Soybean shortcomings
Tan Wei

BEFORE the Spring Festival, the most important festival for the Chinese, counters selling soybean oil in a supermarket in Beijing’s Chaoyang District were especially crowded. “Since September 2007, soybean oil has sold very well,” Li Ping, a sales assistant of the supermarket, told Beijing Review. “More than 1,000 bottles are sold every day.” Vigorous demand for soybean oil should have been the best news for producers, but the reality is entirely contradictory. Tian Renli, General Manager of Jiusan Oil and Fat Co. Ltd., the largest vegetable oil processor in northeast China, says that although prices for soybean oil have risen a lot in the past year, it is still difficult for oil producers to gain profits. This leads many Chinese oil processing companies whose major raw material is soybeans into difficulty. “Soybean prices are the real lifeblood of oil processing companies,” Tian said.
In Heihe, the major soybean-producing area in Heilongjiang Province, the purchase price of soybeans on hand is 4.1 yuan ($0.57) per kg, but farmers are still reluctant to sell. In early 2007, the purchase price of soybeans on hand was only around 2 yuan ($0.28) per kg. At present, China’s soybean production capability can only meet one third of domestic demand, so Chinese oil processing companies are relying more on imports. However, the pricing power is completely held by international traders. According to the statistics released by Dalian Commodity Exchange, China’s largest exchange of farm produce futures, the present CIF (cost, insurance and freight) price of soybeans imported by Dalian stood at $580 per ton, while it was only $310 per ton in early 2007.
Short supply of soybeans appeared two years ago, but since soybean prices on the international market were lower than those on the domestic market at that time, large volumes of imports made up the demand for domestic oil processing companies. But in 2007, soybean prices on the international market hit record highs and domestic output dropped sharply, leading to severe shortages of soybeans. Experts say that the government should set up information networks on the supply and demand situation as well as prices for soybeans and secure soybean reserves in an appropriate volume. Multiple factors for price hikes Heilongjiang Province and the east part of the Inner Mongolia Autonomous Region are the country’s major soybean-producing areas. Particularly, Heilongjiang Province produced one third of China’s soybeans. In recent years, because earnings from planting soybeans are lower than those from planting rice and corns, the sowing area of soybeans in northeast China has decreased year by year.
According to figures from www.dadou.cn (China soybean net), the sowing area of soybeans in Heilongjiang Province in 2007 dropped by more than 667,000 hectares from 2006 and that of east Inner Mongolia shrunk by about 73,330 hectares. In 2007, drought in the major producing areas exacerbated production problems. Estimations based on a survey carried out by the National Bureau of Statistics show that the total soybean output in Heilongjiang Province in 2007 was around 4.91 million tons, a decline of 1.82 million tons from the previous year. A survey of www.dadou.cn indicates that the total soybean output in east Inner Mongolia in 2007 was 878,000 tons, dropping 473,000 tons from 2006. The grain department of Heilongjiang Province predicted that the country’s total soybean output in 2007 would stand at 14.4 million tons, 9.81 percent lower than that in 2006.
Liu Zhaofu, general manager of www.dadou.cn, says that reduction of soybean output has influenced prices of soybean oil, especially in the major production areas. However, in Liu’s opinion, even if soybean output in the production areas had increased, it wouldn’t relieve the domestic market, since this round of price hikes was mainly driven by prices on the international market. The rising domestic consumer prices also pushed up soybean prices at home.
Industrial insiders also said that this round of domestic soybean price hikes was closely related to factors such as the international decrease of soybean sowing areas and the reduction of soybean exports by the United States and other developed countries in favor of the development of biodiesel. At the same time, soybean prices are also influenced by reduction in the output in major domestic producing areas and the rising prices of many commodities. No power on the market Early in 2001, more than 50 percent of China’s soybean demand could be met by domestic supply. However, with the increasing domestic demand for soybean oil and soybean products, things have changed. According to Lu Yushuang, Deputy Chief of the Production Division of Heilongjiang Agricultural Commission, at present, China’s annual soybean demand stands at 45 million tons but only 36 percent can be satisfied by domestic supply. Predictions from the China National Grain and Oil Information Center indicate that China’s soybean imports will increase from 30 million tons in 2007 to 34 million tons in 2008.
