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No end to soybean wars
By Li Xiang (China Daily)
Updated: 2009-04-20 07:57
"Somewhere West of Shenyang, a teenager is stopping for dinner, a dinner rich in soy protein," says the announcer, as an appealing Chinese boy eyes a bowl of food. The ad, which led off "The News Hour" on PBS for years, is a plug for Archer Daniels Midland (ADM), the multinational commodities giant. What the ad does not mention is that international trade is a two-way street. Somewhere North of Shenyang, a soybean farmer is going broke. Yang Dajun, a farmer in Heilongjiang province, has not sold a single soybean from last year's harvest.
"I borrowed 20,000 yuan for seeds and fertilizer from the government. I have to pay that off in June," Yang lamented. "If the price remains low, there is nothing I can do but sell my soybeans at a loss." Even as US workers complain about manufacturing jobs lost to China, Chinese farmers are struggling to compete with cheap imported soybeans from the West. Since 1995, China has gone from the world's largest exporter of soybeans to the world's largest importer. The nation now imports more than 70 percent of its soybeans, mostly from the US, Brazil, and Argentina. Most of the imports are genetically modified (GM) soybeans that have higher yields, more oil, and cost less to process. Soybean imports have soared from 800,000 tons in 1995 to 37.44 million tons last year. The US alone exported 15.43 million tons of soybeans to China last year, accounting for 40 percent of the nation's soybean imports. China has always treated soybeans as an oil crop, not a grain. Under World Trade Organization (WTO) rules, grain prices can be controlled, but the price of soybeans fluctuates with the international market. The price of soybeans nosedived in 2004, forcing many small- and medium-sized Chinese companies into bankruptcy. The world's four largest agribusinesses - Cargill, ADM, Bunge Ltd., and Louis Dreyfus - moved in, acquiring stakes in Chinese firms or setting up joint ventures. In 2006, Cargill invested $60 million in an oilseed crushing plant in Jiangsu province, while ADM acquired 30 percent of Dalian Huanong Group Ltd., a leading soybean processor. The following year, Yihai-Kerry Group, a subsidiary of Wilmar, the Singapore-based commodities giant, increased its sales in China by more than 200 percent, to $8.48 billion. Foreign firms now have a stake in 64 of the 97 major Chinese soybean-crushing companies, and control 80 percent of the country's total soybean processing capacity. Control of the market by foreign firms has led to calls for price controls on edible oils. "The dominance of foreign companies in China's soybean industry is well established, and is not going to change any time soon," said Zhang Chunhai, a researcher with the Heilongjiang Soybean Association. "Their control of the market could threaten China's food security, unless the government takes effective measures to address the issue," he said. In order to protect farmers and cope with the plummeting price of soybeans, the Chinese government established a "protection price" of $0.15 per gram last year. The policy turned out to be ineffective, however. Grain dealers and middlemen enjoyed most of the benefit, because farmers had trouble transporting their soybeans to the state grain warehouses. Meanwhile, the "protection price" raised the domestic price of soybeans, further reducing the profits of local soybean processors. The industry hit bottom in December, when almost all of the soybean processors in Heilongjian closed their doors. "These companies suffered a major blow. They're now trying to stave off bankruptcy," Zhang said. Heilongjinag is the only major soybean producing area in China that had not been penetrated by foreign capital prior to the global financial crisis. Now some local firms are seeking foreign investment in order to survive, while others hope to set up crushing plants in coastal regions to take advantage of cheap imported soybeans. "Expanding our business to the coastal regions is the only way we can survive," said Song Shengbin, chairman of Longjiangfu Edible Oil Co., Ltd. Song's company plans to set up a new plant in the South with a daily processing capacity of 3,000 tons of imported soybeans. Jiusan Oil and Grain Group, China's largest domestically owned soybean presser, is also looking for foreign investment. "If any foreign companies would like to cooperate with us, we will actively consider the opportunity," said the group's chairman, Tian Renli. But Tian said such cooperation must be premised on the Chinese side maintaining a controlling stake. In some areas, soybean farmers are switching over to corn and rice. The Heilongjiang Soybean Association projects that Heilongjiang will see 500,000-820,000 fewer acres planted with soybeans this year. Experts say the future for China's soybean farmers lies in exports to Japan, the Republic of Korea, and Europe, which are the world's leading importers of non-GM soybeans. In 1985, China exported 323,000 tons of non-GM soybeans to Japan, its largest export market. But exports dropped to only 130,000 tons in the 1990s, as soybeans from China failed to meet Japan's standards. Today, Japan imports an average of 1 million tons of non-GM soybeans each year, mainly from the US and South America. "To regain the market, China's soybean industry must raise the overall quality of its GM-free soybeans in order to meet the standards of those markets," Zhang said. After months of inactivity, Heilongjiang's soybean processors are back in business, hoping a rise in prices signals a turnaround in the market. "The rising price of imported soybeans will eventually drive up the price of soybean oil, which will give us a better profit margin in the home market," said Song Shengbin, chairman of the Longjiangfu Edible Oil Co Ltd. But Song warned that a significant drop in the international price could undermine China's soybean industry again.
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