The Two Prices of Soy

Who cares whether China stops buying soy from the United States? History suggests we all should.

Illustration by Ben Jones.

Last autumn, US silos and grain elevators brimmed with a bumper crop of soybeans, yet soy farmers were decidedly not brimming with joy. They were anxious because their biggest market, China, had vanished. So many unsold soybeans needed storage that latecomers to the grain elevators, or those whose beans were less than perfect, were turned away. There just wasn’t enough room. Some farmers had no choice but to pile their beans on the ground, at the mercy of nature, or give up and plough them under to rot.

The trade war descended on these farmers on 6 July 2018, when US tariffs on Chinese goods, designed to punish China for unfair trade practices, went into effect. China retaliated by placing steep tariffs on its US agricultural imports. Foremost among those imports are soybeans. The tariffs made US soybeans an expensive choice for Chinese businesses, so they found other options.

Soy many problems

America’s soybean exporters, processors and some 300,000 farmers are seeing their previously $41 billion industry suffer, perhaps irreversibly. In recent years China had imported a third of America’s soybeans and US farmers had become dependent on Chinese contracts. According to the US Department of Agriculture, in just a few months in 2018, American farmers lost some $8 billion due to the trade war and nearly 25 million tonnes of beans are expected to go unsold. What can American soy farmers do now? Grow soy and hope for renewed contracts or unexpected new markets? Grow other grains instead, risking overproduction and the plummeting of those grains’ prices? Switch to speciality crops they are less certain how to cultivate and market? US soy processors, transporters, exporters and futures traders face similar questions. Delays, unresolved disagreements and instability in trade negotiations between China and the US have rendered those talks merely a tenuous reassurance.

The abrupt disruption of Chinese demand for US soy is of dire importance to American farmers – but it carries grave implications for the rest of us as well. Shifts in trade patterns can precipitate massive environmental destruction. From the 1840s onward, the relationship between the prairie regions of the US and world agricultural markets illustrates this. The history of the land beneath American farmers’ feet, and of its crops and the policies affecting them, reveals why we should all be concerned.

Much of America’s soy heartland was once wild prairie. Then in the mid and late 19th century, technological advances and the introduction of superior seed greatly increased US capacity to grow wheat. John Deere’s 1837 invention of the self-scouring steel plough suddenly made it easier to handle the prairie’s fertile but sticky soils, significantly reducing the time and effort farmers expended in cleaning their equipment. The introduction of hard wheat seeds from Europe, which were well suited to lands west of the Mississippi, also aided production. The expansion of railways made marketing wheat to Europe more cost-effective. Particularly after 1865, the export of wheat and the extirpation of America’s prairies went hand-in-hand. Eventually much of that prairie became covered in rotations of maize and soybeans, as the yields, uses and prices of those crops increased. Today less than 30 per cent of the country’s original mixed-grass prairie survives, in scattered and often degraded fragments, and less than five per cent of its tallgrass prairie remains. Once truly extraordinary natural ecosystems, these lands became, instead, an agricultural superpower. The US became a major supplier of world foodstuffs. The price was great environmental loss.

Nixon’s blunder

While those agricultural shifts are distant memories in the US, events in the later 20th century are still salient. For current soy farmers, recent developments instil acute fear that America’s share of the Chinese market could be permanently lost to farmers in developing countries. Indeed, South America is already a formidable rival in the world trade in soybeans and it got its start precisely because of an American trade blunder.

Brazil’s big boost in soy agriculture came in 1973 when the Nixon administration briefly cut off Japan’s supply of US soybeans. Nixon took this action because soy prices in the US had risen dramatically in the wake of a world shortage of other animal feeds, caused by climate problems. The shortage and attendant price spike for soy threatened to inflate the domestic price of meat from animals fattened on that soy. Higher meat prices for ordinary consumers were not in Nixon’s political interest.

