Tuesday, March 13, 2018

Can Africa Get Chinese Guidance on Agricultural Development?

At a March 7 press conference two African journalists asked China's Minister of Agriculture what Africa can learn from China about agricultural development.

The Minister assured the journalists that China is a good friend to Africa and hopes for even more cooperation in agriculture. His answer focused on China's technical aid to Africa: opening rice-growing demonstration centers in Africa, sending numerous technicians to Africa, and training thousands of African technicians and officials in China. He celebrated China's success in addressing its food security problems and noted that Africa still has a food security problem.

China's Ag Minister said he was eager to share China's rural development experience, but he was vague and equivocal on exactly what advice or guidance China could give to African countries. His response boiled down to an admission that China has no transferable formula for agricultural development. China's experience is peculiar to its own circumstances.

If they were listening to the rest of the press conference, the African journalists might have deduced that China's approach to agricultural development has resulted in huge, festering problems that the leadership is now trying to correct: high production costs, low productivity, backward technology, environmental devastation, a food safety crisis, and "hollow villages" composed of empty houses.

The main focus of the Minister's press conference last week was a giant "rural revitalization" experiment aimed at dealing with the above problems and stimulating growth in agriculture, the one sector of China's economy that is lagging behind and stagnant--the so-called "short board"--starved of investment for decades. 

The Minister did not mention the slogan "cities like Europe, countryside like Africa" that many Chinese people have used to describe the neglected countryside. Turning dilapidated, trash-strewn villages into a "beautiful countryside" is now one of the pillars of China's rural revitalization.

The African guests could learn from what the Minister didn't say.

The Minister did not mention that China's experience shows that technology is less important in developing a strong agricultural sector than are institutions such as land ownership, administrative structures, laws clarifying and protecting property rights, controls on marketing and prices, and the incentives they create.

Beginning in the 1950s, China's farm output stagnated or declined every time leaders tried to force peasants into farming collectives. Agriculture revived every time officials tolerated private plots, individual livestock-raising, and free markets. China's agricultural output finally took off after 1978 when land was contracted out to individual families.

China's Minister of Agriculture did not mention that Chinese agricultural output likewise suffered each time Chinese leaders tried to monopolize purchases of grain, shut down free markets, and set low prices to extract funds from farmers. China's farm production only began to show sustained growth when free markets were reintroduced for good and prices were liberalized. Chinese communists have embraced the doctrine of the market playing a decisive role in resource allocation in their agricultural strategy.

A major subject of the Minister's press conference last week was discussion of how to dispose of a huge glut of grain created by another attempt at government price-setting. This took the form of minimum prices and "temporary reserves" that pushed Chinese grain, cotton, and soybean prices out of kilter with world prices during the most recent decade and resulted in huge expense, wasteful accumulation of massive grain reserves and record imports of grain.

The Minister dismissed an African reporter's query about reports of "plastic rice" (bits of pvc plastic mixed with rice) and how the safety of rice exports to Africa can be assured. China's search for a means of guaranteeing food safety and upgrading the poor quality of its food is another preoccupation of the current "rural revitalization" initiative. For decades, China's rural system rewarded only increases in physical output and numerical targets, which induced farmers to maximize output without regard to quality. Cleaning up poisonous "cadmium rice" was one of the projects mentioned in the press conference.

Neither did the Minister discuss the devastating impacts of subsidizing chemical fertilizer, plastic sheeting, pumping water from underground aquifers at minimal cost, indiscriminate use of pesticides and animal antibiotics, neglecting soil fertility and ignoring disposal of animal manure and other wastes. "Green" development is another core idea of China's rural revitalization to reverse the dire consequences of vague property rights that allow producers to ignore the costs their production imposes on other members of society and future generations.

Monday, March 12, 2018

China's Corn Market Tight?

At a March 7 press conference, China's Minister of Agriculture warned farmers not to "blindly" expand planting of corn this spring, pointing out that government reserves are still high and international prices are still relatively low. Other analysts attribute a suddenly-tight corn market to rapid disposal of corn stockpiles.

