>A growing appetite for commodities
According to figures cited by Kuwayama, China and India have accounted for more than 35% of economic growth worldwide over the last six years and are home to 65 of the 100 largest companies in the developing world and nearly 40% of the world population.
China alone consumes more than 30% of the soybeans, 30% of the tin, 25% of the zinc, 25% of the aluminum and 20% of the copper produced in the world.
The impact of the growing appetite of these Asian giants for raw materials varies from region to region, but has been especially strong in South America.
According to Obschatko, 12% of the increase in agrifood trade in Argentina, Brazil and Chile between 1997 and 2006 can be attributed to increased trade with China. During the same period, agrifood exports to China increased by 297%, and by only 95% to all other countries.
Sixty-five percent of Argentina’s soybean exports are shipped to China; 85% of the copper imported by China comes from Chile; and 88% of what Brazil exports to China is different oilseeds.
In India, demand is greatest for fats and oils, which account for 96% and 90% of its imports from Argentina and Brazil, respectively.
Giants under the microscope
Kuwayama referred to the possibility of creating a trade and integration scheme between our region and these two Asian powers, noting, among things, that trade flows between LAC and China and India are slowly showing signs of diversification, but still focus mostly on products with little value added. Furthermore, the low-technology goods produced in LAC compete with Chinese within their own territories and in third markets.
Participants in the forum heard a synopsis of the upcoming book “The Growth of China and India: three challenges for agriculture in Latin America,” edited by Daniel Lederman, Guillermo Perry and Marcelo Olarreaga (all World Bank researchers), which is currently under review.
Lederman noted that the economic relationship between LAC and China and India is not a “zero-sum game.” In other words, there is potential for gain on the part of both regions. Using econometric models, he explained the impact of this relationship on different groups.
He called attention to three challenges LAC faces in its relationship with these two nations: the first, to ensure an equitable distribution of benefits; the second, to keep up with demand given the growing “Chinese appetite for commodities;” and the third, to innovate and diversify production at the same pace as the Asian economies.
IICA Policy and Trade Specialist in Argentina, Edith Obschatko, viewed the continued growth of demand in China and India for raw materials as an opportunity for the countries of the Southern Region. In her judgment, the growing middle class in China is adopting consumption patterns that are attractive for many exporters in the region. All this has occurred despite the policies adopted by China and India to protect their agricultural products. Therefore, it is expected that demand will grow even more as they further reduce tariffs.
Nonetheless, she said, the negative impact of such demand on the natural resource base of the Southern Region, and growing pressure on the agricultural frontier, are serious problems that must be addressed now.
The perspective of small- and medium-scale producers in Central America was presented by Martin Zuñiga, General Manager of the Foreign Trade Promotion Board (PROCOMER). He outlined the problems that must be surmounted to produce on the scale required to supply the Asian markets, and recommended the creation of consortia and other types of associate enterprises as a means of enabling small- and medium-scale firms to compete.
Some conclusions
Julio Paz, Director of Policies and Trade at IICA, summed up the most important conclusions of the event:
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Any analysis of the rapid growth of the Chinese and Indian economies should not be limited its direct impact on trade; it also affects other factors such as prices, interest rates and exchange rates. For many countries in LAC, these indirect effects may be more important than the direct ones.
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The impact varies by region and depends on the extent to which the economies of the countries of the Americas compete with or complement the economies of China and India. For example, the countries of the Southern Cone and the Andean Region have benefited greatly even though no trade agreements have yet been signed with either nation. On the other hand, the Central American countries and Mexico have been affected negatively by competition in the textile and electronics sectors, in which China competes with lower costs. The effect of the world’s two largest economies also varies by type of producer.
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The demand for products on the part of China and India has increased the flow of dollars to the Andean and Southern Cone countries, leading to an appreciation of their local currencies. That could act as an apparent overall reduction of tariffs and a general tax on exports.
• The ability to meet the high demand for products in Asia (especially commodities) constitutes a challenge for the countries of LAC. Trade opening is another challenge because, historically, the Asian markets have been characterized by protectionism.
• On the surface, it can be said that direct investment in China has not stopped the flow of investment toward LAC, and that efforts should be made to encourage greater Chinese investment in the region.
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For the countries of our region, the development of the Chinese and Indian economies is all the more reason to make necessary changes in our policies and to do more to adapt to today’s more competitive and rapidly changing economic environment. Inasmuch as what determines the competitiveness of countries changes constantly, our production structures must be more flexible and our governments must act intelligently to ensure that any changes do not leave the poor and small farmers unprotected.
This event is the most recent in a series technical fora aimed at discussing critical issues related to agriculture and rural life, offering proposals that will enhance the cooperation activities of the Institute, and generating information for decision making.
If you would like to see a video of the Forum or access the presentations, visit:
http://www.iica.int/RadioIICA/Programas/ForosTecnicos/2007/II-ForoTecnico2007.asp
julio.paz@iica.int