Saturday, July 14, 2018

China Livestock Upgrade Accelerates, MARA says

Great progress in transforming the country's livestock and poultry sector has been declared by China's Ministry of Agriculture and Rural Affairs (MARA). Markets have stabilized, outmoded farms have been closed, and pollution problems are being addressed.

First, MARA lauds a rebound in hog and egg markets. Hog prices went through a precipitous decline from February to May this year. The rebound in prices since May has approached the breakeven level, and some efficient farms are making good profits now. Officials say they prevented a more serious disequilibrium by issuing guidance to farmers to reduce herds to tide them over the depressed market. The egg sub-sector has also recovered from a steep drop in the market last year. The average egg price of 8.29 yuan per kg is up 42 percent from a year ago. Meat poultry, beef and sheep production is stable with good profits, MARA says.

Second, MARA reports that traditional modes of livestock and poultry production are being transformed to achieve greater efficiency. Each locality is upgrading its breeding and propagation system to overhaul the breeding stock, and genomic technology is spreading. Benchmarking helps farmers improve efficiency: the days needed to raise a pig to a market weight of 100kg decreased from 170 days to 163 days since 2012. China now has 4,573 model livestock and poultry farms that demonstrate efficient, environmentally-friendly, safe management techniques. Farms that failed inspections were shut down.

MARA says the project to designate districts where livestock and poultry farms are banned is now complete. The program eliminated 34 million pigs through farm closures, relieving environmental pressure in the southern watershed region. Livestock farms have been moved to regions that are less environmentally vulnerable.

MARA has issued technical materials to guide officials in calculating land parcels' carrying capacity for livestock waste. The central government budgeted 5 billion yuan (about $770 million) to support 200 livestock and poultry manure utilization counties that demonstrate how to collect animal waste, treat it, and utilize it as biogas and organic fertilizer for fruit, vegetable, and tea farming. By the end of the year, MARA thinks more than 64% of livestock and poultry waste will be utilized.

Friday, July 13, 2018

China Can Replace U.S. Soybeans, Propaganda Says

China can replace U.S. soybeans with imports from other sources, Chinese propaganda says. Drawing from a stable of reliable "experts" and executives of state-owned businesses, State media are spinning China's retaliatory 25-percent tariff on U.S. soybeans as another opportunity to change the world with country's "One Belt, One Road" initiative.

A China Central Television broadcast, "Geometry of Soybean Trade Impact," emphasized that China can shift its sources of soybeans.

Li Xiaowei of China National Grain and Oils Information Center says the 25-percent tax will make U.S. soybeans more costly, but the tax will bring about "deep changes" in China's pattern of imports.

Cheng Guoqiang, Tongji University professor and former State Council agricultural economist, described the 25-percent tariff as making U.S. soybeans "uncompetitive" and will send a "radical signal to the world market" that will attract new soybean suppliers. He claims China's imports from the U.S. will be shifted to the Black Sea region, causing U.S. farmers to miss out on the "dividends" from China's growing consumption.

[In fact, the China tax is making Brazilian soybeans uncompetitive as Chinese buyers bid up their price. Driving the U.S. price down has given buyers outside of China a huge bargain on U.S. soybeans.]

Similarly, Li Guoxiang of the Chinese Academy of Social Sciences claims that the tax will invite other countries to increase soybean production.

In the Peoples Daily's “Our Country is Fully Capable of Filling the Deficit From Reduced Imports of American Soybeans” Li Xiaowei says that Chinese companies have not made any soybean purchases from the United States in three weeks and have canceled orders for 615,000 metric tons. He says U.S. farmers will incur big losses and speculates that China can fill the deficit by growing more soybeans domestically, importing more soybeans and meal from Brazil and from "one belt one road" countries in Central Asia, and researching feed formulations to reduce reliance on soybean meal.

A spokesman for Sinograin, China's grain and oils reserve company, says his company has not bought U.S. soybeans since April and has switched to purchases from Brazil, Argentina, and Uruguay. He thinks China will buy even more soybeans from South America in the future. He says Sinograin has developed an integrated reserve and processing system with 6.5-mmt of crushing capacity. He says reserves are adequate to prevent disruption of the market.

[Note that Sinograin switches to imports from South America every year in April when the southern hemisphere crop comes in. Not mentioned here is speculation in other news reports that Sinograin's imports to refill reserves will be either exempt from the tax on U.S. soybeans or will be compensated by the government.]

