Why has soybean imports increased significantly? Will it have an impact on the domestic market? Production | Source | Improvement | Increase | Demand | Market | Import | Soybean

Why soybean imports have increased significantly

According to customs data, China imported 12.02 million tons of soybeans in May, an increase of 24.3% year-on-year, setting a new record for monthly imports. The cumulative import volume from January to May was 42.31 million tons, an increase of 11.2% year-on-year. Industry insiders say that the amount of soybeans arriving in Hong Kong in June may further increase to around 13 million tons. What is the reason for the significant increase in soybean imports last year, despite the record breaking domestic soybean production and structural surplus? Will it have an impact on the domestic market? How to ensure the stability of soybean imports?

The large gap between production and demand is the main reason

Professor Si Wei, Dean of the School of Economics and Management at China Agricultural University, believes that China's soybean imports have repeatedly reached new highs, and the fundamental reason for this is the large gap between production and demand. This is due to both demand side factors and production side issues. From the demand side, the rapid growth in demand for soybean pressing in China has driven an increase in total demand. With the improvement of the living standards of Chinese residents, their food consumption has shifted from "eating well" to "eating well" and "eating nutritious and healthy". The food chain of residents has shifted upwards, and their demand for protein has shifted from mainly grains to animal based foods. Soybean meal is an essential protein feed for the large-scale production of livestock, poultry, and aquatic products in the aquaculture industry. With the continuous expansion of the aquaculture industry, the demand for soybean consumption has rapidly increased. Since 1996, soybean consumption has nearly tripled, with a demand for soybean exceeding 100 million tons.

Compared with the rapidly growing demand for soybeans, the development of soybean production in China is relatively slow. From 1996 to 2022, the average annual growth rate of soybean production was only 1.66%. There are various reasons for the slow development of soybean production. Among them, low yield and low comparative income are one of the important reasons that restrict the development of soybean production. The yield of soybeans per unit area is only one-third of that of corn and wheat, and one-quarter of that of rice. Planting crops such as corn yields higher profits, which makes farmers lack the motivation to plant soybeans. China's soybean yield is lower than that of the United States and Brazil. In 2022, the global average soybean yield was 182.67 kg/mu, while the US soybean yield was 222.00 kg/mu and Brazil soybean yield was 209.33 kg/mu. However, China's soybean yield was 131.83 kg/mu, which is only 72.16% of the global average, 59.38% of the United States, and 62.98% of Brazil's. This indicates that there is still a lot of room for improvement in soybean yield in China.

Objectively speaking, China's agricultural resource endowment is limited. It is not realistic to rely solely on domestic production of soybeans to meet demand while ensuring absolute food security and basic self-sufficiency of grains. It is necessary to fill the domestic supply gap through imports. After China opened up its soybean market in 1996, it transitioned from a net exporter of soybeans to a net importer of soybeans. The import volume of soybeans continued to increase, and in 2020, the import volume of soybeans exceeded 100 million tons for the first time. Industry experts say that based on an import volume of 100 million tons, equivalent to 761 million mu of arable land resources, accounting for 43.30% of the total grain planting area that year. Therefore, importing soybeans is also an inevitable choice under the constraints of China's arable land resources.

Squeezing domestic market space

According to the different qualities and uses of soybeans, domestic and imported soybeans have formed two relatively independent markets in China. Domestic soy protein is mainly used in the food industry, while imported soybeans are mainly used in the pressing and feed industries. "This does not mean that domestic soybean production is completely unaffected by imported soybeans, nor does it mean that the domestic soybean market is completely divided into two markets. The influx of imported soybeans will also squeeze the development space of domestic soybeans," said Si Wei.

On the one hand, a large import of soybeans will trigger price fluctuations in the domestic soybean market. Soybean is the most internationalized grain variety in China, with strong linkage with the international market. Unlike the implementation of quota management for wheat, corn, and rice imports, China's soybean market is completely open to imported soybeans. Any fluctuations in the international market will quickly spread to the domestic market, causing fluctuations in the domestic soybean market. At present, China's soybean imports account for one-third of international soybean production and over 60% of global soybean trade. The rapid increase in import volume has made the connection between the domestic soybean market and the international soybean market increasingly close. Moreover, China does not have sufficient voice and pricing power in the international soybean market, making the soybean market and its associated upstream and downstream industries more susceptible to fluctuations in the soybean market.

