We started our morning with a briefing from CME/BM&F Bouespa. Achilles Cuoto explained that BM&F Bouespa is an exchange service like the CME is in the US. Fabiana Perobelli said that approximately 200,000 contracts per day are generated through the United States. The money exchange is generated through Citibank in New York. BM&F Bouespa is the largest Exchange in Latin America and the third largest in the world. Almost all the trading is done electronically. Prime interest rate is 9.75 percent with a 5 percent inflation rate. One point that stood out is that all collateral is kept at the exchange level instead of a brokerage level. That is the opposite of the CME.
Our next speakers were from BNDES. BNDES’ goal is to foster sustainable and competitive development in the Brazilian economy. BNDES credit lines are used to complete business projects, purchase machinery and export of good. This is how their operating lines run: They loan to farmers for 48-72 months on used or new tractors and 96 months for harvesters. Over $137 million Reals were loaned in 2009 to the agriculture industry. BNDES emphasized that there is no foreign capital discrimination and reiterated that there are many sectors that the government wanted to support.
The Consulate General for the United States in Sao Paulo, Tom White, spoke regarding the overall situation in Brazil. The Consulate General’s office has over 300 employees and 12 agencies. Sao Paulo accounts for a third of Brazilian economy. The American Chamber of Commerce has over 5,000 members from Sao Paulo. Consulate General White went on to discuss the current Brazilian government. After eight years in office, President Lula has an astonishing 80 percent approval rating. Something that hasn’t been seen in the United States in a long time.. if ever. The Brazilian economy has been growing between 4 and 5 percent each year for the last several years. It has lead to their successful economy and has enabled them to become a major creditor versus a debtor (which they were ten years ago). The employment situation in Brazil is something that differs completely from the United States. Consulate General White says once a Brazilian company hires an employee it is very difficult to get rid of them. It takes four times the paperwork to terminate an employee than it does in the United States. If the company pursues the removal of the employee and it ends up in the court the employer will lose 80 percent of the cases.
After a nice lunch courtesy of ADM, Domingo Lastra from ADM’s Brazil Facility spoke about the world and Brazil. Lastra says ADM is very comfortable with Brazil’s 5 percent yearly growth. If the growth rate was more than 5 percent, Brazil’s current infrastructure may not be able to support that volume of capacity. The soybean market is one that we have heard a lot about this week and today we learned that 60 percent of Brazil’s export soybeans head to the Chinese market. The full cropping system in Brazil is done differently than in the United States. For example: 55 percent of crop inputs are financed by banks and 45 percent are financed by industry and privately. ADM’s financing is 75 percent inputs and 25 percent equity. Bartering is often times used to finance seed and inputs by the grower.
Alan Grabowsky, President of Abrico Marketing Research had a lot of anecdotal philosophies on Brazil. After ten years as a debtor Brazil became investment grade in 2008. That means conservative money will now invest in Brazil (think pension funds). Some big factors that impact business in Latin America and Brazil are Places, People and surprises. For example their culture provides employees with thirty days vacation and ten government holidays per year by law.
Our final presenter for the afternoon was Marcus Pratini, one of the board members with JBS. JBS began their slaughter business with one animal per day then their operation grew to ten a day and is now the worlds largest slaughter house. Their strategy was to purchase slaughterhouses instead of building from the ground up. Most recently they implemented their strategy in purchasing Pilgrim’s Pride and Swift. JBS employs 125,000 people world wide and their sales in 2008 were over $18 billion. If you include the Pilgrim’s Pride purchase that total jumps to over $32 billion. Their market strategy is to work with farmers… Not to compete with them. Another interesting and informative day. Tomorrow we head to the port and then off to Argentina!
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