Yu Yunbo, head of COFCO, China's largest state-owned agribusiness, says that China imported the equivalent of 6.25 mmt of soybean oil and 26 mmt of soybean meal from the United States last year. He insists that the products of U.S. soybeans can easily be substituted with other products. He says China can import more soybeans from other countries, import rapeseed and sunflower seed, import meal from soybeans-rapeseed-sunflower seed, and import more meat to replace U.S. soybeans. He emphasizes that COFCO's "global vision" in meeting China's growing demand is embodied in the company's 2014 acquisition of Nidera and Noble Agri that have assets in Brazil, Argentina, the Black Sea region and Indonesia's palm oil region.

The commentators don't mention the cost to China of diversifying the country's imports. China already pays the highest soybean prices in the world and they are going even higher. Driving the price of U.S. soybeans down to a $1-plus per bushel discount to Brazilian beans gives the rest of the world a bargain and lures more buyers of U.S. beans. The real test for Chinese importers will come in the next few months as South American supplies are depleted.

The commentators put far too much confidence in the capacity of alternative suppliers to ramp up soybean production. In Brazil, it took decades and huge subsidies to colonize its empty interior, develop cultivars that could grow in the tropics, subsidize trucking-in of inputs and trucking-out of crops, and to build logistics infrastructure. Chinese soybean importers had highly-touted plans to grow soybeans in Argentina and Brazil a decade ago that crashed and burned. Chinese farmers have been growing soybeans in Russia for a decade, and Chinese imports from that source have not yet reached 1 million metric tons.

Wednesday, July 11, 2018

China Ideas on Expanding Imports in "New Era"

China's State Council has issued a document guiding Government ministries to push ahead on strategies to promote imports and free trade in the country's "new era" proclaimed by Xi Jinping.

The July 2 "Ideas on expanding imports to promote balanced development of foreign trade" (unofficial translation) directed various government departments to carry out practical implementation of the strategic "mutually beneficial opening of the economy" that has been proclaimed by China's leadership.

The strategy has multiple objectives:
  • promote imports to better satisfy the rising demands of consumers,
  • speed up institutional innovation,
  • push ahead on upgrades of the economic structure,
  • raise international competitiveness,
  • further expand imports while keeping exports stable
  • promote balanced development of foreign trade,
  • preserve free trade
The document is a practical implementation of directives issued at last year's 19th communist party congress to keep consumers happy by giving them access to imported products, reform outdated economic institutions, produce higher-quality internationally-competitive products, and to burnish China's credentials as a leader of global "free" trade (as defined by China). The document does not make reference to trade tensions with the United States. It does emphasize "One Belt One Road" countries and establishment of a web of free trade agreements as targets for efforts in opening the economy.

The document calls for measures to facilitate imports of products and services that improve peoples' lives and raise living standards. This represents a break from the Soviet-era dogma of suppressing consumption and focusing on imports of raw materials and equipment to promote industrial development that has shaped China's trade strategy since the 1950s. The new strategy encourages imports of items for daily life, medicine and health-related products, and support of the elderly. It calls for reduced taxes on some imported commodities, reducing layers of intermediaries in distribution, cleaning up irrational charges, and improving the duty-free shop system.

The document also focuses on imports of "transformational" technology and equipment that can support China's ambitions to become a high-tech superpower. It calls for complementary foreign investment and imports in key strategic industries. ...and it calls for protection of intellectual property rights (again).

Agricultural and resource-type products are also targeted for "appropriate increases in imports," including agricultural products that are in tight supply domestically, inputs that can upgrade agricultural competitiveness, and ag machinery. The document advocates fast-tracking inspection and quarantine protocols with related countries and pushing inspection and quarantine entry arrangements for important food and agricultural products. It calls for increased international cooperation in agriculture and forestry.

"Belt and Road" countries are targeted for "optimizing" the international trade layout. Several commitments to give concessionary trade access, including zero tariffs for most commodities, to least-developed countries and "south-south" foreign aid receive emphasis.

Strategies for promoting trade include China's international import expo, free trade agreements, free trade demonstration zones and industrial parks, e-commerce development and oversight, trade facilitation, elimination of "irrational" fees, simplifying the import process, and improvement of the technical barrier system.

Finally, the State Council document orders each government department and locality to give a high level of attention to work based on these ideas in the new situation of expanding imports.

Wednesday, July 4, 2018

China Grain/Soy Imports Surged as Trade Tensions Rose

China's grain imports rose to over 3 million metric tons in May 2018 as trade tensions with the U.S. heated up. China is set to assess 25-percent retaliatory tariffs on imports of grains and soybeans from the United States as of July 6.

Grain and Oils News article reported robust China grain imports during April and May. The combined volume of rice, wheat, corn, sorghum, and barley imports reached 3.1 mmt in May, up from 2.9 mmt in April and about 2 mmt during January and March. Imports were 1.5 mmt during February which included the Chinese New Year. The cumulative imports of rice, wheat, corn, sorghum, and barley totaled 11.5 mmt for January-May, up from 10.9 mmt during the same months a year earlier despite the rise in trade tensions.

