Generalizations are dangerous. Most people, when conjuring up a picture of what China might be like, still picture impoverished, oppressed people who drive rickshaws, wear coulee hats and live in unsophisticated huts. However, parts of China are as modern as anywhere in the world. That 80% of all large construction cranes in the world are located in China is evidence that this country is still in a hurry to grow and modernize.
The vastness of this country, and the booming economy there, spell opportunity for U.S. soybean growers who will play a vital role in producing the best and most abundant crop possible to meet this need.
Despite the global economic crisis, China's GDP is still estimated to grow approximately 6-8% this year. While the country's population growth is projected to begin leveling off by 2030, other factors contribute to the huge potential for increased demand for U.S. soybeans.
“A city the size of Chicago is being settled every five years somewhere in China, incomes are rising and a younger consumer group is demanding an improved diet,” says Peter Mishek of Mishek, Inc., a consultant for Ag Processing Inc. (AGP), based in Omaha, NE. “The Chinese seem to have a more optimistic attitude about the future. Southern China, in particular, will be a good partner for U.S. soybean growers for a long time to come.”
These factors result in China being the U.S.'s No. 1 trading partner for soybeans. To put China's demand for soybeans into perspective, this year, world exports of soybeans totaled 1,144.4 billion bushels, and 652.5 million bushels have been exported to China, according to John Baize, president of John C. Baize and Associates. In addition, 51,200 metric tons of soy oil has been shipped to China.
When will this boom in soybean demand end? Not any time soon, according to Iowa Soybean Association (ISA) Director of Market Development Grant Kimberley. “China is a unique market that you have to see to believe,” he says. “China currently imports 57% of U.S. soybeans, and that pace is exciting. One feed company we visited said the goal is to have a chicken and a duck in every pot. Many Chinese people still only eat meat once a week, so if that can increase to two or three times a week, that's a lot of demand for meat and a lot of soybeans to meet the demand, even for the population as it stands today.”
DURING A RECENT ISA trade mission to China, several companies indicated that the soybean crushing industry in that country continues to grow and has a very positive outlook for the future. China's upwardly mobile population is a force to be reckoned with. Even a global economic crisis can't put the brakes on this trend.
“Statistics show that meat consumption is increasing in both rural areas and cities,” says Renault Quach, vice general manager of Guangzhou Green Oil Company, a soybean crusher in Guangdong Province. “Even though the economic downturn might cause people to eat a little less meat, they still need to eat, and want to eat meat.”
Quach explains that the return on producing both hogs and poultry still has a positive profit margin in China. Raising more livestock means more need for soybean meal to be produced. Feed production has increased an average of 16% each year for the past 17 years. While that rate has slowed to growth of 7-8% in the past year or two, that's still very good. Green Oil Company is considering expanding, adding a third soybean crushing plant in the western part of the province to reach other areas of the country where livestock is raised. The expansion may take place next year.
Despite the global economic crisis, China's economy is still growing, although at a slower rate, and demand for soybeans will continue. Johnny Yu of SS&T Group, an up-and-coming soybean importer, says he prefers to buy U.S. soybeans, and half of what they purchased last year was from the Midwest. The company is expanding its capacity to import soybeans in a major way, creating more opportunities for Midwestern soybean producers. When asked about future demand, SLG representatives from the Shanghai Liangyou Group ISLG say people will spend their money on food, even when the economy is tough.
Representatives from USDA-FAS reinforced that sentiment. For example, they said Kentucky Fried Chicken (KFC) projects it will open 400-500 restaurants in China each year, with parent company Yum! Brands expecting there will be 5,000 KFCs in China by 2010.
In July, during a Soy Transportation Coalition meeting in Washington, representatives from Seattle-based Louis Dreyfus and Tacoma-based TEMCO said they have seen unprecedented demand from China this summer. (Typically U.S. soybean sales to China slow during the spring and summer because China often finds cheaper alternatives, like soybeans from South America or palm oil.) Both West Coast shippers are fully booked with shipments of soybeans to China in October.
ISA President John Heisdorffer, who farms near Keota, IA, notes that the Chinese government is committed to increasing meat consumption among its people. “That means more demand for our soybeans,” he says. “It's important to take the time to meet our No. 1 customer to be sure they know who we are and that we're happy to do business with them.
“When I buy something, if one person calls on the phone and another meets me face-to-face — and the price is similar — I'm probably going to buy from the person who meets me in person. This is the value of a trade mission,” Heisdorffer adds.
ISA HAS HOSTED two trade missions to China, and Heisdorffer says they yield results, noting that they had more sales after the first year due to the contacts they had made there. “It's a good investment to develop markets for now and into the future,” he says. Customers the trade team met in China have since traveled to the U.S. to see the origin of the soybeans they purchase.
He adds that meeting with customers in China (and other countries for that matter) is a good first step in developing customer preference. From understanding the challenges behind protein and oil content to discussing concerns about foreign matter, a face-to-face conversation can go a long way to developing a deeper understanding. “U.S. soybean growers offer a consistent supply of a quality product,” says Heisdorffer.
But at the end of the day he says it's all about the people. “Even though our cultures and our governments are different, people are not,” says Heisdorffer. “We all want to raise a family and strive to make things better.”
Editor's Note: Karen Simon is director of communications for the Iowa Soybean Association.