheat for food and feed uses in 2021. Brazil represents the second country to authorize the cultivation of HB4 wheat, after Argentina, which cultivated 53,000 hectares in 2022. While the planting of GM insect-resistant sugarcane has been commercialized, and planted on 0.5% of the country’s sugarcane area, it is expected that utilization will increase in the future. GM eucalyptus has also been approved for cultivation, although there have not been any commercial plantings to date. •