Competitiveness in international soybean trade during the crises: case of China, Brazil and USA
Tinoush Jamali Jaghdani1, Sören Prehn2, Lena Kuhn3
1Leibniz Institute of Agricultural Development in Transition Economies (IAMO), Agricultural Markets, Germany
The international soybean market is dominated by two main exporters, the United States (USA) and Brazil, and one major importer, China. With increasing average incomes in China, the national demand for meat has massively increased. While China could massively upscale their pork sector, the sector is heavily dependent on imports of soybean for animal feed due to the relative scarcity of agricultural land. In 2017, Brazil exported 83.6 million tons of soybeans, of which 69 million tons was sold to China. The same year, US exported 55.4 million tons of soybeans, 31.7 million tons of which to China. The limited number of actors in the international soybean market raises the question on the level of competitiveness in this market. As both importer and exporters are heavily dependent on each other in a seasonal pattern, the possibility of establishing market power is high. The soybean market has undergone three major period of turbulences consisting US-China trade war (2018-2020) and COVID-19 pandemic (2020-2022) which provides the opportunity to test for potential market power. By using monthly available data since 2010 on trade, prices, exchange rate and transport costs, we are analysing the existence of market imperfection between partners and the effects of above mentioned periods of turbulences on market developments. Our analysis is based on a residual demand elasticity (RDE) framework. Our primary results considering full sample don’t provide evidences for general market imperfection on the side of exporters. However, market imperfections were found for the period of 2010-2014 and after 2020 for US exporters . In detail, we define a two-regime demand structure for Chinese soybean import, namely high-price and low-price regime periods. Market imperfections occur during phases of a high-price regime. Interestingly, the US-China trade war had dramatic effects on the US and Brazilian prices, while the COVID-19 pandemic period did not seem to directly affect soybean trade between the three countries. We argue that the soybean market is comparatively resilient against shock-induced changes in transport cost or previous COVID-19 travel restriction. The effects of current lockdown in Shanghai on soybean trade, meanwhile, are yet unforeseeable.
Keywords: Brazil, China, market imperfection, pandemic, residual demand elasticity, soybean, trade war, US
Contact Address: Tinoush Jamali Jaghdani, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), Agricultural Markets, Theodor-Lieser-Str. 2, 06120 Halle (Saale), Germany, e-mail: jaghdaniiamo.de