February 16, 2010

China's relentless soy imports squeeze local market share

The country's Heilongjiang province has been particularly hard hit on continuous GM soy imports, with 68 medium-sized soy-processing enterprises forced to stop production.

For years now, GM soy imports have been nibbling away at China's soy market. Heilongjiang in particular used to produce high-quality soy, with farmers selling more than 60% of their crop before the Spring Festival. But so far this year, less than 2% of soy has been sold as the lower priced GM soy are taking control of the market.

"The low price is killing my factory. Our business won't work this way," says Zhang Enzhi, owner of an oil refinery that stopped production a week ago.

According to China News Service, the disparity in price has forced 68 medium-sized soy-processing enterprises in Heilongjiang to stop production.

Despite the Chinese government's efforts, GM oil still takes more than 80 percent of the market, said an industry insider.

In 2004, international tycoons made use of futures trading to drive soy prices up to RMB4,300 (US$623) per tonne. In fear of further price rises, Chinese oil refinery enterprises bought 3 million tonnes of soy from the US.

Later on, soy prices fell to RMB3,100 (US$453) per tonne, resulting in the closure of 50% of Chinese oil refineries. International companies then took 60% of Chinese oil refinery companies under their control.

In 2005, non-GM oil sold at RMB35 (US$5.12) a barrel in supermarkets, while GM oil sold at RMB56 (US$8.19).

This was a vital strike to China's non-GM oil refinery companies. Till 2006, half of Northeast China's oil refinery plants were either shut down or out of business.

Since planting GM soy for commercial use is still at the discussion phase, non-GM oil producers are crucial for Chinese soy farmers.

By the end of 2008, the General Administration of Customs warned that foreign capital is sharpening its control of food production, especially in terms of non-GM soy.

Since then, the Chinese government has practiced the protective purchasing price system. China Grain Reserve Corporation (CGRC)
bought 7.25 million tonnes of soy in Northeast China at a price of RMB3.7 (US$0.54) per kg between October 2008 and June 2009.

"But the aid can only scratch the surface," said Wang Defu, a bean farmer in Heilongjiang.

According to Wang, since CGRC only buys top-quality beans, government policies can't save farmers from losing money. So many farmers prefer not to sell their soy due to the low price.

"If this continues, it will frustrate the farmers. And the soy planting area is likely to reduce by several hundred mu this year," Wu Liqiang, the deputy Secretary-General of the Heilongjiang Soybean Association, told the China Economic Weekly.