Sleeping giant wakes up in Brazil

01-09-2010 | Richard Rennie

While Chile may offer the lure of New Zealand-type landscapes and pastoral settings, Brazil's burgeoning dairy industry has the opportunity to deliver serious pastoral scale on a level almost untapped at present.

Only a third of the country's arable land has been developed, with 90 million hectares of arable land in the "Cerrado" region alone, with Brasilia near its centre. Supporting that scale comes a huge population of 190 million people compared with Chile's 16 million. It is also an economy recognised as the "B" in BRICs (Brazil, Russia, India, China), one of the Big Four economies that represent a shift from the traditional economic powerbases of the G 7 nations.

The dairy industry in Brazil has experienced around 5% growth each year in the past five years, producing 24 million tonnes of milk products, compared with NZ's 14 million tonnes.

The country has become a more notable exporter of dairy products, particularly wholemilk powder, with a net 95% of production consumed internally - after being a net importer only seven years ago.

If any country were to be a threat to NZ's scale in exporting it could yet prove to be Brazil. The country is forecast to be exporting four billion litres of milk by 2014, compared with Fonterra's 15 billion litres processed.

With the bulk of Brazil's agricultural production focused around soy beans, beef and sugar cane, pastoral dairying production tends to be small, scattered operations. As in most other burgeoning pastoral dairying countries, input from Kiwis is helping push up pastoral production and cow productivity.

The Kiwi presence in Chile is well-known, but despite its size Brazil is less prominent for NZ investors. A more lenient approach to investment and a recognition of the need to boost production for a growing domestic market has helped make the country a more appealing pastoral investment option.

Waitoa farmer Hans Geessink is an investor in a relatively small operation, Kiwi Pecuaria Farm, an hour south of the Brazilian capital Brasilia. The newly established 240ha property was converted from soy bean plantation last year and is now milking 700 cows twice a day. It is targeting 15,000 litres a day in coming years off 900 head. It also uses 190ha of land for crops.

The investment group includes a range of skilled agri-professionals and farmers.

"For me the appeal of investing in the farm was personal as much as professional," Geessink says. "I could at some stage buy more land here in the Waikato, but I think the demands on my time would only increase, without any corresponding rewards for the amount of capital. Investing in Brazil was a new challenge, and for me presented another interest."

He took confidence from the depth of talent behind the venture, and the three-month feasibility analysis done before land was even looked at. This resulted in the property in the Goias state in the Cerrado region. The farm has been planted in tropical grasses and sits on an elevation of 950m, helping to mitigate subtropical temperatures. Summers are typically wet, experiencing 1500mm of rainfall, and winters relatively dry but the farm is irrigated with one complete centre pivot irrigator and partly by a second.

The grasses are capable of a phenomenal 40-60t/DM production a year, but pastoral skills and stocking rates are critical on a feed that could be likened to kikuyu, Geessink says. With low protein content the grasses are supplemented with soy meal, cottonseed, and brewer's yeast and grain, along with maize silage. Summer feed is 30% supplements, switching to 50% over winter.

Having investors who have Brazilian partners has made "huge" differences in negotiating red tape and bureaucracy, but skills on farm have also been hastened by having an ideal manager in Gerard Boerjan, a Portuguese-speaking, Kiwi-trained farmer who was selected from 80 applicants.

Geessink says labour productivity is significantly lower than here, pointing to his own 700-cow operation employing 3.5 staff whereas the Brazilian farm employs 12. The investor group is calling on the farming talent in NZ to help train promising staff by bringing them over to spend time on investors' properties. Immediate goals include converting another property and employing these staff to run it.

Total costs on the conversion project amounted to $8 million, or $33,000/ha including stock. Documents on the conversion proposal reveal investors expect a 12.5% cash return on the operation once established, a figure usually beyond Kiwi set-ups.

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