Question

Assume you are the owner of a very large soybean farm in Argentina, a country located in South-Eastern South America. Soybean is a commodity which is traded globally. 70% of all soybeans are used as chicken and pig feed. It has been widely recognised as a very efficient source of protein and energy. Another use for soybeans is splitting (or crushing) it up into soybean meal and soybean oil – 80% becomes the meal and 20% the oil. Much soybeans are grown in South America (~31% of world total in Brazil, ~18% in Argentina), and demandfor the soybean, soybean meal and soybean oil is growing very fast in Asia (especially China). One day, you received an unexpected and peculiar call from Zambia (a landlocked nation in Africa). The person over the line identified himself as a procurement officer of Livingstone International. He spoke fluent Spanish and asked if you can sell him two shipments of unprocessed soybeans. His request is large enough to clear out 80% of your annual harvest. The issue is you have never sold on the international front as you have always sold your harvest to the domestic merchants. Question 1 As the owner of the soybean farm in Argentina, you have never sold on the international front.

1. Research and briefly explain all the possible risks involved if your soybean farm is expanding into global trade. [Hint: Please organise all your research materials into FIVE (5) categories of risks. It is expected to be between 1 and 2 pages for this question.]

Answer 1

The soybean is the major crop in Argentina and the country grew up to 20 million hectares of soybeans in 2015 and the soybean crop remains the country's major portion of export and valued higher than Argentina's automotive, cereal, and petrochemical exports. The health and safety of the soybean crop are, therefore, comes with great national interest and it involves major risks while expanding the business into global trades.

Background

The increasing land-use impacts of globalization and increasing global food consumption and fuel up the demand depend on the direct trade relationships that emerge between the consuming and producing countries worldwide. In the case of soybean production and plantations, the constantly increasing trade between South American farmers and the consumers in Asia and Europe has facilitated the advanced soybean expansion in the Amazon, Chaco, Argentina, Paraguay, Bolivia, and Cerrado biomes. This poses a threat to the ecosystem and the risks associated with the expansion of farmlands to the reserved areas bound threats to the land use in the country.

The possible risks involved if your soybean farm is expanding into global trade are the increased tax hike for the exports of the soybean, and the logistics got affected in the first place and it directly affected the plantation farmers. The high level of deforestation is required for meeting the global trade demands and high utilization of agricultural lands to produce the soybean cultivation, this might impact the land use. The high demand in the global market required fast growing time and cultivation periods, this can be achieved by using the genetically modified crops (GMO) and it causes harm to the soil and patterns of cultivation. The other major threat is due to the high demand in the global market, the increasing use of chemical fertilizers and pesticides in the plants leads to soil pollution. The huge impact of global trade affects the standard economic trade model because of the changing prices and high competition in the markets.

Risks involved in the global trade (Expansion Phase)

Soybean farm is expanding into global trade are the increased tax hike for the exports of the soybean: Due to the increasing pricing caps of the government on the export duties and high level of tax rates affect the farming practices, and the rates directly affect the profit margins of the regular farmers. This regime restricts the export of soybean from global trade. Due to the increase in taxes, logistics also worsen the duties and prices and the entire supply chain will get affected.

The high level of deforestation is required for meeting the global trade demands and the high level of consumption in the meat industry like swine, chicken farms. The high level of protein in the soybean attracts the meat businesses in countries like China and the United States. Around 70% of the total production going for animal consumption and the remaining only for the consumption of humans in the form of oil and meals. Due to the high demand, the deforestation will affect the cultivation pattern and it restricts the new entries and existing business at risk.

The use of genetically modified crops (GMO) is worsening the export activities at risk, and it directly affects the soil and the cultivation patterns in Argentina. When the markets in Asia required the GMO based produces for the animal industry, the price and demand directly affect the industry. This imposes a serious risk for the business.

The usage of chemical and pesticides affect the trades, by expanding the soybean farm for the global trade the timeline is limited for the farmer to produce the output with high chemicals for better results in the production lines. This corrupts the entire system into opting the quick money and it bears the high risk in the soybean farming industry and serious regulations required to manage the operations.

Due to the huge impact of global trade in the economy, Argentina’s standard economic trade model will get affected, because of the constantly changing prices and high competition in the market. The risk of flexible market prices and timelines on production makes the farmers use quick options that affect the climate, soil, and the quality of the product.