Xi’s Food Security Drive Could End Up Backfiring for Chinese Farmers

(Bloomberg) — After more than 30 years growing crops on the plains of northern China, a farmer who asked to be identified as Zhang is struggling over what to plant in the coming months.

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President Xi Jinping’s government has just one answer: sow more soy.

In the latest drive to bolster food security in a nation that accounts for about one-fifth of humanity but only one-tenth of its arable land, China is pressing farmers to increase soybean production, using a combination of subsidies, government stockpiling and public pressure. Like generations of Chinese leaders before him, Xi sees the country’s reliance on food imports as a national security issue and soy is one of the weakest links.

“Food security’s gotten more important,” said Darin Friedrichs, co-founder and market research director of Sitonia Consulting, a China-based agricultural information service provider. “It was always important when it came to basic grains like corn, wheat and rice. But now the concerns are extending more into soybeans.”

Yet the risks of those policies, even when they serve Beijing’s goals, fall heavily on millions of farmers like Zhang: last year, following the advice of her local agricultural bureau, she grew soy alongside her regular corn crop, but the herbicide she used on the soybeans killed off the corn.

“Basically the soybeans were planted for nothing,” Zhang said.

Those kinds of tradeoffs won’t stop the government’s drive. A trade war with the US, as well as disruptions to food supply chains from the Covid-19 pandemic and Russia’s war in Ukraine, mean China is doubling down on efforts to bolster domestic food production.

China’s government for decades has struggled to balance competing demands when it comes to food production, with sometimes devastating consequences. The Great Famine of the late 1950s and early 1960s killed tens of millions after Communist Party Chairman Mao Zedong sought to mandate collective farming and food distribution.

It’s a period many in China’s older generation — including Xi — still have memories of. The “people’s rice bowl” must be firmly held at all times, Xi said in 2013. At the same event, he discussed how he could only drink soup for dinner during three years of “natural disasters,” because there was not enough food.

“We can’t forget about the pain after the scar heals,” Xi said.

Today China relies on imports for over 80% of its soybean consumption, with those purchases concentrated in a few key countries led by Brazil and the US. The nation’s low self-sufficiency for a crop used in everything from animal feed to cooking oil is seen as a critical vulnerability, according to the government. In staples like wheat and rice, China is generally able to feed itself, though imports of wheat have been surging.

Cheaper Imports

The economics of Beijing’s approach aren’t favorable. For the plan to work, the government needs soybeans to be expensive enough to induce planting, but cheap enough to lure soybean crushers into buying from local farmers. Yet as of April, imported beans were more than 20% cheaper than domestic beans. And soybean crushers have been struggling to make a profit processing even the imported beans, due to weak domestic demand from pork producers.

That means the extra beans China managed to churn out last year struggled to find a market. With output in 2022 surging more than 20%, domestic soybean prices fell 15% since harvest time and have remained low. The government blamed the drop on a larger domestic crop than expected and weak demand.

With government stockpiling efforts expected to have ended in April, future demand could fall even further.

Every hectare of soybeans could mean less planting of more productive corn crops, requiring more imports.

China’s soybean yield averages 130 kilograms per mu (0.07 hectare), a unit of measurement common in China. That’s far below the productivity found in the US or Brazil, and compares with 430 kilograms for a similar-sized plot of corn. The government is working with different regions on soybean varieties it hopes will boost productivity, but the goals are still a long ways away from being competitive.

‘Grain Security Risk’

For now, “with lower yields, it means that these soybean seeds are reducing productivity” compared to other food crops, said Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultants. “If you expand planting of these seeds, you are creating bigger food security issues.”

The data show that shift may already be under way. China’s corn imports more than doubled to a record in 2020, then nearly quadrupled in 2021, according to US Department of Agriculture data. That move came as more farmers switched to growing soybeans from corn in the top growing regions.

“Planting more soybeans, and less higher-yielding corn, doesn’t that imply a higher grain security risk,” asked Ma.

With the new planting season about to kick off, soybeans still don’t look commercially attractive, farmers, analysts and traders said.

In the northeastern province of Heilongjiang, farmer Wang Lei has decided to double his corn planting this year to about 400 mu, which converts to about 27 hectares.

“I am not considering soybeans as output is low and profits not as good as corn,” Wang said.

He’s not alone.

“Planting intention is not looking great for soybeans, as the profits are still thin,” said Bian Tingting, an analyst with Mysteel Group, a commodities-focused data service. “Demand is very flat and there is no sign of that improving immediately — if the stockpiling stops, prices are expected to drop further.”

Ambitious Targets

Officially, however, China aims to expand soybean planting acreage by another 10 million mu in the new year, up 6% from 2022, with the goal of about 30% self sufficiency by 2032.

“We will be anchored with our target, overcome challenges and conquer difficulties,” the agriculture ministry said.

For Zhang, the experience of seeing her corn crop die from the misapplied herbicide last year was scarring. But her local agriculture bureau is pressing her to try again.

“I might still grow soybeans,” she said.

–With assistance from James Poole and Sanjit Das.