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China soybean policy felt throughout country

(Wednesday, Nov. 12, 2003 -- CropChoice news) -- Peter S. Goodman, Washington Post, 11/11/03:

HARBIN, China -- Under a pale autumn sky, Chang Wuqing unloads sacks of soybeans from the cart of his rusted tractor, dumping them onto a scale at a roadside trading lot. He nods in satisfaction at the tally: One Chinese ton at 8 cents a pound, almost twice what his crop fetched last year.

Born and raised on an isolated patch of the northeastern China plain, Chang is not conversant in the ways of global trade. He does not know that soybean prices have spiked this year because China has recently restricted imports. He has not heard about the tankers left bobbing off the coast waiting for permission to unload, or the charges from the United States that Beijing is unfairly protecting its markets to increase farm incomes.

What he does know is the feeling of tucking a stack of bills worth nearly $400 into the pocket of his work jacket -- enough to buy a cow. "Better than last year," he says, speaking with the restraint of someone whose 50 years have seen bad years follow good, People's Communes give way to private plots, and the constant tyranny of the weather.

But if the flat fields beyond this city now nurture something akin to prosperity, the tree-lined streets downtown tell a different story. Shoppers elbow their way through supermarkets muttering about the rising price of pork, even as most are oblivious to its cause -- a shortage of soy meal used to feed pigs. They fret about the jump in the price of vegetable oil, the result of a scarcity in soybeans for crushing, which has spawned hoarding as far away as Shanghai. At the dumpling shop he opened this fall, Han Fenzhong complains that the rising tab for these staple ingredients is carving into his income. "I can't increase my prices," he says. "People might stop coming."

Two years after China entered the World Trade Organization, agreeing to open its markets to foreign goods in exchange for the right to sell more of its products around the globe, a simmering battle over soybeans illustrates why many countries now accuse Beijing of failing to live up to its side of the deal. The case also underscores the difficult balancing act confronting China's leaders as they make trade policy: Protectionism benefiting one group often harms another by limiting the availability of goods at a time when China's relentless growth is spawning increased dependence on imports. In this case, higher incomes for 35 million soybean farmers are being paid for via higher food prices for the rest of China's 1.3 billion people.

In the central province of Anhui, one of China's poorest, people are now paying one-fourth more for pork and 10 to 15 percent more for oil than they were three months ago. Farther south, prices have climbed steeper still.

Though China is barred under WTO rules from imposing an outright quota on the quantity of soybeans that can be imported, U.S. officials and global trading companies contend that Beijing has effectively done so through other bureaucratic methods: Shipments have been delayed and barred outright through the manipulation of food safety standards and arbitrary requirements for administrative permits. They say China is using the same strategy to limit the entry of foreign competitors in many other industries, such as banking, insurance and auto parts.

"Let's don't try and get cute and find different ways to put up non-tariff barriers," said U.S. Commerce Secretary Donald L. Evans during his recent trip to China, adding his voice to a chorus of recent criticism from Capitol Hill, the American Chamber of Commerce and the US-China Business Council. "We need to make sure that China understands that trade is a two-way street."

China has dismissed assertions that it is violating WTO rules, insisting that all restrictions on imported soybeans have been imposed for legitimate reasons of food safety. "China has strictly fulfilled its commitments," said Foreign Ministry spokeswoman Zhang Qiyue, speaking at a recent press briefing.

Some Chinese policymakers acknowledge that Beijing does use trade policy and other levers to protect farmers -- something they say makes China no different from the United States, which has been doling out agricultural subsidies for generations. In recent trade talks, developing countries stepped up their demands that the United States slash its own farm subsidies and tariffs.

"The United States clearly protects its farmers," said Ke Binsheng, chief of the Research Center for Rural Economy in Beijing, a government institution affiliated with the Ministry of Agriculture.

Likewise, China's leadership is intent on propping up incomes for its 500 million farmers. China's ongoing transition from Communism to a market system has eliminated many government subsidies, and socialized health care and education, stoking discontent in rural areas.

The plight of farmers is of great concern here in Heilongjiang province, where most of China's soybeans are produced. Northeastern farmers are particularly vulnerable to the imports that have accompanied the opening of China's markets. Unlike warmer, coastal regions to the south, where some farmers now thrive growing specialty crops such as shitake mushrooms for shoppers in Japan, land-locked Heilongjiang endures a Siberian winter chill and sits far from ports. Northeastern growers depend on scarce rail cars to ship their crop to crushing plants on the east coast. In many instances, beans can be shipped to southern Chinese ports by tanker from the United States more cheaply and reliably than by rail from Heilongjiang. Chinese soybeans also are less valuable than those imported from North and South America because they have a lower percentage of oil.

The province also is home to much of China's Rust Belt: Thousands of state-owned manufacturing giants have gone bust here in recent years, leaving millions unemployed and increasingly bitter.

But higher soybean prices have sowed trouble elsewhere in China, highlighting a problem besetting many economies making the transition from Communism to the market: While prices for most goods now are determined by the market, some are still influenced by the government. In this case, Beijing appears to have substantially miscalculated the demand for soybeans, analysts say. That has stymied businesses that rely on the availability of the crop -- enterprises that have sprouted in response to market demand.

