Greater China Region: A Deeper Dive
On January 15, Phase I of the U.S.-China trade deal was signed. USSEC Regional Director – Greater China Xiaoping Zhang provides this in-depth information on the Greater China market, which consists of China and Taiwan. China remains U.S. Soy’s top market and Taiwan is one of the world’s largest soy food markets; U.S. Soy boasts a nearly 50% market share there.
Globally, China has been the No. 1 feed production country for nine consecutive years with more than 228 million metric tons (MMT) of total feed production in 2017 accompanied by record soybean imports of over 96 million tons (MT). Livestock and poultry feed account for about 90% of the total feed volume. To increase efficiency and competitiveness, the feed industry has been consolidating and more companies have expanded their businesses into livestock and poultry production, resulting in increased industry integration in recent years. Since late 2018, the nationwide outbreak of the deadly African Swine Fever (ASF) disease in China has caused severe disruptions in swine production, with a reduction estimated over 40% at one point of 2019. Total swine feed volume was down close to 20%, however, other livestock and poultry feeds (broilers, duck, layers, quails) had increased significantly (over 12%) and made up some of the lost swine feed volume. The government had issued various policies encouraging the restoration of normal swine production to ensure adequate pork supply. Based upon the government monitoring data, reduction of swine inventory showed signs of bottoming out and the industry started a slow recovery towards the end of the year. The recovery process is expected to be slow and will likely take at least three years.
Soybean meal in Taiwan is produced from imported soybeans. Soybean meal produced from U.S. soybeans in Taiwan loses its origin identity as it is blended with soybean meal from other origins to assure minimum protein levels are met. This inhibits the ability of the U.S. soy industry to convey the message and capture the value of the U.S. Soy Advantage. Technical servicing programs offered by the U.S. soy industry enhance the positive views of the U.S. soy industry and enable it to access the highest-level purchasing influencers to convey the U.S. Soy Advantage message that would allow for U.S. soybean meal to be positioned as a higher value protein source. There are opportunities for USSEC to promote the value-added soybean meal products produced from U.S. soybeans by local crushers to Taiwanese feed millers, integrators and homemade feed millers.
China’s aquaculture production accounts for about 65% of the world’s total, with current production around 50 MMT. China is now leading the world by producing a total of 35 MMT of quality aqua feeds consuming around 9 MMT of soybean meal annually. With increasing concerns on the environmental impact and food safety and quality, as well as increasing pressure from higher input costs, the industry started upgrading aquaculture technology towards sustainable fish farming with increased production and reduced pollution, which has presented both challenges and opportunities for the U.S. soy industry in China.
China is the fourth largest soybean producer in the world with a total production of over 18 MMT in 2019, all non-biotech soybeans, of which more than 80% are processed into various food products for 1.4 billion consumers. In addition to its domestic production to supply increasing food needs, China also has imported about 1 MMT of food grade non-biotech soybeans from Russia, Ukraine, and Canada in recent years, and China is now aiming to increase its soybean production to 22-24 MMT by 2025. With ongoing urbanization, rising per capita income and increasing middle-class populations, USSEC has seen emerging demand for premium and novel soy food products with differentiated flavors which are difficult to achieve with local soybean varieties as Chinese breeders are primarily focused on improving yield, protein level, and oil content.
Taiwan is one of the largest markets for soybeans used to produce soy foods; the country’s per capita is 11 kilograms of soybeans for food consumption. Taiwan is also a major importer of U.S. soybeans—both commodity and Identity Preserved (IP) Value Enhanced—used to produce soy foods. Taiwan imports commodity soybeans and uses them in soy foods. This is a lucrative market for U.S. soybeans as the U.S. market share in this part of the value chain is 100%. If this market were to shift to importing IP value enhanced soybeans, industry estimates are that the United States would lose $130 million in soybean exports. This potential loss of market share is not being driven by industry or consumer demand or perceptions of U.S. Soy; rather, the threat is being driven by activist legislators that seek to remove access to commodity U.S. soybeans for the Taiwan soy food processing industry. In order to maintain this market and maximize opportunity for U.S. Soy, USSEC must address the policy threats as well as assist soy processing end users who understand the safety of U.S. commodity soybeans so they can communicate that information to the consumers of their soy food products. In Taiwanese markets, there is demand for IP value enhanced soybeans. USSEC’s primary threat in this market segment is Canadian suppliers of value enhanced soybeans. USSEC’s efforts in Taiwan have led to the U.S. increasing its market share over Canada.
China is the world’s largest soybean importing country and has the largest soybean crushing industry producing soymeal for animal feed and soybean oil for food. Nevertheless, China is still an edible oil deficient country, making soybean oil a more valuable byproduct than many other countries in the world. According to China National Grain & Oils Information Center, in 2018, total edible oil consumption was 37.67 MMT of which over 43% was soybean oil. With increasing demand for safer and healthier foods and rising per capita income, more and more household consumers, especially in the first and second tier cities, have turned to other oils such as rapeseed/canola oil and sunflower oil instead of soybean oil, which has been misperceived as less healthy and less safe with misinformation on biotech-derived foods, and this presents both challenges and opportunities for U.S. Soy in China.
U.S. soybean share in Taiwan is more than 50%. Soybean oil is an essential product derived from crushing these imported soybeans. Soybean oil is used to cook food and as an ingredient in processed foods. Despite being the most used vegetable oil in Taiwan, consumer/in-home use of soybean oil is declining. The decline in consumer purchase of soybean oil is due to an increasing abundance of competing vegetable oils that have a perceived taste/functionality /health benefit. The largest end users of soybean oil in Taiwan are the end users in the food service and the food processing sectors. It is important that these end users have a positive impression of soybean oil. If these end users begin to view soybean oil as consumers view the product, this will severely impact demand for imported U.S. soybeans and U.S. soybean oil.