Phillip Laney, an American Soybean Association official to China, says that China’s soybean imports are likely to continue to rise in 2008 in spite of temporary price intervention measures over major commodities including edible oil adopted by the Chinese Government since January 16, 2008. In his opinion, the increase of soybean imports means an increase of soybean oil and soybean meal, which will help to pull down prices of edible oil and feed soybean meal. Hence China’s soybean imports won’t be restricted and will increase at the annual rate in the previous years, namely, 8-9 percent. Precisely because of this, the domestic oil and fat processing industry is more dependent on imported soybeans, and the pricing power of soybeans is completely held by international traders. Meanwhile, international grain traders have begun to gradually control the domestic soybean market by establishing or acquiring Chinese soybean processing companies. After a shuffle in the industry in 2004, almost all Chinese processing companies dependant on imported soybeans were wiped out, and there are very few wholly Chinese-owned companies now. While Chinese companies were dealing with the crisis, foreign capital launched a massive attack, finishing market reorganization of oil extracting companies.
“Foreign-owned companies and companies with foreign investments account for over 80 percent in the industry,” said Li Guangfu, President of Dalian Huanong Group Ltd., who is planning to sell his oil extracting plant. “Strictly speaking, China’s soybean processing industry is controlled by foreign apital.” Policy regulation to be strengthened At the end of 2007, the Chinese Government announced that from January 1, 2008, it would collect a year-long 5-to-25 percent temporary export tariff on 57 categories of raw grain and flour products such as wheat, corn, rice and soybeans. This is another attempt of the Chinese Government, after abolishing the tax rebate on over exports of 84 categories of raw grain and flour products from December 20, 2007, to curb rapidly increasing grain exports, expand domestic grain supply and stabilize domestic grain prices by means of taxation.
With these measures restricting grain imports, transmission channels of international grain prices to China are cut off and domestic grain prices will begin to fall. However, Li Quangen, professor at the Nanjing University of Finance and Economics, warns that the transmission of international prices to various countries via futures has surpassed the transmission via commodities on hand. As for China whose imports and exports are not large, it seems that the price transmission mechanism of “Chicago soybean futures—Dalian soybean futures—domestic soybeans on hand—food” has come into being. Among the main agricultural products in China, it is only soybeans that are mainly dependent on import, and soybean futures are the most synchronous with the Chicago market. On January 21, 2008, the Dalian soybean dominant contract for September stood at 4,736 yuan ($657.78) per ton, but the lowest price of Dalian soybean futures was only 2,452 yuan ($340.56) per ton, almost doubling within 16 months. Price tendencies of Dalian soybeans and American soybeasn are almost the same, continuously rising from July 2007.
At the same time, prices of soybeans on hand in China are increasing synchronously, with the wholesale price surpassing 4,300 yuan ($597.22) per ton. Even after the government launched a series of measures to restrict grain exports, the prices of soybean futures and soybean on hand still remain strong. The Chinese Government has not taken any intervention measures so far on price transmission of futures. In order to cope with the impact of imported soybeans, industrial insiders think that the government should strengthen efforts in supplying market information and establishing soybean reserves.
The government should set up an accurate and timely information network. Zhou Youjin, an expert long engaged in soybean industrial research, says that multinational grain traders have monopolized agricultural produce on the global market and own information advantages throughout the world. If domestic companies bought raw materials from those multinational grain traders, authenticity and timeliness of the information would lag behind and Chinese companies would inevitably be under control of multinational grain traders. Therefore the Chinese Government must strengthen the establishment of information channels and improve information guidance so that the whole soybean industry can acquire accurate and timely information on the situation, and farmers can timely readjust sowing varieties and areas. This is a problem that needs an urgent solution. An appropriate volume of soybean reserves also needs to be established. According to Liu Zhaofu, the government should purchase large quantities of soybeans when the market price is low and sell them when the price is high to stabilize the market. At present, China’s soybean reserve is not large enough and most of the reserve is in the form of inventory by companies, which is estimated to 3 million tons, capable of satisfying the nation’s processing demand for only 20 days.

