April 20, 2009
China soy producers lose out to foreign commodities' firms
China's soy producers are losing out to foreign commodities' firms, which control the majority of the domestic soy processing scene.
Meanwhile, traders said China will continue stockpiling its soy reserves, which is likely to keep imports at record levels. They also noted many farmers are still holding onto last year's harvest and will need funds for the start of the new planting season.
Despite being the world's largest soy importer and one of the world's major soy producers, China has very little say in determining the worldwide price of soy.
Since 1995, China has been hugely dependent on a few multinational commodities companies such as Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus for soy and soy processing. These foreign companies not only dominate the world's grain transactions but also control 80 percent of China's soy processing capacity.
As a result, China is vulnerable to price manipulation in the international market.
In 2008, the price fluctuations in the world market caused Chinese soy market to experience a volatile period. The domestic price of soy futures dropped from US$783 per tonne to US$425 per tonne, down by 46 percent.
International speculators and multinational agribusiness corporations use fluctuations in the futures price to first drive their competitors out of the market and then further consolidate their domination of foreign markets such as China, according to Xia Youfu, a professor at the University of International Business and Economics in Beijing.
Xia cited the soy crisis of 2004 as an example. In 2003, Chinese importers rushed to the CBOT to purchase cheaper soy futures to avoid future price hikes as they were faced with a huge growth in soy imports.
However, prices fell by nearly 30 percent soon after. Chinese soy processors, who bought the soy at high prices, were forced to sell their portions to the foreign agribusiness companies, which later dominated China's soy industry.
