US-China trade war an opportunity for India to boost soya bean production

Can India augment its production and processing capacity to benefit?

By Sandip Sen
Published: Wednesday 04 April 2018
Illustration: Tarique Aziz
Illustration: Tarique Aziz Illustration: Tarique Aziz

There is a strong possibility of a trade war as the two largest world economies flex their muscles. On March 2, US President Donald Trump levied hefty tariffs on aluminum and steel imports under Section 232 of the Trade Expansion Act that applies to national security. “If you don’t want to pay taxes, bring your plant to the US,” he announced standing amid industry workers in Washington. "Trump's sanctions on impo rted steel could be a rare instance where the Republicans and Democrats agreed," remarked Jim Cramer, host of business news channel CNBC.

Though Trump announced exemptions for Canada and Mexico, and said that the exceptions could also be made for other allies, many feel the real target of the tariffs—25 per cent on steel and 10 per cent on aluminium—is China, which produces half of the world’s steel and is often accused of dumping it on other markets, pushing down prices.

The tariffs are, in fact, in line with Trump’s 2016 election promise to protect the US industry. He had pledged to impose punitive tariffs of up to 45 per cent on Chinese goods in retaliation of the Asian giant undervaluing its own currency and disrespecting US copyright laws. After assuming office, he opened investigations under Section 232 in April last year to find out whether steel and aluminium imports violated national security interests.

This, observers say, irked China's policymakers. In December 2017, they made it clear that retaliatory sanctions against the US effort to protect its industries would be imposed where it would hurt politically. It is reported that US farmers who export half of their soya bean produce to China have become a target of this strategy. Barely a month later, Beijing raised the "acceptance level" of American soya bean and insisted that the foreign material content (such as weed seed, dirt and stems) in American oil seed was to be cut down to 1 per cent. This made the quality twice as stringent as before. The effect was immediately felt. For the first time in a decade, Chinese imports of soya bean from the US fell by 14 per cent to 5.82 million tonnes in January this year. Imports from Brazil rose seven-fold to 2 million tonnes to make up for the drop. As the tit-for-tat escalates between the two economies, there is a growing concern that China might erect trade barriers on American soya bean to retaliate against Trump's steel and aluminium tariffs.

Soya, a growing dichotomy

Soya bean, found to grow wild and naturally in Asia, has been cultivated and eaten in Japan and China since time immemorial. The legume is considered the complete protein substitute of the plant world and has a full array of amino acids to compete with meat, milk and eggs. However, it became popular in the West only after the introduction of soya sauce in the mid-1960s. Fifty years later, its production rose by 10-fold to over 300 million tonnes per annum globally.

Nearly 60 per cent of the processed foods all over the world today contain soya bean in some form or the other. It can be found in breakfast cereals, in energy bars and biscuits, in cheese and cheese spread, in cakes and pastries, in noodles and momos, and in all sauces to increase their protein content as well as thickness. Natto, a traditional Japanese breakfast made from fermented soya bean, tempeh, which has its origin in Indonesia, and tofu, the soya bean curd eaten in Far East countries have gained worldwide appeal. Besides, soya bean is present in salami, sausage, kebabs and in all processed meat and fish products to give the products a tighter bind as well as to increase their protein content at a lower cost. The global snacks industry also depends on soya bean to give it the crisp, crunchy taste.

Almost two-thirds of the world’s soya bean come from the Americas, with the US producing 110 million tonnes (MT), followed by 86 MT grown in Brazil and 53 MT in Argentina. China and India are the fourth and fifth largest producers of soya bean with a production of 12.2 MT and 10.3 MT. However, two-thirds of the world’s soya bean are processed and consumed in Asia, with China being the biggest consumer. The market reality is China has positioned itself as the world largest process food exporter. Today, it is not interested in cropping soya bean but in adding value to it where the margins are huge and the product applications almost infinite.

Focusing on processed food market has another advantage. Unlike the US, which largely grows genetically modified (GM) soya bean, China is reluctant to grow the GM crop as it involves high maintenance. But it can very well import GM soya bean from the US for processing. A growing soya products industry also helps China control the processed food exports markets while feeding its own population with low-cost protein-rich food.

India must take advantage

"Soya bean could be the much needed game changer for Indian agriculture," says Puneet Chandra, principal scientist at the Central Institute of Agricultural Enginee ring (CIAE), Bhopal. First, India produces GM-free soya bean, which has a niche advantage in the global market. Second, the the new age staple thrives in moderate amount of water, less than what is consumed by paddy. Madhya Pradesh and Maharashtra, account for 90 per cent of the crop grown across the country. Considering the large vegetarian population in the country, soya bean also has a huge domestic market potential. “Though the potential of soya bean as a gluten-free nutritious food is high, the crop in India caters mainly to the needs of the oil industry,” says Chandra. The pulpy mass left after the oil has been extracted is used to form nuggets. Only one-third of the soya bean produced in the country is processed into milk and tofu. Worse, there is just one Indian manufact urer in the organised soy processing sector.

"The problem stems from the lack of knowhow among the entrepreneurs and no government policy to develop the industry," says Chandra. Though CIAE has trained 2,500 to 3,000 entrepreneurs in soya food processing in the last decade, Chandra says the conversion rate is poor. “There are 200-odd small-scale industries of which the successful ones are mostly in Punjab. Though soya bean is not grown in the state soya meal, cheese and tofu are quite popular there,” he adds.

The trade war between the US and China could escalate with soya bean being the focal point. This is an opportunity for India to step in and improve its production as well as processing infrastructure. The government must also revisit its urea policy because soya bean, like any other pulse, requires better sulphur content in the soil but the policy does not ensure this.

(The article was first published in April 1-16 issue of Down To Earth under the headline 'Chance in crossfire')

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