Introduction
The soybean industry has been a dynamic one since the early 1970s, when nations such as the US and China dominated the markets, while others like Brazil were starters (Gale et al., 2019, p 1). Between the years 1987 to 1988, Brazil saw the production of more than ten million metric tons of soybeans and exported about 2 million metric tons compared to the US, which traded less than 20 million metric tons (Gale et al., 2019, p 3). By the year 2002, Brazil had increased production, and its export was considered a leader in soybeans exportation. While the US was still a dominant soy producer, it had a slower growth rate, which saw the export of about 2.5 million metric tons than Brazil (Gale et al., 2019 p 3). Generally, these two nations are not the only commodity producers of soybeans, as others such as Argentina have been in the market, only that their growth rate has been slow. The purpose of this paper is to provide a detailed report that applies trade theories to commodity markets of the US and Brazil regarding the production and export of soybeans.
Absolute, Comparative, and Factor Endowment Advantages
Soybeans Industry in Brazil
To comprehensively address how Brazil and the US attain an advantage over the marketing of soybeans, it is paramount first to understand the conditions in the agriculture sector. The commodity culture in question (soybean) was introduced in Brazil in 1882, where the research was conducted to assess cultivars (Cattelan and Dall’Agnol, 2018, p 8). Between the years 1900 and 1901, the Agronomic Institute in Sao Paulo (AIC) promoted its seed distributions (Cattelan and Dall’Agnol, 2018, p 8). More research revolving around the farm produce was carried out, and by the 1970s, soybean became established as a major Brazilian major crop in agribusiness (Cattelan and Dall’Agnol, 2018, p 8). Typically, some factors contributed to the establishment and growth of soybean culture, including similarity with the US region where the product was introduced and soil fertility. Tax incentives increased demand for vegetable oil compared to animal fat, and infrastructure improvement favored industrial factors.
Brazil’s explosive growth of soybean has profoundly impacted the agriculture sector in the economy by boosting farming activities, improving transport systems, and expanding agricultural frontiers or professionalization. Brazil is a key player, and investments in agriculture products make it competitive in the world markets. Simultaneously, its consistent agricultural performance is a primary reason for excellence in international trade (Oliveira, 2018, p 1). Soybean is among the top agricultural commodity in Brazil’s export (TrendEconomy, 2020, para 1). One of the reasons why Brazilian soybean is unique is its higher protein levels than a commodity in other states. With that, growers stand to demand high prices for the product in the international market.
Agriculture policy concerning the Brazilian soybean industry has been subject to changes that favored crop production excellence. In the 1970s, subsidized credit availability was crucial domestic support, although the emphasis on credit declined in the 1980s, as support through a price mechanism became a backup (Gale et al., 2019, p 2). The Brazilian government built a stock of different products, but this also affected land values and ownership concentration. A complete reform in the farming system’s agricultural system was evident after introducing cooperative public research, which saw heavy investments in training scientists. Brazil engages in negotiations to establish free trade zones between the EU and MERCOSUR, the free trade area of America (FTAA), and bilateral deals like agree signed with Mexico.
China by far is the leading nation of destination for Brazilian soybeans. The Asian state recently accounted for over 70% of product export value, which amounted to significant US dollars, while Spain trailed as the second destination (Gale et al., 2019, p 3; Food and agriculture organization of the united nations, 2017, para 1). The hiked demand in China for feeding livestock and producing cooking oil makes the country import heavy from Brazil. From an analysis, it is expected that Brazil’s exports for soybeans would increase as devalued country’s currency makes the commodity more affordable.
