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Brazilian soy supply chains: linking buyers to landscapes

Highlights:

  • The soy trade in Brazil has long been dominated by just a handful of major traders. In 2016 the largest six exporters traded almost 60% of soy.
  • Changing market dynamics and strong growth in global demand for soy – particularly from China – have brought a number of fast-growing new entrants to the market, many of which are operating at the new soy frontier in Matopiba.
  • Major private infrastructure investments underpin the strong connections of many traders to distinct regions of production. This underscores the key role these companies can play in shaping the development trajectories of these regions and the future sustainability of soy.

 

More than 1,000 companies exported soy from Brazil between 2005 and 2016, but no more than 40 have held a significant share of the market – over 1% of total trade – in any given year. Amongst these, the global commodity traders Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus have long predominated, with Brazilian firms Amaggi, COAMO and Bianchini also accounting for a sizeable part of the trade. In recent years, the Chinese food giant COFCO has grown rapidly to come alongside these major traders in terms of scale and influence.

In 2016, the six largest traders – Bunge, Cargill, ADM, COFCO, Louis Dreyfus and Amaggi –  accounted for 57% of all soy exports from Brazil.


These large firms are asset rich. With different levels of vertical integration, they each operate a network of soy related facilities that help mark out their different sourcing regions across Brazil. These include not only silos and and warehouses that enable traders to respond rapidly to demand signals, but also large crushing facilities, railroads and port terminals.

These investments in infrastructure – taken together with their trading relationships and the commercial strategies they pursue – help explain the sourcing patterns of major soy traders, and underpin strong, often long-standing connections with specific regions of production. The latest Trase data estimate that for some two-thirds of Brazil’s soy-exporting municipalities – distributed across the entire country – more than half of exports were handled by a single trader, while in approximately one-fifth of municipalities a single trader handled all of the exports. These connections highlight the key role these companies can play in shaping local development trajectories, and the future sustainability of soy.

In the maps that follow you can see the origin of soy for each of the biggest traders in 2016, with the option to wind back the clock to see how the sourcing patterns of these companies have shifted across the landscape.


Bunge – 11,005,247 tonnes exported in 2016 (16.7%)

Headquartered in New York, Bunge has long been the largest soy trader in Brazil. Despite having now been present in the country for over a century, it was not until 1997 that Bunge secured its preeminent position. By acquiring Ceval, the largest soy processor at the time, Bunge secured a series of strategic assets in central Mato Grosso and western Bahia, where it continues to source a large proportion of its soy. According to self-disclosures and official records, its assets include 8 crushing facilities (approx 27,000 tn / day), 140 silos and 6 port terminals.

Cargill – 8,910,912 tonnes exported in 2016 (13.5%)

Cargill is the largest privately-owned company in the US and has been operating in Brazil since 1965. With operations spanning the majority of Brazil’s soy producing states, Cargill has particularly close connections to north and north-west regions of the Amazon in which it operates two port terminals, one in Santarém and the other in Porto Velho. According to self disclosures and official records, its assets include 6 crushing facilities (approx. 14,000 tn/day), 140 silos and 5 port terminals.

ADM – 5,176,241 tonnes exported in 2016 (7.86%)

Archer Daniels Midland (ADM) is headquartered in Illinois, US and has been operating in Brazil since 1997. This multinational commodity trader sources most of its soy from Mato Grosso state, where it operates Brazil’s single largest soy crushing facility, in Rondonópolis, with a capacity of 7,000 tons per day. According to self disclosures and official records, its assets include 5 crushing facilities (approx. 13,600 tn/day), 60 silos and 6 port operations.

COFCO – 4,582,884 tonnes exported in 2016 (6.96%)

COFCO is the most prominent of the new entrants into the Brazilian market. As China’s largest food and agriculture company, it only entered the Brazilian soy export market in 2014 having acquired two fast-growing exporters, the Singaporean-listed Noble and Dutch based Nidera. According to self disclosures and official records, its assets include 2 crushing facilities (approx. 5,200 tn/day), 25 silos and 2 port terminals.

Louis Dreyfus – 3,939,337 tonnes exported in 2016 (5.99%)

Louis Dreyfus Company is a Dutch multinational which has operated in Brazil since 1942. Its operations are concentrated in Brazil’s South and Center-West, with the majority of its exports leaving via the ports of Santos and Paranaguá. Since 2009 it has been part of a joint venture with Amaggi in the frontier region of Matopiba, which now also includes the Japanese cooperative Zen-Noh. According to self disclosures and official records, its assets include 3 crushing facilities (approx. 8,000 tn/day), 40 silos and 1 port terminal.

Amaggi – 3,782,863 tonnes exported in 2016 (5.75%)

Amaggi is the largest of the Brazilian soy traders. It was established in 1977 by the Maggi family and is headquartered in the largest soy producing state of Mato Grosso. Unlike the other major traders, Amaggi produces much of its own soy. In addition to its trading infrastructure, it operates ten farms with a collective area of more than 200,000 hectares. Since 2009 it has been part of a joint venture with Louis Dreyfus in the frontier region of Matopiba, which now also includes the Japanese cooperative Zen-Noh. According to self disclosures and official records, its assets include 2 crushing facilities (approx. 5,000 tn/day), 30 silos and 2 port terminals.

