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Thursday, December 11, 2003

When are soybeans like software?

One of the main Argentine trends that I've been following in Southern Exposure is this:

  • 1. China Grows.

  • 2. China Needs More Soy Products.

  • 3. Argentina Sells More Soy Products At A Higher Price To China

  • 4. Profit! (And the Kirchner administration has enough cash to pay the IMF and keep the social picture under some sort of control for the moment).

It's an interesting story because it ties global threads (China's growth and its impact on commodity prices) to local situations (the Argentine government's social and economic policies). This sort of connections make blogging fun, and allows me to write "happy" stories about Argentina, which is not something one often gets to do.

Of course, for every country that gets into a train, there's one or two that misses it. In this particular story, oddly enough, the country that's getting behind is the United States...

Yesterday it was made public a press release about research from the University of Illinois regarding the United States' soybean industry.

The press release indicates that the US share of world soybean production "has declined from about 50 percent to less than 40 percent" since the early '90s, while Brazil and Argentina's have risen to about 25 and 15 percent respectively.

Most interesting is the following paragraph:

"The dominant trend in processing plant location is a shift away from mature markets, such as in the U.S. In those markets, the plants tend to be older and smaller, the technology is more dated, farmer suppliers are smaller, and regional production is flat. By investing in the new growth areas, companies can employ the latest technologies, improve economies of scale, and have access to growing supply base."

The authors of the report also indicate that competing countries often enforce weakly or not at all Intellectual Property rights (granted, that tends to happen in the Third World) and end it by warning of the dire effects that will result if soybean research is slowed down or halted because of its diminishing profitability in the US.

Translation: We're being beaten in economic and organizational terms, and our whole business model now depends on the international enforceability of some patents and government subsidies. But what will the world do without the research paid by our artificially high margins?

Minus the government hand-outs, this sounds very much like every just-about-to-go-broke software company's statements in the last four years. Which is -or should be- very worrying for US farmers (where the heck is their can-do, "Our plan is to get better than them at growing soy!" attitude?), and quite interesting for everybody interested on the effects of global competition in commoditized, networked markets like soybean and software.


Overall, though, I don't see this as necessarily bad for the United States. I think we're far enough into the 21st century to safely say that neither agriculture, nor basic business processes, nor most software development are anymore high-margin activities that can easily support First World standards of living. Leaving those to people in the developing world is -again, in the big picture- advantageous for both sides.

It's sad having to restate it at this point, but Japan didn't raise its living standards by protecting their fishermen's jobs. Roughly speaking, they did it by turning fishermen into small industry manufacturers, and later small industry manufacturers into robot plant managers. India is turning its craftsmen into programmers and call center operators, which is, I think, a very good move. Instead of trying to keep these no longer cutting-edge jobs, the US might be well advised in trying to figure out what to turn its programmers and farmers into.

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