Harvard law expert: Chinese market still advantageous for Brazilian agro

Date:04-26-2024

Emanuel Pessoa, an attorney specializing in international law and a Master of Law from Harvard Law School, said that the Chinese market is still advantageous for Brazilian agriculture.

Brazil's agro exporters consider China, the world's largest consumer market, as their preferred market, he added.

Also, a professor at the Chinese Foreign Affairs University, Pessoa explained that changes in China’s dietary patterns, along with its strong economic growth over the past decades, have led to a substantial rise in food imports, which now exceed US$100 billion annually. 

″However, this does not mean that China is not a major producer. On the contrary, the Asian giant is one of the world’s largest grain producers, and food security has always been a central focus in China's public policy formulation,″ he said. 

Despite the consistent rise in food imports, local government incentives ″prevented imports from growing even further and contributed to the growth of domestic production,″ therefore, exports of Brazilian agribusiness to China faces several challenges, he added.

″The national agro producer has faced similar challenges due to the work that had already been done related to European and North American markets, such as meeting regulatory demands that require very high standards for exported products and reducing costs to remain competitive in the face of taxation,″ Pessoa said. 

″Regarding the latter, China is now a member of the World Trade Organization, making it possible to use legal mechanisms to deal with any disproportionate taxation,″ he added, stressing that challenges lie in distribution logistics, obtaining Chinese authorization for exports, and political issues. 

″Although corn and soybeans already use railways for transportation more than roads, the latter is still relevant for these commodities, which account for more than 40% of the cargo transported, and when considering the total goods transported, it accounts for 75% of total. Road transport is slower, less reliable, more expensive, and inefficient, reducing the profit margins of Brazilian producers and hindering capital accumulation,″ he further said.

Only when this accumulation reaches high levels can producers become independent of financing, which lowers interest rates and provides incentives to invest in other activities, mainly related ones, such as processing and industrialization, he further added. 

″Therefore, Brazil could increase its exports of soybean oil and derivatives at the expense of raw soybeans, by adjusting the logistics modal and reducing business bureaucracy,″ Pessoa said.

Regarding export authorization, he explained that this depends on various factors, such as meeting minimum quality standards, regular inspections, and complying with quotas pre-established by the Chinese government. ″Knowledge of local rules, particularly in a country with well-defined rules like China, whose bureaucracy is ancient, can make this process shorter,″ he further said.

″Despite the difficulty in obtaining this license, it is worth remembering that Chinese income based on purchasing power parity is approximately $20,000 annually, while Brazilian income, by the same criterion, is nearly $16,000. Under nominal exchange rates, for comparison purposes, Chinese income would be nearly $12,000 annually, and Brazilian income would be nearly $8,000. Therefore, accessing the Chinese market means accessing a market nearly seven times the size of Brazil’s, where protein consumption and agricultural product consumption continue to grow rapidly and cannot be met by domestic production,″ he further explained.

Political issues are not exclusive to China and tend to permeate access to any major market, he further added.

″In particular, Brazil has done well to focus its relationship with China on trade and cultural exchange, avoiding situations that could harm the agro-export sector. This does not mean that the relationship cannot evolve, particularly through ‘business diplomacy,’ which strongly assists in deepening the relationship between entrepreneurs from both countries,″ Pessoa said in conclusion.

(Editing by Leonardo Gottems, reporter for AgroPages)