(The Daily Mail-Beijing Review Articles Exchange Item)



Double play
M J Akbar

THE Congress election formula is in place. E=M multiplied by C raised to the power of 2. E stands for elections. M represents Money, public money of course. And C is for Chidambaram, the finance minister who delivers an annual elixir for permanent youth rather than a mere budget, unlike s more pedestrian finance ministers. When Chidambaram throws public money, he does so with a heft and dexterity that would be the envy of champions. Whether he heaves a discus or hurls a javelin, his target is the same: the ballot box. He is so delighted with the cheering from government benches during the presentation of the national Budget that he has been urging all and sundry to think of a general election as early as in May. He believes that Congress can sweep back to power on a Chidambaram wave.
Actually, he may get his wish, although not quite in the manner he expects, if the Left withdraws support to the UPA government this month over the Indo-US nuclear deal. Hallucination comes easily to anyone in power, but is there any merit in the Congress presumption that it can pick up the rural vote with this massive loan waiver, and the urban vote with the Indo-US nuclear deal? The political argument for the nuclear deal was put forward by Mrs Shiela Dikshit, chief minister of Delhi, just after Prakash Karat, general secretary of the CPI(M) asked the government for immediate clarity, and set a deadline for 15 March.
Ms Dikshit was given this difficult job because she is one of the few Congress leaders who still retains some credibility with voters. Electoral politics is never an easy partner of credibility, and Ms Dikhshit’s might have suffered a scrape or two when she charged the Marxists with being anti-national Chinese agents who were coming in the way of India’s progress. This sort of thing is about four decades too late; it went out of fashion by 1965. Marxist leaders [including Jyoti Basu] were detained as potential fifth columnists during the Indo-China war of 1962, but proved, in the very next elections, in 1967, that the people thought them patriotic enough. The Marxists came to power for the first time in Bengal as part of a United Front in 1967.
They are still winning forty years later. The Marxists created history with a sixth straight victory in the Tripura Assembly elections. The Left Front got 49 out of 60 seats, increasing its numbers by eight; the Congress was down to 10, decreasing from 19. The CPM got 46 seats, a majority on its own; its allies got three. The Congress had done everything it could: it engineered an impression, pushed forward by sections of compliant media, that there was a huge anti-incumbency wave in the state. The Congress poured money into its campaign, and patched together a cynical and unhealthy alliance with a man who was on every terrorist list not too long ago, Bijoy Hrangkhawl. Mrs Sonia Gandhi raised the pitch with an intemperate speech that indicated what the Congress line on the Left is going to be.
The turnout was extraordinarily heavy: 92 per cent of the voters cast their ballots. This is generally considered bad news for incumbents. The Left stood conventional wisdom on its head. There is no electoral bribe by the Congress that could have changed such a verdict. Those who believe that they can hustle voters with large lollipops underestimate the maturity of the Indian electorate. The Indian voter can be persuaded with honesty and good governance; he cannot be purchased with handouts or fiscal tricks. In the last phase of its recent campaign in Gujarat, the Congress ran up a substantial laundry list of promises, including the offer to waive loans. It made not the slightest difference; the BJP won. Cabinet ministers like Kamal Nath have publicly voiced their scepticism, and serious economists have questioned the Chidambaram waiver [the details of which, by the way, are still the exclusive property of his intelligence, but will hopefully be made available for public viewing soon].
The Marxists, in the meantime, have decided to withdraw support to the Manmohan Singh government if it does not end all negotiations on the nuclear deal. That is the simple meaning of the formal letter written by CPI general secretary A K Bardhan. The estrangement could develop into divorce even as early as next week. The Congress has bought time so far by deliberate waffle, but that purchase is now exhausted. The real arguments will begin, before the court of public opinion, after the break. The Congress cannot pass the budget without support from the Left. If the alliance breaks, the Congress will accuse the Left and the BJP of sabotaging what it will surely advertise as the greatest gift ever made to farmers in the history of farming. That hoary old cliché, “an unholy conspiracy”, will be the centrepiece of every Congress leader’s cyclostyled speech.
The Left will respond with its own accusation: the Congress could have easily delayed the deal and pushed through the budget. But since Manmohan Singh and Sonia Gandhi preferred America and George Bush to farmers, they sacrificed the farmers to placate America. The BJP will watch the fun and talk of Ram Setu bridge. The Congress is in election gear. It is looking for new allies everywhere, and pushing the patience of even loyalists like Laloo Prasad Yadav. Foreign Minister Pranab Mukherjee recently wooed Bihar Chief Minister Nitish Kumar with a trip to China. Amend that: he offered an ego trip to China in an effort to create a rift between Nitish Kumar and the BJP in Bihar. It has also thought up a facile way in which to challenge Mayawati, by throwing up the idea of a Dalit for Prime Minister after the next elections. Anil Shastri wrote a piece suggesting this in the official Congress publication, and then prodded journalists to spread the idea through their media. Such semantics will not dent Maywati’s support, which is rock-solid in her community; but they could damage one of the very few clean faces the Congress has, that of Dr Singh.

