All of a sudden, China has turned from its traditional role of a soybean exporter to the world's largest soybean importer. Amid the rising food prices and heightened inflation, soybean crisis may present an unexpected challenge to the Chinese economy in 2008.
Soybean crisis
The soybean crisis is evident in three areas, namely high import dependence, foreign company dominated industrial structure and transgenic quality dangers.
First of all, China's soybean import dependence is on the rise. China had traditionally been a net soybean exporter until 1995, but it became the world's largest soybean importer in 2000 with a record import volume of 1 million tonnes. Since then soybean imports have kept rising in subsequent years, with net import of 28 million tonnes in 2006, which was 1.77 times of China's domestic soybean output in that year, equivalent to a import dependence of 64%. In 2007 China's net soybean import further exceeded 30 million tonnes. According to the State Grain Administration, China's domestic soybean output were only 14 million tonnes, down 12.32% from pcp, and soybean acreage was down 6.25%. This signals further increases in soybean imports in 2008.
The reasons for soybean output decline include: production cost disadvantage compared to overseas transgenic soybean; lower oil extraction rate for domestic soybean, whose 17-18% compared to 22% for imported soybean; lower plantation yield compared to other food plantations such as corn and grain.
Secondly, China's soybean industrial chain is now dominated by foreign enterprises, weakening the authority's macro control efforts. The soybean crisis is not only evident in self-supply of raw materials, but also in downstream processing links. It is reported that 70% of fat production plants and 80% of soybean crushing are controlled by foreign companies. A more worrying fact is that the foreign dominance in China's soybean supply and processing industries is concentrated in the hands of several multinational grain companies, including Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus.
Furthermore, the hidden danger from importing transgenic soybean cannot be overlooked. Most of China's imported soybean today is transgenic soybean, whose safety has long attracted considerable controversy in developed countries. Transgenic foods may contain new toxins and allergens, while Chinese consumers, who consume considerable amount of transgenic vegetable oil and meat and aquatic products fed by transgenic soybean, may have overlooked the potential hazards in the short term.
In short, China's soybean demand is seeing robust growth and exceeding supply, so the situation of import dependence should continue to exist. Soybean crisis is already a broad consensus in the industry, and if we include soybean into the grain category, then it may moving towards a grain crisis.
Food self-sufficiency rate declining
The grain import dependence is calculated as the ratio between net grain imports and domestic apparent consumption volume (domestic output plus net imports). Since 2004, China's dependency on grain imports has been increasing significantly, and approaching 5% in 2006.
Apart from looking at grain import dependence, we have also examined edible oil imports, as importing edible oil is literally equivalent to importing soybean. Edible oil imports are following a similar upward trend with soybean imports. The increase has been 200-fold since 1986, with a record 8.4 million tonnes of edible oil imported in 2007. So if we assume a 20% oil extraction rate for soybean, it implies China's soybean import volume will need to further increase 45%.
Putting together edible oil and soybean imports, China's soybean import increase has therefore been extraordinarily rapid. In 2006 it imported soybean-equivalent of 43.6 million tonnes, and the figured is expected to exceed 50 million tonnes, amounted to 10% of China's apparent grain consumption, implying a mere 90% grain self-sufficiency rate. This rate is lower than the 95% target repeated stressed by the government. So in a sense, the soybean crisis is now posing a threat to China's grain security.
From another point of view, China has lost its self-sufficiency ability in the edible oil sector. According to the State Grain Administration, Chinese population consumed 23.74 million tonnes of edible vegetable oil in 2006-07, with 18 kg per capita. Considering the 28.3 million tonne imported soybean (assuming a 20% oil extraction) and 6.7 million tonne edible vegetable oil in 2006, China's edible vegetable oil import dependence is now at 52%. The import volume will keep rising in the future, and domestic prices will be more subject to international market fluctuation.
Furthermore, as soybean's unit plantation output is only 1/3 of grain, importing one tonne of soybean will be equal to importing three tonnes of grain. If soybean price keeps rising, there will be more farmers in China shifting to soybean plantations, which means China may need to import even more grain. Ironically, to achieve edible oil self-sufficiency, China may need to import at least 100 million tonnes of grain, further reducing food self-sufficiency.
In addition, when we convert net edible oil imports back into soybean, we may conclude that China's total grain demand in 2007 has amounted to 550-560 million tonnes. Looking forward, as China's population keeps rising and consumption keeps increasing, demand for food can only be even higher, hence a more acute food problem.
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Article Source: http://EzineArticles.com/?expert=Face_Zhang
By Face Zhang
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