World Grain - October 2011 - 82

FEATURE

U.S. soy crushers face challenges
T
he United States is the world’s leading producer and exporter of soybeans and ranks second to China in soybean crush volume. But as a recent report from Rabobank, “Structural Challenges in U.S. Soy Crushing,” points out, U.S. soybean crushers, who last year processed nearly 45 million tonnes, are facing major challenges, including a slowdown in demand growth, margin contractions and falling capacity utilization. These challenges are coming from home and abroad. “China’s high soybean demand is reshaping the global playing ﬁeld,” the report said. “While both China and Argentina support their crushing industries through differential tax systems, the U.S. currently limits direct intervention to farmer payments, which may change in 2012. “Indirectly, the U.S. is damaging its soybean industry through tax credits to ethanol producers — the ethanol byproduct DDG is a formidable competitor for soybean meal in animal feed,” Rabobank said. CHINA’S INFLUENCE China’s strong import demand for soybeans, but not soymeal or soy oil, has dramatically reshaped the global soybean trading and processing playing ﬁelds, Rabobank said. Driven by the growing wealth of its huge population and the associated improvements in consumer diets, China has become the world’s largest consumer of soybeans. It now accounts for a 60% share of world soybean imports, effectively pulling soybeans away from U.S. crushers. The report notes that despite this robust demand increase, China’s domestic production has remained relatively stable at around 15 million tonnes, as soybeans are not considered to be a strategic crop, unlike corn, wheat and rice. China’s soybean imports have risen from negligible levels in the late 1990s to an expected 56.5 million in 2012. Eager to support its domestic crushing industry, China introduced a differential import tax structure in 1998 to encourage
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by Arvin Donley

Competitive environment abroad, numerous domestic issues impacting the soybean processing industry
imports of whole soybeans rather than soymeal and soy oil. The tax structure includes: • a 3% import tariff plus 13% value-added tax on soybeans; • a 5% import tariff plus 13% value-added tax on soybeal; and • a 9% import tariff plus 13% value-added tax on soy oil. “The tax structure has been extremely effective,” Rabobank said. “China, under this tax policy, has been the key factor inﬂuencing global soybean exports in the last 10 years. China’s surge in soybean imports means that U.S. processors must pay higher prices for soybeans relative to the domestic price for soymeal, which has contributed to processor margin contraction.” Despite this supportive tax policy, overcapacity in the crushing industry remains a serious problem in China. Rabobank estimates that in 2010 China had a total soybean crushing capacity of approximately 100 million tonnes and crushed 55.8 million. To address its overcapacity problem, China’s National Development and Reform Commission published a directive in 2008 that suggests decreasing capacity to 75 million tonnes by 2010 and to 65 million by 2012. The guideline also stipulates that a single company may not expand once it accounts for 15% of national production volume. Rabobank said that approval for expansion tends to favor state-owned crushers under this policy. “To date, the guideline has been unsuccessful at shrinking capacity,” Rabobank said. “However, it has prevented foreign companies from green ﬁeld or merger and acquisition expanOctober 2011 / World Grain / www.World-Grain.com
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World Grain - October 2011

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