—Khaleej Times






Iran just won’t stay isolated
Charles Kupchan

THE UN Security Council last week passed a third round of sanctions against Iran. But at the same time that the United States and its European allies were building support for the new UN resolution, Iran’s president was making an official visit to Iraq, the first such visit since the revolution in 1979. The upshot is that despite the tightening of UN sanctions, the West’s efforts to contain Iran are crumbling where it matters most: In the Middle East. While Washington continues to press for a stark policy of political isolation and military containment, the Arab states of the Gulf are overtly pursuing a new strategy of engagement. Even the Iraqi government, despite its ostensible alignment with the Bush administration, has opened its doors — hence President Mahmoud Ahmadinejad’s red carpet treatment in Baghdad. If US policy toward Iran is to yield results, Washington must adjust its approach to the reality that its closest allies in the Middle East have effectively broken with US strategy.
Yet the Bush administration remains intent on mobilizing the political and military resources needed to hem in Iran. As President Bush put it during his Middle East tour in January: “Iran’s actions threaten the security of nations everywhere, so the United States is strengthening our long-standing security commitments with our friends in the Gulf and rallying friends around the world to confront this danger before it is too late.” The problem is that Bush’s “friends in the Gulf” see things differently. As Prince Saud Al-Faisal, Saudi foreign minister, recently explained: “We are neighbors to Iran in the Gulf region, and as such we are careful that peace and tranquility reign between the region’s countries. We have relations with Iran, and we talk to them, and if we felt any danger, we would not hesitate to discuss it with them.”
Although wary of Iran’s nuclear program and its regional ambitions, the Arab Gulf states are seeking to temper Iran’s belligerence through accommodation and integration. Ahmadinejad was invited to Qatar last December to participate in a summit of the Gulf Cooperation Council, a privilege not extended to any of his predecessors. He visited Makkah during the Haj at the invitation of King Abdullah. Meanwhile, Egypt, which cut diplomatic ties with Iran after the revolution, has been edging toward the resumption of relations. Arab leaders understand that dialogue and commerce may be the most efficient means of taming Iran and drawing Iran into a stable regional order. The Bush administration should follow the lead of its Arab allies in pursuing regional integration; a framework for doing so already exists: The Gulf Cooperation Council grouping of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.

—Arab News