A New Look

By Laura Temple

From steel and soybeans to airplanes and technology, the global trade landscape dramatically has shifted the last year. The trade dispute between the U.S. and China has caused most disruption, but European Union (EU) and North American country discussions have added to the challenges.

“As China implemented an import tariff on U.S.-origin soybeans, Chinese crushers turned to South America to cover their needs. As a result, U.S. soybeans became very competitive to the rest of the world,” says Paul Smolen, Agri Networks Management marketing consultant. “That changed many shipping and trade patterns related to soybeans.”

From June 2018 through January 2019, soybean shipments to the rest of the world increased 13.7 million metric tons (MMT), compared to that time period the previous year, offsetting the decline of 23.3 MMT less sent to China. Smolen says leading destinations with increases were Europe, which imported 4.7 MMT over the previous year, North Africa – primarily Egypt – buying 1.5 MMT more, and South Asia, which increased 1.1 MMT. Argentina imported 2.2 million metric tons of U.S. soybeans for crushers to replace soybeans shipped to China.

Smolen says the shift in destinations from China to the rest of the world creates a disproportionate impact on shipments and soybeans from the Pacific Northwest. Shipments from the Gulf of Mexico most efficiently reach new and expanded markets.

“These changes hurt U.S. prices, but they also introduced opportunities to work with new customers, build long-term relationships and facilitate efficient end-to-end trade flow,” he adds.

A New Look

Removing Trade Barriers

As the trade landscape changes, soybean producers could benefit from more open trade, or the removal of trade restrictions between the U.S. and other countries.

“Open markets promote specialization that benefits everyone and provide global stability. Countries that trade together are less likely to go to war against each other,” says President Gary Blumenthal of World Perspectives, Inc., an ag market and policy analysis consulting firm.

“Open trade allows comparative advantage to work. Everyone does what they can do best and most efficiently, and wealth is derived from productivity,” he continues. “Soybean production is one strength for the U.S. In fact, global open trade policy would allow the U.S., Brazil and Argentina to all produce and export more soy.”

Many countries have the mindset to avoid imports and increase exports, but according to Blumenthal, that economic approach distorts markets.

“Most countries practice selective free trade in areas that benefit them,” he says. “They maximize economic opportunities in some areas with open trade policy, while using trade barriers to protect politically strong groups that might not be competitive.”

Many countries impose import barriers like quotas and tariffs on U.S. products. Non-reciprocal agreements protect or benefit just one party, like the Generalized System of Preferences (GSP), which puts zero tariffs on imports from countries with that status, or self-declared special and differential treatment sanctioned by the World Trade Organization, which allows countries to erect trade barriers. Blumenthal observes still that open markets eventually prevail.

“Subsidies and other barriers tend to shrink over time because they are political constructs that distort markets,” he says. “As barriers are removed between the U.S. and countries like Chile, Mexico and Japan, both partners better specialize productivity and reap net economic benefits.”

A New Look

Opening New Markets

As countries demand higher-quality protein in their diets, new soybean markets develop to supply the animal feed needed for livestock and poultry. It’s in these countries where a more open trade policy can most benefit efficient U.S. soybean producers.

Blumenthal says animal protein consumption rises based on income and demand from young people who need quality nutrients as they grow and mature.

“The formula for potential soybean market growth is to identify markets that have large youthful populations with rising incomes,” he says.

“However, many such countries have barriers that stifle imports. Markets like India have great potential for growth in protein demand, which translates to a need for quality feed in the poultry industry. That’s an example of where we want to promote open trade policies and remove barriers. Other potential growth markets include Indonesia, Pakistan and Bangladesh,” he says.

Smolen adds that customer interest in U.S. soy is developing in emerging markets in South and Southeast Asia, as well as West Africa. As soy markets emerge in these countries, these experts agree that minimizing trade barriers will allow the entire global soy supply chain to prosper.

Reciprocal trade agreements can help reduce barriers and move toward more open trade. Efforts that could lay the foundation for mutually beneficial trade agreements include changes to non-reciprocal agreements like GSP, strengthening relationships with stakeholders in emerging markets and demonstrating the value specialization in the global economy.