Thursday, January 3, 2013

GMOs and Subsidies--Twin Bogeymen

Another article complaining about China's increasing reliance on imported soybeans blames the twin bogeymen of genetically modified seeds and foreign subsidies. These two culprits are often trotted out in articles like this, but this one claims that subsidies and genetically modified seeds are two sides of the same coin. This article reveals the misperceptions and twisted reasoning that are common in China and sometimes generate conflict when they influence trade barriers and antidumping investigations.

The article begins with a visit to Heilongjiang Province's Mingshui county where the local agricultural officials say soybean plantings this year were one-tenth of their peak of 400,000 mu. A local farmer explains why he planted less than usual. Corn yields are 650-700 kg per mu and soybeans only yield 130-150 kg per mu. The price of soybeans is a little over twice the price of corn, not enough to make up for the difference in yield.

The vice secretary of the provincial soybean industry association reports that plantings in Heilongjiang have declined from 64 million mu in 2010 to an estimated 40 million mu in 2012. The vice secretary of the national association estimates that soybean production was 10 million metric tons in 2012, just 15 percent of the soybeans consumed in China. He says imported soybeans are estimated to reach 60 million metric tons in 2012. Academics interviewed say that China would need to expand its agricultural land base by 20 percent in order to produce all those imported soybeans at home.

The soybean association official reminds readers that virtually all of the imported soybeans are genetically modified (GM).

A Ministry of Agriculture researcher reports the advantage of these GM soybeans: their oil content is 2-to-5 percentage points higher and the high protein soy meal produced from them brings a good price. Their appearance and uniformity is better and their unit cost is lower because they are planted on large scale farms.

The soybean industry association official, however, claims U.S. government subsidies are the source of the Chinese industry's problems. Like many observers in China, this official vastly overstates the role of subsidies. He claims that the United States includes soybeans in a national development strategy, using subsidies to support soybean production. He then claims that government subsidies and "trust funds" lower the price of GM soybeans to expand their sales.

As evidence of the "price distortion", he points out that  organic food--which prohibits GM ingredients--is much more expensive than conventional food which can include genetically modified ingredients. Therefore, since GM food is cheaper than organic food, it must be subsidized, concludes the Chinese soybean industry official.

By the same reasoning, Ford automobiles must be subsidized since they are cheaper than Mercedes.

Over 60 percent of China's soybean imports come from Brazil and Argentina--do U.S. subsidies explain why South American beans are cheaper than Chinese soybeans? Yes, says the Chinese official. He claims that the U.S. government gives subsidies to multinational grain trading companies to buy land in South America to produce genetically modified soybeans.

An official from an international relations research institute complains that big seed companies like Monsanto and Dupont get large royalty payments on their GM seeds which motivates not only the seed companies but also multinational grain traders to promote the GM seeds around the world. This seems to contradict the soybean industry official's argument that prices are artificially low.

The researcher claims that GM soybeans dominate markets in Brazil, Argentina, and China because foreign companies exert complete control of the entire chain from breeding, to farming, processing, retail and branding.

The soybean industry official suggests that China should study how Europe and Japan controlled agricultural commodity imports in a way that averted threats to their domestic production. He says China should emphasize the advantage of its non-GM soybeans. He says food-grade soybeans used for tofu, soy milk, and other food products have a price 40-to-50 percent higher than soybeans used for processing into cooking oil. Another official says the demand for soy-based food products is flourishing, rising 20 percent annually in Beijing.

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