Soybeans have been a major source of protein supply in East Asia for more than 3,000 years. After the 15^th century, soybean cultivation spread from East Asia to much of the rest of Asia, including Japan. After the middle of the 20^th century, soybean production began to grow in North and South America due to the growth of feed demand. Over the last 50 years, the cultivation of soybeans in the U.S., Brazil, and Argentina increased dramatically. Consequently, these three countries have become the major soybean producers and exporters in the world. As economic growth has occurred in Asia over the last several decades, the demand for soybean meal in that region for use as a protein feed ingredient to support the rapidly growing livestock inventories and for soybean oil as a cooking medium has also increased substantially. With the opening of China’s market to soybean and soybean products trade in 1995/96, Asian soybean imports began to increase dramatically. China has become the world’s largest soybean importing country. Since the mid-20 century, supply and demand conditions for soybean are fluctuating by rapid increase of soymeal demand, economic growth of Asian countries, market opening of China, growing interest in bio-diesel. As soybean is widely used for food, feed and material for processing in Korea, this study analyzes changes and their factors of soybean and its byproduct markets. With the results, this study draws implications to Korean market and government.

The U.S. Soybean Industry

Before mid-1980s, the U.S. essentially dominated world soybean markets. However, the U.S. share of world soybean exports has decreased in recent years primarily due to increased soybean exports from its South American competitors, Brazil and Argentina. While the U.S. has been the world’s top soybean producing country, the general trend in recent years has pointed toward Brazil eventually surpassing the United States. The U.S. share of global exports has substantially diminished in recent years mainly because importers are increasingly switching sources of soybean supply from the U.S. to South American suppliers. Low production cost of Brazil and Argentina has affected U.S. soybean price competitiveness to decline. In addition, dominated production of biotech soybeans in U.S. has become a factor of export decrease due to border measures against the importation of biotech soybeans by major soybean importing countries such as EU and China. At the same time, the recent expansion of U.S. soyoil demand for biofuel production and stable growth in domestic livestock feed demand have affected the U.S. soybean industry and have increased domestic needs and reducing the supplies of soybeans, soymeal¹, and soyoil for export.

Soybeans were not a major crop until World War II. U.S. soybean production dramatically increased during World War II and was largely replaced imported fats and oils (Hymowitz, 1990). Between the 1960s and the mid-1990s, the U.S. was the unrivaled world exporter of soybeans (Nakajima, 2011). U.S. soybean planted area and soybean production grew substantially during 1960s and 1970s (Fig. 1).

During the 1980s, U.S. soybean planted area stagnated due to farm programs (on the 1981 and 1985 farm bills) which did not include soybeans as program crops but did include the major competing crops like corn and other feed grains, cotton, rice, and wheat under farm programs (Ash et al., 2006). The result was an incentive for farmers to switch from soybeans to program crops. Beginning in the early 1990s, U.S. soybean planted area and production were increased as world demands for both soybeans and soybean products were growing. The Federal Agriculture Improvement and Reform Act (1996 Farm Bill) eliminated planting restrictions on crop bases allowing soybean farmers to respond to the growth of soybean prices by expanding soybean plantings (Ash et al., 2006).

Moreover, biotech soybeans were commercially introduced in 1996 and spread rapidly throughout the United States. The introduction of biotech soybeans reduced production costs and improved weed management in the rotation of crops, the result was a further increase in soybean area (Ash et al., 2006). Currently, biotech soybeans occupy more than 90% of total U.S. soybean production. Currently, soybeans are the second most planted field crop in the United States.

Soymeal production in the U.S. was increased steadily until the mid-2000s. Soymeal became an important product in livestock and poultry production following World War II as the most cost-effective source of protein for balanced feed ration production. Soymeal exports showed substantial growth beginning in 1997/98 due to the growth of soymeal imports by China. Since the mid-2000s, growth of soymeal consumption and production stagnated due to weakening feed demand. Most soyoil produced in the U.S. has been used for domestic consumption over the years. A surge in soybean export demand which limited soybean supplies available for crushing limited the production of soyoil and pushed up the soyoil price. Biodiesel policies have had an important effect on domestic soyoil consumption (Ash et al., 2006). The nationwide and statewide mandates for biodiesel use were implemented in 2005. The tax incentive for biodiesel production using new vegetable oil was also implemented in the same year. The bioenergy program also subsidized the use of soyoil for producing biodiesel.

