cuadernos de trabao del cechimex. a study of the impact of
TRANSCRIPT
Universidad Nacional Autónoma de México
Facultad de Economía
Centro de Estudios China-México
Número 2, 2010
A Study of the Impact of China’s Global Expansion
on Argentina:Soybean Value Chain Analysis
Andrés López, Daniela Ramos and Gabriela Starobinsky
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Universidad Nacional Autónoma de México
Dr. José Narro Robles Rector Dr. Sergio M. Alcocer Martínez Secretario GeneralLic. Enrique del Val Blanco Secretario Administrativo Mtro. Javier de la Fuente Hernández Secretario de Desarrollo Institucional M.C. Ramiro Jesús Sandoval Secretaria de Servicios a la Comunidad Lic. Luis Raúl González Pérez Abogado General
Facultad de Economía
Dr. Leonardo Lomelí Vanegas DirectorMtro. Eduardo Vega López Secretario GeneralLic. Javier Urbieta Zavala Secretario AdministrativoDr. Ignacio Perrotini Hernández Jefe de la División de Estudios de PosgradoMtro. Alberto Velázquez García Jefe de la División de Estudios ProfesionalesIng. Alejandro Pérez Pascual Jefe de la División del Sistema Universidad Abierta
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Cuadernos de Trabajo del Cechimex
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A Study of the Impact of China’s Global Expansion on Argentina:Soybean Value Chain Analysis1
Andrés López, Daniela Ramos and Gabriela Starobinsky2
Resumen
Esté estudio analiza el impacto de la expansión global de China sobre uno de los sectores econó-micos más dinámicos en Argentina: el complejo de la soya. El cual está integrado por la produc-ción del grano y la industria de aceite de soya, incluyendo la producción de aceites y de alimentos para consumo animal. Actualmente, China es el comprador más importante en el mundo de este grano y de su aceite, además de ser el socio comercial más importante de Argentina en ambos pro-ductos. La participación cada vez mayor de China en este sector ha planteado algunas preguntas sobre los pros y contras de la creciente dependencia de la demanda china así como los posibles efectos de esta relación en el futuro. Finalmente, se analiza las tendencias recientes dentro de la industria de esta oleaginosa en Argentina y China, las relaciones comerciales entre ambos países en este sector y las perspectivas para Argentina.
Palabras clave: complejo de la soya, oleaginosas, comercio chino-argentino
摘 要本文分析了中国在全球扩张对阿根廷的主要经济部门——大豆产业的影响。该产业主要由大豆生产和豆油工业（包括豆油生产和主要作为动物饲料的大豆食品）组成。目前，中国为世界上最大的大豆和豆油的买家，而阿根廷是这两类产品最重要的供给者。由于中国对大豆产业的影响日益增加，在阿根廷国内引发了该国对中国需求依赖增加的利弊以及未来可能的影响等问题的争议。本文还分析了阿中两国植物油产业的近期状况、贸易关系以及阿根廷的未来前景等。关键词：大豆 中国 阿根廷 贸易
Abstract
This study analyses the impact of China’s global expansion on one of Argentina’s main economic sectors: the soybean complex, made up of soybean grain production and the soybean oil indus-try, including the production of soybean oils and meals, primarily for animal feed. At present, China is the world’s top buyer of soybean grain and soybean oil, and Argentina’s most important commercial partner in both products. The growing significance of China in this sector has raised some questions about the pros and cons of the increasing dependence on Chinese demand and the possible effects of this relationship in the future. This study analyses the recent trends within the oilseed industry in Argentina and China, trade relations between both countries in this sector and the perspectives for Argentina.
Keywords: Soybean complex, oleaginous, argentinean -chinese trade
1 This paper was prepared as part of a research project on “The Impacts of China’s Global Expansion on Latin America” coordinated by Professor Rhys Jenkins of the University of East Anglia which was funded by the World Economy and Finance research programme of the UK Economic and Social Research Council (Grant No. RES-165-25-005).
2 Andrés López holds a Ph.D. in Economics from the University of Buenos Aires and is Director of the Centro de Investigaciones para la Transformación (CENIT). He is Full Professor of Development Economics at the University of Buenos Aires (UBA).
Daniela Ramos has a Masters in Economics from the Instituto Torcuato Di Tella (UTDT). Degree in Economics from the Universidad de Buenos Aires (UBA). CENIT re-searcher. Professor at the UBA.
Gabriela Starobinsky has a degree in Economics from the Universidad de Buenos Aires (UBA). CENIT Assistant Researcher
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Contents
Introduction .................................................................................................................................... 5
1. The Soybean Complex: Recent Trends in Argentina and China ......................................... 6 1.1 Argentina ............................................................................................................................ 6 1.2 China ............................................................................................................................... 17
2. Prices and Transportation Costs ........................................................................................... 20 2.1. Evolution of Prices in the Soybean Complex ............................................................... 20 2.2 Transportation Costs ...................................................................................................... 22
3. Bilateral Argentina-China Trade in the Soybean Complex, 1995-2006 ............................ 23
4. Conclusions ............................................................................................................................. 27
Bibliography ................................................................................................................................. 28
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Introduction
This study analyses the impact of China’s global expansion on one of the main economic sectors in Argentina, the soybean complex, made up of soybean grain production and the soybean oil industry, including the production of soybean oils and meals, mainly for animal feed.
Recent global trends show that world production of oilseeds is growing, world consumption is increasing faster than supply, the oil and meal markets are in an expansionary phase, the development of bio-fuels is changing the composition of harvested areas across the world and prices are showing a sustained upward trend (2006).
Within this context, over the last ten years Argentina’s exports of soybean and its derivatives to China performed remark-ably well: in only ten years, they grew from US$ 57.4 million in 1995 to US$ 2435.6 million in 2005. At the same time, the composition of bilateral trade within the soybean complex has changed as a result of the development of the Chinese crushing industry and the transformation of the Argentinean agricultural sector over the last ten years.
At present, China is the top buyer of soybean grain and soybean oil in the world and Argentina’s most important commercial partner in both products; the exception, as seen below, is of soybean meal exports (oilcakes and soybean pellets). The growing significance of China in this sector has raised some questions about the pros and cons of the increasing dependence on Chinese demand and the possible effects of this relationship in the future.
Based on these issues, section 1 of this study is dedicated to the analysis the recent trends within the oilseed industry in both Argentina and China, particularly those related to the soybean complex. In section 2 we analyze trade relations between China and Argentina during the period 1995-2006 and explore some possible explanations of the dynamics of the trade. The third section provides our conclusions. This research is based on available data on trade and on numerous interviews carried out during the study.3
3 The authors are extremely grateful for information provided by the Argentine Oil Industry Chamber (CIARA), Institution for Agricultural International Negotiations (INAI), Argentine Agricultural, Livestock and Fishing State Department (SAGyPA), General Deheza Oil Company (AGD), Asia & Argentina and Argentine Centre for International Studies (CAEI).
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1. The Soybean Complex: Recent Trends in Argentina and China
In order to understand the commercial relationship between China and Argentina and the effects of China’s global expansion on Argentina’s soybean complex we must briefly explain the main changes that have taken place in the production, import and export of oilseed products in both countries.
1.1 Argentina
Soybean production and its by-products form one of the most important economic activities in Argentina. It includes the pro-duction of soybean and the manufacture of oilcakes and other meals for animal feed and soybean oil.
