June 15, 2004

Soy Spat Sours Budding Brazil-China Relations

A decision by China to blacklist many Brazilian soy exporters because shipments were contaminated with a fungicide has soured budding trade ties between the two emerging giants.

China is the biggest buyer of Brazilian soybeans, the Latin American country's main farm export. China became Brazil's third largest export destination last year.

During a visit to China last month by President Luiz Inacio Lula da Silva, excited Brazilian officials talked about China investing billions of dollars in local infrastructure to ensure speedy export of farm goods to the fast-growing Asian giant.

But some of that excitement ebbed when China began to ban Brazilian exporters from shipping soybeans, saying that supplies were contaminated by a fungicide known as carboxin.

Brazil tightened its standards on Friday, saying it would allow only one contaminated seed per kilo of soybeans. If there were more than that, laboratory tests would be necessary.

"If this does not change the Chinese, we don't know what the commercial future would be with them," said Sergio Mendes, Director General of Brazil's Association of Cereals Exporters.

China is demanding that shipments be totally free of carboxin. Brazilian producers say that is impossible to guarantee and oppose laboratory tests, as they are too expensive.

China did not appear to be swayed by Brazil's latest move. On Monday it banned 15 more companies supplying Brazilian soy, adding to a blacklist of seven suppliers banned last month.

"It looks very serious. We are trying to talk to the Chinese authorities to get details," an agriculture ministry spokeswoman said.

The Agriculture Ministry's secretary of agriculture and livestock protection, Macao Tadano, has said Brazil may consider going to the World Trade Organization as China uses less rigid criteria for other exporters, such as the United States.

Brazil is the world's second largest soy producer after the United States.

GROWING TRADE TIES

Asian traders said the focus was now on a cargo by Singapore's Wilmar Holdings Pte Ltd in China's northern port of Qinhuangdao. If that cargo fails inspection it would represent a virtual suspension of soy trade between China and Brazil.

However, trade experts said the soy spat was unlikely to dim the overall relations between the two countries, adding that when there is strong growth in trade hiccups are likely.

"These are natural situations when there is significant growth of one export product," said Helio Mauro Franca, who advises Brazilian firms on trade. "China has an interest in having Brazil as a supplier."

Brazilian exports to China, of mainly agricultural and mineral commodities, have surged 400 percent since 1998 and currently stand at around $5 billion a year.