Brazil: China Lifts Soy Ban

Brazil should resume soon its shipment of soy to China, after
a two-month-long embargo. Losses from the ban are estimated
at US$ 1 billion, according to the Brazilian Ministry of Agriculture.
Lower prices for the product have raised speculation on the ill-will
of Chinese importers, who are now negotiating better terms.

Luis Waldmann

Brazil, the world's second-largest soybean producer, came to terms with China after a two-month-long ban on Brazilian soy on grounds it didn't meet safety standards.

Losses stemming from the embargo are estimated at US$ 1 billion, according to the Ministry of Agriculture. Moreover, it will affect Brazil's trade surplus this year, which soared to a record US$ 24.8 billion in 2003 from US$ 13.1 billion in 2002.

Twenty-three Brazilian companies, including U.S.-based Cargill and Louis Dreyfus, had been barred from exporting soy products to China. The alleged presence of fungicide-contaminated seeds in the shipments prompted China to refuse 359,000 tons of Brazilian soybeans in the first 45 days of the standoff.

"It is likely that opportunism might be fueling the denial of these shipments in order [for Chinese importers] to buy at lower prices," Luiz Fernando Furlan, the Brazilian Trade Minister, told Rio de Janeiro-based O Globo newspaper last week. Turned-down ships headed instead to Europe, Furlan added.

Current prices, down by one third compared to those in the same period of 2003, have raised speculation on the ill-will of Chinese importers, who would now be seeking to negotiate better terms.

"It's not that Brazilian soy is flawless, but the same commodity is accepted in other notoriously demanding countries," said Folha de S. Paulo newspaper in an editorial. "The episode again demonstrates how sanitary rules often double as trade barriers."

During the Brazilian government's haste to solve the deadlock, President Luiz Inácio Lula da Silva is believed to have intervened personally.  However, President Lula's state visit to China in late May—one week after Chinese authorities withheld the first shipment—did little to soothe the standstill.

The President said he felt "betrayed by the Chinese", according to Folha de S. Paulo writer Kennedy Alencar.

But the ban also harmed some in China. Chinese soybean crushers came to a halt, Pedro Wang, director of the Shanghai Gaoyuan Investment & Development Co., told the newspaper.

The Chinese government is partly to blame, Wang added, by limiting loans across the board in an attempt to cool down the country's skyrocketing economy.

By the new rules China introduced in early May, soybean shipments must not contain any contaminated seeds. Brazilian norms, published a week ago, allow one such seed per kilogram (2.2 pounds).

China is Brazil's third-largest trade partner and could be slated to overtake Argentina this year, remaining only behind the United States.  

Soy, iron ore and pulp lead Brazilian exports to China, which increased by 50 percent to US$ 4.5 billion in 2003 from US$ 3 billion in 2002. China bought US$ 1.3 billion worth of Brazilian soy in 2003.

Luis Waldmann is a freelance writer based in Rio de Janeiro and can be reached at editor@bnbureau.com.br.