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Going against the grain

Even before the trade friction between US and China escalated, the domestic soybean industry was seeking ways to increase yields

By NewsChina Updated Dec.1

It was harvest time for soybeans in Heihe, Northeast China’s Heilongjiang Province, when NewsChina’s reporter paid a visit. On the fields, dried leaves could be seen falling from branches and gently touching the plants was enough to make the ripe beans burst from their pods. 

As one of China’s main soybean production areas, Heihe has more than 1.49 million hectares of farmland and the region contributes around one-ninth of the country’s total soybean production. With the government introducing incentive policies to promote soybean farming in recent years, local farmers have begun to shift their production away from wheat and maize. 

Due to the recent escalating trade friction between the US and China, the country is working harder to seek an alternative supply of soybeans. 

Regaining Ground
The soybean originated in eastern China, and China used to grow its own soybeans for domestic use in food and livestock feed. It was even a primary exporter of soybeans before the mid-1990s. 

There is evidence that soybeans were farmed as far back as 4,000 years ago. But the situation has changed dramatically in the past decade. Along with the promotion of hybrid maize which generates greater profits, farmers who used to grow soybeans shifted to maize instead.  

Back in 2007, food security concerns prompted the Chinese government to launch policies that favored maize growing and promised a bottom purchasing price for maize regardless of market rates. This began competition between soybean and maize production, and since maize enjoyed better harvests and fetched a better price, more farmers in northeastern China shifted to maize. This created an oversupply of maize and a soybean deficit.  

Statistics indicate that by July 2016, storage of maize inside China amounted to 260 million tons, accounting for over half of the country’s total food storage capacity. The cost for the country to maintain its stores of maize eclipsed 60 billion yuan (US$8.6 billion). In 2016, the government started to reshuffle its planting structure and ceased promoting maize production. New incentives for planting soybeans in northeastern China came into effect after the move.  

Heilongjiang Province started a pilot crop rotation project in 2017. That was when Wang Jiuyi, a farmer in Aihui District of Heihe split his farmland into soybean and maize crops. 

Planting the same crop again and again can cause deterioration of land fertility, damage the soil and agricultural resource environment, and thus a new pilot program promoting crop rotation was started by the Ministry of Agriculture along with some other government departments. A guideline for promoting soybean production by the Ministry of Agriculture says the goal is to “expand planting of soybeans to 9.3 million hectares by 2020.” According to the guideline policy, crop rotation could earn 2,240 yuan (US$322) per hectare in crop subsidies. 

Additionally, Heilongjiang and neighbor Jilin Province have rolled out their own subsidies to encourage farmers to grow more soybeans beyond crop rotation farm incentives. In Heilongjiang in 2017, the local government offered subsidies of around 2,600 yuan (US$373) for each hectare of soybeans planted, and increased the amount to 2,985 yuan (US$430) for each hectare of soybeans planted by this year. Subsidies for maize dropped from 2,298 yuan (US$330) to 1,992 yuan (US$ 286) in 2017, and further down to 1,493 yuan (US$214) by this year.  

With the changing policy, planting one hectare of soybeans could return farmers more than US$200 in government subsidies compared with planting maize. Farmers, including Wang Jiuyi, started to adjust how they worked. In 2017, Wang earmarked half of his 876 hectares of farmland for soybeans, while in 2018, under the new incentive policy, he planned to devote an extra 267 hectares to soybean planting. 

Import Dependency
According to Jiao Shukai, former deputy director of the Soybeans Institute of the Jilin Academy of Agricultural Sciences, two reasons the soybean industry has dwindled in recent times are hybrid maize and the soybean import market.  

When it joined the WTO in 2001, China agreed to open its soybean oil market to international suppliers, becoming a major soybean importer from the US, Brazil, and Argentina. Statistics indicate that in 2017 the Chinese market consumed more than 110 million tons of soybeans, accounting for over one-third of soybean production globally. Of this, 95.5 million tons or about 87 percent of the total were imported, with soybeans imported from the US accounting for 32.84 million tons, or 34 percent. However, that huge demand was mainly for genetically modified soybeans, which are not permitted to be grown in China.  

With a better immune system resulting in higher GM soybean production, GM soybeans became more competitive than domestic ones in the market.  