The Brazilian Soybean Industry

In 2012/13, Brazil is the third largest soybean producer in world soybean markets. Brazil is the third largest producer of both soymeal and soyoil in the world. In world soymeal markets, Brazil is currently the fourth largest consumer behind China, EU-27 and the U.S. Brazil is also the third largest consumer of soyoil behind China and the U.S. China is Brazil’s largest soybean market, accounting for 67% of total Brazilian soybean exports volume (Salin, 2012). Powered by favorable prices and surging demand in for feed in China, its imports of Brazilian soybeans also increased dramatically since 2001/02. Total Brazilian soymeal exports also increased over the period, because of the increase in animal feed demand in the EU, Korea and Vietnam (USITC, 2012). China is Brazil’s largest soyoil buyer, accounting for 36% of total Brazilian oil exports in 2011(USITC, 2012).

The marginal profitability of soybean cultivation restrained the growth of soybeans in Brazil until the 1960s when soybeans were determined to be a suitable crop to plant in rotation with winter wheat. In the 1970s, soybean prices increased sharply due to decrease of fish meal in Peru, a common protein supplement for livestock by El Niño and decline of U.S. soybean production due to adverse weather conditions. Moreover, the U.S. government banned the export of soybeans in 1973 to avoid a domestic shortage. As a result, foreign buyers turned to Brazil to meet their soybean demand requirements. Since the 1980s, soybeans have become a key Brazilian agricultural crop leading to increase in both production and exports (Fig. 2).

Favorable conditions in international markets and aggressive support policies of the Brazilian government, such as production subsidies and credit incentives, have been the major factors in rapid growth of soybean production in Brazil. Another factor contributing to expansion of soybean production in Brazil was the development of a tropical soybean seed that flourishes in the tropics’ shorter day length and wet climate. EMBRAPA (Empresa Brasileira de Pesquisa Agropecuária), a quasi-governmental agency established in 1975, conducted systematic research to develop soybean cultivars with high yields in regions close to the equator. EMBRAPA’s research effectively lowered production costs and encouraged the expansion of soybean output in Brazil (Vieira & Williams, 1996).

The Brazilian government introduced several policies to support expansion of the soybean industry such as agricultural research to boost soybean yields and the minimum price guarantees. The minimum price guarantee for soybeans lasted until 1995. The price guarantee policy contributed to supporting soybean farmers in Midwest regions who face high costs of transporting beans to Brazilian ports where the majority of processors were located.

Brazil’s complex tax system influences the Brazilian soybean supply chain. The Tax on Circulation of Goods and Services (ICMS) is the most important tax on Brazilian soybean products. The tax rate varies depending on the state and differentiates between primary and processed agricultural products, normally varying between 7% and 12% of the total value of soybean products (USITC, 2012). Before 1996, the ICMS applied to all soybeans and soybean products include exports. However, the tax on exports was eliminated by the 1996 Kandir Law (Vieira & Williams, 1996). Even so, the ICMS was maintained on domestic sales of soybeans, soymeal and soyoil implying a disincentive to sell soybean products for domestic consumption and an incentive to export them. The ICMS must be paid when soybeans cross state lines even if the processed soybean products (soymeal and soyoil) are exported at a later date, therefore, soybean processing facilities are located in the state in which soybeans are grown to avoid paying the tax (USITC, 2012).

The Argentine Soybean Industry

Soybean production in Argentina began to increase rapidly in about the mid-1990s, growing more than 325 % between 1995/96 and 2012/13 (Fig. 3). Argentina is currently the world’s third largest producer of soybeans and the third largest producer of both soymeal and soyoil in the world. Also, Argentina is also the third largest exporter of soybeans. In 2012/13, 20.7 % of Argentina’s soybean production was exported. Exports account for 56 % of Argentine soyoil production and 96.5 % of Argentine soymeal production.

