Supply and demand shocks and the growth of the Brazilian agriculture

Abstract

In the last decades the Brazilian agriculture had a strong growth. Our hypothesis is that most of that growth may be attributed to two general factors, which may conveniently be related to two types of shocks acting upon agriculture: demand-related and technological supply-related shocks. Demand shocks are originated both from domestic economy and from external markets. We use Blanchard and Quah (1989) type of economic model to test the relative importance of supply and demand shocks on Brazilian agricultural growth. Our results indicate that supply and demand shocks have permanent effects upon agricultural output and prices. We estimate that the agricultural output growth in Brazil is attributed in large proportion to yield increases and that integration to international markets was important to assure the profitability of continuous use of new technology that led to yield improvements. This is why exchange rate plays is relevant in explaining the performance of the Brazilian agriculture. We anticipate that, if investments in science and technology are maintained and international integration expanded, Brazil will be able to substantially increase its supply of agricultural products both for domestic and foreign markets.

Nas últimas décadas a agricultura brasileira teve um forte crescimento. Nossa hipótese é que grande parte deste crescimento pode ser atribuído a dois fatores, que podem ser relacionados a dois tipos de choques: de demanda e de oferta. Nossos resultados indicam que tais choques têm efeitos permanentes sobre produção e preço. O crescimento do produto agrícola pode ser atribuído em grande proporção ao aumento da produtividade. A integração aos mercados internacionais é essencial para garantir a lucratividade do uso contínuo de novas tecnologias que levam a ganhos de produtividade. Esse é o motivo pelo qual a taxa de câmbio desempenha um papel relevante na explicação da performance da agricultura brasileira.