China can replace U.S. soybeans with imports from other sources, Chinese propaganda says. Drawing from a stable of reliable "experts" and executives of state-owned businesses, State media are spinning China's retaliatory 25-percent tariff on U.S. soybeans as another opportunity to change the world with country's "One Belt, One Road" initiative.
A China Central Television broadcast, "Geometry of Soybean Trade Impact," emphasized that China can shift its sources of soybeans.
Li Xiaowei of China National Grain and Oils Information Center says the 25-percent tax will make U.S. soybeans more costly, but the tax will bring about "deep changes" in China's pattern of imports.
Cheng Guoqiang, Tongji University professor and former State Council agricultural economist, described the 25-percent tariff as making U.S. soybeans "uncompetitive" and will send a "radical signal to the world market" that will attract new soybean suppliers. He claims China's imports from the U.S. will be shifted to the Black Sea region, causing U.S. farmers to miss out on the "dividends" from China's growing consumption.
[In fact, the China tax is making Brazilian soybeans uncompetitive as Chinese buyers bid up their price. Driving the U.S. price down has given buyers outside of China a huge bargain on U.S. soybeans.]
Similarly, Li Guoxiang of the Chinese Academy of Social Sciences claims that the tax will invite other countries to increase soybean production.
In the Peoples Daily's “Our Country is Fully Capable of Filling the Deficit From Reduced Imports of American Soybeans” Li Xiaowei says that Chinese companies have not made any soybean purchases from the United States in three weeks and have canceled orders for 615,000 metric tons. He says U.S. farmers will incur big losses and speculates that China can fill the deficit by growing more soybeans domestically, importing more soybeans and meal from Brazil and from "one belt one road" countries in Central Asia, and researching feed formulations to reduce reliance on soybean meal.
A spokesman for Sinograin, China's grain and oils reserve company, says his company has not bought U.S. soybeans since April and has switched to purchases from Brazil, Argentina, and Uruguay. He thinks China will buy even more soybeans from South America in the future. He says Sinograin has developed an integrated reserve and processing system with 6.5-mmt of crushing capacity. He says reserves are adequate to prevent disruption of the market.
[Note that Sinograin switches to imports from South America every year in April when the southern hemisphere crop comes in. Not mentioned here is speculation in other news reports that Sinograin's imports to refill reserves will be either exempt from the tax on U.S. soybeans or will be compensated by the government.]
Yu Yunbo, head of COFCO, China's largest state-owned agribusiness, says that China imported the equivalent of 6.25 mmt of soybean oil and 26 mmt of soybean meal from the United States last year. He insists that the products of U.S. soybeans can easily be substituted with other products. He says China can import more soybeans from other countries, import rapeseed and sunflower seed, import meal from soybeans-rapeseed-sunflower seed, and import more meat to replace U.S. soybeans. He emphasizes that COFCO's "global vision" in meeting China's growing demand is embodied in the company's 2014 acquisition of Nidera and Noble Agri that have assets in Brazil, Argentina, the Black Sea region and Indonesia's palm oil region.
The commentators don't mention the cost to China of diversifying the country's imports. China already pays the highest soybean prices in the world and they are going even higher. Driving the price of U.S. soybeans down to a $1-plus per bushel discount to Brazilian beans gives the rest of the world a bargain and lures more buyers of U.S. beans. The real test for Chinese importers will come in the next few months as South American supplies are depleted.
The commentators put far too much confidence in the capacity of alternative suppliers to ramp up soybean production. In Brazil, it took decades and huge subsidies to colonize its empty interior, develop cultivars that could grow in the tropics, subsidize trucking-in of inputs and trucking-out of crops, and to build logistics infrastructure. Chinese soybean importers had highly-touted plans to grow soybeans in Argentina and Brazil a decade ago that crashed and burned. Chinese farmers have been growing soybeans in Russia for a decade, and Chinese imports from that source have not yet reached 1 million metric tons.