Accounting for 60 percent of total global trade, China's soybean consumption has served to its benefit in certain scenarios, most evidently in its ongoing trade war with the United States. Today, Beijing makes up more than half of the United States' total soybean exports. Thus, any cuts to China's U.S. purchases would have a significant toll on U.S. farmers — carrying with it potentially dire political consequences for U.S. President Donald Trump, who derives much of his support from more rural constituencies.
But as much as China would like to continue wielding its soybean purchases as a bargaining chip, its trade disputes with Washington have also highlighted how that strategic weapon can just as easily become its Achilles heel, should Beijing become too dependent on any one food supplier — especially one that's an adversary. This fear has spurred China in recent years to pursue a strategy to diversify its imports and "rejuvenate" its domestic soybean production. But because its 1.4 billion people increasingly eat an animal- and dairy-oriented diet, China will never be able to completely stem its overseas demand for the protein-rich legume — though that, of course, won't keep it from trying.
For decades, China has relied on overseas soybeans to satiate its massive population's ever-growing protein demand — all while reserving its limited agricultural lands for other food staples such as rice, wheat and corn. Today, 80 percent of China's soybean consumption relies on just three countries: the United States, Brazil and Argentina. Its dependence on the Americas — and their resulting reliance on China's soybean purchases — has given Beijing the ability to influence the market, as well as a powerful weapon to use against its adversary Washington.
A Reluctant Exception to China's Self-Sufficiency Rule
Despite its landmass and large population, China isn't blessed with the type of land and water resources that the rich and fertile countries of Africa and the Americas enjoy, nor does it have the type of abundant capital to offset its agricultural deficiencies, like Japan. As a result, recurring famines and the ensuing political chaos have haunted China for decades — the most recent one being in the 1950s.
Fears of food scarcity, as well as longheld concerns of encirclement by land and sea, have in turn fueled Beijing's imperative for self-sufficiency of staple grains. In recent decades, domestic cultivation of key grains such as rice, wheat and corn has largely outpaced China's population growth — thanks, in large part, to a series of agricultural and land reforms put in place in the 1980s. And although China has incrementally increased its imports of these three key grains, the country has largely maintained a near 95 percent rate of self-sufficiency.
So how, then, has Beijing been an overall net grain importer since 2004? Enter soybeans, a protein-packed legume that has become an indispensable ingredient in China's diet. The country's soybean consumption used to pale in comparison to other staple foods, and the crop was viewed as much less essential to China's food security. But China's soaring appetite for dairy and meat over the past two decades (in particular, for eggs, poultry and pork) has dramatically increased the need for cheap and protein-rich soybean meal, which is used to fortify animal feed. China's soybean consumption has, in turn, grown sevenfold since 1997, from 15 million to 105 million metric tons of soybeans.
In the late 1990s, Beijing chose to deprioritize its production of soybeans to save what little arable land it had left (due to expanding industrialization, urbanization and pollution) for the production of other staple foods instead. This made soybeans an exception to China's otherwise highly subsidized domestic production and restrictive trade of staple grains — paving the way for cheaper imported soybeans from the United States, Brazil and Argentina to flood the Chinese market.
Meanwhile, the number of soybean fields in China, as well as domestic soybean production, began to shrink. As a result, per-acre domestic production of soybeans remains just one-third of what it is for wheat production and one-fourth of what it is for rice. And China's family-based farming system is able to churn out only about two-thirds the number of soybeans that the United States' genetically modified soybean industry produces in a year — thus leaving Beijing little choice but to turn to its Western rival to satisfy its soybean habit.
Beijing's "Soybean Rejuvenation" Strategy
But in trying to save its agricultural resources for other food staples, Beijing's import strategy has inadvertently made soybeans the weakest link in the country's overall food security — with the legume now accounting for a whopping three-fourths of the country's total annual grain imports. Before China relied on state-owned storage to influence the market, its insatiable demand, contrasted with its much smaller domestic supply, has made its market — and the wide range of downstream industries, such as the pork and soybean oil sectors — highly susceptible to any global price fluctuations. It's also made Beijing's soybean reservoir susceptible to bad weather, poor crop seasons, parasitic outbreaks or any changes to domestic agricultural policies in the United States, Brazil or Argentina.
