China’s Agricultural Investments in Brazil and Argentina: Motivations, Impacts and Strategic Recommendations

China’s great agricultural drive in Latin America proposes significant benefits for all involved, but what are its effects and should it be contained by regulations?

China plans to move 300 million rural residents to cities by 2030 as part of its modernisation project, transforming farmland into urban areas, reducing arable land and raising pollution. With urbanisation came a larger middle class, higher incomes, and growing meat consumption, with China becoming the world’s largest pork consumer by 2022. Yet it must feed 17% of the global population with only 7% of arable land (Boza et al., 2022).

To secure feed for pig farming, China imports soybeans, primarily from Brazil and Argentina – 45% from the former and 23% from the latter – which Beijing perceives as strategic partners for food security, a core state responsibility. Engagement goes beyond trade into agricultural investments through state-owned enterprises (SOEs) and private firms. SOEs serve state food security goals by seeking control over soybean prices and supplies (Hearn, 2015, p.151), and although criticised as “land grabbing”, their role also brings potential benefits for Brazil and Argentina that must be considered alongside controversies.

Investment motivations and advantages: SOEs vs Private Firms

Despite being viewed as extensions of the Chinese state, SOEs attract Brazil and Argentina because of their greater capacity. With strong government backing, they promote large-scale, long-term projects, often focused on infrastructure such as railways and ports. This reduces China’s transport costs while improving Brazil’s and Argentina’s weaker infrastructure, which otherwise faces fiscal and planning constraints. SOEs also have significant resources in capital, technology, and human expertise (Yang, 2015). In soybean farming, where irrigation is critical, this can boost productivity. Engagement through SOEs also strengthens bilateral relations and South-South cooperation, supporting stable trade agreements and providing financial resilience, as it did during the 2008 financial crisis.

Private firms, in contrast, are more market-driven and profit-oriented. With less political baggage, they avoid large land purchases, focusing instead on joint ventures or minority stakes. Their smaller scale and flexibility allow easier integration into local supply chains.

The impact of Chinese investments in the agricultural sector

Environmental Sustainability

SOEs’ focus on food security drives continuous soybean supply, increasing use of land and water. In Brazil, soybean plantations in the Amazon grew from 1.6 million hectares in 2007 to 7.28 million in 2022, causing deforestation and displacement of indigenous groups such as the Geraizeros. Pesticide use further harms biodiversity, farmers’ health, and water sources. Private firms, driven by profit, may neglect environmental concerns without regulation. Both SOEs and private firms are also criticised for weak transparency, as shown by COFCO’s failures in tracing deforestation impacts.

Value Adding

Chinese investments often target raw material supply rather than value-adding practices. This limits job creation, as mechanised production provides few opportunities, and exposes Brazil and Argentina to shocks from supply fluctuations, disease, or changing demand (Hearn, 2015). Land purchases also raise sensitivities due to colonial histories. Dependence on China risks market monopolisation: if imports fall, both economies could suffer shocks, while agricultural policies may be adjusted around Chinese demand. Heavy reliance on exporting raw soybeans while importing processed goods can hinder long-term development.

Agricultural Taxation

Tax incentives designed to attract large companies can increase burdens on local farmers, reducing competitiveness. SOEs purchasing local firms may benefit from incentives meant for domestic actors, while their dominance across supply chains creates opportunities for transfer pricing and tax avoidance.

Key insights from Australia’s experiences on Chinese agricultural investments

Like Brazil and Argentina, Australia depends on China in agriculture, notably in dairy and wine. However, it has limited risks through the Foreign Investment Review Board (FIRB), which requires approvals for foreign SOE and private firm investments. Approval thresholds vary across investors, with Chinese firms facing stricter rules than partners such as New Zealand and the United States. This framework helps balance foreign investment with local concerns and can serve as a useful model.

Strategic Recommendations

Chinese investments remain important for Brazil’s and Argentina’s economic growth, export expansion, and South-South cooperation (Castro Neves and Cariello, 2022). Engagement should continue, but concerns must be addressed through trust and clear frameworks:

1. Environmental Protection: The environmental costs of soybean expansion must be reduced. Stronger laws, enforcement, and penalties for non-compliance are essential.
2. Value-Adding Practices: Investments should focus on value-added sectors to prevent dependence on raw exports. Tax incentives could reward such projects, and joint ventures with local firms could transfer Chinese expertise in processing and technology.
3. Transparency and Taxation: Transparent agricultural taxation and regulation are necessary. Brazil and Argentina could establish a review commission similar to Australia’s FIRB, with adapted approval thresholds that preserve ties with China while ensuring accountability.

Bibliography

• Boza, S., Núñez, A., & Molina, M. (2022). Agricultural trade and investments between latin america and china: Development, implications, and challenges. In D. López, G. Song, A. Bórquez, & F. Muñoz (Eds.), China’s Trade Policy in Latin America: Puzzles, Transformations and Impacts (pp. 147–162). Springer International Publishing. https://doi.org/10.1007/978-3-030-98664-3_10
• Castro Neves, L. A., & Cariello, T. (2022). China’s growing presence in brazil and latin america. In H. Wang & L. Miao (Eds.), Transition and Opportunity: Strategies from Business Leaders on Making the Most of China’s Future (pp. 73–87). Springer Nature. https://doi.org/10.1007/978-981-16-8603-0_8
• Hearn, A. H. (2015). A Clash of Paradigms? Trust and Authority in Sino-Brazilian Agricultural Cooperation. In E. Dussel Peters & A. C. Armony (Eds.), Beyond raw materials: Who are the actors in the Latin America and Caribbean-China relationship? (1st ed, pp. 143–167). Friedrich-Ebert-Stiftung.
• Yang, Z. (2015). Key Actors in China’s Engagement in Latin America and the Caribbean: Government, Enterprises, and Quasi-Governmental Organizations. In E. Dussel Peters & A. C. Armony (Eds.), Beyond raw materials: Who are the actors in the Latin America and Caribbean-China relationship? (1st ed, pp. 73–86). Friedrich-Ebert-Stiftung.