In 2017, under the incentive policy, farmland coverage for soybean planting increased by 580,666 hectares domestically to 7.8 million hectares with total production of 14.2 million tons of soybeans. Despite the increase, it was far from enough to meet the huge Chinese demand. For now, at least, imports from countries other than the US have picked up. 

Gai Junyi, a scientist at the Soybean Research Institute, from Nanjing Agriculture University, pointed out that domestic production can only meet the demands of food processing, while animal feed and oil production from soybeans, which accounts for 85 percent of the total market, cannot be met by domestic production capacity. An official from the Ministry of Agriculture, who asked not to be identified, told this reporter that it would require an extra 53.3 million hectares of arable land to produce enough soybeans for the domestic market. The reason China set a three percent tariff on soybean imports when it joined the WTO was to promote high value-added product manufacturing with cheap imported soybean materials, as well as saving more arable land for production of other grains to guard food security.  

With the increasing low-cost soybean supply, China gradually formed a chain of products including soybean oil, animal feed production, and animal husbandry. According to the source from the Ministry of Agriculture, the production capacity of soybean oil totaled 150 million tons in 2017, and new oil companies mushroomed accordingly. However, excessive dependence on imported raw soybeans made the domestic processing industry for soybeans fragile in the face of fluctuating global soybean prices.  

Heilongjiang once had a significant number of local soybean oil producers that used local soybeans as material, but fierce competition from imported GM soybean sources saw almost all the companies collapse.  

Heilongjiang Da Mu Ren Animal Husbandry Co. Ltd. is a firm that deals with purchases of soybean meal as animal feed. Company CEO Fan Xushi has noticed in recent years that local oil pressing mills in Heilongjiang have lowered their production capacity to less than 1,000 tons, while mills in coastal areas of China enjoy much higher production with an average of over 5,000 tons.  

“Domestic soybean oil residue is not ideal material for soybean meal producers compared with imported soybean products, not only due to the price, but also because of the higher water content and more unstable protein elements of domestic strains,” Fan told NewsChina. The recent trade conflict between the US and China, according to Fan, could result in higher feed prices for livestock, thus putting pressure on the pig husbandry market.  

Statistics indicate that domestic supply and demand for pigs in 2018 remains stable, with a slight tendency of over-supply. The slaughter price for live hogs has fallen below cost price on the domestic market. Once the price of soybean pulp, which accounts for some 20 percent of the animal feed market, starts to fluctuate, pig farmers and pork meat processors will all encounter market setbacks.  

New Opportunities
As the world’s biggest buyer of soybeans, China purchases around a third of its total demand for soybeans from the US. Higher tariffs on US soybeans which push up the price have led the nation to find alternative ways to secure its soybean supply.  

On September 4, at the Third China Soybean Industry International Summit Forum held in Harbin, two Russian farm owners attracted a great deal of attention. Quite a number of Chinese farmers have chosen to farm in Russia given the present turbulence. Since 2015, about 1,000 Chinese farmers go to Russia annually, including Wang Zhaodong, a researcher at the Northeastern Agriculture University in Heilongjiang Province. 

Wang focuses his studies on soybean cultivars, and he chose to plant his strain in Russia due to the lower cost of agricultural land and the transportation chain. Rent for farmland in Russia is much lower than in China. This August, according to Sputniknews, Russia plans to provide up to 300,000 tons of soybeans to China. There are optimists who believe farming in Russia could support China’s high demand for soybean material, while pessimists say Russia-produced soybeans cannot fill the big soybean shortfall at the present time.  

After the trade dispute began, many domestic pig farmers started to lower the proportion of soybean pulp in their animal feed. Industry insiders also proposed cutting the amount of protein used in livestock feed, claiming animals could get by with less than is required at the moment. 

An expert from Ministry of Agriculture told NewsChina that the lowest proportion of soybean pulp is around 15 percent. “This baseline is to secure the quality of the hog while minimizing the soybean content in feed,” added the source from the ministry.  

There are also attempts to replace protein content in the feed with scientific techniques such as adjusting amino acids. A research fellow with a listed feed company told NewsChina that to meet a pig’s demand for protein requires balancing a number of different amino acids. “The question for researchers now is how to ensure the right balance of amino acids to attain proper protein for the animals,” said the research fellow. But domestic research remains at the preliminary stage.

Aerial view of farmers drying harvested soybeans, October 23, 2018