China turning to Brazil to meet a growing demand for soybeans

RONDONOPOLIS, Brazil -- For more than 2,000 years, the Chinese have turned soybeans into tofu, a staple of the country's diet.

But as its economy grows, so does China's appetite for pork, poultry, and beef, which require higher volumes of soybeans as animal feed. Plagued by scarce water supplies, China is turning to a new trading partner 15,000 miles away -- Brazil -- to supply more protein-packed beans essential to a richer diet.

China's global scramble for natural resources is leading to a transformation of agricultural trading around the world. Vanishing cropland and diminishing water supplies are hampering China's ability to feed itself, and the increasing use of farmland in the United States to produce biofuels such as ethanol is pushing China to seek more of its agricultural staples from South America, where land is still cheap and plentiful.

"China is out there beating the bushes," said Robert L. Thompson, a professor at the University of Illinois who is a former director of agricultural and rural development at the World Bank. The goal, he said, is "to ensure they have access to long-term contracts for minerals and energy and food."

Once, the biggest bilateral food trade flowed between the United States, the world's largest food exporter, and Japan. But countries with vast amounts of arable land available for expansion, particularly Brazil, are racing to meet demand in China, whose population of 1.3 billion is 10 times larger than Japan's.

Farmers in the United States have started planting far more corn for ethanol to the exclusion of other crops, including soybeans. But American farmers are not giving up their leading role in the grain trade easily, remembering how the US grain embargo by President Richard M. Nixon in the early 1970s helped spawn Brazil's soybean industry in the first place.

With a far superior system for transporting crops to global markets, American farmers still enjoy many advantages over their new competitors from Brazil and elsewhere in the developing world. Infrastructure and financing constraints in Brazil will keep the competition to feed China in flux for years to come.

The longer-term trends are emerging now. At the heart of the shift is the global competition for land to grow crops. Brazil, which farms about 175 million acres, has room to double its available cropland to equal the scale of the United States, even without clearing more of the Amazon rainforest, analysts say.

"All of a sudden you have a global market for land, a competition between several different products for the same amount of land," said Sergio Barroso, president of the Brazil operations of Cargill, the biggest grain trader in the world. Brazil's soybean industry is losing acres to sugar cane for ethanol production in some areas, he said, and is competing with corn, cotton, and cattle.

Expectations ran high three years ago when Hu Jintao, the president of China, visited South America and toasted a "strategic partnership" with his Brazilian counterpart, Luiz Inacio Lula da Silva, predicting trade between the two countries would double to $20 billion. China pledged $10 billion in investments, mostly in infrastructure.

To some extent, Brazilians have been disappointed in the follow-up. The Chinese have struggled with red tape in Brazil and hesitated while waiting for Brazilian rules to activate public-private investments. "Very little has happened," said Pedro de Camargo Neto, a former official in the Agriculture Ministry in Brazil who is now an agribusiness consultant.

But China has continued its buying spree in Brazil. The soybean trade between the countries has exploded. Last year Brazil sent nearly 11 million tons of beans to China, a 50 percent increase from the previous year and nearly double the amount shipped in 2004.

While the United States remains the largest producer of soybeans, last year Brazil became the biggest exporter. This year the United States will regain the crown, but soybean exports from the United States are expected to fall by 23 percent by the 2009-2010 crop year, according to the Agriculture Department.

For all the gains here, though, the surge in exports to China has created a sense of unease among many in Brazilian agriculture, who worry the growing relationship will accelerate a development model in which Brazil is too reliant on sales of raw materials rather than higher-value products.

And after long enjoying a trade surplus with China, Brazil's trade with China slipped into deficit in the most recent quarter as China stepped up its shipments of manufactured goods.