The escalating trade dispute between the US and China appears to be leading to some structural shifts in the world oilseed trade; and soyabean, the largest among cultivated oilseeds, is at the centre of it all.

While the US is the world’s largest producer of soyabean (over 125 million tonnes) and exporter, China is by far the world’s largest importer (over 80 mt) and consumer to feed its burgeoning livestock industry. Any friction between the largest supplier and the largest buyer has the potential to disrupt normal trade flow.

In response to the US’ imposition of tariffs on certain Chinese items, China’s retaliatory tariff of 25 per cent on US soyabean since July has resulted in a steady reduction in the inflow of US origin soyabean into China and seems to have come to a halt recently.

The Asian major is keen to become increasingly less dependent on US soyabean and is therefore seen purchasing larger quantities from the world’s second largest producer, Brazil (120 mt in 2017-18). China is also reducing domestic demand by adjusting feed rations.

World market nervous

The world soyabean market is currently in jitters because of a combination of factors. There is fear the trade conflict will continue for some time. The US is currently harvesting a record soyabean crop estimated at 127.7 mt, while planting conditions for Brazil and Argentina are favourable. No wonder, prices are under intense downward pressure.

While Brazil is expected to garner a large share of the Chinese market in the months ahead, it is expected that Argentina too will pitch in with fairly significant volumes on offer to China. Part of Argentina’s 37 mt crop (down from 55 mt in the previous year) will be freed for supply to China and the US origin soyabean will come to Argentina for crushing and conversion to meal and oil. This is how trade flows are likely to pan out in the months ahead.

Where does all this leave India? The country is staring at an estimated 11 mt soyabean crop, which is likely to push prices down. The government would be under considerable pressure to defend the minimum support price of ₹3,400 a quintal, while support operations are going to involve enormous financial strain.

One way to shore up domestic soyabean prices would be to target China for supply of say 2 million tonnes of Indian soyabean. Given India’s large trade deficit with China, it would make sense to promote export of soyabean, which, in turn, would help support domestic prices and minimise government intervention. However, at about $500 a tonne, our beans are way too expensive as compared with supplies from the US or Brazil at $400 a tonne.

The soyabean processing industry believes the Chinese market presents a unique opportunity for export of Indian soyabean extraction and export can be undertaken without any special subsidy or incentive.

It is necessary for the Commerce Ministry to seize this rare market opportunity China presents. While exporters may undertake promotional work, government to government talk is critical.

The writer is a policy commentator and global agribusiness specialist. Views are personal.

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