Agricultural trade between Korea and Brazil has greatly increased from USD 130 million in 1998 to USD 2,240 million in 2012. The share of agricultural trade in total trade between two countries has been continuously increasing from 5.2% to 13.7% during the same period of time. It means that agricultural sector is very important in the bilateral trade bewteen Korea and Brazil. Brazil is the fourth largest country which exports large amount of agricultural products to Korea following United States, China and Australia. Recently Brazil takes 6.7 percent of market share in Korea’s agricultural import market. However, research on the situation of Brazilian agriculture and agricultural trade between Korea and Brazil has not been much conducted in Korea. Therefore the objective of this study is to investigate the situation of Brazil’s agriculture and agricultural trade and to analyze the export competitiveness of Brazilian soybean which is the typical agricultural exporting product in the World and Korean markets. Based on the results of this study, we seek for the policy implication on Korean soybean industry.

Overview of Agriculture in Brazil

Brazil covers total area of 8,459,420 square kilometers which is the 5^th largest following Russia, Canada, United States and China in the world and it is 37 times that of the Korean Peninsula and 85 times of South Korea. Agricultural land in Brazil occupies 2,750,300 square kilometer, approximately 33 percent of its total area, which is fourth largest following China, Australia and United States in the world. Seventy-five percent of agricultural land is meadow and pasture, and the rest is arable land. Total population of Brazil is about 200 million and the proportion of rural population is about 30 million, or 15 percent of the total.

The share of agriculture in the gross domestic product has decreased from 5.8 percent in 1995 to 5.3 percent in 2012 as Brazil’s economy has developed. Although agricultural share in the Brazilian national economy has declined, agricultural industry accounts for 15 percent of employment and agricultural export covers 36 percent of the total merchandise exports.

In this regard, agricultural sector significantly contributes to the land use, employment and exports in Brazil. Also it is an important industry in rural area where most of lower income group are living. The agriculture and rural sector in Brazil are crucial to maintain social-economic stability and dynamism as in other south American countries.

In the meantime, agriculture sector of Brazil has steadily grown. As of 2012, the value of gross agricultural output of Brazil had reached USD 197,541 million which was 3.5 times higher than in 1995. The production value of crop cultivation sector amounted to USD 116,370 million, which accounts for 59 percent of gross agricultural output in 2012. The production value of livestock sector was USD 81,171 million, which accounted for 41% of gross agricultural output in 2012.

On a production value basis, the main agricultural products of Brazil are beef, sugarcane, soybean, chicken, milk, pork, orange and coffee in descending order. Especially, soybean and sugarcane account for 12.8 percent and 12.3 percent of gross agricultural production, respectively. Livestock products are mainly beef, chicken, milk and pork. Beef and chicken are the largest meat products in Brazil and account for 17.1% and 11.6% of gross agricultural production, respectively. Table. 1, 2, 3, 4

Brazil’s Agricultural Trade

Agricultural export has played an important role in Brazil’s national economy growth and stabilization. Brazil’s total value of agricultural trade was 22% of total value of merchandise trade in 2012. Brazil’s agricultural trade is around USD 100,900 million. Of this amount, the volume of its import is USD 13,800 million and that of export is USD 87,100 million, consequently the surplus of agricultural trade is about USD 73,300 million. In contrast, nonagricultural sector has a USD 53,900 million deficit. Much of Brazil’s trade surplus of USD 19,400 million in overall merchandise trading is attributed to the surplus in agricultural trade. Brazil is a substantial net agricultural exporter. Only 13.7 percent of total agricultural trade is import and the 86.3 percent of total agricultural trade is export. Both agricultural import and export have been on the rise but export has increased faster than import so that the agricultural trade surplus widened in 2012 to USD 73,300 million from USD 8,500 million in 1995. Table. 5

Looking at the world rank of Brazilian agricultural production output in 2012, Brazil holds dominant position in sugarcane, coffee and orange as the first place, and soybean, beef and chicken as the second place, and in corn as the third place and in pork as the fourth place in the world. With this global scale of agricultural production, Brazil is the biggest exporter of coffee, sugar, orange juice, soybean and chicken.

Agricultural import is only about 6 percent of total national merchandise import while agricultural export takes 36 percent of the total merchandise exports. Brazil is self-sufficient in most agricultural product and least dependent on agricultural import. However, exceptionally about half of the domestic wheat demand is procured by import. Major agricultural exports are grain and grain-processed products such as soybean, soybean meal, corn and soybean oil, and meats mainly beef, pork and chicken. In addition, coffee, leaf tobacco, orange juice, sugarcane, refined sugar and cotton are also major agricultural export products. Tabl .6

Situation of Agricultural Trade between Korea and Brazil

Over the past 15 years, total trade volume between Korea and Brazil had increased about 7 times from USD 2,500 million in 1998 to USD 16,400 million in 2012. Most of all, agricultural trade had increased sharply 17 times from USD 130 million to USD 2,240 million during the same period of time. In other word, agricultural trade had increased much faster than the trade in other sectors. With this trend, proportion of agricultural trade between the two countries had increased from 5.2 percent in 1998 to 13.7 percent in 2012.

