"Soybeans are the currency.''

Following my series of posts on the raw-materials impact of Chinese growth, this news from Bloomberg about the soybean impact in Brazil and Argentina is very much to the point. Even though it's long I'm posting the article in full in case the link goes dead. It's the story that has everything: the distorting impact of super-rapid growth from a giant, the ecological impact in Amazonia, genetically modified foods, industrial agriculture, subsidies, our move up the food chain. It's all there. Incredible! Thoughts please.

Vicente Luiz Costa Beber cleared 700 hectares (1,729 acres) of tropical scrub on the edge of Brazil's Amazon to double the size of his soybean farm in five years. This month, he is planting an additional 250 hectares on farms bought from neighbors, encouraged by surging demand from China and the highest prices in six years. "I can sell anything I plant, and that's hard to pass up,'' Beber, 42, said in an interview at his farm in Nova Mutum in Brazil's Mato Grosso state. Farmers from Brazil's rain forests to Argentina's pampas doubled soybean production since 1997 as China boosted soybean imports more than five-fold. At the same time, a shortage of suitable land restricted expansion in the U.S., the world's biggest soybean producer, to 2.2 percent. The U.S. predicts Brazil will surpass it as the No. 1 exporter in 2004. The growth in soybean production in Brazil, where farmers this year increased plantings by an area the size of Israel, means agriculture and related businesses now account for 29 percent of gross domestic product, 46 percent of exports and more than a third of jobs, according to government figures. While the expansion helped boost Brazil's trade surplus and the real to strengthen 24 percent against the dollar, it also makes South America's biggest economy vulnerable to declines in global prices and demand for soybeans, said Zeina Latif, an economist at HSBC Holdings Plc's Brazilian unit in Sao Paulo. "It's a problem for Brazil,'' Latif said in an interview.

On Thursday, Brazil said foreign sales of soybeans will reach $8 billion, or 13 percent of exports, this year and probably rise to at least $8.8 billion 2004. In Argentina, expansion in soybeans accounted for a fifth of the country's 7.6 percent economic growth in the first nine months, according to Luis Secco y Asociados, a Buenos Aires research firm. The boom also boosted revenue of Bunge Ltd., Cargill Inc. and other companies that trade and process soybeans in the two countries. China, which expects to boost soybean imports 10 percent to 22 million metric tons in 2003, on Wednesday bought 454,000 tons of U.S. beans, pushing soy futures prices in Chicago to their highest in more than six years. China's purchases and a drought in the U.S., where this year's harvest is the smallest since 1996, have boosted prices 47 percent since the end of July. China, whose economy is growing at an annual rate of 9.1 percent a year, needs soybeans to produce meal that fattens livestock and oil used to make processed foods such as potato chips and margarine. Soybeans, cultivated in China as far back as 1000 B.C., were introduced in Europe and the U.S. in the 19th century.

"As Chinese become richer they are moving up the food chain and consuming higher protein food, especially more animal protein,'' said Lester Brown, president and founder of Washington- based Earth Policy Institute. ``That requires ever-expanding imports of soybeans to produce soybean meal to supplement grain in livestock and poultry rations.'' Brazil and Argentina have become dependent on soybeans after a record $95 billion default by Argentina caused both nations' currencies to tumble. To achieve higher prices and greater access to world markets the two countries have made ending farm subsidies in the U.S. and Europe a deal-breaker in World Trade Organization talks to reduce barriers to investment, services and commerce. In Beber's town, soybeans lured so many workers that local officials are building three new schools and carving four boulevards leading to new housing developments. In Pergamino, a soybean farming town 300 kilometers (186 miles) north of Buenos Aires, Carlos Genoud's furniture factory, Pergamino Maderas SA, has a three-month backlog of orders from farmers flush with cash.

``This soybean boom has been like Christmas and the lottery wrapped into one,'' Genoud, president of Pergamino's chamber of commerce, said in an interview.

Bunge Ltd, the world's largest oilseed processor, has benefited from rising production, said Raul Padilla, who runs Bunge's business in Argentina. "The soybean boom in the region is very positive for Bunge,'' said Padilla. ``Given the huge interests we have, this allows us to maintain a high level of utilization of our crush capacity, helping reduce costs and maximize the return on our assets.'' Cargill Inc.'s public affairs director in Buenos Aires, Hugo Krajnc, declined to comment. The surge in soybean output has been helped by Monsanto Co.'s genetically modified seeds. In Argentina, 90 percent of the crop is from such seeds, which allow farmers to produce at lower cost by reducing the need for herbicides and increasing the amount of unspoiled soybeans.