Soybeans Industry in the US
The US is a market leader in soybean production and export, competing for domestic and international demand. In the US, Soybean was introduced around 1804 by a Yankee clipper ship from China (Gale et a, 2019, p 3). By 1829, many farmers in the US had started growing the crop and raised various soy sauce and cattle forage (Gale et a, 2019, p 3). During the Civil War, US soldiers used the product as coffee berries to brew coffee when the real coffee was limited. The soybean study began in 1904, with George Washington Carver at Tuskegee Institute in Alabama (Horst and Marion, 2019, p 4). The discoveries influence the crop approach, and it was no longer used only as forage but as valuable protein and oil raw material. In 1929, soybean production in the US had developed to 9 million bushels (Gale et a, 2019, p 6). Later in the 1950s, soybean meal became readily available as low-cost, high protein feed that triggered livestock and poultry farming in the US (Horst and Marion, 2019, p 4). By then, the country’s industry had started looking at ways to expand export markets, and USDA-foreign agricultural service opened an international office in Japan. Currently, US soybean is exported to more than 80 nations, and yield is attributed to improved seed varieties (Horst and Marion, 2019, p 6). Also, agronomic practices like no-till farming and biotechnology, which enhances seed tolerance to herbicides, have played a huge role. French, (2017 p 2) inform that comparative advantage is the measures of ability to produce goods relative to other partners. With that, US has enjoyed the sale of soybean facilitated by technological differences.
There has been a shift from trans fats to edible oils in the US agriculture and food industry, which impacted the demand for soybeans in the market. Researchers geared high oleic soybean varieties that produce oil that is not hydrogenated, allowing avoidance of trans fat. The competitive advantages for US’s soy exist along with challenges, such as alternative feed ingredients and competition from other nations producing more soybean products yearly. Ethanol production in the US has expanded recently due to renewable fuel standards; hence, dried distiller grains with soluble (DDGS) have grown proportionately. Typically, DDGS is used in combination with amino acids, and approximately 6 million tons of soybean meal have been replaced by this product (Konieczka et al., 2019, 1116). DDGS are used for livestock feed domestically and overseas, incurring an impact on US soybeans’ market demand. Comparing the US’s soybean product with that from Brazil, studies show that the latter produces soybean meals that have high protein contents. Therefore, the continued effort to improve the US soybean is a long-term strategy to keep the commodity competitive in the global market.
Like Brazilian soybean, the US’s soy product is imported mainly by China, which books a deal of buying from the country. Other export destination for US soybeans includes Pakistan, Taiwan, Vietnam, Thailand, Egypt, Japan, Indonesia, Mexico, and the UK. Most exports are made to China, making up 39% of exports, but this is less than 70% of Brazil’s commodity export (Gale et al., 2019, 6). The rise in obesity in the US has stirred the demand for soy products’ consumption, leading to market growth. Also, increased intake of soybeans to prevent health conditions such as Anemia is the driving growth in the US soybean domestic market.
Applying Trade Theories
Porter’s Model
Porter’s competitive advantage theory infers that international trade success is derived from firms’ essential elements, including demand, supporting industries, rivalry, and strategy. According to Porter’s model, a business endowment of production factors influences its ability to compete internationally with values creation (Kaleka and Morgan, 2017, p 28). Concerning this, Brazil’s ability to excel in the market results from privileges such as soybean product quality and significant areas of underutilized lands. The tropical climatic conditions, which encourage double cropping, governments resources devoted to agricultural research, seed research by the private sector, and capital investment in farming that boost productivity, support industrial factors for national competitive advantage.
Porter’s model for national competitive advantage goes beyond highlighting the fundamental factors such as land or capital. US soybean’s competitive advantage has been achieved through advanced aspects such as more developed infrastructure than those in Brazil and the workforce’s education level from invested training and research. The US industry has established a positive culture toward work and created what Porter refers to as power of suppliers through productivity (Kreps, 2019, p 5). On the contrary, both countries have stressed training, research, and innovation, which boost soybean production. The industry of soy products in both countries has improved compared to the past, which is facilitated by research and innovations.
