THE trade war between Beijing and Washington has shaken up the world market since it started in 2018. A part of the economic disputes between the world’s two largest economies involve millions of farmers: “Escalation of a trade war between the United States and China can throw a monkey wrench in the gears moving agriculture trade.
To date, the two countries, which serve as important hubs in global value chains, have brokered a Phase One trade agreement but implementation has yet to be seen.
A full chapter Chapter 3 of eight chapters has been devoted to the “trade in food and agricultural products” in the economic and trade agreement between the US and China. About 17 annexes set out further commitments between the two countries, including on rice and pet food.
The chapter on food and farm products has the same number of pages of discussion as the chapter on “Expanding trade.” Nonetheless, this chapter on trade (Chapter 6) also mentions agriculture commodities of additional US exports to China on top of the 2017 baseline: oilseeds, meat, cereals, cotton; other agricultural commodities (from alfalfa to wine); and seafood (including lobster).
The trade in these commodities, however, has been thrust into the unknown because of the trade war.
With President Duterte in a pivot to China as an ally, how will the Philippines stand to benefit from such trade war?
“We expect prices of commodities to go down like soybean and soybean meal whenever China stops buying from the US and purchases from other sources like Brazil and Argentina,” Garcia, Pafmi president, told the BusinessMirror in a phone interview. “This [shift] favors the [local] feed millers and livestock sector.”
However, she emphasized one problem: “China is not buying the hogs and the chicken from the US.”
According to Garcia, “these meat products are now diverted to the Philippines and [that practice] becomes ‘a sort’ of dumping.”
Still, she noted that China is a huge buyer of soybean products from the US, particularly soybean seeds, which American farmers use to produce tofu and soy sauce, which are widely used in China.
On the other hand, the Philippines buys other soybean products such as soybean meal, for its animal feed requirements, Garcia explained.
ACCORDING to Garcia, the price of soybean meal mainly used for livestock feed has dropped by P2 per kilogram since the escalation of the US-China trade war. The price drop, Garcia said, has helped keep local feed prices in check and reduced production costs of domestic meat products.
“It is really more about price volatility,” she said. “Every time they do not comply with their agreements, world market prices go down.”
For example, if China proceeds with buying more soybean products from the United States compared to its annual volume pre-trade war, then world market prices may climb due to supply tightness, Garcia said.
Nonetheless, if this happens, Garcia doesn’t see the US reducing its soybean meal exports to the Philippines, as the country is the US’s top market for soybean meal.
“I doubt that they will run out of supplies for us. The US would like to remain the biggest supplier of soybean meal to the Philippines and keep their 90 percent market share,” she told the BusinessMirror.
“I think if prices go up they will find ways to keep their market share,” Garcia added.
Rapeseed, fish meals
ACCORDING to the US Department of Agriculture (USDA), the Philippines’s soybean meal imports next year is projected to reach a record-high 3.095 million metric tons (MT) from this year’s estimated 2.95 million MT on the back of the expanding livestock and poultry industries.
“Despite African Swine Fever’s spread and reduced hog output, greater poultry production is offsetting the decline, as consumers shift away from pork to poultry meat in market year 2019 to 2020,” according to a Global Agricultural Information Network (Gain) report by the USDA Foreign Agricultural Service in Manila.
Garcia said if world soybean meal prices become too high then local feed millers can opt to source other substitutes like fish meal and rapeseed meal. Aside from the US, Argentina and Brazil also supply soybean meal to the Philippines.
Meat prices
UNFORTUNATELY, the observed decline in feed prices did not directly translate to lower meat prices domestically due to various factors.
For one, Garcia explained that soybean meal only accounts for 20 percent of the whole composition of animal feeds.
Second, retail pork prices do not reflect any changes at the farm-gate level due to a disconnect between the two, with traders mostly making the profits, she added.
The Pafmi executive also noted that China’s ongoing push to be self-sufficient in soybean seeds could greatly change the landscape of the global soybean market.
“It will favor us if China can supply their own soybean seeds and meal; and it is only a matter of time,” Garcia told the BusinessMirror.
Encouraging shift
OPPORTUNITY is what Cocoy Barrera of the Philippine Sugar Millers Association (PSMA) sees from the soybean issue.
Barrera, who is executive director of PSMA, said the shifting by Brazil sugarcane producers to soybean is an opportunity for the local sugar industry.
Brazil tried to fill China’s demand for soybean products after Beijing reduced its purchase of these from the US. In doing so, Brazil sugarcane farmers were encouraged to shift to soybean to meet the high soybean requirements of China.
“Brazil is the second-largest country in terms of soybean production and it is also the largest exporter of sugar. Most likely, if the trade war escalates, it will affect Brazilian sugar production, prices and exports,” Barrera said.
“China’s soybean requirement is around 100 million tons a year that Brazil cannot produce at current areas; so they may have to divert sugarcane areas to soybean,” he added.
Reduction in supply
BARRERA explained that a reduction in Brazil’s sugar supply may cause tightness in the world sugar supply. The tightness, he said, could result in higher prices that the Philippines could take advantage of if it decides to sell more sweetener to the world market.
“We are expecting that world sugar prices will go up,” Barrera said. He noted that prices started rising late last year until before March 1.
“Until the Covid-19 pandemic [and the lockdowns] disrupted trade,” he added.
The Philippines usually exports sugar to the world market during times of a domestic glut to arrest or avoid a plunge in mill-gate prices.
Barrera said Brazil’s conversion of sugarcane areas to soybean plantation could also result in tight supply of ethanol in the world market since it is a major player in that industry.
“Sugar mills in Brazil can easily switch to produce sugar and ethanol. And ethanol is largely sugarcane-based. If [they reduce sugar output] then it may also affect ethanol production,” he said.
Barrera added that the United States’ move to halve the tariffs slapped on Chinese sugar to 7.5 percent will not affect the Philippines’ sugar exports to Washington since Manila has an assured annual quota.
READ THE FULL ARTICLE ON THE LINK ABOVE
