In an exclusive interview, the Geneva-based trader shares insights from his 20 years working with China’s unique pulse market.

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Obtaining reliable information about pulses in Canada, Australia and the United States—to name a few of the more transparent countries that deal in beans and lentils—can be somewhat of a challenge. In China, it’s next to impossible.

John Tourtellotte, owner and director of Jessco Resources Ltd based in Geneva, knows about this firsthand. Throughout his 20 years of trading pulses with China, Tourtellotte has developed a keen understanding of a unique and constantly evolving industry, one comprised of many players but few rules. He knows the market because he’s right in the middle of it, making regular trips to China, including the province of Yunnan where he deals mostly with white kidney beans.

In an effort to draw a more complete picture of Chinese pulses, International Food Trader sat down with Tourtellotte recently to hear his insights on a dynamic market that’s full of opportunities but not always easy to crack.

“China is so big and beans are such an informal part of the economy there that reliable data on pulses and beans in China is almost impossible to get. What you have are basically educated guesses based on consensus from speaking with a lot of people.”

IFT: How did you first become involved in food commodity trading with China? How would you describe China’s pulse trading industry at that time?

John Tourtellotte: At the university I dabbled in sugar trading with Latin America and I liked it. When I moved to Geneva I needed a job—my wife is Swiss and I moved there to be with her. I began working with a broker in 1989 who traded products coming out of Somalia, Tanzania and Uganda at that time. And then just out of pure luck I found a pulse trading company that was expanding in China and there it began, just the right place at the right time. It was my first experience with pulses and China.

At that time the Chinese pulse market was just booming. In ’79 the government had let the farmers begin to grow cash crops. Quantities were big and the prices were really unbeatable. It seemed like a bottomless pit of supply at very good prices.

IFT: How has pulse trading in China changed since those early days?

JT: China began in this business as a game changer. They disrupted the whole international market for beans. The U.S., Argentina, and Canada had been the big exporters, and then China came in. China has been a producer and exporter primarily, but its role began changing particularly around 2005-2006.

Beans in general in China were almost 100% for export 20 years ago. Now the consensus I hear from most people is that it’s about 90% export overall and 10% domestic consumption. The large white kidney beans grown in Yunnan now I’d say would be almost 50/50 or even 60/40 domestic/export. The prices for this product are determined by the Chinese market now. The prices for all the other dry beans are still primarily determined internationally.

In the last three years for the first time ever I’ve lost business to U.S. Canadian and Argentine product where I would normally have sold from China on price. And you buy from China on price. So once they lose the price advantage, they’re really at a disadvantage. Twenty years ago I could go into the market and buy Alubia type white beans, 200-300 tons at a shot, for example.  Now it’s hard to get even a container out of Yunnan. We used to do a lot of broad beans out of China. China’s the biggest producer of broad beans in the world. It’s also the biggest consumer. So we used to ship thousands of tons to Egypt and the Middle East from China. Now, international prices are lower than Chinese prices.  We generally export just high quality, specialty, very large size broad beans out of China.

IFT: How has China’s pulse trading relationship with the World Food Programme changed?

JT: I used to do a lot of World Food Programme business from China, which is large volume. At any time of the year we could just go to the China market and ask for offers for 1,000, 3,000, 5,000, 6,000 tons, and we could get it. Now China is hardly even in the World Food Programme bean business. Their product is too expensive and the quantity is too small. What’s happened? China’s producing fewer beans. And the cost of production has become very high.

In 2008-2009, my company alone did about 25,000 tons of pulses from China with the World Food Programme. This year, I’d be surprised if there were 1,000 tons or 2,000 tons from China done by all WFP suppliers combined. It’s too expensive. It’s hard to believe. I’ve seen the evolution from 1989 to now and it’s quite fast the way it has occurred.

IFT: What varieties of dry beans and lentils does China export primarily? Has the breakdown changed at all over the years?