Minister Han Changfu advised listeners that China's strategy in agriculture is to let the market have a decisive role in resource allocation. He then ordered farmers not to respond to recent increases in market prices that are prompting them to expand corn planting this spring. Minister Han warned that an expansion of corn-planting--especially in regions that don't have a comparative advantage in growing corn--would reverse the Ministry's "supply side structural adjustment" designed to reduce excess corn production capacity. Minister Han urged farmers to continue the structural adjustment by planting crops that are "demanded by the market."

The Ministry's March China Agricultural Supply and Demand Estimates reported that the price for corn has been rising as supplies of new corn get tight. The March report increased its estimate of 2017/18 corn consumption by 1.5 million metric tons to 224 mmt to reflect the tighter market conditions. This reflected an increase in industrial use of corn to 64.8 mmt. Industrial processors are restarting production after the Lantern Festival holiday and adding to inventories, the MOA report said. Auctions of government corn reserves are due to resume--perhaps later this month--which MOA says will relieve upward pressure on prices.

The MOA report shows a -6.72 mmt deficit between supply and demand for 2017/18. However, MOA warns that the corn market still faces pressure from high inventories which will prevent prices from rising too much. MOA expects the wholesale price of corn in production regions to remain in the 1600-1700 yuan/mt range.

An analysis by futures market analysts says China's corn market has already shifted from surplus to shortage and estimates a supply-demand deficit of -48 mmt for 2017/18. These analysts think China's corn stockpile could be cut nearly in half from its 2016 peak after a further 60-mmt sales of corn reserves this year.

Their estimates are based on corn auction results: 57 mmt auctioned during 2016/17 less 21-mmt new corn procured for reserves equals a net decline of 36 mmt. However, they think 20-mmt of this injection of corn was carried over into 2017/18 as commercial inventories. That means they think the supply-demand deficit for 2016/17 was -16 mmt.

These analysts see a much bigger S&D deficit for 2017/18 of -48 mmt which they attribute to: a decline in production, a decline in imports of sorghum imports, and an increase in industrial use. It's not clear how they got this number. 

The analysts estimate that lower corn prices have increased capacity utilization of corn processors by 10-15 percentage points. Moreover, they estimate that 6.8 mmt of new processing capacity was brought on line during 2017, and 12 mmt more is planned for 2018. China's National Grain and Oils Center is more bullish than MOA on industrial use of corn, estimating a 14-mmt increase to 68 mmt in 2016/17 and a further 10-mmt increase in 2017/18 to 78 mmt.

These analysts estimate that imports of corn, sorghum, barley, DDGS, and cassava replaced 16.5 mmt of corn during 2016/17, 5 mmt less than the previous year. They think the antidumping investigation will further reduce imports of U.S. sorghum this year by 2.5 mmt.

Tuesday, March 6, 2018

In China, "Democratic life" = President-for-life

Illustrating the country's slide into Orwellian totalitarianism, China's communist party has been holding "democratic life meetings" that are the antithesis of democracy: attendees pledge loyalty to the undisputed leadership of Xi Jinping and repent of any ideological deviation from Xi's thoughts.

A central "democratic life meeting" for the Politburo was held by Comrade Xi on December 25-26, 2017 to study "Xi Jinping's Thought for Socialism With Chinese Characteristics in a New Era." The Politburo pledged to preserve the centralized authority of Comrade Xi Jinping as core leader of the central communist party committee and to fully implement each item decided by the 19th party congress.

The December meeting is a model for lower levels of the communist party. On February 2 the communist party organization of China's Ministry of Agriculture held a "democratic life meeting" chaired by the Minister of Agriculture and Party Secretary Han Changfu where attendees made the same pledge of fealty to Comrade Xi's centralized authority and to study and implement his thoughts. The "democratic life" meetings demand unity of thought, constant display of party loyalty, honesty, and clear direction. At the Ministry of Agriculture meeting, party members resolved to rely on Xi's thought to direct work on rural affairs and agriculture.

The "democratic" meetings also serve as a means of ensuring complete devotion and ideological purity. In an echo of China's "cultural revolution" era, the Ministry's meeting demanded that attendees seed out problems, engage in self criticism, and criticize each other. Officials were ordered to dig deep to examine ideological roots, criticize others to really help them, "don't hide or avoid," and reach unity through criticism.

