Much attention has been focused of late on the implications for Latin America of the US-China trade war, including in the agricultural sector, where Brazil has seemingly benefited from growing demand for its abundant soy.
Recent tariffs have pushed China to intensify trading with Latin America, contributing to the expectation that Brazil will become the leading soybean exporter for 2019-20, a distinction previously held by the US. But the China-Latin America agro-industrial relationship has been growing in its own right, and at a notable pace, prompted in large part by China’s evolving food security strategy.
When considering whether recent trade patterns will cause the US to lose its global agriculture market share, it is important to examine the long-term development of China-Latin American relations.
The relative boom in Chinese investment in Latin American agroindustry dates back more or less to the 2008 global food crisis. For China’s leadership, the food price crisis highlighted their country’s considerable dependence on foreign markets and companies for supply of key agricultural goods.
As they grappled with soaring food prices, Chinese policymakers formulated new guidelines for both overseas investment and domestic production, with a focus on heightened self-sufficiency. A Ministry of Agricultural research team noted the major success of the ABCDs (Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus Company) in the Latin American region recommending that Chinese companies establish a footprint in the region’s agricultural logistics and processing.
Over the next decade, a range of Chinese companies grew their presence in Latin American agroindustry, whether in processing and transport or logistics and marketing. This effort was largely spearheaded by COFCO, China’s main grains trader, through targeted acquisitions to become majority stakeholders and investment in processing, storage, and trading.
Chinese companies such as Chongqing Grain Group, Sanhe, and China National Heavy Machinery Corporation have also invested in factories, pressing plants, mills, and other agricultural infrastructure in Latin America in recent years.
Much of China’s broader economic activity in Latin America also has implications for the region’s agricultural industries. China’s policy banks have financed several networks of roads and rail in Argentina, Bolivia, and elsewhere in the region.
These achieve multiple objectives, both for China and host nations, including occasionally facilitating transport of agricultural and other commodities to port.
Argentina has used Chinese finance to renovate the Belgrano Cargas rail network, for example, which China’s English-language newspaper describes as moving soy, cotton, corn and flour from the country’s northern breadbasket to the export hub of Rosario. New transport infrastructure projects will be proposed as Latin American nations continue to join the China-backed Belt and Road Initiative.
China’s extensive engagement with the region also has implications for ecological sustainability in Latin America. For example, Chinese demand for soy is largely responsible for the rapid expansion of soy-producing areas and for the growth of monoculture in Brazil, a trend which began in the early 2000s and has accelerated in recent years.
Chinese construction of dams in the region will affect agricultural producers in some regions, as stakeholders vie for water resources. This issue is even more pressing in Africa, as explained in “Addressing China’s Rising Influence in Africa,” a new report from The Chicago Council on Global Affairs.
Despite ecological and other challenges, Chinese activity in Latin American agriculture is expected to keep growing in the coming years. The region factors prominently in China’s food security calculus, and vertical integration of supply chains is a priority for Chinese companies, whether in agroindustrial or other sectors.
Chinese companies still face considerable competition from well-established international firms in Latin America, and have faced some setbacks when investing, but will be increasingly competitive in the coming years, especially to the extent that they continue to enjoy state support for an overseas activity, and as they employ cutting-edge Chinese technologies to their practices.
Chinese interests increasingly extend into areas where the US has been historically dominant, including food processing, logistics, and seed science and technology. China has surpassed the US as the major trading partner for Argentina, Chile, Brazil, Peru, and Uruguay. Argentina and Brazil are expected to increase their share of global corn exports, as US corn exports are falling. Brazil has also surpassed the US in soybean trade with China every year since 2013.
Future US competitiveness will depend not only on historical ties to regional markets, but on continued innovation, and a focus in Washington on promoting US investment in a range of countries and sectors. Even with a growing Chinese presence in the region and ballooning agricultural trade between the two, the US remains a critical partner for the region, and there is considerable room for more US investment in Latin America.
The US can differentiate itself from China by focusing on project sustainability, technology transfer, and training opportunities, and by supporting ecological and social safeguards for infrastructure and other projects. To ensure key market opportunities for American farmers, the US must work with partners in the region to maintain and build new trade and investment relationships.
Margaret Myers is director of the Asia & Latin America Program at the Inter-American Dialogue, where she has published extensively on China’s relations with the Latin America and Caribbean region. The Political Economy of China-Latin America Relations and The Changing Currents of Trans-Pacific Integration: China, the TPP, and Beyond, her co-edited volumes with Dr. Carol Wise and Dr. Adrian Hearn, respectively, were published in 2016.
Myers has also recently testified before the House Committee on Foreign Affairs on the China-Latin America relationship and is regularly featured in major domestic and international media. Myers previously worked as a Latin America analyst and China analyst for the US Department of Defence, during which time she was deployed with the US Navy in support of Partnership of the Americas.
Myers is a Council on Foreign Relations term member. She was the recipient of a Freeman fellowship for China studies and a Fulbright Specialist grant to research China-Colombia relations in Bogotá. In 2018, she was identified by Global Americans as one of the “new generation of public intellectuals.”