The rising trade war between ther United States and China is reshaping Brazil’s agricultural business. China’s investment in Brazil has also jumped to its 7-year high. To a large extent, the outcome of China’s gamble in Brazil will be weighed in the Brazilian presidential election in October 2018 where right-wing candidate Jair Bolsonaro is seen as leading the race.
Shifts in global trade flows are largely redefining Brazil’s landscapes. In 2017, Gustavo Lopes, a Brazilian farmer, tore up his sugar cane fields in favor of soybeans ditching his decades-old supply contract with a local sugar mill.
He based this strategic move on the stubborn glut in the world’s sugar market as well as rising trade tensions between the United States and China.
Lopes planted soybeans across his 4,000-acre farm in Sao Paulo state. With the China imposing tariffs on U.S. soy, his bet has paid off. Lopes has received his highest price ever for soybeans this year.
“It was unusual for this time of year,” said Lopes. “It’s got to be a result of Chinese demand.”
According to data from the Brazilian government, 400,000 acres, an area the size of New Jersey, which previously grew sugarcane is now wetting China’s appetite for soybeans. Brazil’s soy plantations have expanded by 2 million hectares in two years.
China’s growing demand for meat has supercharged soy imports for animal feed. Beijing paid $20.3 billion in 2017 for 53.8 million tonnes of soybeans from Brazil, up from 22.8 million tonnes in 2012. This level is further expected to rise due to China’s imposition of 25% tariffs on U.S. soybeans.
In the first half of 2018, Brazilian exports of soybean to China has risen to nearly 36 million tonnes, up by 6% from a year ago. In July, Brazilian exports of soybean to China rose by 46% for the same month a year ago to 10.2 million tonnes.
Chinese sugar tariffs have weighed on the global market for the sweetener as developed nations continue to cut back consumption.
“We lost 3,000 hectares of cane area to grains in the last two years,” said Roberto de Rezende Barbosa, chief executive of Nova América, one of the largest cane growers in Brazil, which manages 110,000 hectares.
Rezende says he has seen farmers migrating from sugarcane into grains in nearly every state where both crops are viable.
According to Agroconsult, an agribusiness consultancy, it received requests from mills to calculate the premium they will have to pay producers to keep them from switching to grains.
With so many farmers focused on grain, Duarte has worked to sign leases with families who are not interested in actively managing their land.
“In places where the owners have expertise with grains — the equipment and everything — then you can’t compete,” said Duarte.
Many sugar mills which have realized they cannot afford to fight the soy boom have adopted a crop rotation strategy by planting soybeans.
Cane fields typically need to be replanted after five or six years, and mills are using the renovation window to produce soybeans.
“In the past, those areas subject to renovation would be left fallow until the following year,” said Victor Campanelli, who has exploited the niche.
“This Chinese demand has attracted all the farmers,” said Marcos Cesar Brunozzi, who switched part of his land from sugar to grains in the state of Minas Gerais. “I hope the whole situation doesn’t change suddenly, because we are betting big.”