Henry Kissinger said, “Control oil and you control nations; control food and you control the people.”
I was reading the other day that China is importing a large amount of soybeans from the U.S. and Brazil, to use as animal feed to meet its growing demand for meat. Kissinger’s words ring true when it comes to China’s current relationship with soy – a relationship that reminds me of an ancient Chinese story, the classic Strategies of the Warring States.
During the Spring and Autumn Period in ancient China, there was a powerful state named Qi, with two neighboring states named Lu and Liang. The king of Qi first issued an order that his subjects must wear clothes made of silk. He also ordered that his state could only grow grains, no mulberry trees whose leaves are used to feed silkworms. The demand for silk thus soared in Qi. Seeing this, Lu and Liang stopped their grain production and shifted to plant mulberry trees so as to produce silk for profit. Years later, however, the king of Qi changed his order. He ruled that his subjects could only wear cotton clothes and forbade his state from selling food to the neighboring states Lu and Liang. Having abandoned the original agricultural production, Lu and Liang collapsed because of famine and civil disorder. Qi thus easily conquered the two states.
The ancient wisdom takes a different form but shares the same essence as the modern “battle within the world food system”. Facilitated by technology, intensive practices and subsidies, today’s use of food as a weapon can be seen most clearly through food aid, which usually destroys traditional agricultural practices and re-orients production towards exportation. Free-trade policies only worsen the situation, as local agricultural production is unable to compete with cheap imports.
China is known to be the origin of the soybean. Before 1995, China was self-sufficient in soybean production and also a net exporter of soybean. However, after 1995 and especially after 2001, China’s domestic soybean production shrank and its imports skyrocketed. Today, China has completed its transformation from major producer and net exporter of soybean to the world’s largest importer of soybean. Coincidentally, 1995 was the birth of the World Trade Organization and 2001, the year that China became an official member of the WTO and began to experience free trade restrictions on its agricultural products.
China’s 2004 soybean crisis further hastened its transformation to a net soybean importer. China lacks an independent national information system for soybean market speculations. So, decisions are made solely based on the Chicago Board of Trade’s figures (CBOT). The end of 2003 and early 2004 marked a sharp turnover of soybean futures price from 2,300 yuan/ton (equivalent to about 330 USD/ton) to 4,400 yuan/ton (equivalent to about 630 USD/ton) as the USDA predicted reduced yield because of bad weather.
As a result, Chinese companies purchased over 8 million tons of soybean in early 2004 from the U.S., for fear of further hikes in soybean prices. However, one month after the purchase, the soybean price plunged to less than half of 4,400 yuan/ton (equivalent to less than 315 USD/ton). News coverage in China from that time reported that the U.S. government and the soybean industries manipulated the soybean price and thus created the whole crisis. This event led many soybean processing companies to declare bankruptcy.
The crisis, however, turned out to be a great opportunity for U.S. corporations. The Chinese soybean market is now dominated by four players: Archer Daniels Midland (ADM), Bunge, Cargill and Louis Dreyfus. During the 2004 soybean crisis, these four companies bought the bankrupt processing companies at low prices and now hold all the decision-making power in regards to the purchase of soybean.
So now the scene on the ground is: domestic non-GM soybean producers are hoarding their soy, whose lower oil content makes it less valuable to oil processing companies, processors in the Northeast are either declaring bankruptcy or moving to the coastal East to cut back on transportation costs, and processors in the coastal East are importing vast quantities of GM soybean mainly from the U.S. and Brazil. It’s estimated that in 2008, foreign companies or joint ventures funded 70% of China’s oil processing factories, and multinational corporations controlled 80% of the country’s soybean processing capacity.