According to a Chinese-language Wikipedia page, the "democratic life meetings" are internal meetings for dialogue and self-criticism that date back to at least 1990. Xi Jinping revived the meetings in 2013 as part of his anticorruption campaign.

Now, it seems, "democracy" means pledging complete loyalty to a "President-for-life" and helping comrades root out any doubts they may have about totalitarian rule and a personality cult.

Tuesday, February 27, 2018

China Revitalizing Its Food Exports

China's agricultural exports plateaued in recent years due to rising costs that eroded competitiveness, a poor reputation for quality, and a more favorable market at home. Authorities are now trying to revitalize exports by upgrading quality, using integrated industrial management models, and creating new markets through the One Belt One Road initiative.

The "Central Document No. 1" on rural policy priorities for 2018 called for China to build a new externally open pattern for agriculture. At a February 8 press conference Minister of Commerce Gao Feng asserted that the new pattern of externally open agriculture is essential for "rural revitalization" and the overarching objective of making China a strong country in international trade.

Specific strategies include promoting trade with countries and regions along "One Belt One Road" routes and promoting exports of high value-added and specialty Chinese agricultural products.

An October 2017 article by China's Industry Information Network proclaimed that the Belt and Road initiative is giving China's agricultural exports new vitality by diversifying markets. The article cited free trade agreements with South Korea and Australia and strong growth in exports to Canada, Mexico, India, Pakistan, South Africa, Saudi Arabia, and Turkey as signs of revived confidence for China's agricultural exporting enterprises. Favorable policies and the Belt and Road initiative lay a "good foundation for exports to Northeast Asia, Central Asia, and the Middle East," the article stated.

The favorable policies included a restoration of 13-percent VAT refunds for exports of corn starch, distillers grains, and other corn-based industrial products as of September 2017. Inspection and testing fees are waived for food exporters, a benefit said to be worth 11 billion yuan to exporters.

Developing business models that integrate production, processing and marketing under a single company's control are said to strengthen export competitiveness. Another strategy is delineation of regional industry belts, including a tea belt in Sichuan, vegetable processing and crabs in Zhejiang Province, and flower and medicinal herb districts in Yunnan Province. Constructing foreign trade bases will support future agricultural exports, the article explained. 

The article also claimed China had won victories in dismantling technical barriers to Chinese products in other countries, including Indonesia's abandonment of safeguards on imported glucose and successful challenges of an EU anti-dumping investigation of concentrated soy protein products and tariff rate quotas on duck meat imports. The article says USDA's favorable assessment of China's food safety system for processed chicken brightens the prospects for Chinese chicken to reach America in the future.

The Ministry of Agriculture reported that agricultural exports totaled $75.5 billion during 2017, up 3.5 percent from the previous year.

Another China Industry Information Network article from December describes efforts to upgrade remote border crossings in western China to promote exports of vegetables and fruits to dinner tables in Central Asia and Russia. "Green channel" to expedite shipments of perishable products have promoted rapid double-digit growth in exports of tea, sunflower seeds, fresh garlic and fresh apples at the Irkeshtam crossing into Kyrgyzstan. Licorice, leather, and dried fruit have come into China. In November a refrigerated truck carrying tangerines and apples from Xinjiang's Tacheng City crossed the border at Qoqek and delivered the products to Askana and Almaty in Kazakstan, to Moscow, St. Petersburg and Chelyabinsk in Russia, and to other countries in Europe.

According to Urumqi District customs statistics, during January-October 2017 Xinjiang exported 320,000 mt of ag products (up 13.8%) valued at RMB 2.72 billion (up 20%). Freight at the Qoqek crossing point totaled 50,000 metric tons in 2013, and was up to 102,000 mt in 2017. Agricultural product exports include citrus, fresh peaches, apples, grapes, tomatoes, peppers, and garlic.

China 2017 Ag Imports: Sucking Sound and Squealing Brakes

If you couldn't hear the great sucking sound of China hoovering up agricultural commodities, it may have been because it was drowned out by the chugging of industrial exports. Or maybe your ears were hurting from the squeal of brakes applied to particular farm commodities targeted for antidumping or safeguards.

