US soybean subsidies mean unequal competition:

The 2002 US Farm Bill raised already high soybean subsidies and delivered a major boost to exports. The subsidies led to year-on-year reductions in the price of US soybeans. The major overseas market for US soybeans is China.

As China increased its imports of soybeans, the income of domestic producers fell. In 1998, the net return per mu (equal to 1/15 of a hectare or 1/6 of an acre) was 64 yuan (1 yuan equals to around US$0.15); by 1999, it had fallen to 56 yuan; and by 2001 it had dropped as low as 33 yuan.

According to a survey carried out by the Development Research Center of the State Council, each time the price of US soybean drops by one percentage point, the aggregate annual income of Chinese soybean farmers falls by 270 million yuan.

US subsidies violate international trade rules:

In 1998, unit production costs of US soybeans were already higher than unit income. From 1998 to 2001, the unit income from US soybeans continued to fall, and the gap between costs and income grew. Only government subsidies allowed soybean farmers to stay in business. From September 1999 to August 2001, the market price was, on average, 30 percent lower than production costs. From 1998 to 2002, earnings from each hectare of soybeans were, on average, US$675 lower than production costs.

But encouraged by increased subsidies, US soybean farmers increased their planting area from 23.39 million hectares in 1990 to 30.44 million hectares in 2004, an average annual growth of 2 percent. Output grew from 52.42 million tons to 85.49 million tons, an average rise of 3.6 percent per year.

China can't afford to give US protectionists a smooth ride. We need to teach our partners the importance of mutual respect. The best way to do this would be to impose punitive sanctions on soybean imports.

Increased supply saw prices of US soybeans fall 40 percent from US$7.35 per bushel in 1996 to US$4.38 in 2001. Paradoxically, the area planted with soybeans grew from 28.33 million hectares in 1997 to 30.06 million hectares in 2000.

The soybean subsidies in 2002 US Farm Bill were of two kinds: The first is direct subsidies to producers, including marketing loans, loan deficiency payments and seasonal subsidies; the other is in the form of government services, including research, technology, pest control, checking and testing, infrastructure construction and environmental protection.

Research by scholars such as Cheng Guoqiang of the Development Research Center of the State Council shows US soybean subsidies were over US$5 billion in 2004. For every US$100 worth of soybeans, US$24 is financed by US government subsidies and only US$76 by the market. This is a clear violation of WTO rules.

The US subsidies artificially drive down soybean prices in China and worldwide:

Since China opened its soybean market in 1996, imports have grown from 1.11 million tons to 20.23 million tons in 2004, and are now 20 percent higher than total domestic production. US soybeans account for 40 percent of imports. As American soybean subsidies depress the international market price, domestic prices have in turn declined. This directly affects the income of Chinese farmers. By 2006, the price of domestic soybeans had dropped to less than 2 yuan per kilogram.

This blog was first published in Chinese on September 14, and translated by Wu Jin and Zhou Jing.