China's Soybean Dilemma

Translated by Tang Tang

Original article: [Chinese]

Plummeting soybean prices in China have led to government intervention, but the move to protect farmers' interests has drawn flak from planters, industry players and scholars alike.

Just over half a year ago, China - the world's largest importer of soybean - was rattled by skyrocketting soybean prices. Last year's price hike had encouraged Chinese farmers to grow the crop on a larger scale.

However, soybean prices recorded a sharp decline, from nearly 10,000 yuan to 3,200 yuan per ton, in July 2008.

Soybean farmers were devastated, as they had increased output capacity when prices soared. They had no choice now but to settle for the new, sub-cost prices.

To cushion the farmers' losses, Chinese authorities responded by ordering over 5 million tons of soybean at 3,700 yuan per ton, an offer higher than the market price.

The purchase accounted for about one-third of annualized Chinese soybean production, but ultimately did not reverse declining soybean prices.

And the move met with negative feedback elsewhere in the industry -- many domestic soybean processing businesses fought the protective rate by halting purchases and production.

"The government hiked up my costs and put me at a disadvantage in the market," one soybean processing boss in Heilongjiang province, who wishes to remain anonymous, told the EO.

Many soybean processing factories were shifting production to cheaper imported soybeans, priced around 3,000 yuan per ton.

Meanwhile, soybean farmers claimed they were unable to benefit from the purchasing order either.

"Many were lining up at the government's purchasing points for days, only to sell at the rate of 3,200 yuan per ton, and soybeans of lower quality were unsellable,"said a farmer from Mishan city, Heilongjian province.

China's soybean imports exceeded 30 million tons in 2007, and over 37 million tons in 2008. Meanwhile, domestic soybean production held at 15 million tons.

China's soybean market was 70 percent reliant on imports, making it impossible for Chinese farmers to satisfy demand unless China dedicated another 16.7 million hectare to planting soybean.

Throughout the past one year, the Chinese government had first struggled against price spikes in the global market and supply shortages, and later fought to stem plummeting prices, which could affect the livelihood of the economically vulnerable farmers.

One of the main factors that led to the above scenario is the powerful flucutations in the international soybean market, which is sensitive to ethyl alcohol fuel production, trade policy, and speculative investments.

Several officials and scholars who spoke with the EO shared the sentiment that abroad, soybean is a toy for speculative investors, and that as a result, China should really think hard as to whether soybean supply should be under the nation's food security umbrella, and even consider loosening its grip.