China's imports of agricultural products were valued at $125.9 billion during 2017, up 12.8 percent from the previous year, according to data reported by the Ministry of Agriculture. Agricultural exports totaled $75.5 billion and rose 3.5 percent.

According to the Ministry of Commerce, agricultural imports represented 6.8 percent of the value of all Chinese imports in 2017, while agricultural exports accounted for 3.3 percent of all exports. The brief Commerce Ministry report emphasized that the $49.5-billion deficit in agricultural exports grew 30 percent from the previous year. It did not mention that the deficit in agricultural trade is relatively modest in comparison with China's overall trade surplus of $422.5 billion.

Nor did the MofCom report on ag trade mention numbers in another MofCom report which showed the overall trade surplus (in Chinese yuan) grew 14.2 percent. While Chinese officials will sound alarms about the 12.8-percent increase in agricultural imports, this was a slower rate of growth than the 15.9-percent growth in all imports (in dollars).

Oilseeds ($43 billion) accounted for about a third of the value of China's agricultural imports during 2017. Oilseed import value was up 16.2 percent. Imports of edible oils totaled an additional $5.7 billion, and rose 12.5 percent. Imports of cereal grains totaled $6.5 billion, and rose 13.7 percent. China spends more on importing fruit than it does on importing cereal grains (see below).

Cotton imports totaled $2.36 billion and rose by 32.7 percent, the fastest rate of growth of the major categories (mostly due to higher prices).

Livestock products are the second-largest agricultural import category, with $25.6 billion, up 9.5 percent during 2017. China's leading agricultural export ($21.2 billion) was fish and shellfish, but it also is an importer ($11.35 billion) of aquatic products. Exports of vegetables totaled $15.5 billion. Exports of fruit totaled $7.1 billion. However, China also imported $7.6 billion of tropical and southern hemisphere fruits.

China 2017 value of agricultural imports and exports
Imports ($bil)
Growth (%)
Exports ($bil)
Growth (%)
Agricultural products
Edible oils
Livestock products
Aquatic products

China's agricultural import volume rose at a robust pace overall, but imports of a few items declined sharply due to Chinese policies.

Cereal grain imports totaled 25.6 million metric tons (mmt), up 16.4 percent. Barley imports were up 77.1 percent, wheat imports were up 29.6 percent, and rice imports were up 13 percent during 2017.

However, imports of corn, DDGS, and sorghum were all down sharply. Each of these is a substitute for corn -- disposal of huge government corn stocks was a priority for Chinese rural policy during 2017. DDGS imports -- hit by anti-dumping and anti-subsidy duties in 2017 -- were down 87 percent. Similar duties are expected to hit U.S. sorghum in 2018.

Despite the efforts to choke off these imports, combined imports of corn and substitutes (barley, sorghum, DDGS, cassava) totaled 25.3 mmt during 2017, almost the same as the 25.6 mmt total reported for 2016.

China has prioritized a similar stock disposal program for rice in 2018. The disposal of rice stocks began during 2017 with rice exports surging from under 400,000 mt in 2016 to 1.2 mmt during 2017.

A surplus stock disposal effort for cotton has been underway for three years. Cotton import volume during 2017 was 1.36 mmt, up 9.9 percent from 2016 when cotton imports were in lockdown mode. During 2016 cotton imports were held to the quota set in China's WTO accession commitments in 2001 when the textile industry was a fraction of its current size. Cotton imports bounced back a little during 2017 but are still lower than any year from 2004 to 2015. Yarn imports -- a substitute for cotton -- were stable in 2017.

The volume of imported sugar (2.29 mmt) was down 25 percent after the out-of-quota tariff was boosted from 50 percent to 95 percent and a special safeguards investigation was launched during 2017...and the government is trying to dispose of excessive stockpiles.

