Posted on October, 24, 2018 at 10:42 am
By Arvin Donley
For thousands of years, China and soybeans have been inextricably linked. Soybeans originated in Southeast Asia and were first domesticated by Chinese farmers around 1100 B.C. Today, soybeans are grown and consumed all over the world, but no country has an appetite for the versatile oilseed like China.
Soybean consumption and imports in China have nearly doubled over the last 10 years, soaring from 59 million tonnes to 113 million tonnes and 50 million tonnes to 95 million tonnes, respectively, according to the U.S. Department of Agriculture. Of the world’s total soybean exports projected for the 2018-19 crop year, 62% will be shipped to China.
Unable to achieve anything close to self-sufficiency, China has depended heavily on soybean imports to quench the increasing desire for protein-based food among its population that totals nearly 1.4 billion.
As trade tensions continue to escalate with the United States, which has been a leading supplier of soybeans to the Asian country for many years, China now is seeking imports from other countries — most prominently, Brazil — to fulfill its needs. Not only is China increasing its soybean purchases from Brazil, which in the last five years has overtaken the United States as the world’s leading soybean producer, it also is investing billions of dollars to improve Brazilian infrastructure, which has hampered its ability to efficiently deliver the millions of tonnes of soybeans it harvests each year.
China’s increased investment in Brazil began around 2010 as part of a state-led directive to increase its food and energy security through overseas acquisitions.
Its investment in Brazil reached a seven-year high of $24.7 billion in 2017, according to the Brazilian planning ministry, and earlier this year Beijing-based China Communications Construction Co. (CCCC) broke ground on a port in the northeastern state of Maranhao that will ship millions of tonnes of agricultural exports per year. That $520 million investment is being financed by the Industrial & Commercial Bank of China. The CCCC is also said to be considering the purchase of an infrastructure investment fund that plans to build a large port in the southern state of Santa Catarina, mainly for soybean and beef exports.
But despite this influx of investment from China, Brazil’s grain transportation infrastructure, particularly inland, remains mired with significant structural bottlenecks and an overdependence on truck hauling versus rail or waterway. During an 11-day truck driver strike in May, movement of the country’s grain supply came to a virtual standstill, and the effects of the strike were still being felt several months later. As impressive as China’s financial investment in Brazil’s infrastructure has been, it will take a far greater commitment to upgrade the agricultural transportation network to a satisfactory level.
As for now, it seems like a match made in heaven — China needs Brazil’s soybeans and other commodities and Brazil, just starting to emerge from its worst economic period in history in which GDP contracted by more than 7% in a two-year period, needs Chinese investment to spark its struggling economy.
In addition to gaining more access to soybeans and other natural resources, China will be flexing its economic power in a country that traditionally has been under U.S. commercial influence. But that influence has been waning in recent years, as has the relationship between the U.S. and China, which remain locked in a months-long trade war that has limited the amount of U.S. soybeans being sold to China. If the trade war between the two superpowers rages on — perhaps even if it doesn’t — China will be looking increasingly to South America, and Brazil in particular, to satisfy its immense demand for soybeans as well as other agricultural products.
While it appears to be a sound strategy, only time will tell if China will receive an adequate return on investment.
Source: WORLD-GRAIN.COM