On the other hand, a large import of soybeans will squeeze the sales market of domestically produced soybeans. Although domestic soybeans and imported soybeans have different uses, they have substitutability with each other. Domestic soybeans can be used for both food processing and pressing. When the demand for domestic food processing is weak, domestic soybeans can enter the pressing market to balance supply and demand. However, low-priced imported soybeans block this channel, increasing domestic soybean production capacity and making it difficult to digest through the pressing market. This narrows the domestic soybean sales market. Last year, the domestic soybean production exceeded 20 million tons for the first time, and the demand for domestic soybean consumption was only about 15 million tons. In addition, the main soybean production areas in China are mainly distributed in the Northeast region, and soybean pressing enterprises are mainly distributed in the coastal and Yangtze River regions, with production and sales separated. Soybean pressing enterprises go to Northeast China to purchase soybeans due to long transportation distances and high prices, and their enthusiasm is not high, resulting in a structural surplus of domestically produced soybeans.

Improving soybean production capacity and self-sufficiency rate is a major strategic measure for China to ensure national food security. This year, China will continue to implement the soybean production capacity enhancement project, and various regions will focus on improving the soybean yield level from various aspects such as variety, technology, and machine harvest reduction, to ensure stable and increased soybean production. The head of the Ministry of Agriculture and Rural Affairs stated that in order to sustainably improve soybean production capacity and self-sufficiency rate, the core is revenue, fundamentally relying on sales, and the key lies in policies. We need to integrate various forces such as government, market, scientific research, and finance, and focus on researching comprehensive solutions for each link in the entire industry chain, providing strong support for continuously improving the self-sufficiency rate of soybeans and oilseeds. To achieve a virtuous cycle and sustainable development in the domestic soybean industry, it is necessary to vigorously develop processing, not only to produce but also to sell and sell well. We need to focus on solving the quality and price differences of domestic and foreign soybean raw materials, promote the optimization layout of soybean pressing enterprises near the main production areas, develop deep processing of soybean products, improve the supporting service system of the industry, research and overcome the bottleneck problems that restrict the excessive collection and use of domestic soybeans, and continue to grow and strengthen the domestic soybean industry. Establish a sound demand oriented technology system, an efficient and smooth production and sales system, and a stable and perfect policy system to continuously enhance the competitiveness of the domestic soybean industry. We need to systematically optimize the soybean industry system, vigorously develop domestic high oil soybean pressing and processing, focus on refined and deep food processing, support the development of high value-added protein deep processing, and actively expand the incremental space of domestic soybean consumption.

Promote diversification of import sources

The dependence on soybean imports is over 80%, and the sources of imports are highly concentrated. In the severe and complex international situation, China's soybean imports face many risks and challenges. Si Wei believes that we should strengthen international cooperation, while stabilizing the traditional soybean source market, we should also explore emerging soybean source markets, promote diversified import sources, and try to avoid overly relying on a single import source, ensuring the stability and dominance of soybean imports.

China's soybean imports mainly come from countries such as Brazil, the United States, and Argentina, with soybeans imported from these three countries accounting for more than 90% of the total import volume. The hidden worry of being stuck in the neck has long existed. Data shows that in 2022, China's total import of soybeans was 91.08 million tons, of which 54.39 million tons were imported from Brazil, accounting for 59.72%; Imported 29.53 million tons from the United States, accounting for 32.42%; 3.64 million tons were imported from Argentina, accounting for 4.00%. The United States was once the first source of soybean imports in China. After 2013, Brazil surpassed the United States to become the first source of soybean imports in China, and the proportion of imports continued to increase.

Si Wei believes that China's imported soybeans mainly came from Brazil in South America in the first half of the year and from the United States in the second half. The high concentration of import sources poses risks and hidden dangers to the stability of the soybean supply chain. According to relevant department data, since 2010, these countries have ranked in the top 10 in terms of the number of trade remedy cases related to China. Once trade frictions and conflicts occur, they will have a direct impact on the stability of China's food imports.

Promoting diversification of import sources is an important measure to ensure the stability and dominance of soybean imports. In recent years, China has continued to consolidate traditional soybean import sources such as Brazil, the United States, and Argentina, and the amount of soybeans imported from countries such as Uruguay, Canada, and Russia has gradually increased. In 2022, China imported 1.7881 million tons of soybeans from Uruguay, an increase of 922100 tons compared to 2021; 719100 tons of soybeans were imported from Canada, an increase of 131300 tons from 2021. From January to May 2023, 918700 tons of soybeans were imported from Canada; In 2022, 695400 tons of soybeans were imported from Russia, an increase of 151500 tons compared to 2021. At the same time, China encourages enterprises to "go global", establish soybean production bases in countries and regions along the "the Belt and Road", and grasp as many first-hand food sources as possible.

"On the whole, China's soybean import diversification is still in the exploration stage. At present, there is no large-scale supply capacity in the countries and regions along the the Belt and Road to replace the traditional import source countries. Even if soybeans are planted overseas, they need corresponding supporting infrastructure to be transported back." said Si Wei.