This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 05 BRASILIA 000790 
 
SIPDIS 
 
SENSITIVE 
 
NSC FOR DEMPSEY, CRUZ 
USDA FOR FAS/ITP/BFREEMAN AND FAS/COTS/PPACKNETT 
USDA FOR FAS/OA/BIG/PJOSEPH 
TREASURY FOR OASIA/SEGAL 
FED BOARD OF GOVERNORS FOR ROBITAILLE 
USDOC FOR 4322/ITA/IEP/WH/OLAC-SC 
SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON EAGR SOCI EFIN EINV ETRD TBIO PGOV BR
SUBJECT: BRAZIL'S STATE OF GOIAS:  RIDING THE AGRICULTURAL 
BOOM 
 
 
This cable is Sensitive but Unclassified, please protect 
accordingly. 
 
¶1. (U) Summary.  The central Brazilian state of Goias, from 
which the Federal District of Brasilia was carved 47 years 
ago, has grown above the average for Brazil over the last 
several years.  The state's economy, fueled primarily by 
agriculture and an emerging agribusiness, has a growing 
awareness of the importance of exports.  Business reps 
welcomed the market opening that FTAA would represent, but 
were wary of U.S. competition and of perceived U.S. 
protectionism, particularly of agricultural products. 
Beyond agriculture, the state is searching for a new 
strategy to attract out-of-state businesses, since tax 
exemptions are supposed to be phased out shortly under 
national level tax reform.  While the state is heavily in 
debt to the federal government, above-average revenue growth 
has cushioned the burden of debt service.  In conversations 
with Econoff, even working-class Lula voters lauded second- 
term governor Marconi Perillo, from the centrist PSDB party. 
Perillo's youth and popularity give him potential for a 
future political role on the national level.  Lula's 
trademark Zero Hunger ("Fome Zero") program has no resonance 
here, as effective state-level programs seem to be 
adequately addressing such social needs.  Despite 
discomfiture by some over squatter land invasions by 
landless activists (MST), the most commonly cited social 
issue was the need to deal with immigrants from other parts 
of Brazil to this island of relative prosperity.  End 
Summary. 
 
¶2. (U) Econoff traveled March 16-17 to Goiania (population 
1.2 million), the seventy-year-old capital of the Brazilian 
state of Goias, an agricultural state in central Brazil. 
Goias, while one of the larger Brazilian states in land 
area, has a population of only 5.3 million, much of it 
rural.  Its booming agriculture and agribusiness based 
economy, however, is exemplary of one of the fastest growing 
sectors of Brazil's economy, and one that is beginning to 
affect world markets.  Goias' efforts to deal with its state 
debt while finding creative ways to finance infrastructure 
investment and deal with social issues also reflect debates 
and trends at the national level.  Goias is also (in)famous 
as the source of a significant proportion of Brazilian 
illegal immigrants to the U.S. 
 
Economy 
------- 
 
¶3. (U) Goias is riding the wave of Brazil's agricultural 
boom.  In about twenty years, according to state Planning 
Secretary Humberto Tannus, Goias has become an agricultural 
 
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powerhouse, introducing a multitude of new cash crops into 
what had been a sleepy rural economy dominated by family 
farms.  The state is now Brazil's leading producer of 
sorghum and tomatoes and among the leaders in soy, 
pineapples, corn, beans, chicken, beef, dairy and grains 
production.  Tannus put the state's growth rate last year at 
about 3%, according to preliminary data.  This compares very 
favorably with national GDP growth of minus 0.2%.  In fact, 
state data show growth rates consistently above the national 
average, with a recent peak of 5% in 2000. 
 
¶4. (U) According to the President of the Agriculture and 
Animal Husbandry Association (FAEG), Macel Caixeta, there is 
a growing diversification of agricultural production into 
other tropical fruits as well.  Tannus said exports, 
primarily of agricultural products, reached USD 1.1 bn last 
year, up from a few hundred million dollars just two years 
before.  The state's biggest export market is now China, 
which just overtook the Netherlands as the primary 
destination for the state's soybeans and other exports. 
Goias' overall economy as a whole is becoming more 
diversified, with industry (much of it agribusiness, but 
including mining and manufacturing) making up about 34% of 
the economy, agriculture accounting for about 18% and 
services accounting for the remainder.  The state is now the 
third leading producer of clothing in Brazil, primarily for 
the domestic market. 
 
¶5. (U) Investment Department head Sergio Castro explained 
that Goias has been an aggressive user of tax incentives to 
lure business to the state and claimed that the program has 
had particular success in attracting agribusiness and 
distribution operations, as well as some heavy industry: 
Mitsubishi has an assembly plant in the state, and Daewoo 
reportedly is considering establishing a plant as well. 
Commerce Secretary Ridoval Chiareloto explained that the 
Secretariat was busy negotiating 500 11th-hour tax incentive 
 
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agreements before the deadline for their elimination imposed 
by last year's tax reform. 
 
