Why China is hun­gry for Brazil­ian soy

Financial Nigeria Magazine - - Contents -

High­lights

·Brazil's poor in­fras­truc­ture has long hurt the com­pet­i­tive­ness of its soy­bean ex­ports, but the coun­try's pro­duc­ers will ben­e­fit greatly as new rail and port projects come on­line in the Ama­zon re­gion. ·Prob­lems for its main soy­bean ex­port ri­vals, the United States and Ar­gentina, will strengthen Brazil's trade re­la­tions with China this year.

·Brazil's soy­bean ex­ports to China will in­crease fur­ther because the South Amer­i­can coun­try has an abun­dance of land suit­able for pro­duc­ing soy­beans with higher pro­tein lev­els.

It's a long way from the south­ern reaches of the Brazil­ian Ama­zon to China, but it's a path that many more are set to tread. In the early 2000s, China didn't even fig­ure among Brazil's top five ex­port mar­kets, but in ev­ery year since 2009, Bei­jing has been Brasilia's main trade part­ner. To­day, China is a ma­jor mar­ket for Brazil's soy­bean ex­ports, which ac­count for over 40 per­cent of its to­tal ex­ports to the Asian coun­try. And because of Bei­jing's trade spat with the United States and am­bi­tious in­fras­truc­ture in­vest­ments in Brazil, Brazil­ian soy­bean ex­ports to China are poised to keep grow­ing.

Big Pic­ture

Strat­for has been closely fol­low­ing the United States' trade spat with China, which will open op­por­tu­ni­ties for agri­cul­tural ex­porters such as Brazil to in­crease their share in the Chi­nese mar­ket. The coun­try is likely to take max­i­mum ad­van­tage of U.S. soy­bean pro­duc­ers' losses to ex­port more of the crop to China.

A New Route to the Ori­ent

China's de­mand for Brazil­ian soy­beans has in­creased by al­most 300 per­cent in the last eight years, ac­cord­ing to of­fi­cial Chi­nese fig­ures. Just last year, Brazil sup­plied over 53 per­cent of China's to­tal soy­bean im­ports (ex­clud­ing pro­cessed soy­bean meal or oil). The crop has been crit­i­cal in pad­ding Brazil's cof­fers; the coun­try posted a $20 bil­lion trade sur­plus with China last year, due in part to a 40 per­cent rise in soy­bean ex­ports.

Even so, Brazil's poor in­fras­truc­ture has se­verely hin­dered ex­port growth for the crop. The tra­di­tional route to ex­port soy­beans to Asia has been rough and ex­pen­sive, since more than half of Brazil's soy­bean pro­duc­tion is lo­cated in the land­locked state of Mato Grosso. For the past five decades, trucks and trains have plied the same gru­el­ing, 2,080-kilo­me­ter (1,300-mile) route over­land from the coun­try's in­te­rior to its south­ern ports, where ships pick up the cargo and con­tinue the jour­ney. Brazil­ian pro­duc­ers must con­tend with trans­port costs that ex­ceed those of their U.S. coun­ter­parts by close to 30 per­cent, though Brazil­ian soy­beans cost roughly $1 less per met­ric ton in China than prod­uct from the United States. The dif­fer­ence lies in the fact that over 60 per­cent of Brazil's soy­beans travel by truck, while the coun­try's top com­peti­tors in soy – the United States and Ar­gentina – rely mainly on rail and ship to trans­port their beans.

The con­struc­tion of port ter­mi­nals in Brazil's Ama­zon over the last five years will help the situation. To­day, roughly 70 per­cent of Mato Grosso's grain ex­ports tran­sit through south­ern ports. But thanks to the new ter­mi­nals, Brazil's soy­bean pro­duc­ers can avail them­selves of a shorter and cheaper route to China. Last year alone, the amount of Brazil­ian soy­bean ex­ports through the north­ern ports rose by 80 per­cent. Brazil's gov­ern­ment also is plan­ning to in­vite bids for a $4 bil­lion, 1,120-kilo­me­ter rail­way to con­nect soy­bean-pro­duc­ing ar­eas in Mato Grosso with the Ta­japos River in the Ama­zon in prepa­ra­tion for an auc­tion later this year. The ten­der al­ready has at­tracted in­ter­est from for­eign com­pa­nies – in­clud­ing Chi­nese firms, ac­cord­ing to the Shang­hai Pengxin Group Co. chair­man, who took a trip to Brazil last Oc­to­ber. Other multi­na­tional grain com­pa­nies, such as Cargill and Bunge, also have in­di­cated their de­sire to help build the rail­way.

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