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Friday, October 9, 2015, 09:07

Rapeseed profits wither as imports rise

By Xu Wei and Zhu Lixin
Rapeseed profits wither as imports rise

A customer collects canola oil from an oil mill in Dongyang, Zhejiang province, in July. (Bao Kangxuan / for China Daily)

The rapeseed crop Zhu Yingqing harvested three years ago is still in his barn.

The 46-year-old farmer from Duji township in Hefei, Anhui province, last planted in the autumn of 2011, and harvested seeds the following summer. The seeds were kept by the family to produce vegetable oil for daily use.

"Nobody is buying now, and we have nowhere to sell," said Zhu, who cultivates about 2 hectares of farmland.

Private purchasers have stopped buying, and there are no purchase orders from State-owned grain enterprises, he said. Meanwhile, the input-output ratio of rapeseeds has fallen below other crops, even basic food crops such as wheat.

"At least you can use large machinery to grow wheat. But with rapeseed, you have to grow seedlings first before transplanting them to the farmland. It is a very labor-intensive process," he said.

The low profit and uncertainty over national policies have driven down rapeseed production for vegetable oil in China's main planting areas, according to data from the State Administration of Grain and the United States Department of Agriculture.

The SAG said in a statement on Aug 7 that grain enterprises in the country's nine main provincial planting areas had purchased 1.02 million metric tons of rapeseed as of Aug 5, down by around 2 million tons from previous years.

Analysts said that if the trend is allowed to continue without proper government intervention, the country's domestic rapeseed production could repeat the shocking slump suffered by its soybean industry several years ago, when domestic soy products were ousted by imported products.

"The blow could be even more devastating for domestic rapeseed because rapeseed can only be used for oil production, while soybeans are much more widely used," said Duan Lianwei, an analyst on rapeseed production and imports with SCI International, a commodity market information service organization.

Duan said compared with domestic produce, imported rapeseed produces a higher percentage of oil. The purchase price for domestic rapeseed stands at 3,500 yuan ($546) per ton this year, while the imports stand at 3,400 yuan per ton.

"These factors can easily explain the decisions by the oil pressing factories to favor the imported products," he said.

In Anhui province, one of the nine main growing areas, total land under rapeseed cultivation fell from 670,000 hectares in 2008 to 551,000 hectares in 2014. Production fell from 1.4 million tons to 1.27 million tons during the same period, according to the provincial agricultural department.

The department attributed the decrease to competition from imports and the low level of mechanization in the planting process.

"The international market has exerted huge pressure on domestic produce, and the imports have resulted in fluctuating prices and sales of rapeseed," said Niu Yunsheng, head of the crop-planting bureau of the Anhui Agricultural Committee.

The committee's estimate says farmers must invest about 10,185 yuan per hectare in the planting and harvesting of rapeseed, up 84 percent from 2008. But a farmer can only generate a gross income of 11,400 yuan per hectare, which leaves a paltry profit of 1,215 yuan per hectare.

"Rising costs, especially in labor, have reduced the profit margins of the farmers," Niu said.

Both the planting and harvesting of rapeseed is highly labor-intensive. However, a large number of migrant workers has resulted in an obvious labor shortage in the province in recent years.

Meanwhile, farmers can earn a net profit of about 1,755 yuan per hectare by planting wheat, which has received substantial subsidies from the central government through minimum purchase prices.

More competition

The US Department of Agriculture said in a report on May 25 that China's rapeseed production has been officially overreported since 2008, citing industry sources.

"Despite the government's purchase-for-reserves policy offering a high floor price for rapeseeds of 4,600 yuan per ton, farmers' interest in rapeseed production continues to fall," the USDA report said.

The lack of interest in planting rapeseed is primarily due to lower profits compared with incomes earned from temporary nonagricultural jobs in the cities, it said.

However, despite the slump in domestic production, rapeseed imports have soared in recent years.

China imported 1.6 million tons of rapeseeds in 2010. That increased to 2.93 million tons in 2012, according to a report by Economic Daily in 2013, citing figures from the Ministry of Agriculture.

China imported a record amount of 5.04 million tons of rapeseed during the 2013-14 marketing year, according to the USDA, "mainly driven by the recent rapid expansion of the crushing capacity", particularly along the coastal areas of Fujian, Guangdong provinces and the Guangxi Zhuang autonomous region.

A marketing year generally refers to the 12-month period from the beginning of a new harvest.

The USDA said in its June report that China's rapeseed imports in the 2015-16 marketing year are forecast to recover to 4.5 million tons from the estimated 4.1 million tons in the 2014-15 marketing year.

The China National Grain and Oils Information Center said in a report in May that it estimated rapeseed output in the 2015-16 marketing year at 14.2 million tons, down by 0.4 million tons year-on-year.

Meanwhile, producers in Canada, one of the world's leading rapeseed planting and production countries, have long targeted China for exports.

In June, a delegation of Canadian agricultural officials, company executives and trade union representatives, led by Deputy Minister Andrea Lyon of the Canadian Department of Agriculture and Agri-Food, visited Beijing for talks with their Chinese counterparts on the expansion of agricultural trade, including rapeseed and canola oil.

Lyon said in a speech in Chongqing that Canada was committed to serving the needs of the Chinese market.

To further boost Canadian exports, the country's trade unions have tried to increase the consumption of canola oil in China. Patti Miller, president of the Canola Council of Canada, said in a seminar in Chongqing that the Canadian government and canola industry are committed to raising public awareness about canola oil in China.

"This oil has the potential to significantly improve public health, especially when used as everyday cooking oil," Miller said.

Duan, the analyst, said China's current subsidy policy has not motivated rapeseed farmers, and he forecast that planting will continue to decrease in the near future.

In Hubei and Jiangsu provinces, local authorities have offered farmers a subsidy of 0.2 yuan to 0.3 yuan for each kilogram of rapeseed they sell, an amount Duan said he thought would have little market impact. He said he believed the country should provide subsidies to both the farmers and the pressing mills to save the industry.

"The future of domestic rapeseed could totally depend on agricultural policies and subsidies. But I still cannot imagine how it could ever match the subsidies provided to wheat, which is regarded as the staple food grain," he said. "You cannot put the blame on the farmers. They need to make ends meet, after all."

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