June 3, 2004

 

 

Chinese Rules On Soybean Imports Threaten Crisis
 

China is standing by its "zero tolerance" rule for assessing tainted soybean cargoes, traders and diplomats said on Wednesday, threatening the cargoes of nearly 30 bulk carriers with 2 million tonnes of the oilseed now heading to mainland ports from south America.

 

China, the world's largest soybean importer, has already rejected the cargoes of three boats from Brazil because they allegedly contained fungicide-treated seeds and also banned imports from specific trading houses.

 

The dispute over the rejected cargoes has been complicated by charges that Chinese soybean crushers have been using the fungicide issue as a way to renege on high-priced contracts.

Soybean prices have dropped dramatically in recent months, to around $350 a tonne, compared with $420 in late March.

 

Chinese banks have also been reluctant to extend credit to crushers, because of the general credit squeeze imposed by Beijing and fear that the rejection of cargoes will leave them with unpaid loans.

 

Traders and diplomats said it was not clear whether the crisis over soybean imports was because of genuine concerns over food safety, or due to corruption of customs officers by crushers unwilling to pay their contracted prices.

 

"We don't know yet whether this is a local problem or centrally directed," said a Beijing-based diplomat.

 

A number of trading houses have been harshly critical of Liuz Inacio Lula da Silva, Brazil's president, who they say refused to mar the positive tone of last week's China visit by raising the issue with Chinese leaders.

 

"He has basically thrown $200m-300m worth of trade out the window," said the head of one foreign trading house.

 

A Beijing-based Brazilian diplomat said on Wednesday two Brazilian ministers travelling with Mr Lula da Silva had raised the issue in bilateral meetings with their Chinese counterparts.

 

Traders say about 10 of the 30-odd boats heading for China from Brazil and Argentina were likely to have their cargoes accepted, as they were headed to crushers backed by Cofco, the China National Cereals, Oils & Foodstuffs Corp.

 

Boasting of joint ventures with Wilmar, the Singapore trading company that dominates soybean imports into China, and Archer Daniels Midland, the US company, state-owned Cofco is considered powerful enough to shepherd its oilseed cargoes into the country.

 

However, traders said China would have to establish safety standards for screening cargoes, as the 'zero tolerance' policy was ultimately unworkable.

 

"The Chinese have got to come up with some kind of tolerance level or standards," said the trader. "Otherwise, you wonder whether the beans should be shipped to China."