Xi's "China Dream" for Soybeans

A revival plan for China's soybean industry bears all the marks of Xi Jinping's broader "China Dream" of a glorious rejuvenation of Chinese culture and economic leadership. The doctrine asserts that it is now time to throw off foreign domination of an inherently Chinese commodity. China will create a market for soybeans with distinct Chinese features that will pull along suppliers in Eurasia and Africa, with processing led by Chinese companies and with prices determined in Chinese markets. 

Economic Daily led off the month of August with a brief article, "Who has the power to set prices for domestic soybeans?" (reposted on the Chinese commerce ministry's web site) and followed up with a 12,000-word "Investigation of the Soybean Issue" feature article (Harbin TV version with photos). Many articles described the experimental corn-soybean strip-cropping technique rolled out this year. Several addressed non-GMO futures market topics, and the feed industry association ordered up training to promote substitutes for soybean meal in animal feed. 

The articles envision China carving out a non-GMO segment of the global soybean market where China will be the key player. China will procure non-GMO soybeans from its own farmers and from trade partners around the world, Chinese companies will produce and export soy-based food products, and a Chinese futures market will set the prices for non-GMO soybeans, thus regaining China's "right to speak" in the worldwide soybean industry. 

Economic Daily attributed this year's renewed attention to self-sufficiency in soybeans and oilseeds to "special instructions" issued by Xi Jinping conveyed in a speech by Vice Premier Hu Chunhua at a May meeting in Heilongjiang Province, China's top soy-producing region. (In a March 7 post, the dimsums blog noted China's dashed hopes of becoming a non-GMO soybean exporter, soaring Chinese soybean prices, and this year's self-sufficiency push.)

Typical of Xi thought, the soybean strategy is predicated on a narrative of unfair American domination. Economic Daily moans about the unfairness of global prices being determined in American markets when China has become the largest importer and Brazil the largest exporter. The writers blame unfair prices for undermining incentives to grow soybeans in China. Economic Daily complained that low soybean prices, in turn, resulted in farmers abandoning crop rotations, and this resulted in a corn monoculture that degraded China's soil quality. 

Like other Xi Jinping initiatives, the soybean narrative looks backward to find innate historical Chinese greatness that has been suppressed by foreigners. Economic Daily points out China's role as originator of the soybean and was top exporter 100 years ago. Economic Daily dredges up a 2000-year tofu history traced to a king in the Western Han dynasty that supports a leading role today for Chinese soy products.

Automated packaging of soymilk mix at a factory owned by Beidahuang, a company
controlled by the State farm system in Heilongjiang Province. Source: Harbin TV.

Self-reliance and independence are other watchwords of Xi thought. Economic Daily crows about China having created two "independent" soybean markets, claiming that non-GMO soybeans are the "competitive advantage" of China's food processors. The authors note that imported non-GMO soybeans are prohibited for use in food products, and they observe that products with a "non-GMO soybean" label can be found in "many supermarkets" in Beijing. 

A May 2022 market commentary on first quarter soybean imports explained that Americans have mastered soybean pricing by ensuring that soybeans throughout the world are priced with reference to the Chicago market. The commentator alleges that Americans keep non-GMO artificially expensive in order to create more demand for their cheaper GMO soybeans. The commentator expressed his hope that non-GMO soybeans would retain their high price and thus bring high returns (...to Chinese soybean farmers but not to Chinese food processors or consumers).

The May commentary pointed to an arrangement to set the price for a 2000-ton shipment of Canadian non-GMO soybeans with reference to the Dalian futures price as a symbolic restoration of China's price-setting power in the soybean market. 

Economic Daily lauds the Dalian Commodity Exchange's (DCE) "No. 1" non-GMO futures contract as the world's largest futures market for food-use soybeans. Twenty years ago, DCE created the non-GMO futures contract--settled almost exclusively with Chinese soybeans--while the "No. 2" soybean contract has no restrictions. A DCE official said the exchange provides price information about China's high-quality high-protein soybeans and envisions the exchange becoming a "fair and just" non-GMO soybean import and trading mechanism that will restore China's pricing power in soybean markets.  

Xi's theme of China disseminating its culture abroad to make the world better is reflected by the Peoples Daily's "Planting Soybeans Gave Us New Hope," describing Tanzanian villagers' enthusiastic discovery of Chinese soybean milk and great improvements in yields and income from production techniques taught by Chinese scientists. 

Data on GMO and non-GMO soybean imports posted online last week reveal that China's non-GMO soybean imports are a dribble. In July 2022 China imported 88,900 tons of non-GMO soybeans and nearly 7.8 million tons of GMO soybeans. Russia was the main source of non-GMO soybeans. The second-largest supplier was Canada. The United States supplied both GMO and non-GMO soybeans, according to this data. The combined volume coming from "Belt and Road" countries Kazakhstan, Ukraine, and Africa was about equal to the amount of non-GMO soybeans imported from the United States. South American countries supplied only GMO soybeans to China.

The data also reveal that the "fair and just" "China price" for non-GMO soybeans is far higher than in the rest of the world. Unit values per ton calculated from the July customs data revealed that prices of imported non-GMO soybeans vary widely, from just $400-$500 per metric ton for Kazakh and Russian soybeans to over $800 per ton for soybeans from Ethiopia, Benin and Tanzania. The numbers suggest that Americans can supply China with non-GMO soybeans more cheaply than African countries. U.S. and Canadian non-GMO soybeans averaged about $760, less than unit values of African soybeans. In contrast, wholesale market prices for Chinese soybeans reported by China's ag ministry averaged $1098 per ton in July. Brazil's GMO soybeans averaged $736 per ton in the July customs data.

Today's Dalian futures prices are about 5,700 yuan for non-GMO soybeans and about 4,700 yuan for GMO soybeans for delivery in January 2023. That implies that market participants expect a 20-percent premium for domestic soybeans after the upcoming harvest.

Economic Daily acknowledged that Chinese non-GMO soybean prices had risen dramatically over the past two years. To combat the incentive to substitute GMO for non-GMO soybeans due to the price spread, Chinese regulators are stepping up their scrutiny of wholesale markets and food manufacturers to root out any non-GMO soybean use in foods. 

Economic Daily's "Investigation" acknowledged that the high cost of Chinese soybeans is ultimately due to low yields, and celebrated stories of new seeds that purportedly provide a quantum leap in yields. The seeds are bred and supplied by Chinese companies.

High prices are not enough to make soybeans profitable in China. Economic Daily also celebrates big subsidies for soybean growers this year that include a direct payment to soybean growers, a crop rotation subsidy for farmers, insurance that guarantees a net return for soybean and other grain producers, and transfer payments to soybean-producing counties. A massive corn-soybean strip-cropping experiment targeted to reach 5 million mu (824,000 acres) this year is subsidized at 500 yuan per mu ($440 per acre).

The non-GMO soybean strategy is in line with Xi Jinping's vision of inevitable future Chinese glory based on tales of past Chinese greatness. The inherent greatness of China means that any successful competitor must be guilty of exploitation and cheating. 

It would be fine to create an independent market for non-GMO soybeans with premium prices, but it's not clear what is unique about these soybeans and what benefit consumers get from them. The differentiation seems to be based entirely on manufactured fears of genetic modification and stories about American domination. 

Traders would flock to China's markets if they had the same transparency, reliable government data, a freely traded currency, and consistent enforcement of laws and contracts that are the foundation of markets in Chicago, London, Switzerland and Tokyo.