The proportion of agricultural export in Korea’s total export to Brazil takes merely 0.1 percent while agricultural import reaches 37 percent of total import from Brazil. Bilateral trade between Korea and Brazil could be characterized that Korea mainly exports manufactures such as automobile and electronics while Brazil exports raw materials like iron ore and agricultural product such as soybean, raw sugar, coffee, tobacco and chicken.

As of 2012, Korea recorded a total trade surplus USD 4,200 million but USD 2,200 million was a deficit in the agriculture trade. Brazil is the fourth country which exports large amount of agricultural products to Korea following United States, China and Australia. Brazil’s market share in Korea’s agricultural import market was 6.7 percent in 2012. Korea’s agricultural export to Brazil had increased from USD 11 million in 1998 to USD 13 million in 2012. However, Korea’s agricultural import from Brazil had jumped to USD 2,226 million from USD 119 million during the same period of time so that the agricultural trade deficit had widened from USD 108 million to 2,213 million.

The share of major product groups in bilateral trade between two countries is the following order : crop product (85%), forest product (7.6%), livestock product (7%) and fishery product (0.4%). As shown by the share, crop product is main trading product group in agricultural trade between Korea and Brazil.

As mentioned before, Korea has shown trade deficit in agricultural trade with Brazil. Particularly, the largest deficit has occurred in crop product trade amounting USD 1,979 million, followed by forest product(USD 170 million), livestock product(USD 157 million) and fishery product(USD 700 million). Korea’s agricultural export to Brazil is mainly processed foods rather than fresh agricultural products. Major export products are icecream, deli, beverage and pastry. Meanwhile, Korea’s imports from Brazil are mainly non-processed product such as corn, cotton, soybean, chicken, coffee, leaf tobacco, sugar raw centrifugal and orange juice. Table. 6, 7

Export Competitiveness of Brazil’s Soybean1)

Comparative advantage across the international trade can be measured by various indices using import, export and trade statistics. Export competitiveness or international competitiveness of certain country or good can be calculated by Market Share (MS), direct comparison of unit price competitiveness, Revealed Comparative Advantage Index (RCA), Comparative Advantage by Countries (CAC), and so on. In particular, RCA and CAC index are evaluated as close to the concept of comparative advantage and comprehensive as reflecting price and quality competitiveness which are relatively easy to measure. Therefore, we will use RCA and CAC index to analyze international competitiveness of Brazilian agricultural exports in this study.

RCA index as introduced by Balassa in 1965 is defined as a country’s share of world exports of a commodity divided by its share of total world exports. In other world RCA shows relative importance of commodity export to a specific country and is close to the concept of comparative advantage. The advantages of the RCA index are that it embraces price and quality competitiveness factors and data gathering is relatively easy. The RCA index is expressed as following Eq. (1) :

Here,

In term of export competitiveness, it indicates a comparative advantage in export of j product in i country when the index is greater than 1. We can interpret that the higher index value means the higher export competitiveness. RCA is an index widely used in international economics in respect of its feature that representing export competitiveness by comparative advantage of specific product in certain importer country. However, agricultural trade is affected by various factors such as transportation distance, seasonality, difference in diet pattern, and sanitary and phytosanitary measures. Hence, there is a limit to evaluate export competitiveness of agricultural trade in a certain importer country. So, we will calculate CAC additionally to measure competitiveness of Brazilian soybean exports in Korean market. The CAC index is expressed as following equation (2) :

Where,

The CAC index is a method that measures competitiveness of a certain product of an exporting country in an importer country’s market. If the index is greater than 1, we can say that it has a comparative advantage. We can interpret that the higher the index is, the higher the export competitiveness is. Hereafter, we will use unit price, RCA and CAC to analyze international competitiveness of Brazilian soybean in the World and Korean market.

Results of Analysis of Brazilian Soybean’s Export Competitiveness

Soybean is the top exports of Brazilian agricultural products. Soybean export had continuously increased from USD 3,000 million in 2002 to USD 17,200 million in 2012 at the average rate 22 percent annually.Table. 8

Korea imports approximately 1,100 thousand ton per annum from overseas market, mainly from USA., Brazil and China. As of 2012, each country’s market share in soybean import market of Korea is 44%, 35% and 16% respectively.Table. 9

Traditionally, Korea has imported soybean from USA, Brazil and China. It is because United State and Brazil have been major soybean exporting countries in the world (Table 10). Also, China’s soybean export to Korea could be explained by its geographical advantage which reduces transportation and marketing costs even though its exporting competitiveness is relatively low. In addition, similarity of production and diet pattern between two countries has contributed to importing of soybean from China. 8,9,10,11