A fast-growing market and new entrants on the rise

In recent years, shifting market dynamics and the strong growth in global and domestic demand for soy have created new opportunities for trading companies, and increased pressure for further expansion into agricultural frontier regions. As two of the world’s largest producers of poultry and pork – and therefore consumers of animal feed – the Brazilian and Chinese markets have been at the forefront of this growth.

With around a third of feed for poultry and pork typically being comprised of soy cake, large meat producers have developed industrial grain processing operations to rival some of the largest soy traders. In Brazil, for example, the major poultry producer BRF operates multiple crushing facilities with the capacity to process around 3,000 tons of soy per day. Brazil is the world´s largest exporter of chickens and also has a growing domestic market.

Meanwhile, as the country which produced almost half of the world’s pork in 2017, China has fast emerged as the biggest global importer of soy. Exports of soy from Brazil to China have risen by 300% over the last decade, with much of the trade being in raw beans that are processed into feed on arrival.

As shipments to China have grown to comprise two-third of Brazil’s soy exports (and nearly 80% of its raw beans exports), major traders have shifted their patterns of operation and investment accordingly. It has also spurred the entry of new companies into the market.

Changes in proportion of Chinese exports of large soy traders (> 1% market share) exporting from Brazil in 2017, ranked left to right by the proportion of total volume that is exported to China.

 

The new entrants are diverse, and include joint-ventures by long standing players, large companies from Asia, and established Brazilian companies from other sectors.

Cutrale and Engelhart, for instance, are Brazilian companies that have transitioned to trading soy from different sectors. Once focused solely on the citrus fruit business, Cutrale has repurposed assets in the south of Brazil to establish itself as a significant trader of soy since 2012. Meanwhile Engelhart, which was spun off from the investment bank BTG Pactual, runs an ‘asset-light’ operation comprised primarily of wholesale facilities in Mato Grosso, Goiás and Rio Grande do Sul.

Amongst major Asian traders, there has been a move to acquire upstream assets in order to secure supply and grow. COFCO acquired two of the fastest growing traders, Noble and Nidera in 2014, establishing it as the fourth largest trader in Brazil by the following year. From Japan, several sogo sosha – general trading companies – have also made a strong entry into the Brazilian soy industry in recent years. This includes Marubeni, Mitsui and Mitsubishi which own Gavilon, Multigrain and Agrex respectively.

 

New entrants attracted to Matopiba

Matopiba is the most active agricultural frontier in Brazil, with soybeans being the most important crop. Photo credit:istock.com/gustavofrazao

Many of these new and emerging traders have clear links to the Cerrado and, more specifically, to the frontier region of Matopiba. Several factors have made this region attractive to new entrants, including public sector support, new export routes, and lower levels of environmental regulation.

Through major capital investment, a number of companies have rapidly emerged as key players in the soy trade here in recent years. For instance, the newly-developed Tegram grains terminal in Itaqui port, Maranhão is jointly owned by several traders – Amaggi & LD commodities (now Amaggi LD Zen-Noh), Glencore, CGG Trading and Toyota Tsusho’s NovaAgri.

With an advantageous position from which to export to Asia – the port is 4,000 km closer to the Panama Canal than Brazil’s main soy exporting port of Santos – many of the traders most closely associated with the Chinese market are also operating here.

The map below shows how new entrants have come to dominate in parts of Matopiba between 2005 and 2016, whilst certain areas remain primarily in the hands of the established major traders.


But links to Matopiba also mean increased deforestation risk. During the last decade more than 37% of soy expansion in the Matopiba region was due to direct conversion of Cerrado vegetation. Accordingly, companies with a strong presence in Matopiba have some of the highest relative deforestation rates – in terms of hectare of land cleared of native vegetation per tonne of exports – in the country.

 

Opportunities to transition to more sustainable supply chains

Given these dynamics, different companies and consumer markets will have significantly different roles to play in efforts to strengthen the sustainability of soy supply chains.

Companies that have a physical presence in a landscape – such as processing and storage facilities – have a key role to play in ensuring a supply of more sustainable soy by working directly with farmers. They can do this, for example, through closer enforcement of legal compliance and standards, and by working directly with producers to lower the costs and increase the incentives for producing more sustainable, deforestation-free soy. This underscores the vital role of the biggest traders that own the vast majority of processing and storage facilities – and increasingly those newcomers that are investing heavily in the new soy frontiers. At the same time it is vital to foster new sustainability initiatives and partnerships in emerging markets, particularly China.

By linking soy traders and buyers to the places where soy is grown, Trase data can help to identify and manage risks, highlight opportunities for new partnerships and investment to improve sustainability,  and monitor progress over time. This provides a critical missing part of the puzzle of shifting soy to a more sustainable footing.