(Yicai) Aug. 9 -- A number of agricultural cooperatives have defaulted in Heilongjiang, China’s northernmost province, because of a worrying combination of high rents for farmland and lower prices for some grains.

Some cooperatives acquired land at steep prices, resulting in elevated farming costs, and the decline in soybean prices this year has also dragged down the cost of corn, Fu Jun, a shareholder in the Jianfeng Crop Planting Professional Cooperative in Fujin, told Yicai. As a result, grain prices may not meet investment expectations after the fall harvest, he said.

In the northeast of China, including in Heilongjiang, land leases are issued every fall harvest. In the fall of 2022, food prices were high and land rents were firm. To control risks, Fu’s group acquired land for less than CNY13,000 (USD1,804) per hectare. But many others took up plots at prices ranging from CNY15,000 to CNY17,000.

Customarily, investors need to pay a deposit to secure land. The amount varies depending on the size of the plot and can range from hundreds of thousands of Chinese yuan to several million.

As food prices declined this year, investors who acquired land for between CNY15,000 and 17,000 per ha have run into trouble. In March and April, during the spring plowing and preparation period, there were several instances of defaults on land leases.

According to data from Heilongjiang Longke Seed Industry Group, the cost of planting soybeans, without considering subsidies, was CNY10,995 in 2020, rising to CNY12,375 the following year and CNY15,990 last year.

Industry experts suggest that the costlier leases may be linked to soybean subsidies. While the subsidies benefit the expansion of soybean cultivation, they may also indirectly contribute to higher land rents. As a result, agricultural cooperatives may face financial losses if food prices drop.

Heilongjiang’s subsidy on soybeans is more than CNY5,250 (USD729) per ha this year, a 41 percent increase on 2022.

Soybean prices have fallen since the start of the year. During the 2022 fall harvest, prices reached CNY5.60 (78 US cents) a kilogram, but have since fallen below CNY4.80, according to Dou Dazhuang, a grain trader in the northeast.

At the same time, soybean imports are growing. Customs data showed that in the first half, China shipped in 52.58 million metric tons, a 13.6 percent jump from a year ago.

Editor: Peter Thomas