Since the initial attempts to find gold and silver failed, the Portuguese colonists adopted an economy based on the production of agricultural goods that were to be exported to Europe. Tobacco, cotton, cachaça and some other agricultural goods were produced, but sugar became by far the most important Brazilian colonial product until the early 18th century. The first sugarcane farms were established in the mid-16th century and were the key for the success of the captaincies of São Vicente and Pernambuco, leading sugarcane plantations to quickly spread to other coastal areas in colonial Brazil. The period of sugar-based economy (1530 – c. 1700) is known as the “Sugarcane Cycle” in Brazilian history.

Sugarcane was cultivated on large patches of land, harvested and processed in the engenhos, which were the houses where sugarcane was milled and the sugar refined. Over time, the term engenho was applied to the whole sugarcane farm. The dependencies of the farm included a casa-grande (big house) where the owner of the farm lived with his family, and the senzala, where the slaves were kept. This arrangement was depicted in engravings and paintings by Frans Post as a feature of an apparently harmonious society.

Initially, the Portuguese relied on aborigine slaves to work on sugarcane harvesting and processing, but they soon began importing black African slaves. Portugal owned several commercial facilities in Western Africa, where slaves were bought from African merchants. These slaves were then sent by ship to Brazil, chained and in crowded conditions. The idea of using African slaves in colonial farms based on monoculture was also adopted by other European colonial powers when colonising tropical regions of America (Spain in Cuba, France in Haiti, the Netherlands in the Dutch Antilles and England in Jamaica).

The Portuguese severely restricted colonial trade, meaning that Brazil was only allowed to export and import goods from Portugal and other Portuguese colonies. Brazil exported sugar, tobacco, cotton and native products and imported from Portugal wine, olive oil, textiles and luxury goods – the latter imported by Portugal from other European countries. Africa played an essential role as the supplier of slaves, and Brazilian slave traders in Africa frequently exchanged cachaça, a distilled spirit derived from sugarcane, and shells, for slaves. This comprised what is now known as the Triangular trade between Europe, Africa and the Americas during the colonial period.

Even though Brazilian sugar was reputed as being of high quality, the industry faced a crisis during the 17th and 18th centuries when the Dutch and the French started producing sugar in the Antilles, located much closer to Europe, causing sugar prices to fall.