Barley imports have been consistently strong. China recorded 640,000 mt of sorghum imports during April when China announced a 179-percent antidumping duty (it was terminated May 18). Intrepid buyers imported 470,000 mt of sorghum in May. Corn (760,000 mt), wheat (630,000 mt), and rice (480,000 mt) imports all surged during May. China's imports of soybeans also surged to 9.7 mmt during May 2018.

According to Grain and Oils News, the average unit value of imported corn during May was 1,337 yuan/mt, 463 yuan less than the average domestic corn price of 1800 yuan/mt. A year ago, domestic and imported corn prices were nearly equal. Worries about domestic wheat quality due to wet weather in May and June increased premiums for high quality wheat and may boost demand for imports.

Wednesday, June 13, 2018

Q&A on China's Corn Subsidy

China's corn farmers can expect to continue receiving their subsidy payments in the future as subsidies tied to acreage planted in specific crops become one of China's main subsidy strategies, according to a recent online article posted on numerous agricultural news sites in China. It is clearly tied to the amount of corn grown, unlike the first round of grain subsidies that began in 2004.

The article provided answers to 10 questions to help farmers understand the corn subsidy payment.

1. Will this be the last year for the corn subsidy?
A: This is the third year of the subsidy's 3-year trial, but it is likely to continue in future years. Indeed, it may become a common subsidy measure that covers all crops (it already covers corn, soybeans, and rice).

2. When is the land area for the corn producer subsidy verified?
A: Each year by June 30. The subsidy funds are distributed by September 30.

3. How much is the subsidy?
A: The amount varies by province and year. During 2016, Heilongjiang had a province-wide corn producer subsidy of 153.92 yuan/mu; in 2017 it was 133.46 yuan; and it is rumored to be cut to 100 yuan or less in 2018. Jilin, Inner Mongolia, Liaoning Provinces have subsidies that vary by county.

4. What regions are covered by the corn producer subsidy?
A: Counties and municipal districts where corn is grown in the three northeastern provinces (Jilin, Liaoning, Heilongjiang) and Inner Mongolia.

5. Are the corn producer subsidy and the cultivated land fertility subsidy the same?
A: No. Corn producer subsidy recipients are producers with land actually planted in corn. Land fertility subsidy recipients in principle are those engaged in growing grain crops, including rural people, state farms, forestry districts, and state farm employees. For contracted cropland that is transferred or subleased, in principle the subsidy is given to the contracting household.

6. Who gets the corn producer subsidy?
A: Producers who legally grow corn on cultivated land, including local farmers, family farms, farmer cooperatives, and outsiders who legally rent land. For land transferred, subsidy funds must be given to actual corn growers.

7. Is the subsidy paid for land planted in corn for silage or corn as a vegetable (sweet corn)?
A: Not corn for silage, but sweet corn is covered by the subsidy this time.

8. What is the basis for determining a farmer's subsidy payment?
A: The area of cultivated land planted in corn during the current year.

9. If a contract to transfer land has been signed but does not specify who gets the subsidy, what happens?
A: It is suggested that the two parties negotiate a settlement according to law.

10. If I have transferred my land to another party this year, does my land area have to be verified again next year if I take my land back?
A: The area planted in corn must be verified each year.

Monday, June 11, 2018

China's Hope: Unmanned Farms

China hopes its farms will eventually be run by machines who do the work and the thinking. The vision of unmanned Chinese farms is an astounding great leap from its present highly labor-intensive fragmented farming model.

At a "fully automated agriculture" pilot kicked off last week in Jiangsu Province's Xinghua municipality, a central government official remarked that agricultural field work is rapidly becoming digitized, automated, and linked to the Internet as fusion sensors, precision navigation, artificial intelligence, cloud computing and big data increase in popularity. The pilot kick-off featured unmanned tractors, rice transplanters, pesticide applicators, and fertilization equipment. Many use sensors, controllers, and a Chinese satellite for navigation.

The official said tractors on autopilot, intelligent drip irrigation, variable application of fertilizer and other new intelligent technologies are already in use by advanced countries like the United States and Israel. These technologies can help China cope with its aging work force, low productivity, polluting farming methods, and low value added in farming, the official remarked.

The 7-year pilot for automated agriculture is sponsored by an automobile industry technology alliance and the Xinghua local government. The pilot aims to build a foundation for a new Chinese agricultural production model by demonstrating advanced farm operation models and technologies, step by step bringing digitization, artificial intelligence, and online connections to cultivation, planting, field management, harvest, storage, and transportation. They hope agriculture will become a wealthy industry and that farming will become a new high-tech profession.

