Opinion | Changing trade dynamics and South Asia’s soya saga4 min read . Updated: 07 Nov 2019, 02:25 PM IST
If Indian soyabean meal can make little headway into the Chinese market, it will be a win-win for Indian producers and Chinese consumers
On 4 November in Thailand, India announced its decision to opt out of Regional Comprehensive Economic Partnership (RCEP), a mega Asia Pacific trade pact. While Indian Prime Minister Narendra Modi said that the deal did not address India’s key concerns, many called it a failure of the 11-12 October Mamallapuram informal summit between Indian PM Narendra Modi and Chinese President Xi Jinping.
In 2018-19, India registered a trade deficit with as many as 11 RCEP member countries, trade deficit with China alone stood at $53.5 billion. In the last informal summit held in China in April last year, New Delhi conveyed to simplify the regulatory process and allow more imports of certain agricultural products including soyabean, rapeseed and non-basmati rice from India. However, Modi pointed out during the October meeting that there was no significant improvement in exports of any of these products from India to China.
The soyabean trade is particularly interesting. On one hand, China is the largest importer of soyabean in the world and on the other hand, the US is the world’s largest producer. Friction between the largest buyer and the largest supplier, amidst the ongoing trade war between China and the US, is disrupting the soybean trade flow. China’s efforts to reduce dependence on American soy was seen as a great opportunity for the Indian exporters to resume soybean meal trade with China. Only a few years back, China was among India’s top importers of soybean meal, but China restricted India’s access to the Chinese market in 2012 due to non-compliance with food safety norms.
In the last two decades, China’s demand for soybean has way surpassed its production. While in 1995 China’s production managed to match its demand—14 million tonnes at the time, its consumption increased to a staggering 70 million tonnes in 2011, while production of soybean remained the same. China was dependant on the US for 40% of this great modern-day staple that sits on the third rung on the Chinese food hierarchy. The trade war triggered China to impose a 25% tariff on imports, including soybean. And imports of American soybean dropped from 36 to 8 million tonnes from 2016 to 2018.
As the US, the world’s second largest exporter of soyabean after Brazil, started losing share in China’s soyabean market, it was already targeting other markets in the Asia Subcontinent like Pakistan and Bangladesh. As a result, Pakistan’s purchase of the US soyabean witnessed a jump of 450% from 2015 to 2018.
Before the US entered Pakistan’s soyabean market, India was the major supplier of soyabean meal to its neighbouring countries, Pakistan and Bangladesh. In 2015, Pakistan was India’s number one trading partner for soyabean meal. However 2016 onwards, Indian soybean meal was denied entry into Pakistani market on the premise that it contained pork pieces.
Though Pakistan’s Poultry Association still had a preference for the Indian soybean meal due to its non-GMO nature and high protein content, the local processing plants began to revive in Pakistan, preferring imports of soyabean followed by in house processing into soyabean meal for animal feed. Thus began a tussle between the Poultry Association and the Processing industry in Pakistan.
This was because Americans were strategically entering South Asian markets by adopting a direct marketing strategy to demonstrate the preference for the US. soyabean in countries where demand for Indian soyabean meal was high. Pakistan began importing huge quantities of soyabean from the US and processing it locally to generate soyabean meal for its animal feed. All of this led to a fall in demand for India’s soyabean meal to its major markets.
In overall terms, India’s soyabean meal exports have decreased from 6.06 million tonnes in 2008 to 1.95 million tonnes in 2018. India lost some of its traditional markets and the share in exports in certain markets declined due to shift in demand from soyabean meal to soyabean.
At the onset of US-China trade war, India hoped that it could get the opportunity to resume soyabean meal trade with China. China was among India’s top soyabean meal trading partners before the ban was imposed. Despite the former trade relations and logistic benefits with India, China preferred imports of soyabean meal from Argentina and Brazil. While Indian industry continues to eye the Chinese market, it was demand from Iran that helped keep up the pace of exports in 2018.
If Indian soyabean meal can make little headway into the Chinese market, it will be a win-win for Indian producers and Chinese consumers. It will also help in the reduction of India’s trade deficit with China. Does it not seem like an intuitively obvious trade phenomenon? It all depends on what India would agree to, in return.
Nikita Singla is Associate Director and Priya Arora is Senior Research Associate at Bureau of Research on Industry and Economic Fundamentals (BRIEF), New Delhi.