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May 23, 2017

China, Latin America and Changing Relations of Dependency: The Case of the Soybean Complex

soybean

By Maria Eugenia Giraudo, University of Warwick

China’s expanding presence in Latin America has been the subject of much discussion in Latin American academia and popular media. The growing role of China in the region raises many questions: Is China an alternative, anti-imperialist partner (McKay et al., 2016)? Are we witnessing the emergence of a ‘Beijing consensus’ that may replace the ‘Washington consensus’ (Slipak, 2014)? Is China producing new relations of dependency (Jenkins, 2012)? The nature and volume of trade relations between China and Latin America seem to suggest that this last focus on dependency is the most apt. However, these accounts have mainly focused on the imbalances in trade statistics, thus failing to explore the struggles over the controlof the value chains that connect these countries. A closer look at the governance of the soybean value chain – one of the key commodities in this bilateral relationship – reveals how efforts by China to further its control over the supply and trade of this product has created a deeper form of dependency than that described by traditional dependency analyses.

Theorising the phenomenon: Dependency revisited?

Latin America has become a key supplier of raw material and agricultural exports to China. Within the literature, a number of influential accounts have framed this phenomenon in a positive manner by drawing attention to the impact on Latin America’s terms of trade in its relations with China. However, other authors have analysed this relationship in less rosy terms, choosing instead to focus on the role of China in the re-primarisation of the economies of Latin America, and the ways this dynamic has fostered new relations of dependency (Sevares, 2007; Jenkins, 2012; Slipak, 2014).

Dependency theory emerged in the 1960s in response to the failures of the structuralist approach that had proposed the state strategy of Import Substitution Industrialisation as a remedy Latin America’s underdevelopment. Although internally heterogeneous, dependency theory argued that the core-periphery dynamics observable in North-South economic relations were inherent to capitalism (Cardoso and Faletto, 1979; Frank, 1967). The peripheral economies of the Global South were locked in a position of dependency, as they depended on primary goods exports to the Global North, while relying on the latter for industrial manufactures. Furthermore, the development of advanced countries was dependent on the underdevelopment of the periphery. The expansion of industrial activity in the core was reliant on cheap primary products from the periphery: these cheap goods allowed core economies to specialise in manufacturing and to provide workers with food at low prices and thus assure low wages and high profits. Arguing that such imbalances determined underdevelopment, dependency analysis largely focused on the core/periphery trade structure and the domination of Latin American countries’ balance of payments by primary commodities.

While largely forgotten in the wake the debt crisis of the 1980s in Latin America, and the following period of neoliberal structural adjustment, recent transformations in international trade have prompted the emergence of a new language of dependency in Latin America. This is the mainly result of China’s increasing role in the region as a consumer of primary resources and as a crucially important trade partner. The rapidly expanding presence of China in Latin American trade has led many to discuss the region’s ‘sino-dependency’, and even pushed the Executive Secretary of the UN’s ECLAC agency to warn about the ‘risks of a new dependency’ upon China.

The centrality of soybean to China-Latin America dependency

When examining the relations of dependency between China and Latin America, one commodity in particular stands out: soybean. The incredible rise in Chinese consumption of the oilseed and China’s reliance on the international market for its supply have caused global soybean prices to soar. WWF reported that China’s consumption of soybean increased from 26 to over 55 million tonnes between 2000 and 2009, and Chinese imports are expected to have increased by almost 60% by 2022 from 2014 values. China imported 69 million tons of grain and 1.4 million tons in soybean oil in 2014, while the European Union received over 12 million tons of soybean and 19 million tons of soybean meal in the same period (Foreign Agricultural Service/USDA 2014).

Coinciding with technological and productive improvements, this has fostered a massive expansion of soybean production in South America, and the Southern Cone particularly. Global supply of soybean is dominated by the United States, Brazil and Argentina, who together make up 75% of the world’s production (FAOSTAT). The ‘soybean heart’ of Latin America is found in an area dissected by the borders of Brazil, Paraguay and Argentina. Together these three countries surpass the United States’ levels of production, export quantities and cultivated surface. Between 2000 and 2010, cultivated land increased by over 40% in Argentina and Brazil, and a remarkable 95% in Paraguay. This now equates to an area roughly the size of Spain, entirely dedicated to mono-cropping soybean.

There is an intimate connection between the economic performance of the countries of the Southern Cone and China’s demand for soybean – a connection that clearly typifies the relation of dependency existing between these economies. However, as will be examined next, trade statistics alone do not capture the full extent of the unbalanced and dependent relations embedded in the soy case. Rather, to fully capture how soybean has become a source of deeprelations of dependency between China and South America, we must examine the governance of the soy commodity chain.

China’s growing control of the global soybean complex

The case of soybean demonstrates that relations of dependency have taken a more complex form, which requires an analysis that goes beyond the composition or volume of bilateral trade. Following the traumatic ‘Battle of the Beans’ in 2004, in which China was badly burned by global derivative markets and Western agricultural conglomerates, China has attempted to extend its governance of the global soybean industry through a variety of multi-scalar strategies. These strategies, taken together, have engendered dynamics of economic domination that signify a deep relation of dependency between China and South America – dynamics of control that cannot be ignored by analyses of Sino-Latin American dependency.

Strategy I: Land purchases

The purchase of land for soybean production has been one of the most important components of Chinese land acquisitions. In 2011, the Chongqing Grain Group (CGG), a Chinese trading company based in Chongqing, announced a US$850 million purchase of 200,000 hectares in the northeastern Bahia region of Brazil, for the production and processing of soybean (Zha and Zhang, 2013: 468). This project was partially supported by the Chinese Development Bank (CDB) and, according to the mayor of Chongqing, CCG holds a majority stake in the project, while 30% is owned by their Brazilian counterparts (Maissonave and Magenta, 2011).

