“All countries that are agricultural powerhouses are also industrial and technological ones…”
Paulo Gala is the chief economist at Banco Master and a professor at Getúlio Vargas Foundation – FGV. Gala is an economist from the University of São Paulo, with a master’s degree and Ph.D from FGV.
AgriBrasilis – Why did you say that there is no economic development through agriculture?
Paulo Gala – There is no development through agriculture in the sense that no country has become rich in the world only through agriculture. All countries that are agricultural powerhouses are also industrial and technological ones. This is the case of France, the Netherlands, Spain, the USA. Brazil has every condition to carry out such a technological and industrial development linked to agribusiness.
The path we must take is to industrialize agribusiness, from the seeds market, that is a market with a lot of technology, to fertilizers, and the entire chemical segment, agricultural machinery and equipment, etc. We cannot abandon the idea of industrializing Brazilian agriculture.
Just harvesting beans, corn, wheat, coffee, and soybeans is not enough. We need to produce the “environment” around agribusiness. We need to industrialize this environment with Brazilian products, be it Brazilian machines, Brazilian chemicals, etc. This is the key. The agricultural route helps, but it is not enough: we need the agro-industrial route in addition to it. This path was successful for all countries that are agricultural and technological powerhouses.
AgriBrasilis – What does it mean to say that “Brazil will not be able to reindustrialize by producing knobs and screws”?
Paulo Gala – Because these are very cheap products that today are dominated by Asians, mainly from East Asia and China.
Brazil has lost the ability to compete in terms of the cheapest prices. We became a country with a per capita income of more than US$ 10,000/year, with higher salaries than in Asian countries, so it is difficult for us to compete on prices with them. We need to compete in quality and innovation, with differentiated products.
It is up to Brazil to seek industrialization frontiers in which the country has competitive advantages. This is the case with fertilizers and chemical products, for example. These are sectors where we have a lot of good and cheap raw materials. The mining sector is also an example.
We must leverage our competitive advantages to pursue a more sophisticated industrialization process. Public policies are key in this, especially those that provide credit and subsidies for innovation, to environmental issues, energy transition, ecological transition, for the use of cleaner energy, etc. Brazil has done a lot in this regard, with advances in wind and photovoltaic power generation, for example.
We need to think about a “green” industrialization, a new industrialization project that uses Brazil’s environmental competitive advantages to produce sustainable products. This is our path of reindustrialization.
AgriBrasilis – Why did the Brazilian industry decline so much? To what extent has China contributed to this?
Paulo Gala – The advancement of Chinese industry has greatly hindered Brazil. China has competed on price for the last 30 years, with a labor force with very low wages, in addition to a very devalued exchange rate, and with a gigantic economy of scale.
China’s industrial production today is US$ 4 trillion per year, that is, twenty times more than Brazilian production, which is US$ 200 billion per year. In fact, Chinese production is double that of American industrial production: the US produces US$ 2.2 trillion a year.
Competing against China’s production scale is very difficult. Brazil will have to find environmental and innovation niches where the country has competitive advantages.
AgriBrasilis – You consider the idea that we are going to “simply promote trade opening and conquer markets” to be a myth. Why?
Paulo Gala – Simply opening markets and trade or cutting tariffs is not going to solve our problems. Brazil is lagging in world trade competition because we do not have control over technologies, trademarks, and patents, etc. Cutting tariffs won’t solve anything.
We need policies that encourage innovation, industrialization, with credit from public banks, BNDES, with subsidies for an environmental transition. It is this type of public policy that will help our reindustrialization.
Cutting tariffs will not reindustrialize Brazil: on the contrary, if we cut the limited tariffs that remain, we could end our industry for good.