In recent years, livestock producers have expanded production, taking their cue from surges in China's overall consumption of meat amid rising incomes. This has spawned the growth of a mammoth industry to crush soybeans into the meal used to feed livestock, attracting the investment of global giants such as Cargill Inc. and Archer Daniels Midland Co.

China now has more than 2,000 crushing factories that together employ 250,000 people, according to Shanghai JC Intelligence Co., an independent agricultural market research firm.

China now annually consumes some 33 million tons of soybeans, or roughly 16 percent of global production, according to JC Intelligence. At current rates of growth, it would reach 50 million tons within five years. But China grows only about 16.5 million tons a year. Farming operations in the United States, Brazil and Argentina have stepped in aggressively to make up the difference. For these countries, China has become the top export destination.

In the year that ended in September, China imported about 21.4 million tons of soybeans, according to Chinese customs data.

China's soybean trade was opened up officially to foreign competition years before its entry to the WTO, but soybeans have nonetheless been a constant point of contention.

Two years ago, China shut down imports with the introduction of new food safety standards for genetically modified soybeans, which are bioengineered to require less herbicide to control weeds. Under rules drafted in June 2001, imported shipments of such beans required safety certification from Chinese authorities. But the government produced no accompanying rules explaining how to get certification.

Genetically modified crops have become controversial around the world, forcing many governments to wrestle with questions of whether and how to regulate them. Nonetheless, genetically modified soybeans are widely consumed, and China itself invests aggressively in biotechnology. Thus, U.S. and South American trade officials construed the new measure as an attempt to use a valid area of regulation, food safety, as a way to protect local farmers.

Last year, China's Ministry of Agriculture agreed to issue "interim" safety certificates while it completed its own standards. But these certificates have expired several times, requiring the negotiation of extensions and making the legality of future shipments always questionable.

This past summer, soybean imports were blocked temporarily over a different issue -- claims that some shipments violated "phyto-sanitary" rules aimed at preventing the import of foods tainted by fungus called phytophthora that could damage China's crops. American officials acknowledge that some of this fungus was indeed present, but add that it is endemic to China, undercutting claims it constitutes a grave threat.

The latest batch of interim safety certificates was set to expire Sept. 20, but the new ones were not issued until the first week of September. Without a valid safety certificate, an importer could not apply for a second required piece of paper -- an "inspection permit" from the General Administration of Quality Supervision, Inspection and Quarantine. This permit was required to gain a mandatory phyto-sanitary inspection upon arrival.

Even after importers applied for this permit, they had to wait as long as a month to receive it, then another several weeks before it became valid. Crushing plants were barred from entering into contracts to buy beans until they had these required documents in hand. Crushing plants traditionally try to lock up large contracts for soybeans well in advance, when prices are favorable. These rules made this practice effectively illegal.

"It's nonsense," said Phillip Laney, China director for the American Soybean Association. "You simply can't do business that way."

Most plants opted to simply break the rules, continuing to sign contracts to buy beans without the required paperwork, several executives said. "We were just trying to keep the plant going," said Chester T. Yang, general manager of Cargill's crushing plant in Dongguan, in the southern province of Guangdong, an operation it runs jointly with a major Taiwanese food processing company. "Other plants are all doing the same thing."

Plant operators knew all along they were vulnerable to enforcement when and if China decided to shut down the market. That day came in August. As ships began arriving in Chinese ports -- mostly from South America, but a few from the United States -- quarantine officials charged them with breaking the rules. The officials denied the ships permission to land, forcing crews to float in anchorage for weeks on end while the valid permits were processed. Meanwhile, the importers were paying extra charges to shipping companies running as much as $20,000 per day. At the height of it, some two-dozen ships were idled in this fashion.

Importers and American trade officials argue that the real trigger for the recent conflict was China's discovery of a surge of imported soybeans over the first half of the year.

"They panicked," Laney said. "There is clearly some sort of secret policy quota the quarantine people must enforce. They are using all these threats to intimidate people into not bringing in soybeans."

Most of the ships have since gained permits and unloaded their cargo. But one afternoon late last month in Dongguan, Cargill's plant was still motionless, its 180 full-time workers doing nothing. Offshore, two 60,000-ton tankers bearing soybeans from Brazil and Argentina were waiting out another day for permission to unload, more than a month after arrival.

Outside, two contract laborers complained that they had lost their jobs because of the work stoppage -- jobs that had been paying them nearly $250 a month. Part-time construction work was now paying them about $3 a day.

"It's crazy, we have no idea when we can go back to work," said a man who gave his name as Liu. He had come from a village in Sichuan province, where his wages support a wife and three boys.

In the nearby city of Guangzhou, the price of soybean meal has rocketed over the past three months from about $270 per ton to $400. At the Oucha Pig Farm in Dongguan, where 20 workers raise some 5,000 swine a year, company officials said higher soybean costs were forcing them to raise their wholesale prices for animals by 10 percent. This week Beijing finally allowed the Cargill boats to begin unloading, following lobbying from the Guangdong provincial authorities.

But the message of the episode lingered on: Yang, the plant manager, had already dispatched buyers to Heilongjiang, more than 2,500 miles to the north, with instructions to secure some soybeans there.

Source: http://www.washingtonpost.com/wp-dyn/articles/A23949-2003Nov10.html