Strategy II: Acquisitions and investments

China has been incentivising Chinese companies – many of them state-owned – to expand globally as a strategy to both secure the supply of soybean (and other agricultural products) and enhance its capacity to control prices (Myers and Jie, 2015). For example, China’s largest grain trader, China National Cereals, Oils and Foodstuffs Corporation (COFCO), recently acquired NIDERA, a transnational agribusiness company and Noble Group, a grain trader and commodity supply manager based in Hong Kong. Together, Nidera and Noble represent almost 15% of the total volume of grains exports in Argentina, above the levels of Dreyfus, Cargill and Bunge (Bertello, 2016). With these two acquisitions, China has asserted its dominance of the commodity chain, in which COFCO has become the largest grain exporter in Argentina.

Strategy III: Investments in infrastructure and financial support

A third strategy is through lending and investments. As opposed to the operations mentioned above, where the projects were designed and implemented by state-owned companies, these loans and funds are directly provided by the Chinese government through its development banks, namely the China Development Bank (CDB) and the China Export-Import Bank (Eximbank). The role of China in Latin America as a source of loans and finance has been increasingly significant in the last fifteen years. Since 2003, credit provided by China to the region has amounted to US$113 billion, and in 2015 the total value of bilateral loans surpassed that of the World Bank and the Inter-American Development Bank (IADB) combined (WWF, 2014; Myers et al., 2016).

Strategy IV: Veto of ‘technological events’

An additional area where governance of the soybean chain takes place is related to bio-technological events (specific genetic modifications to certain seed species) and the utilisation of genetically modified (GM) varieties of soybean and other crops. This struggle over governance is mainly enacted through trade, and the opposing forces of concentrated supply and demand. As global demand for soybean and other grains chiefly emanates from China, any decision by this country to halt imports, or impose conditions on the quality of goods, can have significant effects on exporting countries. This allows China to exert control over the biotechnological aspect of the commodity chain, as well as to informally penalise countries that treat China in a manner that they perceive to be unfavourable.

Deeper dependency

A closer look at China-Latin America relations through the lens of dependency analysis has proven effective in problematising the discourse of South-South Cooperation and positive current account balances, as well as highlighting deep imbalances underpinning the asymmetric relations at play. However, the analysis of the deep dominance of China over the entirety of the soybean value chain presented here has certain implications for the dependency approach. As the different strategies explored above have shown, dependency is not always – or not entirely – reflected in trade balances. Rather, trade often reflects other channels of asymmetry. While a closer look at the soybean value chain has revealed the need to further expand dependency analysis to fully reflect the complexities of these relations, one of the main tenets of this intellectual tradition remains valid: the development of the core is dependent on the underdevelopment of the periphery. In this case, the consolidation of primary commodities production in Latin America, and the increasing control of that production by Chinese capitals, has strengthened China’s capacity to monitor prices, ensure levels of production, and maintain industrialisation within its own borders. A double-dependency emerges, as South American countries rely on Chinese demand as the source of their economic dynamism, and China relies on South America’s re-primarisation for the maintenance of its industrial prowess.

Picture: Kyle Spradley | © MU College of Agriculture, Food & Natural Resources, https://www.flickr.com/photos/cafnr/10894992756/.


References

Bertello, F. 2014. Una Empresa Estatal China Se Quedo Con El 51% De La Cerealera Nidera. La Nacion.

Cardoso, F. H. & Faletto, E. 1979. Dependency and development in Latin America. University of California Press.

FAOSTAT[Online]. Food and Agriculture Organization of the United Nations. Available: http://faostat3.fao.org/faostat-gateway/go/to/home/E [Accessed 8 March 2017].

Foreign Agricultural Service/USDA. 2014. Oilseeds: World market and Trade, United States Department of Agriculture. [Online] Available: http://usda.mannlib.cornell.edu/usda/fas/oilseed-trade//2010s/2014/oilseed-trade-03-10-2014.pdf.

Jenkins, R. 2012. Latin America And China—A New Dependency? Third World Quarterly,33,1337-1358.

Maissonave, F. and Magenta, M. 2011. China investirá US$ 879 mi em soja na BA. Folha de Sao Paulo. 15 Jan.

McKay, B., Alonso Fradejas, A., Brent, Z., Xu, Y., Sauer, S. 2016. China in Latin America: towards a new ‘consensus’ of resource control? The 4thInternational Conference of BICAS. Conference Paper No. 16.

Myers, M., Gallagher, K. P. & Yuan, F. 2016. Chinese Finance to LAC in 2015: Doubling Down. China-Latin America Report, Inter-American Dialogue.

Myers, M. & Jie, G. 2015. China’s agricultural investment in Latin America: a critical assessment. China and Latin America Report, Inter-American Dialogue.

Sevares, J., 2007. Cooperación Sur-Sur o dependencia a la vieja usanza: América Latina en el comercio internacional. Nueva Sociedad, 207, 11-22.

Slipak, A. M. 2014. América Latina y China: ¿cooperación Sur-Sur o «Consenso de Beijing»? Nueva Sociedad,102-113.

WWF. 2014. The Growth of Soy: Impacts and Solutions. Gland, Switzerland: WWF International.

Zha, D. & Zhang, H. 2013. Food in China's International Relations. The Pacific Review, 26 (5),455-479.


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