Tuesday, October 12, 2010

Grain Industry Anti-Foreign Rhetoric Heating Up

A steady stream of articles in the Chinese press warn about multinational companies taking over Chinese agricultural markets. Even a Chinese agricultural economics journal recently contained a lead article that was a tirade against the "ABCD" companies: ADM, Bunge, Cargill, and Louis Dreyfuss.

A long article from the National Enterprise magazine, "Multinational Grain Merchants Impact Business of State Enterprises," warns that increasing control by multinational companies threatens China's food security.

As usual, China's soybean industry is presented as victim no. 1. The author points out that China accounted for 91% of world soybean production in 1936, but today multinational companies control 80% of the soybean crushing capacity in China. Moreover, the article warns that multinational grain traders are spreading the scope of their operations to include upstream storage and grain processing, posing a threat to China's food security.

Against this background, says the author, China's medium- and small-scale enterprises are not strong enough to stand up to the multinationals. It's necessary to rely on large state-owned grain enterprises to stand against them and keep a tight grip on food security.

The article provides another heart-wrenching tale about soybean companies in Heilongjiang Province having to shut down because they can't compete with imported soybean crushers.

It is said that the multinationals use their advantage in purchasing soybeans to dominate the market, leaving China with no say over prices. The plight of domestic soybeans is called "an industry crisis."

Not all of these companies are actually U.S. companies, but the article quickly slips into anti-American mode. American soybeans are said to have an advantage because they are genetically modified. Large-scale farms, an integrated industry structure, and subsidies are blamed for giving American and South American soybeans a cost advantage.

The article warns that foreign companies are now infiltrating other industries, such as rice and flour milling. This has the government on the alert.

The article seethes over the gall of brazen Americans who opened a USDA trade office last month in Shenyang, an important city in China's northeastern grain belt. This is seen as a direct strike at China's national granary (the northeastern region).

The article says we should take warning from another example. The U.S. Pioneer Company introduced a new corn variety in 2005 that spread quickly in Jilin Province, where it already accounts for 10% of corn area. Pioneer's corn variety is superior in yield, it has lower moisture, sells well, stores better, and gets a higher price than common varieties. Apparently, the only problem is that it's not Chinese.

The answer is to build up strong state-owned grain enterprises. An official with the State Council's Development Research Center, in an interview, states the view that state-owned enterprises have a big responsibility in carrying out China's long-term food security plan.

State-owned companies like Sinograin, Cofco and Chinagrain (Hualiang) are identified as having responsibility for carrying out china's grain market control policies by purchasing at support prices and storing reserves. Look for these companies to have more bank loans and stock offerings thrown at them to build capacity and integrate up- and down-stream into processing, storage, logistics, even livestock farming. Moreover, they are being groomed to invest overseas and become multinationals themselves.

By the same token, multinational companies should expect to have various obstacles raised against their operations in China.

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