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3 September 2011
China wants to buy
direct
 In recent months there has
been a series of China/Brazil partnership stories in Brazil.
There has been talk of a
China/Goiás state partnership with producers to double soybean
production in the state with Chinese financial help of pasture
conversion and infrastructure. To date, I do not know of any
concrete progress other than press releases.
Another news item of late is
that a group from Mato Grosso has visited China and they want to
sign an agreement to work together in the future. Starting in
September 2011, a group of railroad engineers from China will be
surveying the potential of a Cuiaba to Santarem railroad. This is a
great idea. However, I think there are many issues that need to be
solved before it becomes reality. Environmental impact, rite of way,
mountain range logistics, funding and domestic kick back from
trucking entities and established power players. Let us get the
East/West rail built first.
From time to time I get
calls and emails from Chinese grain buyers wanting to partner with
Brazilian grain warehouses. There is no doubt in my mind that the
interest is there on both sides. Brazil wants to sell to China and
China wants to buy as much as possible from Brazil at competitive
rates. The obstacles that end up inhibiting the deal are:
-
The trust factor of a
Brazilian company working with a letter of credit from an
unknown international buyer and the ability of the seller to
deliver large quantities to port in a timely manner.
-
Trucking expense of over
100 dollars per ton puts a lot of risk on that of the supplier
with little guarantee other than an international “letter of
credit” for a ship load of soybeans or corn.
The multinationals are
strategically placed to take advantage of this arbitrage and I see
no reason to date that it will change anytime soon. Even with new
railroads, this may lower transport costs, but in the end the grain
will tend to fall into fewer and fewer hands that can handle large
volumes with regards to storage at ports and payment for product
delivered domestically.
There is a solution
I think there is a solution
to this, but it requires long term thinking. So far, I have
not seen long-term business models by either the Chinese or
Brazilians. I think much of the reason is a cultural gap,
which is very hard to bridge with just a few visits in one country
or the other.
We “Americans” that come to
Brazil tend to have more in common with the locals - Brazilian
producers and grain marketing network. Perhaps because we were all
raised on farms or have roots directly to the land in USA. If
you can pick up some Portuguese and have some knowledge of Agronomy
or modern day production methods, one now has an inroad into the
Brazilian network. It is easier for the trust factor to start to
build and from there business can start to take place. This only can
happen with “Boots on the ground” and time spent with language,
culture and respect for the traditions of both parties. The Chinese
tend to be “traders.” There is nothing wrong with this. It tends to
be short sided in nature and focuses on results.
Brazilians tend to be
“traders” too when the product gets to a consolidated level. Name
and reputation have a high value in Brazil. Big deals can be done on
a hand shake in Brazil if they know you are good for the deal.
I think this model of partnership could work well if it could focus
on “port only” dynamics. When we go to the interior of Brazil,
the pace and style of business changes. This is where the cultural
disconnect takes place.
In the interior of Brazil,
one will encounter generation ONE or generation TWO of Cerrado
pioneers. They value hard work, family, and in many cases a strong
connection to a given church. They are more than happy to sell
directly to a buyer from most anywhere. What they do not like is to
sell to a “trader” that is going to flip the production and make a
buck on their hard work. They will tolerate this if it is a fellow
Brazilian. But if they sense that a foreigner is going to make
something “extra” on their product, the defense mechanisms tend to
show themselves.
The Solution
I think there is only one
solution to this dilemma of the culture clash between interior
Brazilians and Chinese grain buyers that want to form long term
relationships with soybean producers. I do not think multiple
business trips back and forth to China/Brazil will solve this. I
think it can only be overcome with time spent on the ground in heart
of the soybean production areas. Ideally young, dynamic Chinese men
would immerse themselves into local communities for a period of two
years or more. These individuals would learn Portuguese, play
soccer, and become part of Brazil’s interior fabric. They would
develop long term relationships which then can be parlayed into
business references and then the “trust factor” will begin to form.
One must not only be able to “trade” soybeans but be able to “talk
soybeans” too. Interior Brazilian producers respect those that can
appreciate the sacrifices they have made to develop the land and the
production struggles that they have incurred along the way.
Foreign Buyers
A foreign “soybean trader”
will never earn the respect of the locals. It is not an issue
that they will not deal with you, it is more of an issue for the
foreign buyer to have that extra “edge” when dealing direct with
interior producers. Is this not the point? “Buy direct”?
Then go to the source and immerse yourself. The deals will come. The
above idea is easier said than done. I think with the new railroads
being built in the coming years it would be a very evolutionary
business model for “Serious” Chinese grain buying companies to
invest in an “exchange program” of sorts with dynamic Chinese
agronomists, Ag economics students, and entrepreneurs. I must repeat
what I said above. I do not mean a TWO week trip to Brazil. I am
speaking of a TWO year total immersion in culture, language, and
local interaction with interior soybean communities. By not doing
something similar to this, I do not think there is a chance to
seriously “BUY” soybeans direct inside Brazil. I am sure one will be
able to “source” Brazil soybeans from interior traders. But one will
never have an “Edge.” The multi nationals and domestic Brazilian
grain traders will always have the upper hand with regards to
supplies, shipping, and port loading ques. Instead of the
delegations going back and forth for 10 days at a time, ponder the
idea of spending some real time in the interior. This goes for both
Brazilians and Chinese. |
