Non-tariff and tariff impediments affecting spatial competition between the United States and Brazil for soybean shipments to China

Abstract

PurposeThis study’s purpose is to analyze the effects of trade interventions and non-tariff impediments between the exporters (the United States and Brazil) and China for soybean trade.Design/methodology/approachA spatial model is developed and solved using an optimized Monte Carlo simulation (OMCS) and is used to minimize the costs of supplying soybeans to China. The costs included the origin basis; transportation to ports, including trucks, railways and barges; demurrage; and ocean freight. The sum of these charges determines the delivered costs to China from each origin. Most variables are random and correlated. Time-series distributions are based on historical data. Production and exports are highly seasonal and important.FindingsBase-case flows are highly seasonal, are risky and reflect actual trade. Sensitivities illustrate the effects of mitigating the quality differentials and interpreting a term of the Phase One agreement that purchases would be made so long as the prices are competitive. The results are also used to illustrate the influence of diversifying from the United States as a supplier. Finally, the policy implications are discussed.Research limitations/implicationsRemoving the quality discounts for US soybeans raises the US market share by 9%. These results also illustrate that diversification of supply sources is important for the importing country. Indeed, if China were to pursue less diversification import costs and/or risks would escalate. Hence, these results suggest that diversification is an appealing element of an import strategy. The results suggest a large distribution of prices and costs, particularly in Brazil. On average, the United States is most likely to be competitive for only a few months of the year, and the results are highly seasonal.Practical implicationsCompetition in supplying soybean to China is extremely competitive and the underlying factors impacting spatial competition are risk, correlated and spatially dependent. In addition to these, there are quality differences, and there are trade policies and strategies that affect competition. The empirical model and results illustrate the intensity of competition in this market as well the impacts of these non-tariff barriers and trade strategies in this market.Social implicationsImportant policies have been taken and continue to be under review regarding competition and trade among these countries. These results illustrate the impacts of these policies on market shares and competition.Originality/valueThis problem is important to the world soybean trading sector, and the methodology captures important seasonal and random variables that affect trade flows. The OMCS model is appropriate for this problem and has only been used minimally in the recent literature about commodity trade.