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Aug 25, 2017 | 20:12 GMT

3 mins read

Argentina: Soybean Industry Finds a Friend in China

(Stratfor)

As Argentina was reeling from new U.S. tariffs on its biofuel industry, China stepped in to reduce the economic uncertainty, proving that a friend in need is a friend indeed. On Aug. 22, the United States imposed 50-64 percent import tariffs on Argentine biodiesel imports, arguing that Argentine subsidies created unfair competition for U.S. biodiesel producers. The U.S. decision left the Argentine biodiesel industry with around 1.5 million tons of soybean oil — which Argentine producers use to make biodiesel — in dire need of an alternative market. China is that market. On Aug. 24, China's state-owned Sinograin announced that it would resume soybean oil imports from Argentina.

Ninety percent of Argentina's biodiesel exports go to the Unites States, but Argentine producers argue that the new tariffs make that unsustainable. The total economic losses from the U.S. decision were projected to total over $1 billion annually.

Argentina had been incentivizing companies to focus on more value-added products such as biodiesel, exports of which are not taxed. Soybean oil exports are taxed, however, at a rate of 27 percent. Yet, as a result of the market loss in the United States, Argentine producers shifted focus back to selling soybean oil to alternative buyers. Fortunately, China's decision to resume soybean oil imports from Argentina came at the right time. 

Argentina still expects to find an alternative market for its biodiesel exports as well. The country exported biodeisel to the European Union until 2013, when the Europeans decided to suspend imports from Argentina because of Buenos Aires' 2012 decision to expropriate Spanish hydrocarbon company Repsol's majority stake in the YPF oil company.

Now, Argentina, through Mercosur, is trying to reach a free trade agreement with the European Union, which could offer it an opportunity to again export biodiesel to Europe. But so far the European Union has been reluctant to include biodiesel in trade talks. It is unlikely that the European Union would resume, at least anytime soon, Argentine biodiesel imports at the level they were before 2013, when they reached over $1 billion annually.

China has been taking advantage of Argentina's and Brazil's economic recession to increase its presence in both markets. The timing of China's announcement may be coincidental, given Argentina-China negotiations to reduce Buenos Aires' growing trade deficit with China have been in the works for months. However, the fact remains that the U.S. decision to impose trade tariffs on Argentine biodiesel offered an opportunity for China to step up and import a product that needed a market.

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