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Agribusiness exportations to China: prices x exchange rate

The Brazilian agribusiness prioritized productivity, which has been increasing for several decades. This has conferred unique resilience to Brazil and agribusiness has displayed an average-standard growth, which encompasses distinct scenarios of commodities and currency exchange. This is clear when the evolution of agribusiness exportations is examined.

 

Agribusiness exportations have increased fast in the last twenty years, mainly to China, Brazil’s major commercial partner. From 2000 to 2016, the total amount exported by the sector increased 318%, while the volume allocated to China rose by almost 2,000%. This indicates that the fast demand increase from China played a very important role to absorb the increasing Brazilian production.

 

In the period of commodities boom, from 2002 to 2011, agribusiness exportations to China increased 450% and from 2011 to 2016, the rise was 57%.

 

China has imported mainly soy products. Soybean importations, which amounted for 12% of the total Chinese purchases in 2000, reached 75% in 2016. Soy oil importations, in turn, lost share in Chinese importations, from 35% to 1%. Forest products kept their share near 10% during these 17 years. Meats (beef, poultry and swine) have increased their share from 3% to 10%. China became the main commercial partner in agribusiness in 2008 and nine-folded its importance, from 3% of yield in 2000 to 11% in 2008 and 27% in 2016 (until September).

 

Observing the markets, nominal prices in dollar paid by China increased 65% from 2002 to 2011, according to data from MDIC, but quotes dropped 22% since 2011. These oscillations were absorbed by Brazil and China due to the variations of their respective exchange rates. In Brazil, from 2002 to 2011 (until September), exchange rate (Real/dollar) increased 63%, but from 2011 to 2016, Real also devaluated 63%. In China, exchange rate (yuan/dollar) was much more stable, having increased 25% between 2002 and 2011 and 2% from 2011 to 2016.

 

The behavior of dollar prices and exchange rates, in real terms, in both countries, pressed down agribusiness prices by 40% in Brazil in the boom period. These drops were recovered after 2011, increasing 28%. In China, prices of these products (in yuan) increased 24%, in real terms, in the period of price rises in the international market (2002 to 2011) and then prices dropped 20% between 2011 and 2016.

 

The period of price rises in the international market pushed up prices of products imported by China, despite yuan valuation against dollar, which may have led China to concentrate purchases to less processed products and with less added value. Still, Brazilian sales to China increased a staggering 450% from 2002 to 2011. However, after 2011, price drops (in dollar) have made Brazilian products cheaper and contributed to the continuous exportation increase of the Brazilian agribusiness.

 

If this interdependence between Brazil and China continues, it will be strategic, in case protectionism from important partners, such as the United States, increases and trading is reduced. According to the Brazilian agribusiness market, the USA imported nearly 7% from Brazil in 2016. The period after 2011, as the numbers show, is more favorable for both Brazilian exporters and Chinese consumers.  This result is apparently strange and may be understood when the exchange rates in each country are considered.

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