Before undertaking a quantitative analysis of Argentina’s soybean complex, it is useful to provide a qualitative description of the soybean industrial process and of its marketing structure.
Below we show a diagram of the production process in the soybean chain.
Figure 1: The soybean chain: Production process.
Soybean grain
Cleaning
Crushing
Peeling
Conditioning
Rolling
Extraction with solvent
Distillation of mixture
Refining
Toasting
Extraction of flour
Refining
Neutralization
Bleaching
Drying
Deodorization
Cooling Soybean refined
oil
Pelletization
Soybean pellets
Soybean crude oil
Source: Argentine Agricultural, Cattle and Fishing State Department (SAGyPA)
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Two main changes have taken place in the soybean complex in the last decades. First, there was a process of concentration. The number of companies that appear at least once among the top seven exporting firms in each of the rankings for soybeans, pellets and oils fell from 15 in 1989 to 11 in 1999 (Casanova, 2001). As the rankings were made taking into account firms’ market shares in soybean complex exports, this fall reflects the fact that the main exporting firms had much larger market shares in the 1990’s than a decade earlier.
The second change was a process of vertical integration. To understand how this process took place, the following figure shows the soybean marketing structure that existed until the 1980’s.
Figure 2: Soybean marketing structure up to the 1980’s
We can distinguish two types of vertical integration: downstream integration and upstream integration. Downstream integra-tion occurs when an exporting firm buys its own port. This purchase allows the exporter to have much more independence in the soybean trade process. A process of this kind took place during the 1990’s in Argentina. The soybean marketing structure looks like this:
Figure 3: Downstream integration in soybean marketing
Upstream integration occurs when an exporting firm develops its own capacity to store grains and by-products. In this way, the firm starts carrying out activities that were previously in the hands of first stage actors (such as middlemen and coopera-tives). By not depending on these actors, exporting firms increase their power to negotiate grain purchases as they get much closer to the soybean producers.
Between 1989 and 1999, the average storage capacity of firms increased by 190% from 139.420 metric tons to 390.454 metric tons. The increase in storage capacity was related to the increased scale of production. As almost all the firms raised the scale of production of their oil plants during the 1990’s, larger storage capacities were needed to avoid higher costs in case of a shortage of grains in the primary market. The following figure shows the results of the process of upstream integration.
First stage broker
Industryand/orexporter
Second stagebroker
FinaldemandProducer
Middlemen
Cooperatives
First stage
Finaldemand
Second stage
Cooperatives
Middlemen
Producer Exporter Port
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o. 2Figure 4: Upstream integration in soybean marketing
To sum up, the main firms in the 1990’s were more vertically integrated and had larger production and storage capacities than the firms that existed in the 1980’s. Table 1 summarizes the main changes that occurred in the 1990’s.
Table 1: Firms in the 1980’s and 1990’s1989 1999
Main exporting firms in the soybean complex 15 11Crushing capacity per plant (metric tons/per day) 1,701 4,684Storage capacity per plant (metric tons) 139,420 390,454Number of ports 8 8Source: Bolsa de Comercio de Rosario (www.bcr.com.ar)
Turning to a quantitative analysis of the Argentinean soybean complex, we observe that soybean production is almost entirely exported, with little domestic soybean grain or soybean oil consumption.
During the period under analysis (1995-2006), the Argentinean soybean complex showed spectacular growth. The planted area increased from 6 million hectares to more than 15.4 million hectares between the 1994/95 and 2005/06 seasons.4
Simultaneously, according to Argentine Oil Industry Chamber (CIARA),5 production yields increased sharply from around 2 tons in the 1995/96 season to 2.6 tons in 2005/06 (see Table 2).
Table 2: Argentina’s soybean complex: Main indicators (000 tons or 000 ha)
Year Planted areaYield per cultivated
hectare
Soybean production Crush Soybean oil
production
1995 6,011 2.0 12,133 9,103 1,6001996 6,002 2.1 12,448 10,360 1,8381997 6,670 1.7 11,005 10,470 1,8691998 7,176 2.6 18,732 15,307 2,6961999 8,400 2.4 20,000 17,058 3,0932000 8,791 2.3 20,207 16,952 3,0972001 10,665 2.5 26,883 18,274 3,3882002 11,639 2.6 30,000 21,394 3,9732003 12,607 2.8 34,819 24,295 4,5552004 14,527 2.2 31,577 24,230 4,5702005 14,400 2.7 38,300 18,827 3,5362006 15,365 2.6 40,467 32,732 6,161
Source: Author, based on information from the Argentine Oil Industry Chamber (CIARA)
4 The expansion of harvested area in Argentina started during the 1998/99 season, when it grew by 17.4%. According to the US Department of Agriculture, the harvested area in 2006/2007 was 15.9 million ha.
5 Argentine Oil Industry Chamber.
Producer FinalDemand
Broker
Storage anand/orConditioning
Industry
Exporter
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As a result, the volume of soybean production in Argentina reached over 40 million tons in the 2005/2006 season (and 46 mil-lion tons in 2006/07); almost four times the production reached a decade earlier. In fact, the real jump in soybean production occurred in the 1997/98 season, when production rose from 11 million tons in 1997 to 18.7 million tons in 1998, basically due to a marked increase in yields (see Table 1). In effect, during the first part of the 1990’s (between 1990 and 1997), soybean production grew at an average annual rate of 0.39%, but from 1997 to 2006, this rate increased to 13.9%.
The main factors behind the soybean boom have been the increasing use of zero tillage6 or no-till practices and the introduction of genetically modified soybeans in 1996 (Roundup Ready (RR) soy). The use of the zero tillage planting system rose from approxi-mately 300,000 hectares in the 1990/1991 season to over 9 million hectares in the 2000/2001 season. This technology constituted an important factor in the expansion of production as it increased the area cultivated with late soybean, which is planted after the wheat harvest. During the 1999/2000 season, for example, this generated a further 3 million hectares of arable land.
On the other hand, the use of the RR soy, which is resistant to glyphosate herbicide, facilitates no-till farming and contributes to the reduction in production costs. At present, more than 90% of the planted area corresponds to this category (Franco, 2005). Factors that encouraged the rapid diffusion or RR soy include:
The manner in which the RR gene was first transferred to Argentina. Following a series of business deals in the United • States and Argentina, when Monsanto –the company that bred the RR soybean- tried to patent the gene in Argentina, it was unable to do so because it had already been “released”. Therefore Monsanto could not meet the conditions that entitled it to charge a technology fee or restrict the use of the seed by farmers, as had been done in the United Status.
According to Argentine legislation, and under the International Union for the Protection of New Varieties of Plants • (UPOV) Convention of 1978, farmers may legitimately keep seeds for their own use.7 There are, however, clandestine operations (the so-called “white bag”) through which seed multipliers offer seeds without the authorization of the companies holding the legal production rights. Both factors have driven down the price of the RR soybean, thus pro-moting the rapid adoption of this technology.
The price of glyphosate declined considerably during the 1990’s due to fierce competition in the local market following • the introduction of new firms which manufacture and market the herbicide.