The soybean industry of Brazil and the US have significant few threats of market rivalry. These two countries are the leading producers of soy crop, which gives a cutting edge to share international market as the demand for the product rise from prominent nations such as China. Brazil and the US have a long history of soybean production, implying that the industries have a deep-rooted establishment to be wayed by new entrants such as Argentina. Soybean product has no substitutable product threatening its existence in the market. Typically, the demand for soybeans has increased due to health concerns, especially in the US, and increased livestock farming where the crop is useful as animal feed. Direct competition between Brazil and the US is limited as there is considerable demand globally, especially from China, which outstrips soybean supplies from these two countries. Livestock intensification in regions such as Europe creates demand for protein-rich products, fueling soybean production in Brazil and the US. However, the promotion of grain legumes under the Common Agricultural Policy (CAP) affects the EU’s dependency on soybean inputs from the US. Consequently, such a devastating policy impact is a serious threat to international trade.
Intra- and Inter-Trade Theories
Sometimes businesses trade products belonging to different industries, and in the agricultural sector, the sale of farm produces in a country can be facilitated by technologies produced in another state. As such, this relationship forms an inter-industry trade. Concerning soybean products from Brazil and the US, these nations do not seem to produce an inter-trade approach. Technology and expertise used to deliver soy products in the global market are independent. However, soybean product trade is through an intra-industry concept when Brazil and the US deal with similar commodities in the same market. Typically, imports of agricultural products into China from Brazil and the US have increased rapidly since 2000. After the 90s globalization, the trade between the two nations and China had not evolved that much. The South American exporting states concentrated on trade expansion in the perspective of trade agreements such as MERCOSUR, EU, FTAA, and gradual trade with the ASEAN. Intra-area trade was the main approach back then until China’s presence in the international trade during the new decade has shaped the world trend of business for MERCOSUR members.
Country Similarity Theory
An intra-trade industry for soybean is essentially abetted by the similarity factor, which places nations’ capabilities and needs to be similar. Brazil exports a lot of soybean products, and so does the US, while the market need for the commodities is the same internationally. The country similarity theory posits that if two nations have a related pattern, customers would claim the same commodities with a similar degree of value in the international markets (Krugman, Obstfeld and Melitz, 2018, p 201). Brazil and the US have the proximity of geological location, and according to this model, they have a better chance to trade, unlike when they are far apart. Although the nations have s a similarity in agricultural products and market zones, what differs is the quality of commodities, and for Brazil, this is a cutting edge for competition.
Product Life Cycle Theory
A life cycle of a product is associated with marketing and management decisions within the business and involves stages such as development, introduction, growth, maturity, and decline. Soybean product from both US and Brazil has undergone the first two-stage. The industry’s main focus is on development and maturity to avoid a drop in the international market. At the growth stage, soybean products demand is high while the marketing is aimed at a broad audience. The funding process is majorly through revenue income. The soybean industry is at maturity for the US because competition has stiffened due to the demand for high-quality protein-rich commodities. Since Brazil has satisfied the demand with its quality soy crop, the US’s industry will have to do something and enhance the product to maintain market share.
Tariffs Regulations
In a highly competitive market, restrictive measures such as introducing tariffs are meant to protect the industry. According to Oliveira and Schneider (2016, p 6) China’s tax and trade tariffs change regularly to promote soybean imports. For instance, in 2018, China by levied the US a 25% percentage tariff on soybean export (Hitchner, Menzie. and Meyer, 2019, p 3). The action influenced market preferences such that Chinese buyers favored Brazilian soy commodity. As the world-leading producer of soybeans, Brazil had lately experienced a supply drain due to rising domestic usage and high sales to China, which led to the announcement of import duties to suppress domestic food inflation. However, import duty removal did not favor trade with the US because Brazil cannot import genetically modified commodities. In that way, when it comes to the imposition of trade restrictions, there are trade members who significantly get hurt directly or indirectly.
Conclusion
To conclude, this paper has primarily focused on the commodity market of soybeans from Brazil and the US. In analyzing these two countries’ performance at the international level, trade theories such as Porter’s model have helped to identify advantages tied in each operation. The soybean industry market is not very competitive, given that only a few countries have scoped the demand. However, product uniqueness has shown to be a key factor for cutting edge competition, which makes Brazil earn the most market than the US.
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