Brazil and Argentina: Open for Canadian agribusiness

With challenge comes opportunity. That may be the best way to describe the business climate for Canadian agriculture firms in South America, specifically the continent’s two largest economies, Brazil and Argentina.

With a combined population of more than 255 million and more developed industrial sectors than other South American countries, Brazil and Argentina have become key trading partners for Canada. Over the past 10 years, Canadian trade with Brazil has grown 26%. Canada’s trade with Argentina increased almost 18% between 2016 and 2017.

Brazil and Argentina offer growing opportunities for Canadian firms, specifically in the agribusiness and agri-food sectors.

Brazil, for example, has increased agricultural production by more than 400 per cent over the past 20 years. Many consider the country an agricultural powerhouse that will play a key role in global agricultural output as the world population grows to an estimated 9.5 billion by 2050.

There is heightened demand for new, high-technology equipment in the agribusiness industry, specifically in precision agriculture, which presents opportunity for Canadian companies.

Canadian firms doing business in Brazil and Argentina have carved out a niche by providing products and technology that can’t be sourced locally.

Canadian companies work in partnership with local firms, providing precision agriculture solutions such as harvesting headers and onboard technology. Most of the largest international agricultural equipment producers are based in Brazil.

By offering a high-end technological solution to a local challenge, Canadian companies have a competitive advantage in the region.

Canadian firms that specialize in agribusiness have been working hard to establish a presence in Brazil and Argentina, but not without some challenges.

1. Tariff barriers. Brazil and Argentina are both committed to domestic production and local content rules that penalize foreign companies in the form of high tariffs. Import taxes are approximately 13.5 to 14 per cent, respectively, across industrial sectors.
2. Transportation costs. In Brazil, additional freight and insurance levies are added to shipments from other countries, making the landed cost of the product much higher.
3. Underdeveloped infrastructure. Inefficient infrastructure also creates logistical hurdles and additional costs for companies trying to move goods within the countries. Poor quality roads create challenges when trucks are the primary form of cargo distribution. As an example, the recent 10-days-long truck drivers’ strike in Brazil resulted in substantial losses for the agriculture and meat exporter sectors.

Canada is in talks with a group of South American companies that could further bolster Canadians’ competitive advantage in the region. Mercosur is the world’s fourth-largest trade bloc, comprised of Brazil, Argentina, Paraguay and Uruguay. The first round of negotiations was held in Ottawa in March. When finalized, an agreement could see the elimination of tariffs in many sectors. This would give Canadian firms access to a market of 260 million people, with a combined Gross Domestic Product (GDP) of $3 trillion. 

In 2017, bilateral trade between Canada and Mercosur countries accounted for 8.9 billion.

1. Conduct market research. Having a good idea up front of your entry strategy will lead to better overall success. At this stage, identify customers, competition and potential partners. In Brazil and Argentina, Canadian firms of various sizes are finding success by working with existing suppliers, which reduces the cost of products in the market. EDC and the Trade Commissioner Service (TCS) can help by offering an in-depth overview of the market, applicable taxes and tariffs, and any possible leads for partners or other relationships. EDC’s Market Entry Advisor Brazil information provides a number of top-line details.
2. Create your value proposition. What can your company offer that’s not currently available in the market? Companies cannot always expect immediate success. It takes time to develop relationships. But with a clear value proposition and a sustainable, long-term business model, you will start out on solid footing.
3. Establish a local presence. Having an on-the ground presence, especially with a local partner or distributor is solid best practice. Many companies will expect replacement parts and after-sale service readily available in the local language.
4. Boost your national brand. The Canadian brand is widely accepted, known for quality, and firms aren’t perceived as overly aggressive, which goes far toward good relationship-building in Brazil and Argentina.
5. Establish competitive payment terms. Payment-on-demand transactions are a thing of the past in international trade. Offering more flexible payment terms to clients can help boost your competitive position.