The major effect of these technological changes was to increase yields, as mentioned earlier. This process was reinforced by an increase in international prices due first to the stagnation of global soybean production and then to the spectacular rise in Asian demand for soybean products. The increase in soybean prices and the introduction of the GM oilseed also made it possible to ob-tain better yields on “new lands” (marginal lands). In fact, although soybean replaced other traditional grains (such as sunflower,
6 “Zero tillage” is a sowing method that eliminates the need to till the land before the seeds are planted. This has great advantages since it increases the fertility of the humus as it avoids exposing minerals to the atmosphere and also reduces the sowing process to a single stage, lowering the overall costs.
7 Note must be taken of the fact that the soybean seed is an autogamous species, which means that genetic quality can be maintained through seed retained by farmers.
Figure 5Planted area by type of crop (in tons)
1989
-90
1990
-91
1991
-92
1992
-93
1993
-94
1994
-95
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
Source: SAGPyA
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maize and sorghum, see Figure 5), the greatest growth in soybean planted area took place in the mentioned “new lands”. Thanks to this process, the share of soybean in the total harvested area rose from 25% in the 1990’s to 50% at present (CIARA).8
Approximately 20% of soybean grains are exported to be crushed overseas and the rest is crushed in Argentina to produce pel-lets, oilcakes and soybean oil (CIARA) (see Table 2). Generally, farmers are not integrated with the rest of the industry. They usually sell grain to grain storers, to the industry through cooperatives, or to the export market. Grain is transported mainly by freight truck, and to a lesser extent by train or river (Corradi, et al., 2005).
At present, Argentina has one of the largest oil industries in the world, which is made up of 20 firms with 50 active plants,9 most of them located in the provinces of Santa Fe (near the Parana River), Buenos Aires and Cordoba (see Table 3). A number of these plants process both soybean and sunflower oils (the share of the former has grown strongly in recent years).10
Table 3: Crushing capacity by province* (tons per day) 2006Ton/day Share in total (%)
Santa Fe 121,513 81.4Buenos Aires 15,205 10.2Cordoba 10,720 7.2Remainder 1,880 1.3Total 149,318 100
Source: Author, based on Anuario J. J. Hinrichsen S.A. 2007*Companies dealing in all kinds of oilseed grains (soybean, sunflower, etc.).
The following map shows the main areas where soybean is sown in Argentina:
Figure 6
Source: López (2006)
The local industry is highly concentrated. The seven largest firms control almost 75% of total installed crushing capacity and the first ten firms account for almost 100% of exports (see Table 4 and Figure 7). In recent years, the Argentinean oil indus-try has undergone a process of change that has improved its efficiency. Improvements include a large increase in crushing
8 In Argentina soybean was traditionally sowed after the wheat harvest, in the same fields (second seed), as a complement to the main activity. But in recent years, the situation reversed and soybean became the “first place” use of land. López (2005) states that in the mid-1980’s second seed soybean represented 80% of the total area planted with the crop, whereas in 2005, 85% of the total area of soybean was “first seed”.
9 In 1997 and 2003 there were 55 and 45 active plants, respectively. Rodríguez (2004).10 Soybean oil accounts for around 80% of processed oil.
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capacity,11 the introduction of new technologies,12 an increase in plant productivity, the increased participation of foreign companies in the sector, and the improvement in logistics and port infrastructure.
According to (Franco 2005), investment in the oil industry was over US$ 1,300 M during the period 1993-1999 and it is pre-sumed that investments were even higher in the present decade, taking into account the recent increase in installed capacity. In fact, some companies recently announced new investment projects to further expand the industry’s crushing capacity. The construction of two new plants belonging to Cargill and Dreyfus (which will increase capacity by 8,800 tons per day) and the Bunge & Born project (with 5,000 additional tons per day) stand out among these (Granar 2007).
Table 4: Argentinean oil industry indicators. Selected years
1995 2000 2006Number of firms 22 27 20Number of active plants 50Total installed capacity in 24 hours (metric tons) 58,902 94,258 149,318Average installed capacity per plant - - 2,986Maximum installed capacity per plant - 19,000*Average exports per firm (tons) 66,931 116,385 303,917Concentration within soybean complex:Share in total exports, by firms (%)Top 2 firms 29.2 34.1 38.5Top 5 firms 53.0 66.6 80.0Top 10 firms 87.8 90.9 98.5
Source: Author, based on CIARA*Corresponds to Terminal IV Industrial SA
Figure 7Share of Argentine soybean oil exports by firm (tons)
2006
Source: Author, based on information from CIARA
11 In 2006, the installed capacity of the Argentinean oil industry was almost 150,000 tons per day, compared to 94,258 tons at the start of the present decade and 53.806 tons in 1992 (see Figure 5).
12 The main technological change was the introduction of extraction with solvents. Half the plants installed in Argentina utilize this technology and 76% of crushing is carried out using this process (Corradi, et al., 2005).
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Figure 8Total installed crushing capacity in the oil industry (tons/day)
1995-2006
Source: Author, based on information from CIARA
Estimates for employment figures in the soybean complex range between 214,000 and 304,000 workers (see Table 5). Approximately 100,000 of these are actual farmers or their immediate dependants. The employment estimate given by Bisang and Sztulwark (2005) for the soybean complex is very close to the level estimated by Llach (2004) for the oil and by-products industry.13
Table 5: Employment in the soybean complex. 2003/04
Sector Minimum estimate Maximum estimateSeed production 1,250 1,250Fertilizers and biocides 1,878 10,500Agricultural machinery 19,350 23,000Farmers 91,500 108,500Subcontractors 37,700 56,500Storage 36,670 55,000Transportation 19,000 38,000Milling 7,000 11,000Total 214,348 303,750Source: Bisang and Sztulwark (2005)
In Table 6 we can see the level of employment in other agro-industries in 2003. The oil and by-products complex ranks fourth in terms of total generated employment.
13 This includes all types of oilseeds, not only soybean.
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Table 6: Employment in agroindustrial complexes. 2003
Sector Estimated no. of people in employment
Fruit and vegetables 679,665Meat 543,176Textiles 378,436Oils and oil by-products 287,725Export of grains 271,010Leather and leather products 235,658Dairy products 230,124Wood and furniture 187,751Wine 132,155Crushing, bakery and pastry 122,685Tobacco 84,919Sugar and coffee products 69,856Non-alcoholic drinks 57,445Fish 33,795Alcoholic drinks (excl. wine) 31,792Paper and cardboard 22,682Prepared animal feed 15,449Total 3,384,323Source: Llach (2004)
Today, the Argentinean oil industry is considered the most efficient in the world. Contributory factors include:
The scale of its plants: the average capacity is more than 2,900 tons/day but a quarter of the plants process more than • 6,000 tons/day and 90% of oil is processed in plants with an average capacity of 7,500 tons/day (see Table 7).
Proximity to the ports: on average production is located 300 km from the ports.• 14
The efficiency of private ports (BCR 2004): the average port cost in Argentina is US$2-3 per ton compared with US$5 • in Brazil and US$2 in USA (López, 2006).
Argentina has lower seed costs compared to Brazil or USA, less need of fertilizers and fewer sanitary problems • (López, 2006).
Notwithstanding this favorable scenario, there are some issues that need to be resolved in the medium term which could otherwise present a bottleneck for the future development of the local crushing industry; among others are the electric power restrictions that have affected Argentinean industry since 2006.
