November 04, 2003
Higher Production Cost of Soybean in China Due to Taxes and Other Indirect Costs
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Professor Liu Zhongtang, a soybean specialist from the Heilongjiang Institute of Agricultural Science, told a discussion panel recently that there is still substantial room for further reduction in the production cost of soybean in China.
Statistics provided by Professor Liu showed that at the national level, the cost of production of soybean in China is RMB0.56/jin (1jin=0.5 kg; jin is a Chinese measurement of weight). However, for Chinese farming households engaged in soybean planting, the production cost is RMB0.73/jin. In the USA and Brazil, the corresponding figures are RMB0.55/jin and RMB0.45/jin respectively. These figures highlighted the fact that the production cost of soybean in China is comparatively higher than those of USA and Brazil.
Professor Liu added that, compared to American or Brazilian growers of soybean, the Chinese growers as a whole are shouldering a greater amount of taxes which, in turn, is reflected in the higher production cost of the agricultural product.
Since last year, the Chinese government has been progressively introducing a new tax structure for the agricultural sector. Chinese farmers are now paying less in taxes, but the amount of reduction is not substantial.
Currently, the agricultural tax stands at RMB17.94/mu (1 mu = 0.0667 hectares; mu is a Chinese measurement of area). Hence, taxes constitute an important component in the production cost of soybean. In view of this, Professor Liu urged the Chinese government to either reduce or exempt soybean growers from paying agricultural tax, as this will lower the production cost.
As the government does not provide agricultural subsidies for soybean producers, farmers engaging in soybean cultivation in China are at a disadvantage, compared to their American or Brazilian counterparts. American farmer receives 1.6 US cents in direct subsidy for the sale of every kilogram of soybean. He will also be paid $2 per mu in off-peak season subsidy. If he makes a loss from a sale, the government will provide him with a subsidy equivalent to RMB226/ton.
According to the World Trade Organization's regulations, the Chinese government could provide farm subsidy amounting to not more than 8.5% of the total output value of the sector, but Chinese farmers still do not receive any form of subsidies or payment. Professor Liu stated that if subsidies were given to Chinese farmers, the production cost of soybean would be lowered significantly.
In addition, Chinese soybean growers are also not able to reap economies of scale because in the countryside, many growers hold only small land parcels. Therefore, in terms of the cost they have to pay for utilization of mechanical farming equipment, farming measures and management, as well as the purchases of new soybean strain, Chinese soybean growers are not able to reduce the cost of production.
If these growers adhere to the measures of the "Soybean Revitalization Scheme" implemented by Ministry of Agriculture, further reduction in the production costs of soybean can be achieved. These measures include the standardization in the supply of soybean seedlings and farming practices, combining contiguous plots of land parcels for planting and the specialization of farming techniques.
In other words, Chinese soybean growers are not only paying land rent, they also have to bear the cost for provision of welfare to retirees and the management of work units. All these forms of costs and taxes are ultimately being passed on as production costs. In fact, Chinese soybean production technology is on par with major soybean producers of developed countries.
