One of the important agricultural commodities in the world is soybeans. They are increasingly used in animal feed, cooking oil, food products, and biofuel. Billions of dollars’ worth of soybeans cross international borders every year. And, behind any shipment, trade policies are significant factors in determining where soybeans will be sold, at what price, and in what quantity.
Trade policy comprises imports, tariffs, export duties, export quotas, trade subsidies, and trade agreements. Governments deploy the tools in order to protect the local industry, to increase income, or bargaining power in the international market.
In the case of soy beans, such policies disproportionately affect them. The world soybean market consists of only a small number of players: a few on the supply side in the United States, Brazil, and Argentina, and China on the demand side. The entire market is affected when any of these countries reacts to its trade policy.
The changes in tariffs or subsidies can move millions of tons of soybeans down one route or the other. They can increase or decrease prices for farmers, processors, and final buyers worldwide.
The US and China trade dispute since 2018 has greatly influenced the modern soybean market.
In the United States, tariffs on Chinese Goods were imposed. China responded by imposing retaliatory tariffs on American goods. China has instituted a 25 percent duty on soybeans from the US. Within a short period of time, American soybeans were made less affordable to Chinese consumers.
China is the largest importer of soybeans worldwide. It requires substantial annual capacity to supply its livestock sector. The US no longer had soybeans, which had become expensive, so China turned to Brazil as its main source. Brazilian soybean exports to China increased. American farmers lost a large share of their most valuable export market.
Such a change illustrated how trade policy can quickly remap the global landscape of commodity flows. And it demonstrated the reliance of US soybean farmers on one buyer market.
The relationship did not return to its original level even after both countries reached a partial trade agreement. China had diversified its sources. Brazil had invested in expanding its soybean production capacity. The market was different in that a single agreement was not capable of fully undoing it.
The fact that Brazil is the leading global exporter of soybeans did not occur by chance. The role was played by government policy.
Brazilian agricultural subsidies, infrastructure financing for ports and transport channels, and advantageous credit schemes for farmers facilitated the growth of soybean cultivation. The Brazilian government encouraged agricultural exports to be a major aspect of its economy.
The result is that Brazil has become the leading exporter of soybeans. Its low prices and massive production volumes make it the most desirable supplier to most importing countries. In Brazil, decisions on trade policy, such as export taxes and currency management, continue to affect world soybean prices in a routine cycle.
Argentina remains the greatest exporter of soybean meal and oil, despite exporting less soybean raw material than either Brazil or the US. Such an odd stand is directly caused by trade policy.
Argentina also imposes export taxes on raw soybeans, but imposes lower taxes on processed soybean products such as meal and oil. This arrangement will promote the domestic crushing of soybeans rather than selling them in their foreign form. It shields Argentina's processing industry and retains value-added production within Argentina.
This implies that Argentina is a stable supplier of soybean products but an uncompetitive supplier of raw beans to the global buyers. The policy determines what Argentina exports and to whom. Any alteration to the Argentine export tax system will have an immediate impact on world prices for soybean meal and oil.
The soybean market is also heavily influenced by import trade policy.
The import of soybeans into China is subject to state control. Government agencies control purchasing decisions and maintain strategic reserves. As China changes the targets of its imports or the levels of its reserves, global prices will be affected. Tariffs, even of slight magnitude, have dramatic impacts given the volume of imports China makes.
Some of the emerging importers of soybeans include Indonesia, Vietnam, Thailand, and Egypt. Their food safety regulations and import duty structure dictate the origin of their food. As such markets develop, their policy choices will have more weight in the international soybean trading.
Agricultural subsidies in the main producing nations alter the marketplace in ways that affect everyone involved.
US agriculture subsidies assist American soybean farmers when prices are low. This maintains high production when market economics would otherwise lead farmers to plant less. The effect is a supply of large, consistent US that would put downward pressure on world prices.
The subsidies to agricultural credit enable Brazil to increase production at reduced financial risk. This has helped the rapid increase in the size of Brazilian soybean acreage during the last twenty years.
In particular, subsidies in one country pass the cost pressure to other countries when farmers in those countries are not subsidized. This has continued to elicit tension in international trade negotiations.
The soybean market is no exception: trade policies should be background noise, but they are among its drivers. Tariffs shift trade, subsidies artificially boost the economy, and import regulations determine access to markets. Everybody who buys, sells, or invests in soybeans must be very keen on watching the development of the policies, just like weather forecasts and crop reports.
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