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9 July 2007

Why has China's Soybean Association been founded?

The China Soybean Association was formally founded in Beijing at the end of March, and Heilongjiang Province, a major soybean producer in China, also established its own soybean association on May 19. The move indicates that some enterprises, organisations and individuals which engage in soybean production, processing, circulation, scientific research, application and relevant trade in China have started to form a joint force while facing pressure from the massive inflow of soybean from other countries. They have established the soybean associations to enhance self-discipline of the sector and protect the national soybean industry.

China is now a major producer of non-trans-genetic soybean. The country had been a traditional soybean exporting country before the 1994-1995 grain year, but it changed from a net exporter to a net importer of soybean in the 1995-1996 grain year. Starting from 2004, foreign investment has kept flowing into the Chinese market on a large scale, and controlled the country's soybean processing sector. In 2004, Chinese soybean processing enterprises suffered heavy losses because they misjudged the international market. They imported soybean at high prices, with the price dropping more than RMB1,000 before the imported soybean reached China. At the time, foreign capital companies grasped the opportunity to enter the domestic market, and have succeeded in controlling more than 70% of the pressing capacity in China.

The multinational grain dealers have step by step gained the monopoly in China's import of soybean, edging locally produced soybean out of the purchase list of oil and grease enterprises of China. Annual import of soybean increased from 2.695 million tons to more than 28 million tons from 1996 to 2006, surging more than ten times, and far exceeding the country's annual output. China's total import of soybean is estimated to reach 31 million tons in the 2006-2007 grain year.

It is a fact that China's soybean industry is under "siege" by multinational companies. It is obvious that they have turned their attention to controlling China's soybean production chain comprehensively. Firstly, the strategic purpose focuses on control of the purchase link. Big foreign soybean farm owners have placed orders with the multinational companies or their agents, which has made it difficult for Chinese enterprise to acquire the soybean, and even when they have bought the product, they will face difficulties in shipping. Secondly, they eye the trading link. At present, China's trading price of soybean follows the futures price of CBOT in Chicago of the United States, and even when the domestic enterprises purchase soybean from Brazil and Argentina, they have to adopt the CBOT pricing method, which makes it easy for multinational companies to control the sources, and guide the futures price of soybean. Thirdly, the soybean processing link: Foreign companies control most of China's pressing and refining capacity. Finally, the product sales link: Multinational companies now have the absolute advantage position in trading, and Chinese enterprises have no strength to resist.

Under the duel pressure from the import of soybean and multinational companies, Chinese soybean production enterprises have suffered greatly. Heilongjiang Province has seen a swift reduction of planting areas under soybean to 59.05 million mu (15 mu equal to one hectare) in 2006, reducing 4.16 million mu, and the planting area is estimated to be less than 53 million mu, down about six million mu.

The founding of the China Soybean Association and the Heilongjiang Province Soybean Association has brought about high expectation for rejuvenating China's soybean industry. Industry insiders held that the development and strong growth of the industry cannot depend only on the founding of several organisations. The key is how to develop the role of the organisations. Based on the present situation, it still requires joint efforts in the protection of China's soybean industry.

Firstly, social organisations such as the soybean association have not formed a force in the social structure and market economic development. Some associations which represent the interest of farmers have difficulties in organising the farmers and speaking for their interests because of scattered operation, small production scale and weak market participation capacity. Consequently, organisation and development of China's farmers associations is not a simple issue of system, but a long process of social recognition.

Secondly, currently, foreign companies have more than 70% of China's oil and grease market, demonstrating a strong trend of control and monopoly of the soybean industry by foreign capital companies. However, large foreign-controlled enterprises have not joined the China Soybean Association.

Thirdly, the various links in China's soybean production chain are separated and scattered, presenting a low degree of organisation, which has affected the futures market playing a role.

Shi Liu

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