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 Mahamad Rodzi Abdul Ghani
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 For China, soybean is the champion crop

7/27/2001(The Economist Intelligence Unit) - For all the disagreementbetween China and its future WTOtrading partners on agricultural subsidiesand market access (see "The grapefruit of wrath", BC, Jan 29th), soybeanshas been the one bright spot on China's agricultural import portfolio anda major success story for exporters from the US, Argentina and Brazil.Over the past five years, China has modernised its oilseed-crushingindustry, resulting in greater consolidation and higher productivity,which has helped push down domestic prices for oil and oilseed meal closerto world price levels. This has made imported soybean meal and oil lessattractive, and imports of both commodities today are down to just one-quarter of 1996 levels. Meanwhile, China's annual crushing capacity grew10% last year, to 23m tonnes, and is expected to grow 13% in 2001. Thishas propelled demand for raw materials--bulk soybeans.The oilseed-crushing industry's growth has been driven mainly by theconstruction of modern facilities in eastern and southern China. Thecountry's major soybean production areas, however, are concentrated in thenorth-east. Unreliable and expensive inland transportation inhibits thedistribution of domestic soybeans at a competitive price to crushersacross the country. As a result, the newly revived oilseed-crushingindustry has come to depend on imported soybeans, which are cheaper, ofhigher quality and available throughout the year. Imports of soybeans,which account for the majority of oilseeds China sources from abroad, havesurged more than 10 times over the past five years. Last year, Chinaimported 10.4m tonnes of soybeans, and by May of 2001 had bought another4.6m tonnes.In response to falling grain prices, the Chinese government has beenencouraging farmers to plant soybeans. In 2000, total soybean-sown areareached 9.2m ha--an increase of 15% over 1999--and production rose to anestimated 15.7m tonnes. Inherent inefficiency in domestic farm production,however, still render Chinese soybeans unable to withstand direct foreigncompetition. Traditional state-subsidised procurement systems haveresulted in excessive stock build-ups, which have further distortedbalance between demand and supply.Soybean imports have been more dramatically affected by a new law,introduced on June 6th, requiring safety certification and labelling ofagricultural GMOs. GMO soybeans account for 63% of total soybean acreagein the US, 50% in Argentina, and over 20% in Brazil. Currently, none ofthese exporters segregate GMO and non-GMO soybeans domestically. Theadditional cost to have US soybeans labelled, obtain safety certificates,and cover inspection fees is estimated at about US$30 per tonne. No newpurchases have been signed since June 6th and multinational traders haveraised the deposit rate on soybean contracts to 20%, from the usual 5-10%.

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