Not only USA and China but also Argentina, Paraguay and Canada are rivals with Brazil in the global soybean market. Thus it is meaningful to analyze export competitiveness of Brazilian soybean with comparisons of USA, China and other major countries in soybean exports.Table. 11

First, when we take a look at price competitiveness, Brazilian soybean has the 3^rd highest price competitiveness out of five major exporting countries. The 1^st ranked country in terms of price competitiveness is Paraguay, showing that the average export unit price between 2007 and 2012 was just USD 385 per ton. Argentina has also shown high price competitiveness with USD 410 of export unit price during the same period of time. However, export price of USA and Canada was higher than that of Brazil. It has been observed that Korea has imported soybean much more from USA rather than Brazil. It might be explained that overall competitiveness including logistic costs and marketing capability of US soybean is higher than Brazilian soybean in Korean market. American Soybean Associ- ation has made an effort to increase US soybean export into the Korean market with establishing the Korean branch of American Soybean Association. Table .12, 13

Next, we examine export competitiveness through RCA and CAC index. Between 2007 and 2012, average RCA index of Brazilian soybean in the world market is about 39 representing the second highest following Paraguay out of six major exporting countries. The average CAC index of Brazilian soybean in the Korean market is also high level. These mean that Brazil has competitiveness in respect of comparative advantage not only just in Korean market but also in global market so it is able to expand its soybean export. Moreover, CAC index of Brazilian soybean is higher than that of USA which has larger Korean market share than Brazil.

Therefore, the possibility of expansion of Brazilian soybean export to the Korean market is quite high if Brazil makes more efforts to enhance the export competitiveness including marketing ability based on its relative comparative advantage. The competition for soybean exports in the Korean market seems to be even more severe because Korea has already agreed on FTA with USA and China, and also Paraguay expands soybean export to Korea recently.

Summary and Conclusion

The land of Brazil is the 5^th largest following Russia, Canada, United States and China in the world and it is about 37 times that of the Korean Peninsula. Agricultural land in Brazil occupies 2,750,300 square kilometer, approximately 33% of its total area, which is fourth largest following China, Australia and United States in the world.

In Brazil, agricultural export has played a vital role in the national economic growth and stabilization. Brazil is a substantial agro-food exporter which obtains huge trade surplus in agricultural industry around USD 73,300 million in 2012 while non-agricultural sector is under the chronic trade deficit amounting USD 53,900 million. Major agricultural exports are grain and livestock products such as soybean, soybean cake, corn and soybean oil, and beef, pork and chicken. Other exporting items are coffee, leaf tobacco, orange juice, sugarcane, refined sugar and cotton. Particularly soybean is the top exporting commodity in Brazil. Brazil is the second exporter of soybean following USA in the world.

The main results of analysis on the export competitiveness of Brazilian soybean in the World and Korean market are as follows: First, U.S. Argentina, Paraguay and Canada are rivals with Brazil in the global soybean market. Second, when we take a look at price competitiveness, Brazilian soybean has the 3^rd highest price competitiveness following Paraguay and Argentina in the world. Third, considering RCA and CAC index, Brazilian soybean is the second highest following Paraguay. These mean that Brazil has competitiveness in respect of comparative advantage not only just in Korean market but also in global market. Especially CAC index of Brazilian soybean in the Korean market is higher than that of USA which has the largest market share in the Korean soybean market. Therefore, the possibility of expansion of Brazilian soybean export to the Korean market is quite high. However, the competition among soybean exporting countries seems to be even more intensified because Korea has already agreed on FTA with USA and China, and also Paraguay expands soybean export to Korea recently. In case of Brazil, it is the member of MERCOSUR established in 1995 with Argentina, Uruguay, Venezuela and Bolivia. The bilateral effort for FTA between Korea and Brazil was started in 2005 with the launch of common study for FTA between Korea and MERCOSUR. However, official negotiation for FTA is not launched yet. Recently, Brazilian government is actively trying to expand its agricultural export into Northeast Asian markets such as Korea, Japan and China which are emerging as major importers of Brazilian agricultural products.

Domestic self-sufficiency of soybean in Korea fell from 86.1% in 1970 to 11.3% in 2014. In other words, almost 90 percent of soybean is imported from oversea markets. Korea is importing soybean annually more than 1 million ton from overseas market mainly from USA., Brazil and China. Particularly major soybean exporting countries including USA, Argentina, Paraguay and Brazil are trying to expand their soybean export into the Korean market. In this regard, it is necessary to enhance the price and quality competitiveness of domestic soybean so as to cope with soybean imported from overseas market. As soybean is one of the important basic food-stuff for Korean, it is essential to reinforce policy efforts in order to enhance domestic self-sufficiency of soybean.