The soy export ban was only fully in effect for seven days. Yet the spooked Japanese decided they could no longer rely on the US as their sole supplier and invested heavily, for 21 years, in turning Brazil into a soy titan. Tropical cultivars of soybeans were developed, soil problems were corrected, great swathes of savannah and rainforest were razed and trucking was expanded. Since 1970, nearly 800,000 square kilometres of Brazil’s Amazonian rainforest have been lost. Although not all that loss is attributable to soy, the crop has played a prominent role. In Brazil’s vast and extremely biodiverse savannah, over 60 per cent of the original ecosystem has been destroyed – soy farming is the overwhelming cause.

Argentina and Paraguay, seeing the huge profitability of Brazilian soy, followed suit. In these countries, deforestation to make way for soy farms became a serious problem. In 2006 and 2009, for example, loss of trees led to water flows affecting Argentina’s Tartagal River. It flooded, producing landslides that destroyed a road bridge and a railway overpass, killing three people and bringing hardship to the lives of another 10,000. Commenting on the situation, the National Forest Director dryly remarked: ‘The price of soy doesn’t include its environmental impact.’

Looking elsewhere

Even brief interruptions to previously successful trading relationships can convince an importer that its trading partner is no longer reliable. Buyers and investors turn elsewhere. The ‘elsewhere’ for soybeans is at the heart of why everyone should care about the unintended consequences of the current trade war. American soy interests have a right to be concerned about their livelihoods. The rest of us should be concerned about the potentially massive environmental destruction that would be likely to ensue if China creates greater demand for soy from places such as Brazil and Argentina.

But South America is not the only place where a shift in the geography of soy threatens the natural environment. Soybean agriculture is on the rise in Africa, notably due to Chinese investments. Once again, new cultivars are being developed, soil problems corrected and great swathes of diverse ecosystems threatened. Environmentally sensitive trade policies in distant countries are one key to protecting the natural world.

It is too late to save America’s tallgrass prairie. But keeping soybean production for China’s hungry population squarely in the places whose wild environments have already been sacrificed for agriculture protects biodiversity elsewhere. Those ‘elsewheres’ include forests that lock away carbon dioxide, reducing climate change. The fewer the planet’s trees, the greater the likelihood of flooding, wildfires, extreme weather and infectious diseases. Trees and other native plants keep the soil in place, too, reducing erosion and preventing rivers from being choked with silt – a common effect of deforestation. The tropical forests and savannahs of diverse elsewheres could also provide compounds for new medicines in the future – unless their biodiversity is destroyed before we get the chance. The environments endangered by soy’s role in a trade war even help to regulate rainfall patterns over vast regions, such as the Amazon. Every forest that is chopped down, every savannah whose natural balance is commandeered, represents a loss to human wellbeing.

Nixon’s 1973 blunder demonstrates that the abrupt disruption of trade relations can signal unreliability to commercial partners, with long-term environmental consequences. Another commodity also illustrated this in the same year. With price hikes and an embargo, Arab oil producers pressured nations that had supported Israel in the Yom Kippur War, including the US, the United Kingdom, Canada and Japan. But the effects of these measures were not what the oil-producing nations had hoped: there were no major alterations in Israel’s borders and, among the targeted countries, changes in policies towards Israel were modest. The embargo’s major outcome was, instead, a worldwide shift in energy economics. Oil-exporting nations, armed with new clout, were able to negotiate better contracts with oil-extraction companies, even as worried oil-importing nations began seeking ways to reduce their energy consumption, create their own renewable energy and to explore new sources of fossil fuel within their own borders and, therefore, under their control.

Although some of these developments were environmentally protective, others placed new ecosystems in danger. Spurred by the embargo, US Congress approved the Trans-Alaska oil pipeline – a project previously too controversial to authorise. Disastrously, 37,000 metric tons of spilled Alaskan oil would eventually kill at least 100,000 seabirds, over 2,000 marine mammals and uncountable numbers of fish when the Exxon Valdez tanker broke open at Prince William Sound in 1989. Once again, geographical expansion in the production of a major commodity had a terrible impact on the natural world.

If history provides any guide, the current disruption of the soybean trade between the US and China should concern us all.

Christine M. Du Bois is the author of The Story of Soy (Reaktion, 2018).