News

Could the U.S and China Trade Tensions Benefit the Brazilian Soy Industry?

The escalating trade tensions between the U.S. and China could provide a boost to Brazilian exports of soy in 2018. Effective July 6, China will impose a 25% tariff on 545 products from the United States including soybeans, electric cars, orange juice, whiskey, salmon and cigars, and other agricultural products. This is in response to the Trump administration’s announcement on June 18th that it has drafted a new list of $200 billion in Chinese goods for further tariffs. The announcement came just three days after the U.S. administration revealed plans to impose a 25% tariff on $50 billion worth of Chinese goods which would go into effect in July. The list of targeted goods included technology products, especially those that are part of Beijing’s Made in China 2025 initiative.

China is the world’s largest importer of soybeans, which are used primarily in the production of tofu, oil, and animal feed. According to the United States Department of Agriculture (USDA), soybean is the most valuable agricultural export for the U.S, accounting for nearly 9 % of all exports by value. From 2001 to 2016, soybean exports from the U.S. to China soared from $1 billion to $14 billion, making China the largest market for American soybeans. In limiting U.S. soybean imports, the Chinese government is effectively posing a risk to U.S soybean prices, and is likely to affect tens of thousands of American soybean farmers.

China has lately been turning to Brazil for the majority of its soybean imports. In 2017, China received 50.93 million tonnes from Brazil, accounting for 53.3 % of total purchases. Comparatively, U.S. sales only came in about 32.9 million tonnes, or 34.4 % of China’s imports, the exporter’s lowest share since at least 2006. In 2018, Brazil is set to overtake the U.S. as the largest producer of soybean, for the first time in history.

Brazil’s poor infrastructure has long hindered the growth of soybean exports. Exporting Brazilian soybeans to Asia is a challenge because the majority of soybean production is located in the landlocked state of Mato Grosso. Therefore, the transportation of soy has required traveling through a grueling 2,080-kilometers route by ground from the country’s interior to its southern ports. Historically, Brazilian transportation costs have exceeded that of U.S counterparts by approximately 30% because the majority of soy is transported by truck, posing strong logistic challenges. Meanwhile, Brazil’s top competitors in soy, the U.S. and Argentina, rely on rail and ship instead. Back in May, Brazilian production of agriculture was nearly halted due to a country-wide truckers’ strike, which produced an estimated loss of at least R$34 billion to the country’s economy.

However, the construction of port terminals in the Northern Amazon region over the past five years is helping to make the ground transportation of soy easier. Currently, 70% of Mato Grosso’s grain exports transit through southern ports. With the new northern port terminals, Brazilian soybean producers can opt for a shorter and cheaper route to China instead. In 2017, the amount of Brazilian soybean exports through northern ports rose by 80%. Additionally, the construction of a railway connecting soybean-producing areas in Mato Grosso with the Tajapos River in the Amazon is preparing for an auction later in 2018. This investment has already attracted interest from foreign investors—Chinese firms, and multinationals Cargill and Bunge have indicated interest in the railway. The transAmazon railway project also known as, Ferrogrão, would allow ships transporting soybeans and other crops from leave from the Tajapos River, with easier access to the Atlantic Ocean and, subsequently, the Panama Canal. This project is estimated to cost R$10 billion, and would take five years to build. The Brazilian government is set to begin construction by the middle of 2020, if the bidding process on the project goes smoothly this year.

According Stratfor, the “increased use of northern ports in the Amazon and the Panama Canal would save Brazilian soybean exporters roughly five days in transportation time to China, while also avoiding road congestion on the routes to southern ports”. Additionally, improvements to infrastructure could allow grain producers to reduce production costs through access to cheaper inputs.

Despite these investments in infrastructure, it is unlikely that Brazil has the capacity to meet the volume of Chinese soybean demand. China imports nearly 97 million tons of soy and imports nearly 60 % of the soybeans traded worldwide. AgroConsult, a Brazilian consultancy firm, expects that soybean exports from Brazil will rise to a record high of 72 million tons this year, up from 68 million tonnes last season. This volume still leaves Brazil unable to replace U.S. production to satisfy rising Chinese demands, but poses a positive outlook for the Brazilian soy industry.

Although the Brazilian soy industry is likely to profit from the economic tensions between the United States and China, Brazil’s agriculture minister Blairo Maggi believes there is concern for Brazil in the long term. He states that higher demand for soybeans could push local prices so much that it will hinder Brazil’s competitiveness. In an interview with Reuters, Maggi stated,“ I am very concerned. In the short term Brazil is gaining a lot, it’s true. But, in the medium term and in the long term it can be a problem because nearly everything we export, be it poultry or pork, relies on soy for food.” Maggi continued, “At some point China and the United States will find an agreement, but we will potentially have lost some markets.”

Social Media Auto Publish Powered By : XYZScripts.com
Scroll Up