US-China trade war raises fears of deforestation in Brazil

Chinese buyers turn to Latin America for soy following latest tariff hike, writes Manuela Andreoni
<p>Soybeans exported from Brazil to China grew 15% from January to September this year based on the same period last year&nbsp;(Image: United Soybean Board)</p>

Soybeans exported from Brazil to China grew 15% from January to September this year based on the same period last year (Image: United Soybean Board)

For years, Arnaldo Carneiro stuck to his master plan to contain deforestation in Brazil.

Carneiro, who directs Global Canopy, a non-governmental organisation, demonstrated the complicity of importers of Brazilian soybeans in the degradation of the environment. He implored them to purchase only from farmers who could guarantee they did not clear land for cultivation.

The strategy worked better in Europe. In 2015, seven European countries signed the Amsterdam Declaration committing to support private sector initiatives against deforestation in their production chains.

“Europe is a slightly more conscious market,” said Carneiro. “[They are] concerned with impacts on the front line.”

Now, however, Carneiro’s strategy has suffered a big setback that has renewed concerns for Brazilian forests: the US-China trade war.

Trade spat impacts

The world’s two largest economies began to impose tit-for-tat tariffs on a range of imports in March this year. China hit US soybeans – a heavily traded commodity – with a punitive 25% levy. Since then, Chinese demand for Brazilian soy has spiked.

The trade war has also kick-started a game of musical chairs between soybean purchasers and producers.

Chinese buyers have increasingly switched to Brazil to avoid the high tariffs imposed on US products. Meanwhile, European dealers have flocked to the US as prices slumped for their soybeans, which flooded the market after losing eager Chinese customers.

Historically, China has accounted for approximately one-third of US soybean consumption. Chinese people have increasingly stronger purchasing power and want to eat better. Soybeans play an important part in food production since they are fed to Chinese pigs.

In June this year, 37% of soy imported to Europe came from the US, an explosive increase compared to 9% last year. At the same time, the volume of soybeans exported from Brazil to China grew 15% from January to September this year compared to the same period last year, according to official figures. Demand was so high that Brazilian reserves have almost run out.

All this could significantly change how international markets push for less deforestation in Brazil.

Chinese companies tend to be less focused on the environmental consequences of meeting their country’s soy demand. This worries Carneiro.

“China is very concerned with the food security of its population,” explains Carneiro, who regularly talks to Chinese companies about anti-deforestation commitments. “They are much less concerned with environmental problems in other countries. What they do not want is to be involved with any illegal activity.”

After all, clearing natural vegetation is not necessarily illegal. According to Brazil’s Institute of Forest and Agricultural Management and Certification (IMAFLORA), there are 103 million hectares of unprotected natural vegetation in Brazil – land that can be deforested legally.

Carneiro’s work used to involve convincing the Europeans not to deforest land even the Brazilian government considered it lawful to clear. But it is different with China.

“Europe wants us to deliver zero deforestation in commodities,” explains André Nassar, president of the Brazilian Association of Vegetable Oil Industries (ABIOVE), which includes major traders like Bunge and Cargill. “The Chinese will not ask us for more than we are delivering now.”

Though varying standards between buyers of Brazilian soy are a concern, some organisations are fighting to close the gap. Rose Niu, who leads the department of conservation at the Paulson Institute in Washington DC, acknowledges the difference between Europe and China, but says efforts are underway to drive change.

“In the past three years, several organisations (including our institute) have been working with soybean traders for China to adopt more stringent environmental requirements in trade with South American countries,” Niu wrote in an e-mail. “I hope that traders in China will do as good a job as the Europeans in the near future.”

Demand drives expansion

The trade war has encouraged Brazilian producers to increase production in order to absorb as much of the excess demand as possible. This pressure could result in further deforestation since soy yields are increased by expanding the planted area.

Brazil is about to replace the US as the largest producer of soybeans in the world. There are 33 million hectares of soybean plantations – an area equivalent to the size of Malaysia. This is almost triple the area under cultivation two decades ago.

Brazil is not the only country in the region facing pressure to produce. Argentina and Paraguay are also major producers of soybeans; in 2016, the three countries combined produced nearly half the soy consumed worldwide.

Pedro Henriques Pereira, a business intelligence adviser at the Brazilian Confederation of Agriculture and Livestock (CNA), has already detected some excitement in the market about expanding soy production. But for now, the confederation is advising a cautious approach for producers who want to invest with an eye to Chinese demand.

“This movement creates major uncertainty. It guarantees a short-term increase, but there is a risk in the medium and long term that something could happen and the producer could end up with a lot of soy on his hands,” says Pereira.

Pereira foresees a less significant increase in planted area, around 4%. But the market suggests the potential increase is greater. For example, SLC Agrícola, one of the giants of the Brazilian agricultural sector, announced a 7% expansion in its area planted with soybeans for the coming season.

“Our main concern is that creating such large demand in a short space of time can cause deforestation and conversion of natural vegetation,” says Edegar de Oliveira Rosa, Coordinator of the Food and Agriculture Programme at WWF-Brazil.

For the most part, the Amazon is protected from this hunger for more planted areas. Since 2006, a pact called the Soy Moratorium between producers and environmental activists has prevented the deforestation of tropical forests to produce soybeans.

The danger lies mostly in the Cerrado, a savanna-like biome with rich biodiversity that is essential for balancing Brazil’s ecosystem. Soy cultivation is overwhelmingly concentrated in this region. Yet since the 1970s, the Cerrado has lost nearly half of its natural vegetation to expansion of agriculture and pastures.

Cerrado forest loss
Brazil’s Cerrado biome (Image: Terpsichores)

According to data collected by Trase, a global platform that monitors commodity production chains, an estimated 3.5 million hectares of soybeans have been planted in areas of Cerrado that were covered by native vegetation 15 years ago.

Land in the Cerrado is significantly cheaper than in other regions where the soy industry is more established, like southern Brazil. This means that it is not the planting of soybeans itself that concerns environmentalists, but also real estate speculation by large rural property owners. Landowners may try to capitalise on the expanding market to clear land and prepare it for farming, thereby obtaining higher prices.

According to Carneiro, activity should only increase on already degraded land, eliminating the need to deforest. But simple economics mean the danger remains. “They clear the forests because it is cheaper,” he explains.

ABIOVE’s Nassar plays down the risks. He says that even though deforestation is still a problem, it is much less serious than it used to be. Data from ABIOVE shows that deforestation caused by soybean farming decreased from 27% per planted hectare between 2002 and 2007 to 7% over the past four years.

“We support having no more deforestation in the chain,” explains Nassar. “But we have to see this as a process of transition.”

This article was originally published on Diálogo Chino