In Brazil, President Luiz Inacio Lula da Silva in September waived a ban on the use of the Monsanto seeds and may ask the legislature to make it permanent. Currently, about 10 percent of the Brazilian crop is genetically modified, according to the Brazilian Agricultural and Cattle Farmers Confederation. Soybeans and their products now account for a quarter of Argentina's exports, up from 11 percent 10 years ago, generating foreign currency that helped increase central bank reserves by more than a quarter this year to $13.4 billion. It also helped the peso rise 18 percent against the dollar following last year's 70 percent depreciation of the Argentine currency. For Brazil, farming and agribusiness ``is the country's biggest industry by far,'' Agriculture Minister Roberto Rodrigues said in a speech to farm leaders in Rio de Janeiro on Oct. 21. "If it weren't for agriculture we could have had a recession,'' said HSBC's Latif.

For now, the boom is leading farmers from Para, Goias and other farming states to clear swaths of Amazon forest.

Mato Grosso Governor Blairo Maggi, who, with 113,000 hectares under cultivation, is himself the world's biggest soybean farmer, wants to build a highway from his state to a grain port in Santarem on the Amazon River to overcome what farmers say is the main obstacle to growth of Brazilian agriculture: the country's poor roads, railways and ports. Beber has to send soybeans by truck on a 2 1/2-day, 2,100- kilometer journey to the southern Atlantic port of Paranagua on a two-lane highway so riddled with potholes the size of bathtubs that he loses about 10 percent of each cargo along the way. Construction of the highway would make more of the Amazon vulnerable to deforestation, said Stephan Schwartzman, a Latin America specialist at Environmental Defense. In Acre and Rondonia states in the northwestern Amazon, for instance, farmers have cleared swaths of rain forest along highways to plant soybeans.

In their quest to increase output, Argentine farmers now grow soybeans in fields previously used for corn or cattle and even use patches of wasteland. The municipality of Pergamino is making extra money renting out highway shoulders farmers who want to plant more soybeans. "There isn't an inch of land that is not planted,'' Miguel Saadi, who runs a grain silo, said in an interview in Pergamino. As their soybean production expands, Brazil and Argentina are trying to force the U.S. and Europe to end agricultural subsidies they say reduce market prices and undermine the ability of developing countries to compete in world markets. World Trade Organization talks in Mexico collapsed last month after poor countries refused to discuss proposals to reduce barriers to investment and services such as banking unless the U.S. and European Union agreed to cut farm aid.


In talks to form a free-trade zone spanning the Americas, the U.S. this month accused Brazil of alienating other countries in the region by demanding an end to farm subsidies before negotiating lower barriers on services. Neither Argentina nor Brazil pays subsidies to soybean farmers, while the U.S. paid $671 million in soybean subsidies last year. In Argentina, the government taxes soybean exports 20 percent. "Argentina and Brazil are the most efficient soy production areas in the world,'' Bunge's Padilla said in an interview in Buenos Aires. ``Without the subsidies in the northern hemisphere, both countries could be getting even better prices.'' Beber, in Nova Mutum, produces an average 4.2 metric tons of soybeans per hectare (58 bushels per acre), almost double yields in the U.S., said Agmar Lima, Nova Mutum's agriculture secretary. ``And I do that though this land is really among the worst in the world,'' Beber said. Beber spreads 500 kilos (1,102 pounds) of fertilizer on each hectare of soybeans, a mix of minerals such as calcium and molybdenum that make the orange earth more productive. Like most Brazilian farmers, he plants without tilling the soil to preserve spent soy and corn stalks as organic fertilizer.

In towns such as Nova Mutum, soybeans dominate the economy so much that they have come to be considered as good as cash. The going price for a four-bedroom home with a pool in a new housing development on the edge of town is 10,000, 60-kilo bags of soybeans, each worth about $10. To buy a John Deere harvester, a farmer need only transfer 20,000 of the 60-kilo bags into the dealer's account at one of the silos on the edge of town. "Soybeans are the economy here,'' Lima said in an interview at the two-month-old town hall, which was built with a surge in tax revenue that resulted from rising soybean production. "People have forgotten the value of things in paper money,'' Lima said. "Soybeans are the currency.''
Source: Bloomberg
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