China imported a record 515,000 metric tons of soybeans from Russia during calendar year 2017, according to customs officials. This new source of soybeans -- while still a tiny share of China's overall soybean market -- may be a bigger problem for domestic Chinese soybean farmers than huge imports from North and South America.
The Russian soybeans are mostly grown by Chinese farmers who lease farmland in Russia's Far East. The farmers are mainly from Heilongjiang Province, China's far northeastern province which borders Russia. Heilongjiang is China's top soybean-producing province, accounting for about a third of China's production.
The Russian Far East is one of the earliest and largest targets for Chinese investment in foreign farms. Chinese farmers are attracted by low land rents in Russia that are a fraction of what they pay on the Chinese side of the border. Heilongjiang Provincial officials and a number of local governments have been supporting Chinese farming efforts in Russia for nearly 15 years, making deals with Russian counterparts and giving various subsidies. However, Chinese farmers returned little of what they produced in Russia to the Chinese market until recently.
In the last few years, China's central government has prioritized agricultural trade with Russia as part of its "One Belt One Road" initiative. China built its first foreign agricultural industry park in Russia and upgraded inspection and quarantine services at border crossings to facilitate the return of crops grown in Russia to the Chinese market. The report on soybean imports emphasized that Heilongjiang is the leading province for cooperation with Russia and declared the "expansion of non-GMO soybean supply" to be a "remarkable result" of the inspection and quarantine bureau's efforts to lower the threshold for farmers to return their Russia-grown grains to the Chinese market. The inspection and quarantine service formulated a risk assessment system for Russian crop imports to control disease risk, ensure soybeans are non-GMO, and established a traceability system.
In addition to the soybeans, customs authorities also reported imports of 11,764 metric tons of soybean oil from Russia during 2017 arriving at Heihe City, the most active border crossing on the Amur River. The report praised the surge of Russian flour, soybean oil and other foods as "natural" and "unpolluted."
Heilongjiang farmers have been complaining that the Russia soybeans are depressing prices in the China market. A November 2015 report blamed the surge of Russian soybeans for the depressed market, noting that the Russian beans were comparable in quality to Heilongjiang soybeans but substantially cheaper. That report estimated the flow of soybeans from Russia to 1 million metric tons--nearly three times the amount reported by customs statistics that year. The price of soybeans after arriving from Russia was reported to be 3600-3700 yuan/metric ton, well below the 4100 yuan/metric ton price of local Chinese soybeans.
The 2015 report said Russia bans production of GMO soybeans and pesticides, so the beans grown there are positioned as a non-GMO or even organic product that competes directly with Chinese non-GMO soybeans. The Russian beans were said to be low in protein and have high contamination with foreign matter, but Chinese soybeans also had quality problems that year. The reporter said the bottom line was that Russia-grown and Chinese soybeans are comparable in quality but the Russian beans are cheaper. The reporter blamed pressure from Russian beans for preventing Chinese prices from rising.
Customs statistics indicate that the Russian soybeans have prices that are 1000 yuan or more less per ton than Chinese beans -- even after adding the tariff and value added tax (see chart). Also in 2015, a weibo poster found that customs data showed Russian beans cost 1930 yuan/mt compared to 3550 yuan for imported "GMO" beans, and he asked, "Are Russian soybeans really that cheap?"
imported Russian price calculated from customs statistics plus 3%
tariff and 13% VAT (11% July-Dec 2017). Imported (coastal) is price in
Qingdao, also including taxes.
The post revealed that Heilongjiang customs officials were also alarmed about this issue and "held many meetings" to learn what "the real price of Russian soybeans" was. The Russian soybeans were imported largely by farmers that grew them, so they were in effect selling the beans to themselves and could name their own price. Of course, their incentive was to report a low price to minimize the tariff and value-added tax they had to pay. The weibo author found that Russian soybeans offered on e-commerce web sites quoted prices much higher than those reported in customs data, so he concluded the customs prices were artificially low. Nevertheless, the prices quoted for Russian beans were still much lower than the price for similar Chinese beans.
A crop inspection tour in northern Heilongjiang last summer concluded that Russian soybeans continue to influence the Chinese market. A seed company sold 100 metric tons of soybean seeds to Russia last year. The manager of a processing plant cited the non-GMO, pesticide-free, and -- in his assessment -- high protein as advantages of the Russia-grown beans. He also estimated the volume of imports from Russia to exceed what is reported by customs data. The processing plant manager estimated the production cost of Russia-sourced soybeans at 2300-2400 yuan and the price in China at 3900 yuan/metric ton -- big profits. He was pessimistic about the market for Chinese soybeans, but saw bright prospects for Russian soybeans in China.
Over the years, China's soybean market has become segmented into largely separate markets for imported and domestic soybeans, but imported soybeans from Russia break that pattern by competing directly with Chinese soybeans. The main Chinese soybean producing areas are insulated from imports by distance and a non-GMO wall the industry has worked hard to raise over the last 15 years to differentiate domestic from imported soybeans. Soybeans imported from North and South America arrive at crushing plants at coastal ports. The closest one is more than 500 miles from Heilongjiang, and the most active ports for imported soybeans in Shandong and Jiangsu Provinces are over 1000 miles away.
Russian soybeans, meanwhile, arrive on the doorstep of domestic soybean producers in Heilongjiang Province. The non-GMO wall does not protect Chinese soybeans from Russian beans since the Russian soy is purportedly also non-GMO and even organic. Thus, China's "going out" strategy has created a new source of soybeans that competes head to head with domestic soybeans without any of the insulation factors built up against soybeans from the Americas.
Is Dr. Frankenstein advising China? Or, as the weibo poster cited above asked sarcastically, "Has the Chinese Government become an agent of Monsanto?"