If the trade dispute between the United States and China escalates, it will not benefit anyone. Last but not least, the food sector. Rabobank has developed three different scenarios. This shows that significant disruptions are lurking in the production and trade of dairy, grain, oilseeds and meat.
What does the global food and agriculture sector look like as tensions between the US and China escalate? On the basis of three scenarios researchers from RaboResearch outline the consequences and risks. "They are actually all negative," says researcher Stefan Vogel. He believes it is important to continue increasing global food trade as global population and GDP growth continues. "Generally speaking, free trade is best." Then it is possible to produce in the best regions imaginable and to export to places where the products are needed.
International dichotomy
In this regard, the first scenario outlined, in which the EU and South America remain neutral, is the best. "This helps to mitigate the trade distortions of the two opposing alliances of the US and China," Vogel said. The researchers assume in the study that America will remain the largest world power by 2030, but that China has made a geopolitical catch up. This can create an international divide. Europe and South America then have to choose one of the superpowers.
In the first scenario, the EU and South America remain neutral, in the second scenario they align themselves with the US and in the third scenario, the EU opts for the US and South America for China. In all three cases, there are major disruptions in the dairy market. Dairy exporters in the US and Oceania are forced to reallocate the produced milk powder to different product streams and markets. New Zealand feels this the hardest with over 70% of China's milk powder imports, but it will also be felt in the US. China will have to draw from alternative sources, albeit difficult.
China remains the largest buyer of grains and oilseeds in the world. In the first scenario, that high demand can still be met, but at a higher cost. Some meat exporters in the US bloc are facing a challenge due to changes in market access.
Second scenario most negative
In the second scenario, most of the negative effects on the agricultural and food sectors are exposed for both alliances. Uncontrollable shortages will arise in the Chinese alliance, including in animal feed and dairy. At the same time, the US alliance is faced with huge surpluses, forcing farmers and suppliers to produce significantly less.
The third scenario - in which South America joins China - could lead, among other things, to a shortage of soybean processing capacity in the US and Europe. The market disruption will mainly impact pork. The consequences for US, Oceanian and European dairy exporters will be almost as great as in the second scenario. Competition will increase to supply markets in Latin America, the Middle East and North Africa.
Both weapon and victim
The question is which scenario the world is currently moving towards. Vogel: "From the agricultural and food sector perspective, we were in a mild version of the first scenario about two years ago. But now we have moved into an opposite scenario of extremely strong trade flows to China."
According to the researcher, it remains conjecture. Geopolitics is the driving force. And agricultural trade is both a strategic weapon used to hurt the other side and a victim of larger geopolitical decisions, as farmers and others in the supply chain feel the pain of limited trade. ."
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