According to the president of Jiangsu University, unmanned farming equipment has been adapted to Chinese conditions and will bring earth-shaking changes to agriculture, both in China and in the world.

A commercial attaché from Ukraine's embassy attending the event said he hoped China would set up agricultural machinery factories in his country. An official from a Russian company said digital technology is the wave of the future, and she expressed interest in cooperation with Chinese companies.

China Chooses Feed Imports to Compete with Soymeal

China has waived inspection and quarantine requirements on a list of obscure animal feed ingredients, apparently as a strategy to reduce reliance on soybean meal as an ingredient in the country's feed industry. The move illustrates China's practice of manipulating such rules to manage trade.

China's Administration of Customs 2018 Bulletin No. 51 announced that inspection and quarantine certificates will no longer be required for a list of 71 items as of June 1, 2018. The list includes 18 items that are by-products of agricultural processing used as animal feed--all but a few of the items under the broad Harmonized System (HS) category 23. The items include rapeseed meal, peanut meal, cottonseed meal, palm and coconut meal, fish meal, sugar beet and bean pulp, the residual from sugar cane processing, wine dregs, and feed additives. Other products on the list are obscure types of fats, oils and fibers, also residual material from processing industries.

What is notable are the three categories under HS 23 NOT included: soybean meal, distillers dried grains, and wheat bran. Imports of these excluded items will still be subject to rigorous inspection and quarantine inspections at the border.

While the Customs notice claims that the items were selected on the basis of risk evaluation, the choice of items appears to be based on strategic considerations of protecting domestic industries and fostering alternatives to soybean meal. Imported soybean meal, distillers grains and wheat bran imports would compete with products of important domestic processing industries in China.

A commentary on the announcement interprets the Customs waivers as a strategic measure to diversify sources of high protein meal to reduce reliance on soybean meal--the dominant source of protein meal used in China's animal feed. The article quotes an unnamed industry analyst who notes that imports of alternative protein meals are currently very small and the analyst speculates that easing the way for imports of rapeseed, peanut, cottonseed, palm, and sugar-derived meals could diversify China's sources of high protein feeds.

The analyst also observes that distillers dried grains--the most popular alternative to soybean meal--was not included in the "liberalization." Last year China imposed antidumping duties of distillers dried grains. Its exclusion from the customs announcement appears to be another indication that Chinese authorities want to keep imported DDGS out of the market.

The commentary did not notice that wheat bran (HS 230230) was also one of the few items in the HS 23 category omitted from the customs announcement. The preservation of quarantine certificate requirements for wheat bran is likely intended to protect China's flour mills which derive significant supplementary revenue from selling bran (the by-product of milling wheat) for use in animal feed. Wheat bran prices have already been under downward pressure in China.

The customs announcement also appears to dovetail with China's strategy of promoting imports from "One Belt One Road" countries. Palm kernel and sugar cane residual products are imported mainly from Southeast Asia. China began importing peanut meal from Sudan and fish meal from Mauritania in 2016. Imports of sunflower seed meal from Kazakhstan began last year.

If challenged on the exclusion of soybean meal, DDGS, and wheat bran, China's Customs Administration will likely produce some sort of "risk analysis" that claims these three items pose a threat of introducing weeds or contaminants to China. It seems more likely that opening trade with new partners in Africa, Central and South Asia poses a risk of introducing foreign material, invasive weeds and pathogens, but customs authorities are welcoming this trade and likely rushing through approvals in the interest of promoting trade with "belt and road" countries.

This liberalization echoes another attempt to engineer trade using the same group of products two decades ago. During the 1990s China slashed tariffs on imports of items in HS 23 and waived the value added tax on imports of these items. That move was intended to fill deficits of protein in animal feeds without directly competing with grain products produced by China's farmers. It also represented a goodwill gesture of trade liberalization as China negotiated its accession to the WTO two decades ago.

The immediate result of the 1990s tariff cuts was a flood of soybean meal imports during a downturn in grain and pork markets that led to huge losses for Chinese soybean crushers. The VAT was reinstated for soybean meal to protect the crushers, and China has never been a major importer of soybean meal since then. But other items in HS 23 remained exempt.

Imports of DDGS from the United States was another unforeseen outcome of the 1990s liberalization but it took a decade to develop. Distillers dried grains were a fairly obscure commodity during the 1990s. After the U.S. ramped up its ethanol industry during the first decade of the 21st century, China's feed mills discovered imported DDGS could be a useful and cost-effective feed ingredient. Imports didn't get going until 2009, but China's imports of DDGS spiked at over 7 million metric tons and $2 billion during 2015.