Table 7: Oil industry in Argentina: Installed capacity and location of plants. 2006
Firms
No. of plants
Total capacity Average capacity
Largest plant
tons/day
Location tons/day %
Terminal 6 Industrial SA 1 19,000 13 19,000 19,000 Santa FeMolinos Río de la Plata S.A. 2 22,200 15 11,100 18,000 Santa FeLDC Argentina S.A. 2 20,000 13 10,000 12,000 Santa FeCargill SACI 4 19,600 13 4,900 9,000 Santa FeBunge Argentina S.A. 3 13,900 9 4,633 8,000 Santa FeVicentín S.A.I.C. 2 11,850 8 5,925 6,500 Santa FeAceitera Gral. Deheza SAICA 2 6,500 4 3,250 6,000 CordobaBuyatti S.A.I.C.A. 2 4,806 3 2,403 3,350 Santa FeNidera Sociedad Anónima 2 4,200 3 2,100 2,200 Buenos AiresOleaginosa Moreno Hnos. SA 3 5,150 3 1,717 2,000 Buenos AiresOthers 27 22,112 15 819 Total 50 149,318 100 2986.4 Source: Author, based on CIARA
14 In Brazil, production is, on average, 800-1,000 km from the export ports (BCR, 2004), due to the fact that production plants are not located near the ports but in promoted regions (Corradi, et al., 2005).
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In order to put the magnitude and characteristics of the Argentinean oil industry into comparative perspective, Tables 8 and 9 show the same data for Brazil and USA, the two other big oil producers in the world. As can be seen, the average size of the Argentinean oil industry firms is larger than those in Brazil and USA and it has the biggest crushing plants in the world oil industry.
Table 8: Soybean oil industry in Brazil: Installed capacity. 2005
Firms Number of plants Total capacity Average
capacity Largest plant Location
tons/day % tons/day ADM 6 12,650 9 2,108 6,500 Mato GrosoBunge 15 30,100 21 2,007 4,000 BahiaComigo 1 3,500 2 3,500 3,500 GoiasCargill 7 15,700 11 2,243 3,300 M. GeraisCoimbra 6 11,050 8 1,842 3,000 Mato GrosoCaramuru Al. 3 6,900 5 2,300 3,000 GoiasBianchini 2 4,000 3 2,000 2,500 R.G.S.Cocamar 2 3,100 2 1,550 2,500 ParanaImcopa 4 6,400 4 1,600 2,200 ParanaGranol 3 5,000 3 1,667 2,200 GoiasCoamo 4 6,080 4 1,520 2,000 ParanaMaggi-Hermasa 2 3,800 3 1,900 2,000 AmazonasGranoleo 3 4,300 3 1,433 1,800 R.G.S.Sperafico 3 3,300 2 1,100 1,500 Mato GrosoOthers 55 27,325 19 497 Total 116 143,205 100 1,235 Source: Anuario de J.J. Hinrichsen S.A. 2005
Table 9: Soybean oil industry in USA: Installed capacity. 2005
Firms Number of plants Total capacity Average
capacity Largest plant Location
tons/day % tons/day ADM 19 47,000 30 2,474 6,804 IllinoisBunge 8 24,221 15 3,028 4,354 IowaCargill 14 34,835 22 2,488 3,810 IowaCentral Soya 6 13,199 8 2,200 3,402 IllinoisAg Proc 9 18,370 12 2,041 3,266 IowaOthers 14 21,375 13 1,527 Total 70 159,000 100 2,271 Source: Bolsa de Comercio de Rosario (www.bcr.com.ar)
As a result of the transformations within Argentina’s oilseed complex, the country became increasingly significant as both a producer and an exporter. Table 10 shows Argentina’s position in the world soybean map. As can be seen, its share of the world’s harvested area increased from 9.8% in 1995/96 to 16.9% in 2006/07, while it doubled its share of world soybean pro-duction. The same occurred with the processed products of the soybean complex. Argentina’s share in world crush of soybean meals (mainly flour and pellets) rose from 9.1% to 17.5% and its share in soybean oil exports reached 58% in the 2006/07 season. At present, Argentina is the world’s first exporter of soybean meal and oil and the third producer of soybean oil, after USA and Brazil (see also Table 11).
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Table 10: Soybean complex: Share of Argentina in world total. 1995/96 and 2006/07 campaigns (%)
Argentina / World (%) 1995/96 2006/07
Harvested area 9.8 16.9
Soybean Production 10.0 19.8
Soybean Exports 6.6 10.7
Meal of soybean crush 9.1 17.5
Meal of soybean exports 27.1 49.4
Soybean oil production 9.3 17.6
Soybean oil exports 32.4 58.3
Source: Author, based on United States Department of Agriculture (USDA)
Table 11: Soybean indicators by country1995/1996 2006/2007
Soybean production (tons)
Argentina 12,480 46,500Brazil 24,150 59,000China 13,500 16,200India 4,476 7,690United States 59,174 86,770World 124,792 235,409
Harvested area (ha)
Argentina 5,980 15,900Brazil 10,950 20,700China 8,127 9,300India 4,817 8,120United States 24,906 30,190World 61,100 93,947
Yields / area(tons/ha)
Argentina 2,087 2,925Brazil 2,205 2,850China 1,661 1,742India 0,929 0,947United States 2,376 2,874World 2,042 2,506
Exports (tons)
Argentina 2,103 7,500Brazil 3,458 25,000China 222 390United States 23,108 29,393World 31,643 70,069
Imports(tons)
Argentina 92 1,050Brazil 1,050 55China 795 30,000United States 121 109World 32,462 69,073
Source: Author, based on USDA
The configuration of the world oil industry can be seen in Figure 9, where the area of the sphere corresponds to soybean oil production from each country, the values on the Y-axis represent the relative importance of each country’s exports in global exports of soybean oil and the values on the X-axis refer to the relative importance of each country’s total consumption in global soybean oil consumption.
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As mentioned earlier, Argentina’s soybean complex is an export-oriented industry: in the case of soybean oilcakes and pel-lets almost the entire production is exported, mainly to the European Union.15 The same occurs with soybean oil: almost 99% is exported to more than 50 countries, among them China, which accounted for 31% of these exports in 2005. It is worth mentioning that in 2006, in order to fulfill their export contracts, soybean oil companies had to import soybean grains from Paraguay under a “temporary import regime”. Given that the soybean grain exporter and the soybean oil firm are totally inde-pendent actors in the soybean marketing scheme, it is not unusual for oil companies to have plants with unused capacity. This explains the need of these firms to import grains from Paraguay.
Figure 9Production, exports and domestic consumption of soybean oil
Source: Author, based on information from USDA
As can be seen in Table 12, the oilseed complex is Argentina’s top export complex. During the past decade there has been a significant increase in soybean grain exports, from 2.5 million tons in 1995 to more than 8.2 million tons in 2006. In fact, soy-bean grain exports explain around 30% of the growth of exports from the complex between 1995 and 2005. This increase went largely to China, as will be seen in the next section. In turn, the structure of soybean complex exports has changed: soybean grains have gained weight at the expense of soybean oil and meal. In other words, although there has been a very important increase in exports of all the components of this complex in absolute terms, there has been a relative loss of value added within the export basket of the complex (see Table 13).