Soybeans were not economically viable crops in Argentina before the 1960s. However, the sharp increase in the world soybean price in the 1970s following the disastrous anchovy catches in Peru and the U.S. soybean export ban in the early 1970s spurred a more than 60 fold increase in Argentina’s soybean production in the 1970s. Throughout the 1970s, the profitability of soybeans relative to corn, sorghum, and barley continued to lead to a substitution of production area away from grains to soybeans (Schnepf et al., 2001). Before the 1990s, Argentina’s soybean yields grew a steady 3% annually during the 1970s and 1980s that played a large role in the dramatic rise in Argentina’s soybean output (Schnepf et al., 2001). Then, in the late 1990s, the widespread adoption of biotech soybeans stimulated a rapid expansion of the area planted to soybeans in Argentina.

In 1991, the newly elected government enacted important economic reforms that adopted an open-economy policy and created a more liberal policy regime. The greatest change made during that period was the elimination of all export taxes on processed soybean products. Furthermore, these reforms boosted imports of fertilizer and farm machinery so that farmers could invest heavily in new technologies that improve yields. In 1992, the Argentine government established an export rebate system designed to encourage soymeal and soyoil exports by reducing the domestic costs of production. The policy reforms helped Argentine soybean industries increase usage of the imported inputs and expand soybean product exports. (Schnepf et al., 2001).

Argentina has several advantages over the U.S. and Brazil for exporting soybeans and products. Most importantly, soybean production areas are relatively close to the ports where most of the processing capacity is located at, minimizing transportation costs. In addition, the costs of seeds are lower in Argentina because many of Argentina farmers evade payment of the technology fee for biotech soybeans (Schnepf, 2003). Furthermore, the average port cost in Argentina is cheaper than that in Brazil (López et al., 2008).

The Chinese Soybean Industry

In 1995/96, Chinese government began to open its soybean market. As a result, China quickly switched from being a small net importer of soybeans to being a net importer (Fig. 4). The U.S., Brazil, and Argentina account for more than 95% of China’s soybean imports. In addition, China’s accession to the WTO in 2001 that obligated China to open its soybean markets to imports was a primary factor in launching the growth in its soybean imports. As a result, China has become the largest soybean importing country in the world.

China is the fourth largest soybean producer and the largest processor of soybeans in the world. The volume of soybeans processed in China began to grow rapidly in mid-1980s, due mostly to economic growth. Increased income, population growth, and urbanization in China stimulated the growth in demand for soymeal and soyoil (Tuan et al., 2004).

China is currently the world’s largest producer of soymeal and soyoil. China’s soymeal production has been sufficient to meet domestic needs so that Chinese soymeal trade is minimal. On the other hand, China’s large and rapidly growing demand for soyoil has required growing imports of soyoil. Between 2001/02 and 2012/13, China’s soyoil imports increased by almost 166%.

After the mid-2000s, soybean area in China declined sharply primarily due to the low returns to soybean planting (Meador & Xinping, 2013) because the Chinese government wanted to be self-sufficient in grain production thus government policies reduced the incentives to plant soybeans in favor of more highly subsidized rice, corn and wheat (Lagos & Junyang, 2013). Farmers have shifted the acreage away from soybeans toward corn or rice that are more profitable. In 2011/12, the per hectare profit in Heilongjiang for soybeans ($245) is far below the profit for corn ($637) and rice ($923) (Meador & Xinping, 2013). The poor profitability of growing soybeans in major production areas has continued to shift soybeans acreage to crops that are more profitable. Furthermore, the price gap between domestic produced soybeans and imported soybeans disadvantage processing companies near soybean production regions. The relatively high price of domestic soybeans lowers the competitiveness of inland processing companies compared with processing companies located in southern coastal regions that use imported soybeans. Chinese soybean farmers’ competitiveness continues to be undercut by limited arable land and low yields (Meador & Xinping, 2011). Furthermore, relatively low returns to soybean production continue to influence farmers to switch to more profitable crops.

The Korean Soybean Industry

Soybeans have been a traditional source of protein in Korea and are currently an integral part of the agricultural economy. Even though soybeans account for the second largest number of planted acreage in Korea, soybeans have been imported into Korea since the late 1960s. From the mid-1970s to the late 1990s, imports of soybeans rapidly increased to meet the increasing feed demand driven by rapid economic growth in Korea (Fig. 5).

