During a recent webinar on China, a comment caught my attention. The topic was Chinese imports of agricultural products. A participant mentioned the efforts of the Asian country to diversify its supply markets.
Without hesitation, another replied that it was virtually impossible to reduce Brazil’s dependence, basing his optimism on data on the competitiveness of Brazilian agribusiness.
At the time, I was completing a study on China-Latin America and the Caribbean (LAC) trade scenarios in 2035. Published this week by the Atlantic Council, the study, co-authored with David Bohl and Pepe Zhang , points out that agro-industry tends to lose space in the region’s – and Brazil’s – export program to China.
Today, agricultural products represent over 40% of what LAC exports to the Chinese. In the most dramatic scenario, this percentage could be close to 20% in 2035, according to the study.
For those who think about the current competitiveness of Brazilian agribusiness and some of its neighbors, the data is surprising – I’m surprised I’m so used to talking about agribusiness superpowers and appetite without end of the Chinese.
The aim of the study is obviously not to predict the future, but only to construct possible scenarios. In addition, aggregate data for the region masks significant differences between countries.
Even so, there are several things that would contribute to the scenario of agribusiness’s relative lower importance in exports to China in 2035. First, China’s efforts to increase productivity in the field are real. Agricultural machinery – to the surprise of many – is next to information technology in the shortlist of priorities for Made in China 2025, a key part of the country’s industrial policy. Agritech, now powered by 5G, will also contribute to productivity gains.
There are big investments in biotech – and I bet China will revise its still restrictive legislation when it gets the technological advancements it seeks. All of this will have an impact in the next 15 years.
Other countries are increasingly competitive in the Chinese market. Indonesia, for example, which accounted for around 4% of China’s agricultural imports in 2020, would reach 7.5% in one scenario. Thailand would also gain space.
There are also changes in Chinese demand. It is true that urbanization is still progressing and that there is an increase in wealth per capita in China, but the demographic factor – along with the decrease in population – is working against expectations of an accelerated increase in agricultural exports.
As never during its 40 years of economic openness, external dependence is seen as a vulnerability.
Increasing production capacity and diversifying suppliers help mitigate risk – and that’s what the Chinese look for when prioritizing food security.
The model based on the Atlantic Council study estimates, however, an increase in global agri-food exports from the LAC region – but other markets will contribute to heated external demand. Africa, in particular, will help offset the loss of momentum in sales to China.
Business analytics almost always look at themselves in the rearview mirror, focusing on data from the past. Or, as a friend said, they boil down to elevator questions: go up? Descent?
The construction of scenarios has the merit of getting us out of the comfort zone, of forcing us to think seriously about the “what if”. It is an excellent antidote to non-compliance for those who have become accustomed to seeing agricultural exports to China record after record. For those who despise the African market. For those who think that China depends more on Brazil than the other way around.
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