Table 12: Exports from the main export complexes. Argentina (2001-2006) 2001 2002 2003 2004 2005 2006
Total exports 26,543 25,651 29,939 34,576 40,352 46,500Oilseed complex 5,408 5,885 8,032 8,470 9,343 10,202Share in total exports (%) 20.4 22.9 26.8 24.5 23.2 21.9Soybean complex 4,701 5,026 7,147 7,678 8,317 8,925Share in total exports (%) 17.7 19.6 23.9 22.2 20.6 19.2Share in total exports (%)Petrochemical complex 18.8 19.9 20.2 19.9 19.9Automobile complex 8.9 7.6 5.9 7.3 8.6 Cereal complex 9.8 9.1 8.5 8.5 7.6 Livestock complex 5.2 5.9 5.6 7.2 7.3 Iron and steel complex 3.6 4.3 3.5 3.4 4.2 Fruits and vegetables complex 3.8 3.2 3.3 3.2 3.4 Fishing complex 3.6 2.8 3.0 2.4 2.0 Source: National Institute of Statistics and Census. Argentina (INDEC)
15 In recent years, exports to the European Union have increased due to the need to replace animal proteins by vegetal ones since the outbreak of BSE (“mad cow disease”).
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Table 13: Argentinean oilseed soybean complex exports1995 2000 2005 Contribution
to the increase of exports
2005/1995 (%)
SITC code US$ Share
(%) US$ Share (%) US$ Share
(%)
Oilseed soybean 222.2 536.0 21.4 776.9 20.0 2284.2 27.5 30.1Oilcakes, pellets, etc. 081.31 1022.2 40.9 2170.4 55.8 3796.7 45.6 47.7Soybean oil 421.1 943.0 37.7 944.8 24.3 2236.6 26.9 22.2Meals and oils 78.6 80.1 72.5Total 2501.2 100.0 3892.0 100.0 8317.5 100.0 100Source: Author, based on CIARA
Fiscal Revenues
Exports of soybean, soybean oil and oilcakes have had a strong positive impact on government revenues, especially since 2002 when the government imposed export duties on a wide range of products. A three-level scheme was adopted: the upper duty was levied on natural resource based products (petroleum oil, oilseeds and cereals), the middle level was on food and consumer goods (dairy, meat, fruits, vegetables, etc.) and a lower duty16 on manufactured goods. While these measures were thought to be temporary, they are still in force, although they have undergone some changes recently.
Table 14 shows the impact of soybean complex exports on government revenues, separated by exports to China and exports to the world. Fiscal revenues from duties on exports were almost negligible until 2002 when they rose sharply due to the above mentioned government decision. In 2006, revenues from duties on soybean complex exports to China reached US$ 390.5 M, around a quarter of the total government revenue from soybean exports. M&S Consultores (2007) forecasts that revenues from soybean complex exports to China could be around US$ 600 M in 2007 (and around US$ 2,400 M for world exports).
Table 14: Fiscal revenues from export duties on the soybean complex, ArgentinaChina World
Exports (US$ M)
Export Duties (US$ M)
Exports (US$ M)
Export Duties (US$ M)
1995 57.0 0.7 2,501.0 18.11996 430.0 2.3 3,473.0 19.91997 550.0 0.0 3,227.0 0.01998 416.0 3.0 3,869.0 22.01999 335.0 5.5 3,565.0 17.32000 612.0 18.0 3,892.0 26.32001 833.0 28.0 4,701.0 42.12002 736.0 134.3 5,026.0 672.42003 2,048.0 365.4 7,147.0 1,234.82004 2,001.0 357.8 7,678.0 1,320.82005 2,436.0 446.4 8,317.0 1,440.02006e 2,131.0 390.5 9,450.0 1,616.0
Source: Author, based on data from INDEC, CEP and M&S Consultores. Note: Revenues from duties are calculated as follows: t*X/(1+t), where t is the tax on exports and X is exports.
1.2 China
The global oil industry has undergone important changes in recent years. Many of these changes relate to the emergence of China as a key new actor on the soybean oil scene (see Figure 10 which shows the significant increase in China’s soybean imports).
At the same time, many of the most important multinational companies have been relocating their oil plants for a number of years. Hence very important oil firms have moved some of their plants from the USA to China17 and Latin America (Corradi, et al., 2005).18
16 Average export duties were around 20%, 10% and 5%, respectively.17 At present there is some concern about the increasing share of foreign companies in the Chinese crushing industry. It is estimated that more than 60% of Chinese soybean imports
are made by foreign companies.18 ADM reduced its share in North America to less than 50% and installed new plants in South America and China. Bunge and Cargill closed many plants in the USA and increased
their capacity in South America and China (Corradi, et al., 2005).
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Figure 10Soybean imports to China (000 tons)
1992-2006
Source: Author, based on information from USDA (www.fas.usda.gov/psdonline/psdQuery.aspx)
On the other hand, in the late 1990’s the Chinese authorities decided to develop a local oilseed crushing industry. In order to achieve this, several measures were implemented to promote the industry and to increase its level of competitiveness. The following are some of the most important measures applied by the government:
System of VAT reimbursement to soybean flour exports.• This measure stands out for its efficiency in stimulating an increase in soybean flour exports. In 2004, the rate of reimbursement was raised from 5% to 13%.
Exemption from road tax payment for the soybean flour sector• . In 2003, the Chinese government decided not to charge road taxes to this sector. The result was a fall in the domestic price of soybean flour and an increase in exports to neigh-boring countries.
Income tax reimbursement system.• By this measure, applicable not only to the oilseed crushing industry but to the whole industrial sector, private firms that make investments in China will benefit from a partial income tax reduction during the first three years. After this initial period, firms that demonstrate that they export 70% of production enjoy an additional 50% reduction of income tax.
Managed prices for vegetable oils.• In the Protocol of Accession of China to the WTO, the Chinese government re-served the right to apply guide prices to vegetable oils, including soybean oil (crude and refined). The aim of this policy, which lasted until 2004, was to support domestic production of oils.
Funding programs to industries located in China.• Although local authorities do not acknowledge this, it is common practice in China to give credits to industries considered as “key sectors”. The oilseed crushing industry is one of these sectors. An example of the special aid that crushing firms receive is the Treasury Bond Discount Loan, a project that the government implemented in 2002 to stimulate investment in the sector.
A significant process of investment in modern crushing plants was observed as a result of all these promotional measures (see Figure 11). Most of these plants are located in the coastal provinces, near the ports, to ensure easy access to raw material given that around 64% of domestically processed soybeans19 must be imported.
19 China is the world’s largest importer of soybean grain and accounted for around 47% of total imports in 2006.
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Figure 11China’s crushing capacity (000 tons) 1989-2006
Source: Author, based on information from USDA (www.fas.usda.gov/psdonline/psdQuery.aspx)
According to Corradi, et al., (2005), there were 169 plants with a total capacity of 233,700 tons/day in 2004, and 90 of them had a capacity of at least 1,000 tons/day. Soybean crushed in China grew from an average of 6.1 million tons in 1989/1998 to 36.7 million tons in the 2006/07 season (USDA data) and by 2004/05 China had become the second largest producer of soybean meals and oils in the world, after the USA.
Table 15 summarizes the main changes in the Chinese oil industry in recent years. As can be seen, the crushing capacity and the production of soybean oil and meal have increased at very high rates over the last ten years. In contrast, imports of soybean oil have grown at a strikingly low annual rate of 1.5% and imports of soybean meals have decreased continuously in line with the development of the Chinese crush industry.