While Chinese officials obsess over grains, the country's voracious appetite for grease is reflected by 95-mmt of soybean imports for the calendar year (up 13.8 percent), plus rapeseed imports of 4.75 mmt (up 33 percent), palm oil imports of 5.1 mmt (up 13.4 percent), rapeseed oil imports of 757,000 mt (up 8.2 percent), and soybean oil imports (up 16.6 percent). Sunflower oil imports of 745,000 mt were the only item in this category whose import volume fell (down 22.1 percent).

China's imports of pork (1.2 mmt) and pork offal (1.28 mmt) were both down in 2017 as domestic prices plunged from record highs reached in 2016 and a bevy of domestic pig-supply companies expanded aggressively to grab market share after the departure of backyard farmers. Imports of beef, mutton, and milk powder were each up in double digits. The opening of China's market to U.S. beef last year was not a factor in these numbers. Nearly all the imported beef was supplied by Brazil, Uruguay, Australia, and Argentina while the United States remained a tiny supplier.

China 2017 volume of agricultural imports
Item Imports (1000 mt) Change (%)
Cereal grains 25,601 16.4
Wheat 4,422 29.6
Corn 2,827 -10.7
Rice 4,026 13.0
Barley 8,863 77.1
Sorghum 5,057 -23.9
DDGS 391 -87.3
Cassava 8,128 5.5
Cotton 1,363 9.9
Yarn 983 0.8
Sugar 2,290 -25.2
Soybeans 95,526 13.8
Rapeseed 4,748 33.2
Palm oil 5,079 13.4
Rapeseed oil 757 8.2
Sunflower oil 745 -22.1
Soybean oil 653 16.6
Pork 1,217 -24.9
Pork offal 1,282 -14.1
Beef 695 19.9
Mutton 249 13.1
Milk powder 1,040 22.9

Monday, February 19, 2018

Russian Soybeans Pressure China Market

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?"

Note: 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?"

Sunday, February 18, 2018

China Mulls Soybean Trade Retaliation

Chinese officials have been mulling retaliatory trade action against imports of U.S. soybeans. While soybeans loom as a big target in a trade war, such an action would cripple dozens of Chinese importers and undermine the country's new "open economy" strategy in agriculture.

One commentary on the Chinese Internet this week called soybeans "potentially China's strongest weapon" as trade friction with the United States heats up. The commentator suggested that a measure limiting soybean imports could cause President Trump to lose the 2020 election by hitting farmers in the U.S. Midwest. Yet the commentator also noted that limiting the soybean supply could lead to higher pork prices in China since soybean meal is an important component of pig feed.

China's Commerce Minister Gao Feng struck a conciliatory tone in comments at a February 8 news conference which was largely about trade friction with the United States. Minister Gao said the Ministry had met with industry associations to explore possible impacts of trade measures against imports of U.S. agricultural commodities (soybeans and cotton were mentioned specifically by the journalist who asked the question). Gao's main comment was that some "production-type" enterprises had raised concerns about the effects of limiting imports. [erratum: another article discovered later suggests that the companies were worried about the effects of imports.] The Minister then emphasized the importance of resolving trade difficulties to achieve mutually beneficial outcomes and to turn friction into energy. Minister Gao made similar conciliatory comments about beneficial trade and cooperation in the Ministry's earlier announcement of the antidumping investigation of U.S. sorghum imports.

A trade action against soybeans -- the biggest component of international trade in farm products -- would undermine China's efforts to craft its image as a proponent of global trade. In his response to a separate question, Minister Gao emphasized that a "new pattern of externally open agriculture" is central to China's rural revitalization strategy featured in the "Number one document" issued by communist party leaders this month. According to Gao, the strategy for China's rural makeover features greater engagement with global markets in which Chinese companies have greater control over a swelling flow of agricultural imports, Chinese farmers link up with commercial entities to export high quality farm goods demanded by the market, and China gains a stronger voice in multilateral organizations that set the rules for international trade.

Bolstering China's image as a proponent of global trade is a long-term strategy critical to the "One Belt One Road" initiative as well as to broader geopolitical objectives. Officials may hesitate to undermine their long-term image-building project in order to score points against Americans in a tit-for-tat trade skirmish.

