Commodity prices are on the rise in 2021 due to tightening global supplies and an increase in demand from China, which is already recovering from the economic crisis caused by the pandemic.
Bloomberg recently reported that China’s thirst for soya is draining America’s silos to such an extent that the US could soon be forced to import it. Brazil and the US are the leading exporters of soya but a significant change in market dynamics has been seen in recent years with the rise of Uruguay and Paraguay.
Paraguay, which does not export to China as Asunción recognises Taiwan as sovereign, registered a record year in soya bean export volumes, which amounted to USD 2.14 billion, a 36.2% increase over 2019. The commercial director in Paraguay of a European commodities firm commented, “Paraguay is planning to double its soya production in 2021. The room for growth in export and production is enormous but it is limited by strict forest protection laws. There are some areas which can still see an expansion in soya crops, like the Chaco region. However average rainfall is lower than optimum for soya crops need and infrastructure to transport produce is still poor there.”
“Paraguay is planning to double its soya production in 2021. The room for growth in export and production is enormous but it is limited by strict forest protection laws.”
Commercial director, European commodities firm, Paraguay
A commodities analyst in Brazil believes infrastructure is holding Paraguay back, “Paraguay’s main growth in soya export will come from building infrastructure, starting with a proper reform of the Paraná-Paraguay waterway. In this context, 80% of Paraguayan exports are carried through inland waterways. The government needs to set up an efficient signalling and dredging system to make trips more efficient and remove bottlenecks from the Paraguayan logistics chain.”
Uruguay has positioned itself as the sixth largest exporter of soya worldwide with the crop among the top three exports from the country. Uruguay exports soya to 15 countries but China buys more than three quarters, amounting to USD 777 million. An agribusiness specialist with more than 15 years experience in various Latin American countries explained Uruguay’s competitive position, “Uruguay’s soya exports have seen spectacular growth with good support from local investors and politicians. Uruguayan soya is seen as a high-quality product, typical of Uruguay’s approach to competition.”
“Uruguay’s soya exports have seen spectacular growth with good support from local investors and politicians.”
Latin American agribusiness specialist, Brazil
Another advantage for producers in Uruguay and Paraguay is the tax regime, at least compared to Argentina, as a partner at an agricultural brokerage in Argentina explains, “Soya exports in Argentina are dramatically hindered by government taxes. At present, an Argentinean soya producer makes between USD 196.00 and USD 200.00 per tonne exported, whereas Uruguayan and Paraguayan exporters make USD 500.00, as stipulated in the NYSE Chicago. Argentina imposes direct taxes and it imposes a secondary tax through ‘pesificando’ contracts signed in US dollars. The government sets an exchange rate price far lower than what the market stipulates, thus keeping the difference between the real and regulated exchange rate.”
Paraguay, Uruguay and Argentina are all planning to grow soya exports in coming years. The main barriers to this are: Paraguay needs better infrastructure and technological investment to increase crop productivity; Uruguay needs to balance its high-quality produce with competitive production prices by lowering costs and Argentine soya producers, despite having privileged geographical conditions, are hindered by state taxes and dismal peso-dollar exchange rates.