Table 15: Changes in the Chinese soybean value chain. Variation 2006/1995 (%)
Average annual rate Accumulated rate
ProductionOilseed soybean 1.7 20.0Meals of soybean 15.3 380.1Oil of soybean 17.2 470.4Crushing capacity 15.6 391.3ImportsOilseed soybean imports 39.1 3673.6Meals of soybean imports -10.5 -70.3Oil of soybean imports 1.5 17.6Domestic Consumption:Oilseed soybean 11.6 232.9Oil of soybean 13.6 306.4Meals of soybean 11.1 217.1Source: Author, based on USDA (www.fas.usda.gov/psdonline/psdQuery.aspx)
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It is important to bear in mind that the reason why soybean meal imports ceased but oil imports continued to increase has to do with the fact that the production of soybean oil is constrained by a technical relationship between oil and meal production. Thus, the Chinese industry was unable to cope with the rapid growth of domestic consumption of soybean oil20 even when its installed capacity was growing rapidly (see Table 16).
Table 16: Share of imports in China’s domestic consumptionSelected years
1995/1996 2000/2001 2006/2007
Soybean grain 5.6 49.6 64.0
Soybean meal 16.6 0.7 1.2
Soybean oil 56.1 10.0 20.8
Source: Author, based on USDA (www.fas.usda.gov/psdonline/psdQuery.aspx)
Hence, it can be expected that in the near future China will continue importing soybean oil to supply its growing domestic demand. On the other hand, a comparison between per capita consumption in China vis a vis developed countries suggests that consumption in China will continue growing, not only because of the increase in population, but also because of the rising av-erage level of per capita consumption. According to López (2006), based on United States Department of Agriculture (USDA) data, the European Union and US consumption of oils is more than double that of China (50 kg/person/year compared to 20 kg/person/year, respectively).
China is a major producer of soybean grain (the fourth in the world) but it is not an efficient one. In 2005, China’s yields were, on average, 39% lower than the world average and 49% lower than Argentina (FAO, 2007). This is mainly due to the land tenure regime, characterized by the existence of small farmers and small land extensions. The processing industry is not efficient either; this is due to the need to import a large part of domestically processed grain, the old technology used in some plants (particularly those located inland), and the comparatively small scale of the plants.
It might be thought that the inefficiencies it currently experienced in China could be resolved given its expected rapid expan-sion, and if this is so it might be anticipated that China will become either a competitor in the soybean food market as an exporter, or at least will reduce its imports as local industry develops. However, the interviewees all agreed that this is not a likely scenario, since China has little chance of becoming an efficient competitor, particularly due to the high freight costs incurred in transporting raw materials. Furthermore, since the oil industry is a capital-intensive sector, China does not enjoy advantages based on cheap labor costs as is the case in other sectors.
2. Prices and Transportation Costs
2.1. Evolution of Prices in the Soybean Complex
Three main periods can be identified in the price trajectory of the soybean complex since 1995. Despite large differences in value, the prices of soybeans, oilcake and oil have behaved quite similarly, so they are analyzed together (see Figure 12 and Table 17).
From 1996 to 1998, the soybean complex experienced record prices. Soybean prices in this period reached an average of U$S268 per ton, while quotes for oilcakes and oil were U$S 215.6 and U$S 556.8 respectively. These values were the result of two factors combined: the stagnation of global soybean production in 1995 and the increasing demand of Asian countries.
The high prices of 1996-1998 made global supply grow rapidly during those years (global soybean production grew at a rate of 11% per year in this period). Simultaneously with this spectacular growth, the Asian and Russian crises took place. Increasing supply together with decreasing demand caused prices to plummet in 1999. The reaction to this sharp fall was strong protec-tionism, not only from developed countries such as USA but also from emerging countries such as China. It is worth mention-ing that this new wave of protectionism in developing countries was part of a more global industrialization strategy. The aim of these countries was to develop their own local soybean complexes by replacing imports with national production. These industrialization policies were adopted not only in China (as discussed in the following section), but also in India, Turkey, Mexico, Chile and Venezuela.
20 Approximately, 18% of soybean grain is oil, 7% corresponds to the skin (used as fuel) and the rest is the so called “soybean meal” (pellets, oilcakes and flour). This means than only a small part of the additional crushing produces oil, while Chinese demand for this product is growing fast due to domestic consumption and food-industry demand.
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In this context, there was global overproduction of soybean in 1999. The second period –from 1999 to 2002- was therefore a time of very low prices. Average prices in this period were U$S 183, U$S 154 and U$S 362 per ton for soybean, oilcakes and oils respectively.
In 2002 the falling trend was reversed. The rapid growth in Asian demand and the poor harvest in the USA caused by bad weather caused soybean prices to recover rapidly. As a result, prices of soybean, oilcakes and oils are even higher today than in 1997/1998. In the first eight months of 2007, average prices were U$S 282, U$S 211 and U$S 692 per ton, respectively.
Figure 12 Prices in the Soybean complex (US$/ton)
1990-2006
Source: Author, based on information from CIARA
Table 17: Soybean complex prices FOB Argentine ports (US$/ton) 1990-2006
Soybean Soybean oilcake Soybean oil1990 215.1 178.8 425.71991 213.8 168.8 416.81992 212.1 181.0 396.41993 226.8 182.1 442.81994 233.9 167.4 586.21995 231.8 167.3 604.61996 285.5 243.9 515.01997 296.5 252.9 544.81998 221.8 150.1 610.81999 175.3 132.6 402.52000 187.4 166.6 311.52001 171.5 160.2 312.92002 198.0 156.4 420.42003 238.6 182.2 517.02004 267.7 192.3 543.32005 230.7 174.6 460.42006 233.8 175.0 511.52007* 281.5 210.4 692.1
Source: Author, based on information from CIARA*Average of first eight months of 2007.
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2.2 Transportation Costs
One collateral effect of China’s global expansion and its increasing demand for imports has been the rise in transportation costs. The market for maritime freight is very sensitive to demand fluctuations. This is due in part to the high costs of ships and to the relatively long period required to increase ship supply. Many events can generate a change in transportation costs, including wars, oil shocks, reductions in the quantity of ships available due to replacement, congestion at ports which reduce ship turnover, international regulations on transport,21 etc. In this context, the rapid growth of China (and to a lesser extent India) is considered by many experts as one of the main factors pushing up maritime freight rates in recent years.
It is important to bear in mind that freight constitutes an important part of the final cost of a product, in particular in the case of crops or other goods with low value added. Transport costs depend on a multiplicity of factors such as the distance be-tween ports, the efficiency of the ports, the time spent at port, the cost of fuel, etc. In the case of crops, this impact is mainly concentrated on the importers, that is to say on the demand side, because crops are usually traded under FOB (free on board) conditions (Ibáñez 2007).
Figure 13 shows the evolution of maritime freight from Argentina to China and from Argentina to an alternative European port (Rotterdam) since 1991. Transportation costs show an upward trend since 2002 and on average, during the first quarter of 2007, maritime freight rates to China grew at 43.8% vis a vis the same period in 2006 (while freight rates to Rotterdam increased by 60.4%) (SAGPyA, 2007).
