浪花直播

Dream a Little Dream of Soy

By Greg Ross

Latin America continues to face fierce economic headwinds from COVID-19, but an unexpectedly strong rebound in global trade, powered by China and the United States, has boosted commodity prices and could help rekindle growth. Unfortunately, Latin America鈥檚 export sector is not immune from the region鈥檚 persistent pandemic struggles. As vaccine shortages and new variants lead to new waves of COVID-19, local supply chains face logistical hurdles that jeopardize an export-led recovery.

Helping Hand

In 2020, Latin America saw its worst regional economic performance in recent history,  by 7 percent. In 2021, the International Monetary Fund forecasts a sluggish recovery of 4.6 percent. But the prospects are brighter for the region鈥檚 major commodity exporters thanks to rapid growth in the region鈥檚 top trading partners. China, South America鈥檚  export market, is expected to grow by over 8 percent in 2021 and the U.S. economy is expanding at its  in four decades, further fueling demand for Latin America鈥檚 exports. , for example, are buoying Chile鈥檚 economy.

This would not be the first time Chinese growth provides tailwinds to Latin America. During the 2008 global financial crisis, China鈥檚 massive stimulus program also threw the region a lifeline. Dependence on Chinese demand has only grown since then; in 2019, exports to China  3 percent of Latin America鈥檚 GDP.

Unlike 2008, however, the prospect of an export-powered rebound depends on the evolution of the pandemic in Latin America, which is suffering from a devastating second wave of COVID-19. The region has already suffered more than 800,000 COVID-19 deaths, and commodity giants including Argentina and Brazil are seeing the highest number of new cases of the pandemic. Chile and Uruguay, regional vaccination leaders, are also seeing accelerating coronavirus spread. Though leaders will try to shield exporters from new social distancing measures, supply chains hampered by earlier lockdowns could see new disruptions.

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Source: IMF April 2021

Productivity Plague

In South America, signs of supply-chain vulnerability appeared as soon as the pandemic began to spread. Ecuador,  by the coronavirus, saw  after Chinese authorities claimed imported shrimp packaging had tested positive for the virus. Chinese authorities also reportedly discovered evidence of the virus on Brazilian  and  packaging, pausing imports from one of Brazil鈥檚 largest meatpackers. In response, Argentina鈥檚 food safety agency preemptively  exports to China from eight meatpackers in July 2020.

Also impacted was mining, a core sector for the Andean economies. In March 2020, Peru declared a public health state of emergency that  much of the country. Activity continued at major mines, but by May 2020, 500 workers had contracted COVID-19 at zinc and copper mines in La Libertad and 脕ncash, interrupting operations. By July 2020, nearly  across Peru had tested positive. Peru鈥檚 lucrative mining industry struggled to recover: 2020 copper production , silver fell 22.5 percent and gold fell 32 percent, as Peru experienced South America鈥檚  after Venezuela.

Chile designated mining as an essential economic activity to maintain copper production during initial pandemic lockdowns. Nevertheless, by late June 2020, outbreaks in northern mining regions interrupted production. The number of miners employed in new projects  and the COVID-19 deaths of three miners forced the country鈥檚 largest mine to curtail operations. (Fortunately, in the second half of the year, production recovered and a late rally in metals prices led to an 8 percent increase in copper export revenue.)

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Source: Global Development Policy Center, 2019 

 In Argentina, the government similarly designated mining as an essential activity, but the virus prompted  in several lithium mines. Jujuy and Salta, Argentina鈥檚 principal lithium-producing provinces, experienced sharp declines in  through May 2020. In Jujuy鈥檚 Humahuaca and Ledesma regions, both home to lithium operations, a second decline in workplace mobility 鈥� a measure of the volume of workers commuting 鈥� began in July 2020 following  at mines and in surrounding communities. Through August 2020, lithium carbonate  had fallen 45 percent compared to the same period the year before. In Bolivia, too, lockdowns halted mining operations, and tin production fell by  in the first half of 2020.

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Source: Google COVID-19 Community Mobility Reports

Runnin鈥� Down a Dream

If exporters overcome COVID-19 logistical obstacles, high commodity prices could propel Latin America鈥檚 economic recovery even as the virus retains its grip on the region. Metal prices are expected to  in 2021 thanks to U.S. stimulus spending, Chinese growth and soaring demand for inputs for rechargeable batteries and other renewable energy technologies. In welcome news for Southern Cone farmers, soy, corn and wheat prices are at .

In Brazil, agricultural exports  in 2020, the second-highest total on record.  exports are up, and arabica and robusta prices  by the third quarter of 2020. Soy export earnings, the country鈥檚 largest source of foreign exchange, reached  thanks to strong Chinese demand, rising prices and a depreciated real. (Soy processing giants in Brazil had to  from Paraguay and Uruguay after exports depleted local stockpiles.) Meanwhile, Paraguay saw Latin America鈥檚  economic contraction in 2020, after its farm exports .

Climate Pandemic

Even as Latin America鈥檚 exporters navigate COVID-19 logistical headaches, they are contending with another menace: the intensifying impacts of climate change. Brazil has experienced repeated periods of severe drought during the past decade. After overcoming , Argentina鈥檚 northern provinces again faced dry spells in 2021 that  $2 billion in lost soy crop. Going forward, increasingly severe alternations of drought and heavy rainfall could slow regional growth of  by 7 percent by 2050 compared to historical averages.

Another manmade catastrophe, deforestation, also threatens the sustainability of the region鈥檚 export sector. To clear land for cattle and soy, producers are burning millions of acres of forest. These fires are also burning key trade relationships. Concerns over Amazon deforestation prompted Europe to  the EU-Mercosur trade deal, imperiling expanded market access for producers in Argentina, Brazil, Paraguay and Uruguay. Meanwhile, deforestation threatens other disruptions. Scientists warn the burning of the  in Brazil and Paraguay will destabilize downstream waterways that carry the lion鈥檚 share of Paraguay鈥檚 exports and Argentina鈥檚 crops. In 2020, the Paran谩 and Paraguay Rivers ebbed to 50-year lows, and a renewed drop in Paran谩 River levels this April is  and slowing grain shipments.

For now, however, virus-stricken South America sees resilient commodity prices as a desperately needed economic balm. In the long term, dependence on commodities is not the answer to the region鈥檚 structural obstacles to sustainable and equitable growth, which largely predated the pandemic. But until wider vaccination permits the region鈥檚 services sector to rebound, and allows governments to focus on economic diversification, commodity exports are once again Latin America鈥檚 best path out of crisis.

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Greg Ross