Brazil: Commodities, Industry and the Real Plan

The economy of Latin America's largest country, from ending hyperinflation with the Real Plan to becoming an agricultural superpower.

Brazil is Latin America’s largest country by population and economy, with over 200 million people. Its economic history includes remarkable achievements and deep crises.

Taming hyperinflation

In the late 1980s and early 1990s, Brazil suffered hyperinflation. Prices rose by more than 1,000 percent in some years, and the country went through several currencies and failed stabilisation plans.

In 1994, the government introduced the Real Plan, led by finance minister Fernando Henrique Cardoso, who later became president. It introduced a temporary unit of account called the URV, which let prices and wages adjust to a stable reference, before converting to a new currency, the real. Combined with tighter fiscal and monetary policy, the plan brought inflation down dramatically. It is regarded as one of the most successful stabilisation programmes in history.

Agricultural superpower

Brazil has become one of the world’s largest agricultural exporters. It is a leading exporter of soybeans, beef, chicken, coffee, sugar and orange juice. A key factor was research by Embrapa, the Brazilian agricultural research corporation founded in 1973, which developed techniques to farm the acidic soils of the Cerrado, a vast savanna region once considered unsuitable for crops. China became Brazil’s largest trading partner, buying huge quantities of soybeans and iron ore.

Industry and energy

Brazil also has significant industry, including aircraft maker Embraer, one of the world’s largest producers of regional jets. Petrobras, the partly state-owned oil company, developed deep-water oil fields. Brazil also produces ethanol from sugarcane on a large scale, and many cars run on ethanol blends.

The ethanol cars

After the oil shocks of the 1970s, Brazil launched a programme to produce ethanol from sugarcane as a fuel. Today, most new cars sold in Brazil are "flex-fuel", able to run on petrol, ethanol or any mix. Drivers choose at the pump based on relative prices, a rare example of consumers switching fuels easily.

Recent challenges

Brazil grew strongly during the 2000s commodity boom, then suffered a deep recession in 2015 and 2016, along with a major corruption scandal known as Lava Jato, or Car Wash, involving Petrobras and construction firms. Growth has since been modest. Deforestation in the Amazon, linked partly to cattle ranching and soy expansion, is a major environmental and economic concern.

Thinking Brazil only exports raw materials

Commodities dominate Brazil's exports, but it also has significant manufacturing, services, an aircraft industry and a large financial sector. Its farming success is itself built on advanced agricultural research and technology.

Key takeaways

Brazil is Latin America's largest economy, with over 200 million people.
The 1994 Real Plan ended hyperinflation using a temporary unit of account and a new currency.
Embrapa's research helped make Brazil an agricultural superpower.
Brazil faces challenges including slow growth, corruption scandals and Amazon deforestation.