¶6. (U) Chiareloto and Castro claimed success in attracting 
players in the pharmaceutical industry to a pharmaceutical 
"development pole" in the city of Anapolis, not far from 
Brasilia.  They said U.S. multinational Johnson's was moving 
its distribution center for all of Brazil to centrally 
located Anapolis, attracted in part by the creation of a 
"dry" port, complete with airport, railroad and truck 
terminals and bonded warehousing facilities.  Brazilian 
pharmaceutical companies are already producing generics in 
Anapolis, they said, and European firms are also considering 
operating there.  Planning Secretary Tannus hopes that the 
Brazil's to-be-announced federal-level industrial policy, 
which lists pharmaceuticals as one of four priority areas, 
will also benefit Anapolis. 
 
FTAA 
---- 
 
¶7. (U) State Commerce Secretary Chiareloto told Econoff that 
farmers and businesses in the state welcome the opening of 
new markets that an FTAA would represent, but said Goianians 
are wary of U.S. protectionism in agriculture, the state's 
principal exports.  FAEG's Caixeta was more positive, saying 
that his association sees the U.S. as a "partner" in the 
FTAA process; he predicted that the FTAA would become a 
reality soon.  "O Popular" editor Cordeiro, perhaps a more 
detached observer, said his paper's polling indicates that 
there is not yet a fixed opinion on the FTAA among the 
broader public, because most Goianians are just awakening to 
the importance of exports. 
 
Public-Private Partnerships 
--------------------------- 
 
¶8. (U) Most interlocutors are looking at the federal level 
public-private partnerships (PPP) effort as a useful tool to 
attract private investment in infrastructure.  Planning 
Secretary Humberto Tannus noted that PPP-type arrangements 
 
SIPDIS 
have existed in Goias for some time on a piecemeal basis, 
primarily in the form of concessions.  The new federal bill 
on PPPs would provide an organizing framework and useful 
guarantees.  Goias has its own bill ready to be presented to 
the state legislature, which would combine into one 
framework these existing concessions, the state 
privatization committee (Conselho de Desestatizacao) and the 
new federal PPP effort.   Tannus acknowledged that, under 
the Fiscal Responsibility Law, Goias' high debt level 
prevented it from giving budgetary guarantees to PPP 
projects, but claimed there are several potential 
workarounds.  These include pledging to the PPP effort 
existing state assets (he mentioned two different stadiums), 
contributions in kind such as real estate, and commitments 
to construct complementary infrastructure (roads, power 
lines, etc).  Tannus claimed some interest from companies 
that work infrastructure projects.  FAEG's Caixeta welcomed 
any effort that improved rural infrastructure, citing 
railroad development in particular as a key way to bring 
down transportation costs. 
 
¶9. (U) Transportation Agency chief of staff Valdir Marques 
told Econoff that the lack of investment by the federal 
government in maintaining federal highways was causing 
dramatic increases in traffic on state roads.  State roads, 
however, were designed primarily as feeder roads and were 
bearing up poorly under the increased loads, particularly of 
heavy trucks laden with the state's agricultural produce. 
The state began in 2002 a seven-year, USD 240 million-road 
repair program with an Inter American Development Bank 
(IADB) loan.  The program will rehabilitate 3000 kilometers 
of paved roads and pave an additional 1000 km of currently 
unpaved roads.  Using private contractors to build and 
maintain the road network, a relatively recent innovation, 
has reduced costs by 50%, according to Marques.  Marques 
claimed only several hundred kilometers of state roads are 
in bad condition (with several thousand more in fair 
condition).  Anecdotally, taxi drivers complained to Econoff 
of a plethora of "awful" stretches of highway, both federal 
and state, and noted that unusually heavy rains this summer 
had washed out a key bridge, requiring a one hundred 
kilometer detour in one case. 
 
GMOs and Free Range Cattle 
-------------------------- 
 
¶10.  (U) State Commerce Secretary Chiareloto and Investment 
Department Head Castro said the state is following closely 
the national debate on GMOs.  Since much of the state's 
soybean and grain crops are sold to European markets, there 
is a fear of losing market share to other countries or 
regions that can claim to be GMO-free.  They suggested that 
Brazil, given its continental size, could solve the problem 
using a regional approach.  Some regions could adopt GMOs 
while others do not, thus maintaining market share in both 
segments.  Extensive pasture in Goias means that ranchers 
have long raised free-range cattle, which are not given 
animal feed, according to both Chiareloto and FAEG's 
Caixeta.  They saw demand for the state's free-range cattle 
(boi verde) jump since the BSE scares in the UK and the U.S. 
They expect continued strong demand in this market niche. 
 