JT: The biggest export varieties for kidney beans are light speckled kidney beans (long shape, round shape, cranberry type), and different varieties of white beans—what they call Japanese white, Spanish, medium white, large white kidney beans, flat white kidney beans, small white kidney beans, pea bean, navy bean type. And black beans are also important; they’ve been shipping a lot of black beans this year to Brazil and other Latin American destinations.

One thing that should be noted is the varieties that they don’t produce or hardly produce any more for export. They used to produce a lot of red speckled kidney beans and small red kidney beans, for example; now Ethiopia’s taken the small red kidney bean market from China.

Certain varieties of broad beans that were especially suitable for the Egyptian market are no longer grown at competitive prices in exportable quantities. In Yunnan province they hardly produce any Alubia type white beans anymore, and what’s produced tends to have insect problems. So what we’re seeing is a disappearance of production in some cases and a decrease or disappearance of exports, depending on the product.

IFT: What are some of the reasons for the spike in prices for Chinese pulses?

JT: It used to be that when you’d calculate bean prices, labor was hardly a cost factor. Now it is. People have options they didn’t have in the past.  Farmers can move to the city and get a salaried job and young people are increasingly leaving the land for urban areas. In addition, arable land is being lost every year to development. For those who stay and farm, they can grow subsidized soybean and wheat. The increasing price of land now is also a factor.  

The government pays no attention to beans whatsoever—they don’t even see them. That’s one of the problems. It’s difficult to bring seed into China because of strict import restrictions. And then the supply issue. I work with Yunnan Province a lot, and I do a lot of business with large white kidney beans. The harvest is in November. In September I used to be able to sell current crop year product that was harvested the November before. I could still get the quantity without much of a problem. By 2007-2008 the November harvest production was finished by July. Then I couldn’t get any more after May. Last year it was March and this year it was February. The market died in February by Chinese New Year. That’s due to a stagnation in overall production and an increase in domestic consumption.  

IFT: What would you say are some of the biggest challenges facing China’s pulse industry right now?

JT: One of the biggest challenges facing China is that they don’t have an industry like, say, Argentina has. It’s not an agribusiness. It’s all smallholder farmers who have maybe less than a hectare of land to dedicate to beans. When you drive through the countryside in the northeast of China you see the beans planted around the edges of the fields. You see them planted between the rows of soybean and maize. Sometimes you see open fields of beans, but they’re small. And they’re held by small farmers. And the result of having no industry is there’s no regeneration of the seed, which affects bean size, color, etc.  And the seed and varieties often get mixed together, which affects control over production. So it’s really difficult to control the quality of the production itself, never mind the post production quality.

IFT: How do you expect China’s bean market to evolve going forward? Will they continue to export?

JT: Will beans continue to be grown in China? Yeah they will be. The domestic popularity is growing. It’s a good cheap source of food. On some land very little else can be grown. If  you look at the future of Chinese business in beans, I think it will be there. But at the recent CICILS conference in Singapore they were ranging from pessimistic to cautiously optimistic to circumspect about the future of Chinese bean production. It remains to be seen because bean production and consumption in the world is going down. Beans are a hassle to grow and they’re risky relative to other things. Maize, wheat and even oil seeds are a lot safer.

IFT: What can you tell me about the Chinese lentil market and how it has changed over the years?

JT: Lentils were reportedly introduced to China in the late 70s by an English company. For some reason—one probably being because there’s no seed control—they’re only really used for canning because they are harder to cook. They hold their shape when they’re cooked and put into a can, whereas the Canadian lentils tend to be more fragile under hard cooking for canning.

In France they cook them, put them in cans with sausages and other meats, and they hold their shape. France is the biggest export buyer. They buy about 15-20,000 tons a year, but there are only about two major buyers so it’s a very narrow market. The World Food Programme used to buy a lot but hardly any now primarily because of these cooking qualities and the price. They’re not easy to cook and cooking time is long. For many years Chinese lentils were cheaper than Canadian lentils. They’re about the same price at the moment. Chinese lentils are also consumed locally so the farmers keep them if they can’t sell them. But in general there hasn’t been much action because the international popularity is not that great.