Figure 13Average maritime freight by destination (US$/MT)
Source: CIARA* Estimated
The same official source reports that in the second week of September 2007 the estimated average maritime freight rate to China was around US$91.5 / MT and the rate to Rotterdam was US$75.5 / MT. This reflects the dramatic increase in freight rates in recent months. Predictably, this trend is having an impact on trade over a wide range of goods beyond the soybean complex. According to the consulted experts, this increase is explained by the growth of demand for minerals, crops and coal from China and India (to a lesser extent), the new regulations mentioned earlier on ship hulls for the transport of vegetable oils, and congestion in Australian and Asian ports (SAGPyA, 2007).
Table 18 shows the incidence of freight costs in the FOB value of soybean in 2006 and 2007. If we compare the first quarter of 2006 vis a vis the same period in 2007, we can see that the incidence of freight costs in the CIF (cost, insurance and freight) price has not changed significantly, in part due to the increase in the average export price that has partially compensated for the rise in transportation costs. In contrast, the current situation has changed dramatically due to the large increase in freight costs, as can be seen in Table 18. This rise in transportation costs has increased the share of freight costs in the CIF value to almost 28% in September 2007.
21 For example, recently an international norm established that ships which transport vegetable oil must have a double hull to protect the environment from an eventual spill (a similar requirement is applicable to petroleum oil transportation). This norm has temporarily reduced the number of available ships (China and Malaysia are building new ships with these characteristics).
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In spite of this huge increase in transportation costs, it does not seemingly have a negative impact on the prices obtained by Argentine exporters, since the increased burden is mainly supported by the buyers.
Table 18: Incidence of freight costs on the average export value of soybean. Route from Argentina to China
2006 (1st quarter) 2007 (1st quarter) September
Average FOB (US$/MT) 224 276 237.2*
Average freight (US$/MT) 44.2 57.9 91.5
C&F (cost & freight) 268.2 333.9 328.7
Share of freight cost (%) 16.5 17.3 27.8
Source: Author, based on Ibáñez (2007), SAGPyA and USDA *Corresponds to the price in the Port of Rosario
3. Bilateral Argentina-China Trade in the Soybean Complex, 1995-2006.
As shown in previous sections, the world map of soybean production has undergone a significant transformation, first with the introduction of genetically modified seed, and then with the development of the Chinese crushing industry a few years later.In effect, the increasing hunger of China for oilseeds has changed trade flows around the world. In particular, in the case of Argentina, soybean exports to China grew sharply from 1999 to the present. Soybean exports to China increased from US$ 90 million in 1998 to US$ 1,731 million in 2005 (see Table 19).
At the same time, exports of oilcakes and pellets, which were of some importance during the 1996-1998 period, have disap-peared since then with the growth of the Chinese crushing industry.
In the case of soybean oil, Argentina’s exports to China grew from US$ 25 million in 1995 to US$ 700 million in 2005, with a drop between 1998 and 2001, a period of crisis due to the fall in prices and a closure of markets that had a major impact on the local industry. It should be stressed that the increase in oil exports to China is explained almost entirely by the increase in volume (from 43 million tons to 1,550 million tons) whereas prices increased by around 6% between 1995 and 2005. In 2006, China was the first export market for soybean oil, closely followed by India.
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Table 19: Argentine exports to China: Soybean complex (US$ M), 1995-2005
Year Soybean Soybean meal Soybean oil
Total soybean complex
Total Argentine
exports
Soybean Complex/total exports (%)
1995
China 21.9 10.1 25.3 57.4 240.7 23.8
World 536.0 1,022.2 943.0 2,501.2 20,963.1 11.9
China/World (%) 4.1 1.0 2.7 2.3 1.1 -
1996
China 68.1 223.9 137.8 429.9 607.4 70.8
World 588.2 1,984.0 900.8 3,473.0 23,810.7 14.6
China/World (%) 11.6 11.3 15.3 12.4 2.6 -
1997
China 0.0 269.6 280.3 549.9 871.1 63.1
World 138.9 2,044.1 1,043.9 3,226.9 26,430.9 12.2
China/World (%) 0.0 13.2 26.9 17.0 3.3 -
1998
China 90.1 175.6 149.8 415.5 681.8 60.9
World 650.0 1,740.7 1,478.1 3,868.8 26,433.7 14.6
China/World (%) 13.9 10.1 10.1 10.7 2.6 -
1999
China 162.1 33.6 139.4 335.1 508.0 66.0
World 510.6 1,800.3 1,253.6 3,564.5 23,308.6 15.3
China/World (%) 31.7 1.9 11.1 9.4 2.2 -
2000
China 531.2 54.4 26.6 612.2 796.2 76.9
World 776.9 2,170.4 944.8 3,892.0 26,341.0 14.8
China/World (%) 68.4 2.5 2.8 15.7 3.0 -
2001
China 828.0 0.0 4.9 832.8 1,124.2 74.1
World 1,244.5 2,401.1 1,055.6 4,701.2 26,542.7 17.7
China/World (%) 66.5 0.0 0.5 17.7 4.2 -
2002
China 505.2 0.0 231.3 736.5 1,093.5 67.3
World 1,118.8 2,558.6 1,348.3 5,025.7 25,650.6 19.6
China/World (%) 45.2 0.0 17.2 14.7 4.3 -
2003
China 1,230.3 0.0 818.0 2,048.2 2,483.1 82.5
World 1,843.4 3,219.5 2,084.6 7,147.5 29,938.8 23.9
China/World (%) 66.7 0.0 39.2 28.7 8.3 -
2004
China 1,150.9 5.0 845.4 2,001.3 2,628.3 76.1
World 1,736.6 3,604.9 2,337.0 7,678.5 34,575.7 22.2
China/World (%) 66.3 0.1 36.2 26.1 7.6 -
2005
China 1,730.6 3.1 701.9 2,435.6 3,181.4 76.6
World 2,284.2 3,796.7 2,236.6 8,317.5 40,351.9 20.6
China/World (%) 75.8 0.1 31.4 29.3 7.9 -
Source: Author, based on CIARA and INDEC
At present, almost 30% of the soybean complex exports go to China and, at the same time, more than 76% of Argentina’s exports to China come from the soybean complex. Furthermore, the soybean complex accounted for more than 80% of growth in Argentinean exports to China between 1995 and 2005. Particularly in the case of soybean grains, the share of China in Argentina’s exports of this commodity has grown dramatically during the last decade from around 32% in 1999 to 76% in 2005, so that China has become the first importer of Argentinean soybean. The same trend can be seen with soybean oil exports. Nevertheless, it is important to bear in mind that although historically oil exports are more important than soybean
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grain exports, it is grains that explain the sharp increase in the soybean complex exports to China in recent years, as can be seen in Table 20.
Table 20: Increase in Argentina’s exports between 1995-2005: The role of China and the soybean complex
Soybean Soybean meal Soybean oil
Soybean complex exports
Total exports
Soybean complex/total exports (%)
China (US$ M) 1,708.7 -7.0 676.6 2,378.3 2,940.7 80.9World (US$ M) 1,748.3 2,774.4 1,293.6 5,816.3 19,388.8 30.0China/ World (%) 97.7 -0.3 52.3 40.9 15.2Source: Author, based on CIARA and INDEC
On the other hand, the increase in soybean complex exports is largely explained (41%) by exports to China. In the case of soybean grains, China accounts for almost the entire increase in exports (see Table 19). In the case of soybean oil, the great leap in Argentine exports to China took place in 2002 (see Table 19), when the latter became a member of the World Trade Organization (WTO) and agreed to gradually eliminate import restrictions on soybean oils (until its admission to the WTO in 2001, China had out-of-quota tariffs that exceeded 100% and a regime of quotas to import oil at a reduced tariff of 9%). Since 2006, import tariffs on the soybean chain are 3% for grains, 5% for meals and 9% for oils. In the case of soybean meal, as mentioned previously, China no longer depends on imports from third countries thanks to the rapid development of its own crushing industry since 2001. This explains the fact that there are no significant exports of soybean meal from Argentina to China (see Figure 14).
