March 10, 2010

Chinese farmers back soy production policy

China should enact policy changes to encourage large-scale soy farming, reduce farmers' risks with agricultural insurance, and guide market prices through a hedge fund, according to a soy association, farmers and processors.

The country imported 69.9% of its soy last year compared with 69.4% in 2008, said Guo Jianying, an agriculture analyst at Guan Tong Futures Brokerage firm.

To protect farmers' interests, the state implemented a minimum purchasing and storage price of RMB3.7/kg (US$0.54) of soy for 2008-09 and has increased it to RMB3.74/kg (US$0.55) for 2009-10, according to the Heilongjiang Soy Association.

Heilongjiang Province is a major production site for soy, producing 6.87 million tonnes last year and accounting for more than 40% of soy production nationwide.

Based on the state purchasing price, domestic soy are RMB3,740/tonne (US$547.58).

Currently, the CIF price of imported soy is about RMB3,300 (US$483.16), said Tian Renli, the president of Heilingjiang Jiusan Oil and Fat Co, one of the largest domestic soy processors for stock feed.

As China heavily relies on imported soy, foreign grain dealers such as ADM, Bunge, Cargill, Louis Dreyfus and Wilmar International have also dominated with about 70-80% of the domestic soy product market share, Tian said.

Under current farmland regulations, farmers are entitled to an average of 0.5 hectares of farmland free of charge, and must pay RMB3,600 (US$527.09) in rental fees per additional hectare of farmland.

A soy farmer could have net earnings of about RMB3,400 (US$497.8) annually, but see the figure halved after rental fees on an additional 0.5 hectares, according to Li Shucai, a soy farmer in Heilongjiang Province.

Few are willing to rent more farmland for soy, and those farmers leaving to work temporarily in urban areas have less time to cultivate their crops or just mix planting with different grades of beans, leading to smaller output, Li said.

Li suggested that the government work out a new policy to force the transfer of land and cultivate soy on a large scale via scientific measures to increase the output.

To compensate for the price gap between domestic and imported soy, the government rebates the processors by RMB160/tonne (US$23.43), but that is far from enough, said Tian.

The logistics, storage and financial costs for domestic grain is RMB240/tonne (US$35.14), and based on current prices, the processor still incurs a loss of RMB530/tonne (US$77.6) for using domestic soy, he noted.