IFT: What are some of the big opportunities emerging in China for international traders, investors, agribusinesses, etc.?

JT: What opportunities are emerging in China? One—and this is what my business focuses on—is to try to control the quality consistently. In the early days Chinese bean quality was really erratic and risky. Then some time in the late 1990s people realized, “Oh China. They can do it.” Then it became just one or two out of ten shipments would not be as good as the other eight or nine. It’s improved but it’s still risky. I know a couple of western companies that are doing this, that have direct control over processing and export in China. Yet unfortunately no one has production quality control in the fields due, again, to the lack of a bean “agri-industry” and cohesive production methods or systems. In addition, we try to focus more on the increasingly important element of “service” to customers in the international markets. In the future, if Chinese beans cannot compete as strongly on price alone, they must be better able to compete on both quality and service.

IFT: Do you work with any national organizations surrounding Chinese pulses? How is the national government involved?

JT: These is one organization, and it’s quasi-governmental. They hold an annual meeting which is attended mostly by domestic industry interests and traders. The translated English name for the organization tends to vary but it is generally referred to as the “China Pulse Import and Export Industry” or the “China Grains and Beans Import/Export Chamber.”  As far as national pulse trade organizations in China go, that’s the reference. As far as the Beijing central government is concerned the bean trade is way under the radar. Beans mean nothing to them. They took away the bean export subsidy last year. That really hurt Chinese exports this year too. It increased Chinese export prices automatically by 5%. They used to get a 5% rebate until this year. The government is really focusing on wheat, maize, rice, the big ones.

IFT: Chinese industry receives a fair amount of criticism for its unethical business practices. Is this something you see at all in the pulse industry?

JT: It can be a rough place, and the pulse trade is rough to begin with. But in most ways it’s like anywhere else. In China your contract is your counterparty, so once you get that, once you get relations, China can be a very manageable place. I find a lot of the criticism of China to be overstated and out of place by people who don’t understand why the Chinese do what they do sometimes. The door swings both ways. I’ve seen a lot of foreigners take advantage and do a lot of unethical things in China because they think they can get away with it. The most important thing is communication and understanding from both sides. I have a Chinese partner and we learn a lot from each other. The more he learns about western business and behavior, the more it helps his business. The more I learn about China—and I’m still learning after 20 years—the more it helps mine. It’s really lack of communication, it’s misunderstanding more than anything else. And the way to get over that is to continue trading, continue working together.The Chinese are very good business people. They will understand.

IFT: What do you enjoy most about food commodity trading with China? What are the most frustrating/tiresome aspects of the job?

JT: What I enjoy most is China, the culture, the people, the food, the friendships and relations. China’s not a country; it’s a civilization. Every part of China is different. It’s broad and deep and it’s enormous. It’s like Europe if it had been unified a couple of thousand years.

The greatest frustrations are the quality problems. Sometimes transport and logistical issues too. The railway system in China has been government owned. I know there has been talk of reforming the rail system in China, but for example, from the northwest region in the fall at the height of the harvest the Chinese government makes it so that domestic food transport gets priority and export carriage is last to get railcars. If you’re working with Xinjiang, Qinghai, Gansu, and Ningxia, or Yunnan for example, in the southwest, it’s a long way down to the port. So at times, the infrastructure isn’t sufficient to satisfy the demands of both the export and domestic markets simultaneously. A lot of bottlenecks and high costs of transportation.

IFT: What in your mind are the big emerging markets for beans in the world?

JT: Argentina probably has the most potential for beans in the future anywhere in my opinion. It could stay “potential” for a long time, but it really has what it takes. This year was bad with the droughts, but if I look around the world I would say Argentina has the greatest potential for increased bean production and global market position. They have an industry there and they have plenty of land. They have experienced and knowledgeable people. The Chinese market on the other hand is just a hodgepodge. There’s no industry force to hold it together. It’s much different in that sense.