Since the mid-1970s, however, the soybean area has been declining from 274,000 ha in 1974/75 steadily reaching 81,000 ha in 2012/13 (Ministry for Food, Agriculture, Forestry and Fisheries, Korea, 2012 and USDA/ FAS, 2013). Two important factors account for the decline in soybean area in Korea: (1) the rapid increase in soybean imports and (2) relatively low profits for soybean cultivation compared to food crops like potatoes and peppers. Currently, the soybean supply in Korea is highly dependent on imports. The soybean self-sufficiency rate over all soybeans is usually between 3% and 6% and 20 ~ 25% for food use soybeans (Ministry for Food, Agriculture, Forestry and Fisheries, Korea, 2012). The U.S. and China compete for the Korean food use market for soybeans while the U.S. and Brazil compete for the industrial and feed use market for soybeans.

Domestic soymeal production accounts for only about 25~35% of the total Korean soymeal supply. The remainder comes from imports. Korea imports soymeal from relatively diversified sources, including Brazil, India, the U.S., Argentina, and China and among them, Brazil has recently become the largest soymeal exporter to Korea with competitive low price. Fig. 6 shows soymeal production, consumption and import between 1970/71 and 2012/13. From mid-1970s to mid-1990s, soymeal production and soymeal import increased respond to growing Korean economy. However, after the liberalization of Korean soymeal imports in 1991, domestic soymeal production stagnated and then began a gradual decline while soymeal imports continued to increase.

Most of Korea’s soyoil imports are from Argentina, the United States and Brazil and in recent years Argentina occupies more than 95% of Korea’s soyoil imports. Fig. 7 shows soyoil production, consumption and import between 1970/71 and 2012/13. The entire soyoil production in Korea uses imported whole soybean or imported crude soyoil. Therefore, soyoil production cost is seriously affected by world soybean supply and demand and the exchange rate (KREI 2010). Before the 1990s, the Korean soyoil market was an oligopoly protected by import controls. As a consequence, soyoil production increased rapidly in response to growing domestic soyoil demand. However, as results of the Uruguay Round negotiations, Korea liberalized its soyoil import market in 1991. Fig. 8 shows the change in Korean soybean, soyoil after soyoil import market liberalization. The Korean soyoil price of closed market is OP^C and the international soyoil price of open market is OP^O. After this liberalization, Korean soyoil market price declined from OP^C to OP^O and its imports increased rapidly from OQ^S to OQ^D (Fig. 8 (b)). Decline in domestic soyoil price caused demand in soybean to decrease (Fig. 8 (c)) and ultimately, soyoil market open shrank soybean consumption and imports (Fig. 8 (d)). Fig. 5 to 7 also show the real situation happened in Korean soybean, soymeal, soyoil market.

Conclusions and Implications to Korean Soybean Industry

Soybeans have been cultivated in East Asia region from 3,000 years ago and spread into the rest of Asia, America and Europe since the 15th century. Due to increased use for feed, soybean cultivation in the North and the South American region considerably rose after the middle of the 20^th century. In the meanwhile, soybean market has been affected by economic growth of China, development of seeds suitable for tropical area, market openness of importing countries, adoption of genetically modified soybeans, increased interest in biodiesel etc.

Korea opened its soyoil market in 1991 and it brought about a great change not only in soyoil market but in soymeal and soybean market as well. As imports of soyoil expanded, the increased consumption was covered by imports and this caused burden cost to soybean manufacturers leading to decrease in soybean purchase. Since that time, consumption of Korean soybeans has become stagnant and due to this reason, production of soymeal, which is byproduct of soybeans, also decreased replacing increased domestic consumption with imported soymeal.

This implies that market openness of soyoil, which is downstream market, has brought negative effect in soybean market, which is upstream market. Korea has not paid attention of upstream market in market access policies and downstream byproduct market was easily opened compared to upstream market. As a result, decrease in soybean consumption led to decrease in self-sufficiency of soybean products. It can be seen as self-sufficiency of soybean has been improved, however, the real self-sufficiency of soybean products is in decline. To solve food security problem, Korea needs to secure and diversify import markets of soymeal. In addition, since over 80 percent of the imported soybean is genetically modified, labelling regulation on the soybean products should be adopted.

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