Debt and Budget 
--------------- 
 
¶11. (U) Although Goias is the fourth most heavily indebted 
Brazilian state, with an income to debt ratio of 240%, to a 
surprising extent this was a non-issue during conversations 
with the state finance secretariat.  As was the case with 
many other Brazilian states, the Federal Government took 
over responsibility for most Goianian debt (and receives 
monthly payments from the state.)   The state's revenue 
stream has been growing overall, reducing the sting of 
required debt repayments to the Federal Government.  Indeed, 
the state has elected to repay 50 million Reals a month (15% 
of revenue), two percentage points above the minimum debt 
repayment level of 13% of revenue.  The finance secretariat 
claimed that Goias was current on its debt payments and did 
not see any obstacle to continuing to pay down debt levels. 
Finance Secretariat Chief of Staff Guilherme Souza claimed 
further that much of Goias' indebtedness was not due to 
state fiscal mismanagement, but because it chose, as part of 
the negotiation with the federal government, to take on debt 
owed by state-owned parastatals (sewage and power companies 
were cited).  This decision has left the parastatals free to 
take on new debt and thereby continue making critical 
infrastructure investments. 
 
Social Issues 
------------- 
 
¶12.  (U) Almost to a person, Econoff's interlocutors cited 
immigration from other parts of Brazil as one of the state's 
most pressing problems.  Dealing with this immigration has 
stressed social programs and budgets.  The state 
nevertheless needs immigrants with skills to fill some of 
the jobs being created in agri-business.  The editor of "O 
Popular", Isanulfo Cordeiro, cited the case of busloads of 
job-seekers that arrived after a story (in a competing 
newspaper) on vacant agribusiness jobs in Rio Verde, which 
hosts a large food-processing business, led by Brazilian 
company Perdigao.  Cordeiro labeled the report 
'irresponsible' for having omitted to state that the 
vacancies were for skilled workers.  He said penniless local 
authorities in Rio Verde had to seek donations to 
"repatriate" the desperate unskilled jobseekers, many of 
whom had borrowed money to get to Rio Verde and had none to 
return home.  Cordeiro assessed the quality of the state's 
educational system as reasonable, but noted it was of 
insufficient size to meet demand for skilled workers.  Some 
private vocational training programs, funded by business 
associations such as FAEG, help address the problem, but are 
targeted at specific sectors.  (Note: Rio Verde also hosts 
an Amcit Mennonite community.) 
 
¶13.  (U) FAEG's Caixeta said association members were 
alarmed at squatter invasions by the landless movement (MST) 
in some parts of Goias.  He alleged that the "leftist" Lula 
government was openly supporting the MST.  By contrast, he 
lauded Gov. Perillo's policy of not tolerating MST squatter 
invasions while trying to help the legitimately needy find 
housing.  Perillo has an eye for social issues without being 
a socialist, said Caixeta.  Planning Secretary Tannus 
enumerated a series of state-level social programs that 
combat hunger (a food-targeted stipend for families, and a 
people's restaurant, which provides balanced meals for one 
Real), help families keep their children in school (a 
targeted stipend), fight diseases with sanitation 
improvements at the household level, retrain unemployed 
workers, and provide micro-credit.  One other program aims 
ultimately to reduce squatter invasions by helping the rural 
poor to build or improve their own housing, so long as they 
can prove their ties to the given region.  "O Popular" 
editor Cordeiro lauded these programs to Econoff, noting 
that his newspaper's culinary column had published a 
favorable review of the one-Real restaurant. 
 
¶14.  (U) Lula's trademark "Fome Zero" program, Cordeiro 
added, has no resonance in Goias, because the existing state 
level program has been much more effective.  Separately, 
Planning Secretary Cannus, implying some reluctance, said 
the state is still negotiating with the federal government 
how to marry up "Fome Zero" with the state's "Renda Cidada" 
(Citizen's Income) program, which provides food stipends as 
well as exemptions from water and power bills for the most 
needy. 
 
¶15. (U) In a meeting with an association of small and micro 
entrepreneurs, several small business owners told Econoff 
that they struggle daily to deal with bureaucracy and 
inability to obtain credit.  Expressing frustration, the 
owner of a small business involved in telecommunications 
said he often feels the time spent trying to obtain credit 
would be better spent simply on better managing his 
business.  The president of the association complained that 
the government's micro-credit program for loans of 2000 - 
3000 Reals, while available at excellent interest rates (6% 
annual), still required guarantees equal to 50% of the 
borrowed amount.  A government-sponsored consultant to the 
association, Rodolfo Monteiro, said a study of small and 
medium enterprises (SMEs) showed that 40% of SMEs that could 
obtain credit never bother applying.  Other obstacles to SME 
development cited by the group include the Byzantine 
requirements of the labor law and bureaucratic hassles.  The 
association is thinking creatively about joint purchasing 
arrangements among members (e.g. for office equipment) to 
reduce costs through large volume purchases, as larger 
companies do. 
 
Comment 
------- 
 
¶16.  (SBU) Goias's economy, thanks to agriculture and 
agribusiness, is doing better than much of Brazil.  It is 
clear, however, that the state is already coming up against 
infrastructure constraints that require substantial 
investment to de-bottleneck.  The state's debt levels make 
that an impossible task for its public sector.  And so, 
while it was clear that there is no love lost between PSDB 
Governor Perillo and Lula's PT-led federal government (which 
the PSDB on the national level opposes), Goias needs federal 
initiatives such as future PPPs and incentives for 
pharmaceuticals under the new industrial policy to attract 
new private investment in these areas. 
 
HRINAK