Emerging markets to impact soy processing

The regional distribution of soybean production and processing capacity in the US has shifted dramatically during the last decade. Citing the impact of emerging markets, a new study claims this change will have important consequences for the US soybean industry.

"Since the early 1990s, the US share of world soybean production has declined from about 50 per cent to less than 40 per cent," said Peter Goldsmith at the university of Illinois at Urbana-Champaign. "During that time, Brazil's share increased to more 25 per cent, and Argentina's share rose to nearly 15 per cent. Similar changes are underway in the processing sector," he added.

This shift has forced the world's largest soybean processors to remap their global strategies, he said. An industry dominated by agri-giants such as Archer Daniels Midland, Bunge and Cargill.

According to the study, the dominant trend in processing plant location is a shift away from mature markets, such as in the US.

"In those markets, the plants tend to be older and smaller, the technology is more dated, farmer suppliers are smaller, and regional production is flat,' said Goldsmith.

By investing in the new growth areas, companies can employ the latest technologies, improve economies of scale, and have access to growing supply base, continues the report.

The process is already underway in the expanding production areas of Brazil and Argentina.

So what can we expect to see in the future? Goldsmith suggests that growth will come for processing companies by heading into speciality areas.

"The implication is that US processing assets will be increasingly focused on the domestic livestock industry and the growing market for differentiated products, such as isolates, proteins, flours, isoflavones, and oils," he said.

"One major challenge will be to find opportunities for growth in the livestock industry. For differentiated products, the challenges will be to refocus on customer service and to find enough value to offset the industry's maturing traditional market,' he added.

Another outcome of these changes is that soybean production and processing is shifting to countries that have weak intellectual property right protections.

"This change is especially significant because of the widespread availability of Roundup Ready technology," added the author of the report.

"The lack of patent protection in Argentina and Brazil has already accelerated the switch from traditional crops and pasture to soybean production. The increasing supply of soybeans has further fueled the expansion of soybean exports, processing investments, and soybean meal exports in those areas."

Brazil's government research system continues to invest aggressively in soybean research and development, he said.

"The combination of varieties adapted to low latitudes, the plentiful availability of land, and the improving transportation infrastructure has created a favorable environment for opening new land for soybean production." Goldsmith emphasised that, in the long run, the incentives for soybean research applicable to US conditions may be dampened if the domestic market growth prospects are dim and the developing countries where production is expanding are unable to enforce intellectual property rights.

"Without growth in research, the risk of soybean diseases would then increase and production performance would be affected," he said. "The overlay of processing assets that depend on an abundant supply of soybeans would in turn be at risk from weakening incentives to conduct soybean research," he added.

Ling Bi of the college of commerce and business administration at Illinois, Jerry Fruin, a professor in the department of applied economics at the university of Minnesota and Rodolfo Hirsch of Rabobank, Brazil co-authored the study.

Full findings will be published in spring in the International Food and Agribusiness Management Review.