Amid an increasingly unstable geopolitical landscape, the looming possibility of a global trade war carries the risk of severe negative macroeconomic consequences. But it’s not all gloom and doom.
A global trade war means both America and China’s economies could begin to decelerate, triggering a worldwide recession. On the flip side, the rise in trade tensions has triggered a sense of investment opportunity for the global food and agricultural value chain, says Chris Potgieter, head of Old Mutual Wealth Private Client Securities.
In times of global volatility caused by changing geopolitical factors, it’s important to remember there’ll always be winners and losers, he argues. “Right now for example China is threatening counter measures by increasing tariffs on 106 American agricultural exports, including soya beans, which will likely play out in a way that handicaps some agricultural players, while benefiting others.”
Looking at soya beans specifically, Chris breaks down the likely winners and losers. He also looks at the impact potential resultant trade shifts could have on South Africa. “China is the second-largest market for American agricultural exports, and soya beans have historically been one of the top agricultural export products,” he says. “China’s announcement to introduce duties on these exports will therefore negatively impact the American farming community that historically exports soya beans to China, while American food producers who use soya beans as an input for manufacturing other foods downstream in the value chain will benefit from this. Other winners would be countries such as South America, Australia and even South Africa, who can deliver soya beans to both America and China.”
When asked about the likelihood of a global trade war actually breaking out, Chris says while this is possible, in his opinion it’s not probable. “It’s important to remember we’ve been here before,” he says. “In 2009, America raised tariffs on the import of tyres from China, to which China retaliated by introducing import tariffs on chicken feet – a delicacy in China that’s otherwise wasted in America. Subsequent to this trade rebalanced. This is because excess supply attracts new markets and unmet demand results in suitable substitutes being established.”
Substitution is where South Africa stands to benefit most in all of this. “South Africa can become a participant in the substitution of inputs, along with Australia and South American countries such as Brazil and Argentina. Local wine, fruit and nut producers specifically are likely to benefit from increased demand from China in the next few months,” says Chris.
From an investment perspective, geopolitics don’t necessarily have to spark uncertainty, he argues. They can also be viewed as an opportunity. “Given the current state of the global economic landscape, astute South African investors have the opportunity to invest in the various agricultural producers who stand to substitute production from either America or China, and in the broader food and agriculture value chain as food manufacturers can, in some instances, benefit from lower input prices.” l
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