The fires in the Amazon rainforest of Brazil seem to be a world away from the tense diplomacy in the US trade war with China. In fact, they are more closely related than you might expect.
One of Beijing's main retaliatory measures was to freeze purchases from 30 million tons to 40 million tons of American soybeans, which they import each year. That made it more than ever dependent on Brazilian soy to fill the void. Brazil's Chinese imports during the 12 months to April amounted to 71 million tons, about the same as they were imported from around the world in 2014.
As we have already written, this is the engine for an investment boom in the Brazilian agricultural sector Agribusiness players like Nutrien Ltd. and Mosaic Co. are shifting their focus to South America to use Beijing's desire to free itself from US food dependency.
In a sense, this should not have a direct impact on the Amazon. Most of the Brazilian soya is grown in the Cerrado, a vast savanna area south and east of the rainforest. Agricultural investment has focused on the conversion of cerrado fields currently used for pasture grazing into row crops such as soybeans.
This process should be able to effect a vast expansion of farmland without touching the Amazon. The problem is that even Brazil has a limited amount of land. If you press the balloon in one place, there is a danger that it will pop out of another. Most of the expansion of Brazilian farmland over the past decade seems to be at the expense of the renewable forest, which tends to be less well protected than the primary forest such as the Amazon. This year's fires could drive cattle farmers away from Cerrado to seek new pastures in the freshly cleared Amazon rainforest. Brazil's primary rainforest has nearly stalled in the last decade despite the ongoing deforestation of renewable forests. President Jair Bolsonaro has already promised a more aggressive approach to the development of the Amazon, deriding environmental concerns and jokingly referred to as the "Captain Chainsaw" atmosphere. The Brazilian Cerrado pasture is densely forested, and the cattle graze under the open canopy. To convert this into row crops, these carbonaceous strains must be uprooted. Among other things, this is such a costly and difficult process. In addition, pastures that are trampled by livestock can bind the atmospheric carbon in the soil quite effectively, but arable land that is cultivated every year does not make so much difference in Brazil's forest fires last year. The intensity of the inferno is probably the result of periods of drought, although the increasing number of flames is almost certainly due to an increase in conscious human activity. More than half of the outbreaks were in the Amazon, another 30% in the Cerrado and most in the Atlantic.
The danger of the current situation is that China's hunger for soya will bring recent progress to a halt in ending deforestation. The European Union concluded a trade agreement with the South American Mercosur bloc in June after two decades of negotiations, but Bolsonaro's insignificant stance on the Amazon is a stumbling block to European governments needed to ratify the agreement. The Brazilian agribusiness sector has even urged the Bolsonaro government to take greater steps to stop the deforestation, fearing that its confrontational stance may jeopardize the EU-Mercosur deal and affect its exports due to the shorter trading period and Beijing's long-standing food security concerns are unusually worrying about Brazil's approval. If anything could cause Bolsonaro to ignore his country's land barons and instead follow his instincts, this is the prospect of a rich alternative source of foreign exchange from China.
This would be a miserable and unexpected result of the current trade war. Although President Donald Trump took office with a promise to revive the coal industry and dissolve environmental legislation, he has largely failed to reverse the greening of the US energy sector and the efforts of the auto industry to reduce tailpipe emissions.
However, depending on carbon, China has encouraged this country to set a ruthlessly carbon-intensive industrial stimulus last year, and could now cause Brazil to uproot more of its forests. The worst climate legacy of the Trump government may not come from energy policy, but from trade.
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David Fickling is a Bloomberg Opinion columnist dealing with commodities and industrial and consumer goods companies. He was a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.
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