The second installment of IFT's China bean production overview from industry analyst Dr. Randy Fairman reporting from China.

By Dr. Randall Fairman

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This article is the second in a three part series on the China dry bean industry. The series includes:

  1. China Dry Bean Production Overview
  2. China 2012 Dry Bean Crop Economic Analysis
  3. China 2013 Total Bean Production Estimate

Background

Over the past year, Fairman International Business Consulting has had the privilege of serving several people from the international dry bean industry. It has been our privilege to travel with foreign professionals in the dry bean industry and visit many farmers, processors and exporters in various regions of China. Our analysis is 100% based on publicly available information from the China customs database and our personal observations as we traveled with industry professionals. This report is simply a compilation of our observations over this past year.

Current China Legume Net Trade Overview

This year as I walked the fields with industry professionals, I had some great questions put to me, two of which are:

  1. Why does China simultaneously import great quantities of peas from Canada and export great quantities of beans to other countries? It only makes sense that they would want to provide for their own needs.”

  2. If they are going to harvest beans by hand, why wouldn’t they plant the most expensive bean varieties? It only makes sense that they would prefer to pick up quarters instead of nickels.”

In fact, we do see both of these important questions coming into play in China. Within the pulse industry, we see a move toward exporting more expensive legumes and importing less expensive legumes. Figure 1 shows the net quantity of legumes exported each of the last four growing years. Clearly in terms of gross tons shipped, China is growing slightly more legumes than they are consuming and they have a very slight net positive overall trade balance in legumes.

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Figure 1 – Net Legume Trade by Tons Shipped

Figure 2 shows the last four growing years in terms of the overall economic impact of their legume trade. Here it is quite apparent that more and more farmers in China are choosing to pick up quarters instead of nickels. On average the value of the legumes exported from China was virtually double the value of the legumes that they imported. Overall the legume trade brought a net US$ 500 million profit for the Chinese people.

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Figure 2 – Net Legume Trade by US$

China Legume Import Overview

The China legume import picture does not take many words to describe. Figure 3 demonstrates that pea imports account for the vast majority of legume imports to China. These peas are primarily from Canada with a few other countries contributing as well.

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Figure 3 – China Legume Imports by tonnage

The average cost of peas in 2012 was US$ 443 per ton. The average cost of all other imported pulses was US$3,850 per ton. We speculate that perhaps these other imports are high value items like certified seeds, but there is no direct data to validate that speculation. Figure 4 shows the last four growing years in terms of cost of the legumes imported.

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Figure 4 – China Legume Imports by Value

China Legume Export Overview

As already mentioned, China exports legumes with higher value per ton than the legumes that it imports. Figure 5 clearly shows that the beans from HS Code 71333 make up the bulk majority of exports from China. These beans averaged US$ 1057 per ton for the 2012 growing year. Second place in terms of quantity were mung beans, averaging US$1,422 per ton for the 2012 growing year. These numbers compare favorably with the pea import price ofUS$ 443 per ton for the same crop year.

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Figure 5 – China Legume Exports by Tonnage

Figure 6 shows the legume exports from China in terms of dollar value. The general trends follow rationally with Figure 5 but there is an overall increase due to the overall increased prices for legumes worldwide.

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Figure 6 – China Legume Exports by Value

Figures 5 and 6 have one very large bar indicating the HS 71333 beans. These beans include black beans, white beans and all forms of kidney beans. In figure 7 we have referred to all of the beans from HS Code 071333 as kidney beans (this is standard in Chinese). Figure 7 provides an overview of the destinations and average 2012 FOB prices for all of China’s major export countries. Here you can see that a significant fraction of the 071333 beans are black beans being shipped to Central and South America.

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Figure 7 – Overview of Export Destinations

Looking Ahead

Based on the research discussed above, it is clear that the legume trade is good business for China. Legume trade in terms of volume is well balanced while legume trade in terms of trade value has good economic benefit for China.

With these numbers and analysis in our rearview mirror, let us go back and review the two questions that were posed by industry experts:

  1. Why does China simultaneously import great quantities of peas from Canada and export great quantities of beans to other countries? It only makes sense that they would want to provide for their own needs.”

It now seems clear that it does make sense for China to continue importing low value agricultural goods and exporting high value agricultural goods. I think in the near term we should expect to see increasing trade of this sort. I would also expect that market forces will continue to drive production efficiency in food toward the worldwide locations where it is most efficient.

  1. If they are going to harvest beans by hand, why wouldn’t they plant the most expensive bean varieties? It only makes sense that they would prefer to pick up quarters instead of nickels.”

It now seems clear that Chinese farmers prefer to pick up quarters instead of nickels. Currently they are harvesting a large amount of black beans, which have a much higher value than peas which they import from Canada. Based on this principle, it might be expected that over time China might start to pick up a larger share of kidney beans because there is a higher value on a “per bean” basis than there is for black beans.

In our upcoming 3rd and final segment of this series we will review the 2013 growing year and make our prediction about how many tons of beans will be exported based on the 2013 crop.