US farmers facing supply-chain bottlenecks and a surging dollar are losing their competitive edge in the global market for soybeans to their biggest rival: Brazil.
In many of the years through 2020, it was about twice as expensive for China — the top importer — to ship Brazilian rather than American soybeans. But logistics issues in the US, upgrades of the South American country’s ports and supply infrastructure, and a strong dollar have almost eliminated that gap, US Department of Agriculture data show.
It now costs roughly the same for a Chinese buyer to transport a ton of soybeans — used for everything from animal feed and cooking oils to biofuels — from Brazil’s biggest-growing state of Mato Grosso as it does from No. 2 US producer, Iowa. And the differential has closed despite a surge in fuel prices this year that’s stoked inflation.
As the article says later on in greater detail, a large part of the reason for parity between the U.S. and Brazil is the extraordinary strength of the dollar relative to other currencies right now, which is good for American importers and bad for American exporters. The level of relative strength we’re currently seeing likely won’t last too long, and the U.S. advantage will likely return.
But this news is nonetheless troubling for the other reasons listed in the article. Brazil’s busiest port is at Santos, near São Paulo. The Port of Santos has seen improvements in the past few years, but it’s still not a great port by world standards. It ranks 188th on the Container Port Performance Index (CPPI), a statistical ranking compiled by the World Bank and S&P Global. The index is structured such that a globally average port would have a score of 0, and Santos’s score is 9.866, which means it’s just slightly above average.
Just slightly above average is still enough to school American West Coast ports. The Port of Long Beach ranks second-to-last and the Port of Los Angeles ranks last in the world on the CPPI, with scores of -952.47 and -954.086. No other port in the world has a score worse than -600. The Port of Oakland is ranked 359th, with a score of -207.413, and it looks highly efficient by comparison to the San Pedro Bay ports.
Bloomberg notes that the bipartisan infrastructure law includes $17 billion in port funding, but it fails to note that none of that money can be used for what American ports most need. Congress wrote into the law that funding can’t be used for automation, which will no doubt make the dockworkers’ union happy. The Department of Transportation is emphasizing that the funding will be used to mitigate climate change and “create jobs.” The law’s Buy American provisions also ensure, for example, that federal funds can’t be used to buy automated cranes from Finland, as the Port of Virginia (America’s most efficient port on the CPPI and the 23rd most efficient in the world) did in 2016. In short, port modernization is essentially illegal in the United States, and the bipartisan infrastructure law did nothing to change that, so don’t expect any major efficiency improvements because of it.
On top of these problems is the trade war with China, which turned American soybean farmers into welfare cases by denying them their largest export market. USDA analysis from January found that the trade-war tariffs first imposed in 2018 during the Trump administration invited retaliatory tariffs that disproportionately harmed American soybean farmers, with losses most heavily concentrated in Iowa, Illinois, and Kansas. Soybean farmers went from being a major exporting industry to being the recipient of billions in federal aid to keep them afloat. And who benefited? The USDA analysis said, “For soybeans, most of the trade lost by the United States was gained by Brazil.”
Global competitiveness isn’t just a buzzword used by coastal elites; it has real-world ramifications for Americans in the heartland. Our uncompetitive ports and protectionist trade policies have cost American soybean farmers, and Brazil is capitalizing on our policy failures. In just a few years, the U.S. went from having a clear advantage over Brazilian soybeans to being roughly the same. Brazil still has bigger structural problems than the U.S. does, but the self-inflicted wounds from Congress and the executive branch have helped put us on par with them. And with the tariffs still in place and no signs of significant port modernization on the horizon, it does not seem that policy-makers are learning from past mistakes.