Figure 14 Soybean oilcake exports to China (000 000 US$)
1995-2006
Source: INDEC
It is important to emphasize that although exports of both grains and oil increased, as was pointed out earlier, the former did so at a much higher rate than the latter. This is largely the outcome of explicit policies adopted in China aimed at fostering the development of a crushing industry, which affects exports of products with more value added from Argentina (López; Ramos, 2008 describe the measures adopted in China that have affected exports from the Argentine soybean complex).
It should be noted that grains and their derivatives are not the only products that Argentina and China trade within the soybean complex. Bilateral commerce in glyphosate herbicides has also presented growth in recent years.
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The glyphosate herbicide is essential for the no-till technique in RR soybeans. This herbicide has the power to kill all the weeds surrounding the soybean. It is used twice, before and after sowing. As RR soybeans are resistant to glyphosate, the use of this herbicide facilitates sowing and thus diminishes production costs.
In the second half of the 1990’s the bulk of glyphosate used in the local soybean complex was imported from two countries: USA and China, with the USA as the main supplier. Supplies worth over U$S 130 million were imported at the end of that decade. In 2000, the Monsanto firm opened its own plant in Argentina and other minor companies also started to produce the herbicide locally. These new investments reduced total imports of glyphosate by 40% between 2000 and 2003. In 2003, 45% of the herbicide used in the soybean industry was provided by the local Monsanto plant, 15% by Atanor and Formulagro, and the remaining 40% was imported. The decrease in Argentina’s total glyphosate imports was accompanied by an increase in purchases from China. The combination of these two facts explains the sharp growth of Chinese market share in Argentina’s total imports of this herbicide.
In 2004, things changed. As can be seen in Table 21, total glyphosate imports increased from U$S 51 million to U$S 96 million. This jump was related to a controversy between local producers and China. In 2003, Monsanto and Atanor brought charges against China alleging dumping of imports, since the price of Chinese glyphosate was much lower than the price of the locally produced herbicide. After analyzing the situation, in 2004 the Argentinean authorities decided not to accept the charges of , a decision that was expected, considering that the soybean industry is a major source of tax incomes. As a result of this measure, Chinese imports increased rapidly.
Table 21: Argentina’s imports of glyphosate herbicides
Imports from China (US$ M)
Imports from the world (US$ M)
China’s share in Argentina’s world
imports (%)1999 16.6 137.2 12.12000 31.6 85.6 36.92001 36.0 57.5 62.62002 38.7 63.3 61.12003 32.8 51.4 63.82004 81.0 96.0 84.42005 80.6 90.7 88.82006 83.0 91.3 90.9
Source: Author, based on INDEC
In terms of investment projects, as far as we know, many of the companies installed in Argentina have processing plants in China: this is the case with the multinational enterprises.22 These companies are importers of soybean grain from Argentina. On the other hand, as mentioned elsewhere, Chinese interest in Latin America’s natural resources has been growing in re-cent years (Lopez; Ramos, 2008). In the case of the soybean complex, there have been some land purchases in Argentina. Furthermore, we were told about Chinese plans for investment in crushing plants in Argentina.
In the previous paragraphs we analyzed the dependence of Argentine exports on the Chinese market. It is also worth pointing out the extent to which China depends on Argentina’s soybean supply. Table 22 shows Argentina’s share in Chinese imports of soybean and soybean oils and in Chinese consumption of these products.
22 ADM, Bunge and Cargill are among the most important ones.
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Table 22: Argentine share in Chinese imports and consumption volumes (%), 1995-2006.Soybean (1) Soybean oil (2) Total = (1) + (2)
Imports Consumption Imports Consumption Imports Consumption1995 10.33 0.58 2.95 1.66 5.57 0.751996 10.07 1.60 14.92 8.76 12.13 2.791997 Not available Not available 31.68 17.70 Not available Not available1998 11.23 2.17 25.83 8.41 14.34 3.031999 9.51 4.20 53.96 12.17 12.32 5.132000 19.95 9.90 23.79 2.38 20.25 9.022001 47.17 17.30 4.81 0.64 45.04 15.182002 12.97 7.87 28.76 7.71 14.14 7.852003 35.03 17.26 58.42 22.27 38.28 18.122004 16.68 10.70 89.62 21.50 21.26 12.342005 25.92 16.48 102.23* 20.37 29.80 17.052006 21.25 13.61 76.90 16.01 24.23 13.96
Source: Author, based on information from USDA and CIARA*This value is not coherent. We assume that this inconsistency is due to measurement problems in the Chinese statistical data.
If we compare the start and end points of the period, it is quite evident that Argentina’s share in Chinese imports has increased from 5.6% in 1995 to 24.2% in 2006, an increase of 18.6 percentage points (pp.). At the same time, Argentina’s share of Chinese consumption has also risen by 13.2 pp (see Table 22).
4. Conclusions
China has gained a very important place for Argentina as a buyer of soybean grain and soybean oil in recent years. There is no doubt that for the Argentinean soybean complex, China today plays a crucial role as a trade partner and it is forecast that both Chinese and Indian demand for oils and grains will continue to expand over the next years (López, 2006).
Despite the fact that China is a very important client to Argentina, it is not the only one. The development of the local oil industry is explained by various factors, from the introduction of new agricultural techniques to the strong investment in the crushing industry. The main role of China may have been the indirect impact of its growing demand on international soybean prices rather than the direct impact on Argentine exports to China.
Furthermore, although China is a major player in the global market, local industry is cautious about depending too heavily on trade with this country, particularly due to its management of commercial rules which has caused some problems in the past,23 and prefers to maintain a diversified market structure of oil exports. In fact, according to the latest trade statistics, during 2006 the share of China in Argentine soybean oil exports fell to 21.5% (from 31% in the previous year), which could be considered a demonstration of the capacity of local industry to sell additional production to third markets.
On the other hand, the increasing Chinese demand for soybean grains raises some concerns about the supply of raw materi-als for the local crushing industry and the impact of high prices on the profitability of the sector, although the favorable price scenario for soybean oil partly counteracts these fears.
Perhaps more significant is the fact that the composition of exports to China from the soybean complex has been changing in favor of grains and against more value added products. While this is largely the outcome of explicit Chinese policies designed to foster domestic oil production, it is nevertheless a matter of concern from Argentina’s point of view, considering that the country’s export pattern to China is very much related to natural resources and has a very low level of value added in general.
23 In 2005, China failed to fulfill its contracts due to the high prices of soybean grain paid in advance in the future markets. This situation generated controversy between Argentina and China and soybean exporters had to accept a reduction in prices that was previously arranged with Chinese buyers.
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“Cuadernos de Trabajo del Cechimex”
Número 1, 2010. Mexico’s Economic Relationship with China: A Case Study of the PC Industry in Jalisco, Mexico.
Número 2, 2010. A Study of the Impact of China’s Global Expansion on Argentina: Soybean Value Chain Analysis.