March 12, 2004

Chinese Soybean Demand Forecast To Fall In 2004

Soybean demand in China is likely to fall in 2004 despite the government's decision to approve imports of genetically modified soybeans.

"Due to a glut in supplies, the effects of bird flu and reduced market speculation, we predict imports this year will decline slightly from last year's historical high of 20.74 million tons," suggests Zhang Xiaoping, vice-president of the American Soybean Association's Beijing office.

On February 22, the Ministry of Agriculture awarded the first safety certificates for genetically modified crops from overseas. Under China's regulations, the certificates prove the foreign exporters are formally permitted to ship their GMOs to China. Agriculture officials also pledged to place imports of agricultural biotech products under "normal" administrative rules on April 20 after the relevant interim rules expire.

The State Council in 2001 released China's first statute on GMOs, the Safety Regulations on Agricultural Genetically Modified Crops, which required importers of GMOs for research, production or processing to have safety certificates issued by the Ministry of Agriculture. The statute stipulates transgenic crops imported into China can be held for inspection by customs officials for up to 270 days. That stipulation concerns importers and overseas farmers, who fear it could prevent GMOs from entering China.

The statute affected China's soybean trade, as the nation is the world's largest soybean importer. Last year, China's soybean import trade was worth US$4.8 billion. More than 70 per cent of China's imported soybeans were genetically modified. The interim rule on GMO imports was adopted in 2002 to ensure trade in biotech agricultural products would not be affected before the Chinese Government could issue the safety certificates. The interim rules, which require GMO exporters to obtain temporary certificates for their products being shipped to China, were extended three times. But they are due to expire on April 20. Adoption of the interim rules resulted in an irrational increase of soybean imports, as importers and/or soybean oil processors feared the interim rules would not be extended before the final safety certificates were issued, Zhang said. Most imported soybeans are used for oil processing.

The combination of China's increased soybean imports, which rose more than 200 per cent last year, and the decrease in US soybean production, which fell 8.97 million tons, caused world soybean prices to soar more than 15 per cent, said Xia Youfu, a professor of trade with the University of International Business and Economics. Rising prices prompted importers to purchase greater quantities of soybean. The government's decision to issue the safety certificates, reportedly valid for three years, should eliminate any uncertainties in the global soybean market, Zhang said.

Agricultural economist Huang Jikun agrees. "Strict measures were adopted to tighten control over imports of genetically modified soybean, but they failed to stop the growth rate of GMO imports," Huang, with the Agricultural Policy Research Centre under the Chinese Academy of Sciences, said. "Issuance of safety certificates will help ensure import management of GMOs will be consistent," Huang added.

"Market demand for imported soybeans should return to normal levels, and import speculation should diminish, given the issuance of the certificates," Zhang suggested.

The Agricultural Ministry recently granted safety certificates to five GMO strains produced by Monsanto, which is the largest agricultural biotech company in the United States. All transgenic soybeans China imported from the United States were grown from Monsanto's transgenic seeds. China imports between 27 and 29 million tons of soybean annually. The nation produces about 16.51 million tons of soybean annually. China's soybean supplies last year surpassed actual demand by nearly 10 million tons. The surplus supplies will be stockpiled.

Market demand, which has grown about 6 per cent annually, was affected by last year's outbreak of severe acute respiratory syndrome (SARS), and the recent bird flu epidemic. Fewer people ate in restaurants -- which are major soybean oil consumers -- during the SARS outbreak. "Bird flu, which has affected people's demand for poultry and eggs, has attacked China's animal husbandry industry, which has traditionally been a major consumer of soybean cake, a byproduct of soybean oil processing," Xia said.

A market report prepared by a department of COFCO (China National Cereals Oils and Foodstuff Import and Export Corp), predicts soybean prices will decline from the historical high in January. Imports and supplies of alternative oil processing products, such as rape seed, are increasing -- and prices are decreasing. This will reduce oil processors' demands for soybean, indicates COFCO's report.

Despite the issuance of safety certificates, market analysts suggest the Chinese Government will continue trying to adjust import volumes. "Although safety certificates have been issued, a licence is still needed for shipment of imported soybean," Zhang said. "The licences are valid for six months, which prevents unencumbered imports of soybeans," Zhang added.