The escalating trade dispute between the United States and China presents a significant opportunity for Brazilian agricultural exporters. China’s recent retaliatory tariffs on American agricultural goods, including soybeans and meat, are expected to further shift China’s import reliance towards Brazil. This shift, however, could exacerbate existing food inflation pressures within Brazil.
China’s response to new U.S. duties includes a 10% to 15% tariff increase on $21 billion worth of American agricultural products. This move creates a favorable environment for Brazil, the leading exporter of soy, cotton, beef, and chicken, to capture a larger share of the Chinese market.
The previous trade war initiated by the Trump administration already resulted in a significant loss of market share for American farmers, particularly in soybean exports to China. This lost ground was never recovered, with Brazil solidifying its position as a primary supplier of agricultural imports to China. The current round of tariffs is likely to accelerate this trend.
Santander analysts predict that heightened U.S.-China tensions will compel China to increase its sourcing of grains and proteins from Brazil. This increased demand is expected to bolster commodity prices in Brazil while potentially depressing demand and prices in the U.S. Evidence of this impact is already visible in the rising prices of Brazilian soybeans, with premiums at local ports reaching season highs.
Itau BBA analysts suggest that increased Chinese demand could translate into higher export volumes and improved prices for Brazilian agricultural companies like SLC Agricola and BrasilAgro. However, this surge in exports could lead to reduced domestic supply, potentially driving up grain prices for Brazilian meatpackers such as JBS and BRF. Consequently, higher production costs could be passed on to consumers.
The potential for escalating food prices poses a challenge for Brazilian President Luiz Inacio Lula da Silva, who has faced declining approval ratings due to already elevated food costs. According to the Brazilian Institute of Geography and Statistics (IBGE), food and beverage prices increased by approximately 8% in 2024, with a nearly 1% rise in January, marking the fifth consecutive month of increases. February’s data is expected shortly.
The Brazilian central bank, currently implementing interest rate hikes, has identified rising meat prices as a major contributor to food inflation and anticipates a challenging short-term outlook. To address this concern, Vice President Geraldo Alckmin and other officials are scheduled to meet with food industry leaders to explore strategies for mitigating food price increases. The outcome of these discussions and the evolving trade dynamics between the U.S. and China will significantly impact Brazil’s agricultural sector and overall economy.
