The ongoing United States–China trade war, along with devastating floods in the Midwest this spring, are making it look like a bad year for soy exports from the U.S. But the consequences might be felt more globally. A new Nature journal commentary suggests that the world's second largest soybean producer—Brazil—could pick up the slack, leading to a rapid increase in deforestation in the Amazon basin.
In March of 2018, the Trump administration imposed tariffs of up to 25 percent on Chinese imported goods. In retaliation, the Chinese government imposed tariffs of 25 percent on $110 billion worth of U.S. goods—including soybeans, the U.S.'s most important agricultural export crop. Now fresh demand is being placed on China's other major soy suppliers to provide up to 37.6 million tons of the bean—the total amount imported by China in 2016.
According to researchers at the Karlsruhe Institute of Technology in Germany, the most likely option is that China's other principal supplier of soybeans, Brazil, will substantially ramp up its production.
The authors estimate that, if Brazil alone were to cover the demand, the amount of land dedicated to soy production in the Latin American nation could increase by up to 39 percent, with the loss of up to 50,139 square miles of forest, an area the size of Greece.
A Global Rise in Soy Production and Consumption
Since 2000, Chinese imports of soy have skyrocketed, with increases of 200 percent from Argentina, 700 percent from the U.S., and 2,000 percent from Brazil in order to meet the Asian country's demand. Much of this exported soy is used to feed China's hog industry—the largest in the world, and likely to become larger as the Chinese increasingly consume more meat.
"Soy [consumption] has risen exponentially in the last decade," says Richard Fuchs, the lead author on the commentary. "It's an important crop globally, but the entire system is so fragile that [distribution] can largely shift overnight."
Historically, soybeans have been the U.S.'s largest agricultural export to China. In 2017, the U.S. exported over $12 billion worth of soybeans to China, more than half of its total soybean exports and a third of its overall production. The next largest export—cotton—was worth $1 billion. However, since President Donald Trump's U.S.–China trade war began in 2018, exports of U.S. soybeans to China fell by 50 percent. Predicting how this might ultimately impact the global soy trade is somewhat tricky however, since the U.S. being located in the Northern Hemisphere and Brazil in the South means their soy production seasons are opposite.
"The thing you have to understand about the global soybean trade," says Fuchs, "is that it is largely dominated by a few buyers, China and Europe, and only a few suppliers—Argentina, U.S., Brazil."
Soy is now Brazil's most profitable export, and poised to become larger if the U.S. fades. However, soy production is also a leading driver of deforestation in the Latin American country. The Amazon Soy Moratorium, in which major traders voluntarily agreed not to buy soy grown on lands in Legal Amazonia deforested after July of 2006, helped reduce tree-loss significantly in that biome. Statistics published by Brazil's National Institute of Space Research reported an 80 percent deforestation reduction there between 2000 and 2015.
However, studies show that much of the deforestation from soy merely shifted next door from the Amazon to the Cerrado—a partly wooded grassland rich in biodiversity that covers more than 20 percent of Brazil. Over half of all Brazilian soy is now grown in the Cerrado and a recent report by Global Canopy showed a direct link between savanna municipalities in Brazil with the highest levels of deforestation and with significant soy prouction.
Both the Cerrado and Amazon biomes have become increasingly threatened since the election of right-wing president Jair Bolsonaro, who ran on a platform of reducing environmental safeguards, increasing support for agribusiness, and Amazon development. The Nature commentary authors point out that the "political, legal and trade-system interventions that have prevented the expansion of soy production in the Amazon are now being weakened" by Bolsonaro.
According to data from Brazilian non-governmental organization Imazon, deforestation in the South American nation increased between February and April of 2018 as compared to the year before, coinciding with Trump's first threat of tariffs against China made in January.
Reordering the World Soy Market
Questions remain as to how much the U.S.–China trade war will reshuffle global trade partners, especially as the Trump administration put out feelers this April for an international summit with Chinese President Xi Jinping to ease tariffs.
Soy exports from the U.S. to the European Union—another major soybean importer—hit a record high of nine million tons in February of this year, roughly double the amount exported through the end of February of 2018, according to the U.S. Department of Agriculture's Foreign Agricultural Service. Still, most economic studies estimate that, regardless of trade reallocations, the U.S. soy market would suffer the most from a reshuffling of exports.
"The U.S. is selling fewer soybeans to China and more soybeans to the rest of the world," says Patrick Westhoff, director of the University of Missouri's Food and Agricultural Policy Research Institute. "However, total U.S. soybean exports are [being] reduced both because China is such a large part of the market, and because China has reduced its total [global] soybean imports."
A study by researchers at Purdue University in 2018, using different economic models, found that Chinese imports from Brazil and other South American countries would increase, in Brazil's case by as much as 9 to 15 percent.
Since then, distribution pattern shifts—likely instigated by the U.S.–China tariff war—have begun to play out, as the U.S. neared the end of its soy growing season. This February, the U.S. shipped a little over 900,000 tons to China, just a fraction of last February's 3.35 million tons. At the same time, Brazil soybean exports shot up to a record 6.1 million tons, more than twice the amount from the year before.
Even if a U.S.–China trade deal is reached in coming weeks or months, the study authors point out that such export distribution shifts are often hard to reverse, especially as China finds a stable supply of soy in Brazil, allowing it to avoid the trade volatility imposed under Trump.
Floods, Drought, and Swine Fever Are Soy Wildcards
The recent floods, which have inundated much of the Midwest came at a critical time for U.S. farmers. But, interestingly, a Department of Agriculture planting intentions report suggests many farmers had already planned to shift much of their cropland from soy to corn this year, in part because of the reduction of soy prices due to the trade war.
"The impact on soybeans depends on if and when land dries out," Westhoff says. "In a wetter-than-normal-but-not-catastrophic year, soybean acreage can actually increase, as farmers are forced to shift from corn to a crop like soybeans that can be planted later. Of course, if extremely wet conditions continue into mid-June, then soybean acreage will also be reduced." Forecasts have warned that rainfall could bring more devastating floods this spring to the Midwest, which, if that occurs, could be a disaster for farmers there.
While most experts agree the weather damage isn't enough yet to significantly impact the global soy market, Fuchs believes that record seesawing of weather conditions could point to one of the largest vulnerabilities of the agricultural market.
"These type of weather extremes, like floods in the U.S. or drought in Brazil, and the risk [of their] increase in frequency due to climate change, adds to the uncertainties in global agricultural trade and production," Fuchs says. "We should better prepare for those extremes and vulnerabilities, both economically and environmentally."
There are other factors that might play into China's demand, which fell by almost 8 percent in 2018. African swine fever, which has already wiped out at least a million hogs there, could lower demand for soy, a primary means of fattening hogs.
According to Fuchs, the E.U., China, and other nations should do more to acknowledge the direct effect their trade policies are having on exports and deforestation. This is especially true for a trading partner like the E.U. that prides itself on its progressive climate policies; a broader agenda would help shift discussions from a purely economic basis to include socio-environmental impacts.
"The realization that Europe is often importing goods from deforested land is often a muted discussion," Fuchs says. "It would be a first step if China or Europe were to acknowledge the role they play in tropical deforestation."
This story originally appeared at the website of global conservation news service Mongabay.com. Get updates on their stories delivered to your inbox, or follow @Mongabay on Facebook, Instagram, or Twitter.