Monday, January 14, 2013

Soybean Imports 58 mmt; call for target price

Chinese customs statistics report that soybean imports totaled 58.38 million metric tons during calendar year 2012. That was up 11.2 percent from 2011 and a new record. The average unit value was $599 per metric ton, up 5.8 percent.

Yet another article in the Chinese news media worries about the rising dependence on imported soybeans.

Domestic Chinese soybean production continues to fall. A Ministry of Agriculture researcher says that area planted in soybeans fell from 60 million mu (4 million hectares) in 2009 to 40 million mu (2.67 million hectares) because net returns from soybeans are not as good as those for corn and rice.

An Academy of Social Sciences researcher frets that the imports are a "hidden danger" to food security. However, the article also reports that China would need 400 million mu (26.7 million hectares) of land to produce 58 million metric tons of imported soybeans at home.

The MOA researcher reports that the cost of domestic soybeans is 70-to-80 yuan higher than imported soybeans. Not only that, but importers can get a letter of credit that gives them cash they can use to import the beans and lend out to others for 3-to-6-months, whereas domestic beans are bought and sold on a cash basis.

Why are domestic soybeans expensive? One reason is China's price support program, formally known as a "temporary reserve." The government sets a minimum price for domestic soybeans that makes them more expensive than imports.

A target price policy is regularly being mentioned in Chinese news media as a better alternative policy. This would set a target price based on the cost of production plus a "reasonable" profit. If the market price is less than the target price, the government would farmers a subsidy equal to the difference between the target and the market price when they sell soybeans. Processors could buy domestic soybeans more cheaply and farmers would get more money. The government would pay the difference. Subsidy spending, however, would explode and probably would exceed the amount of support China is allowed to give farmers under its WTO commitments.

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