A February 5 commentary noted that China has major domestic commercial interests that rely on soybean imports. The commentator observed that China's soybean industry has demanded action to limit soybean imports on several occasions over the past 15 years, but authorities have never imposed any major measures. This commentary pointed the inconsistency of launching antidumping investigations against imports of U.S. DDGS and sorghum, yet never conducting an investigation against imports of soybeans even though China's soybean industry is purportedly under the greatest pressure from imports.

According to the commentator, China's soybean industry called for an action in 2004 after a sudden drop in U.S. soybean prices devastated Chinese importers holding contracts to import at high prices (the so-called "soybean crisis"). In the commentator's opinion, China "lost the perfect opportunity" because there was little knowledge of how to launch trade remedy measures and many in the Chinese industry were willing to be rescued by being acquired by foreign companies.

The commentator recalled that a trade action against soybeans had been proposed in 2009 to retaliate against punitive U.S. tariffs on Chinese tires. However, powerful companies "inextricably tied" to soybean imports opposed the move, the commentator said. Instead, he pointed out that China chose to launch an antidumping action against imported U.S. chicken meat -- a much smaller trade item than soybeans.

According to the commentator, some individuals opposed to last year's antidumping tariffs on U.S. DDGS argued that antidumping duties could not be justified for DDGS if they were never imposed on soybeans.

In fact, the DDGS and sorghum antidumping trade actions were taken largely to facilitate China's own commodity dump: selling off China's massive corn reserves into its domestic market at prices below the government's acquisition cost. Imported DDGS and sorghum are substitutes for corn, and an article in the China Times reported that targeting DDGS and sorghum for punitive duties makes it easier to sell off the government's corn stocks by reducing the supply of cheap substitutes. China Times linked the sorghum antidumping investigation to the directive in this year's "Number one document" to accelerate the disposal of government grain inventories by improving auction and sale mechanisms.

None of the commentaries delve into the facts that make a punitive tariff against U.S. soybeans improbable. Here are a few additional considerations.

China's capacity to shift soybean purchases to other suppliers is limited. China imports two-thirds of the soybeans traded in the world, and about 35-40% come from the United States. Brazil already has been increasing its exports to China at a frantic pace for several years. Soybeans from southern hemisphere countries -- the main alternate suppliers -- are available mainly during April-September, and cannot substitute for U.S. soybeans imported by China during the northern hemisphere shipping season of October-April.

Punitive tariffs on soybean imports would hurt Chinese importers as much or more as it would hurt American farmers. Most soybeans are imported by hundreds of Chinese companies -- both state-owned and private. Multinationals--who were banned from further expansion ten years ago--no longer dominate the industry. Aggressive investment by Chinese players over the last decade has made domestic companies the primary operators of China's soybean crushing plants which are already plagued by excess capacity and razor-thin margins.

China's own soybean producers would benefit minimally from limits on U.S. imports. China's entire soybean harvest equals roughly two months of imports. Most of China's soybeans are now used for food processing industries at premium prices and do not compete directly with imported soybeans used for crushing to make vegetable oil and soybean meal for animal feed. Chinese farmers in the northeast expanded soybean production this year, but had difficulty selling the additional beans and the government had step in to buy them.

Chinese companies could import soybean oil and meal to some degree instead of importing soybeans. (precedent: when China tightened cotton import quotas several years ago, the textile industry started importing yarn which is not subject to a quota.) Imports of substitute oils like palm, rapeseed, sesame, olive oil would rise.

Smuggling and paperwork subterfuge would skyrocket. Customs officials would have to do extensive checking of paperwork and testing of shipments to verify the stated origin. Customs officials would have to be watched closely by anti-corruption investigators.

Chinese officials may recall stampedes at a supermarket by shoppers eager to get discounted cooking oil when soybean prices were in the stratosphere ten years ago.

The lack of protein in animal feed was a bottleneck for China's livestock sector until China started importing soybeans in the 1990s. Soybean meal now provides most of the protein in animal feed. The two biggest consumers of soybean meal -- pigs and chickens -- are in vigorous expansions this year. Watch for fake and adulterated soybean meal and disease outbreaks among poorly nourished livestock and poultry if soybean supplies shrink.