To mitigate these risks, Beijing has sought to increase domestic production over the past several years. The government recently increased subsidies for domestic soybean farming — now nearly double those given for corn farming — in the hopes of increasing Chinese soybean fields by 0.7 million hectares this year, as well as next. Much of those fields are concentrated in the country's northeast province of Heilongjiang, which produces half of the country's total soybean supply and which Beijing subsequently deemed a key site for China's food security in September.
But while these vulnerabilities were initially viewed as primarily economic challenges, they've since become more geopolitical in scope due to China's escalating great power competition with the United States. Washington's heightened offensive against Beijing in the past two years has naturally evoked former Cold War fears of U.S. containment and strategic insulation — adding a sense of urgency to address China's overseas reliance on the Americas for such a key food staple.
In recent years, Beijing has embarked on a course to increase domestic production. But over the past year, its trade war with the United States has propelled China to add two more prongs to its larger "soybean rejuvenation" strategy — that is, reducing its overall soybean consumption and diversifying its foreign supplier list. In October, China ordered a reduction in the ration of soybean meals used for certain pig feeds from 20 percent to 12 percent by using other protein substitutes. This alone could reduce China's soybean consumption by 10 million metric tons (10 percent of the current total).
Meanwhile, the deadly outbreak of African swine fever in China is inadvertently helping the country cut back on its consumption as well, by decreasing the amount of soybean meal needed to feed its dwindling pig population. The epidemic is unlikely to be fully contained for at least another few years, meaning that the struggles in China's pork industry is facing could, in turn, create a window for Beijing to further ease or divert soybean demands in the shorter term.
The swine disease outbreak, combined with the government's wider push to ramp up its domestic production, is why many believe that China's soybean demand has reached its peak, at least in the short term. China's total soybean imports dropped by 7.9 percent to 88 million metric tons in 2018 — the first decline in seven years. And that amount is expected to drop again by another 10 million metric tons this year.
This means that even if China and the United States manage to strike a trade deal in the coming months, Beijing's actual appetite for U.S. soybeans — which has been a central point in the two countries' ongoing negotiations — may be notably less than what it's been. In the long term, however, China's increasingly protein-rich diet and massive population will continue to sustain its need for cheap soybeans from elsewhere. Aware of this, Beijing is also taking steps to diversify its soybean imports. In July, the government removed tariffs on soybean shipments for a handful of neighboring countries, including India, Bangladesh and Sri Lanka.
The Upshot: More Grain Imports
Beijing's strategy to increase domestic soybean production, however, will naturally come at the cost of its domestic production of other grains. Under the present production capacity and tech conditions, substituting the country's entire imported soybeans with domestic soybeans would require converting roughly a third of China's 120 million total hectares of arable land. Barring a breakthrough in Beijing's genetically modified soybean production (which remains a culturally sensitive topic), the country's limited agricultural resources make any goal for soybean self-reliance impossible without compromising the domestic production of other, widely-consumed staple grains like rice. And there are signs that this is already happening, with domestic rice fields decreasing by 0.7 hectares in 2018.
Due to its massive population's increasingly animal-based diet, China will never be able to completely stem its need for soybean imports. But that, of course, won't keep it from trying.
This will inevitably oblige China to increase the import of these grains in the coming years. Though unlike soybean exporters, corn and rice suppliers are much more diverse — and many are located in China's backyard, including Russia and Kazakhstan, as well as a number of South and Southeast Asian states, such as India and Myanmar. This, in turn, will allow Beijing to facilitate trade relations, mitigate trade deficits, avoid supply chain disruptions and bolster its influence within these states.
China's Achilles Heel
But perhaps most importantly, with nearly 100 million metric tons of annual soybean imports at stake and so few alternatives, Beijing's soybean dilemma reflects the larger and increasingly dire reality of the country's food security. In the years ahead, the growing imperative to ease potential food supply disruptions will force China to diversify its import sources and further expand domestic production where it can. But as Beijing takes steps to reorient its soybean supply, an even moderate change to China's demand could have wider implications on global food supply chains for years to come.
Editor's Note: A graphic accompanying this analysis showing annual soybean consumption in China has been corrected.