Saturday, August 18, 2018

China Meat Smuggling Dodges Taxes

Trade in smuggled meat keeps some restaurant operators in business, according to an August 10 report by China's Ban Yue Tan (Comment) online magazine. China's small restaurant owners and processors struggling to remain profitable may be the most vulnerable to China's tariffs on imports from the United States. As tariffs rise higher, the incentive to smuggle is increased proportionately and China's customs authorities say they are cracking down (again).

The Comment reporter said most of the 40 merchants he interviewed in two wholesale meat markets in Chongqing--a major hub of commerce in southwest China--sold both legal and smuggled frozen meat products. Smuggled products included frozen pork, beef and poultry.

Vendors asked the Comment reporter, "Do you want [meat] with a certificate or without? It's much cheaper without a certificate."

The product without certificates was smuggled meat that lacked import clearances and inspection documents. The smuggled meat was in boxes labeled only in English, a violation of China's requirement that imported foods be labeled in Chinese. Smuggled boxes were covered with plastic bags to prevent mixing with legal products.
Described by Comment as smuggled meat on a loading dock.  

A vendor quoted prices of 460 yuan for a 20-kg box of smuggled chicken feet or 540 yuan for a box of legal chicken feet--a 17 percent discount for smuggled product.

Another vendor offered a bigger discount on smuggled beef that the reporter said was not discernibly different from legal beef: 720 yuan for smuggled and 960 yuan for 20-kg of legal beef, a discount of 33 percent.

The Comment reporter said there is no way to estimate the volume of smuggled meat sold, but he was told selling smuggled meat is an "unspoken rule." The meat arrives at the market on trucks with license plates from all over China. One driver from Henan Province told the reporter that he has been transporting meat for 5 years and has done business in 10 provinces.

The main buyers are food service establishments from all over southwestern China. The restaurant business is highly competitive and every operator is looking for ways to cut costs.

The Comment reporter described the pressure to use smuggled meat as a "Gresham's Law" in which bad meat drives out good. Many companies deal in illegal meat "as a last resort" because the high cost of legal meat would put them out of business, the Comment reporter said.

One buyer told the Comment reporter, "Business is not good now and tax-free meat is cheap, saving me money. Many people in the industry use this kind of meat, and if I use only legal meat the cost pressure would be too great."

The article in Comment--a news site operated by the communist part--appears to be part of an anti-smuggling campaign. The article concluded by recommending a crackdown on smuggling and market regulation to prevent loss of tax revenue, eliminate hidden food safety risks and maintain order in the market.

An "opinion" piece from Hangzhou's newspaper posted on Peoples Daily and Xinhua news sites on August 13 worried about the Comment article's revelation that officials who operate the Chongqing markets send text messages to give vendors advance notice of inspections, allowing them to hide smuggled product or close their shop before inspectors arrive. The Hangzhou paper noted that merchants and market managers had incentive to collude so they can split the profit from smuggled meat.

On August 14, Guangzhou customs inspectors said they intercepted a vessel carrying 427 metric tons of smuggled frozen meat on July 19.  Smugglers carried 16 containers of beef, pig feet and tongues and chicken feet that originated in the United States. The decommissioned boat stripped of monitoring gear and fitted with a fake name plate was apprehended on a river in Guangdong. Authorities say they will step up patrols on rivers in Guangdong as part of the 2018 "national sword" campaign focused on grain, frozen foods, sugar and other agricultural products.

Merchants told the Comment reporter they had seen news about crackdowns from time to time, but the cost of dealing in smuggled meat is still relatively low.

Thursday, August 16, 2018

African Swine Fever Incident No. 2

Chinese authorities appear to be chasing African Swine Fever around the country as a new discovery of the virus was confirmed today by China's Ministry of Agriculture and Rural Affairs 750 miles south of where the first cases were reported two weeks ago. 

On August 14, 30 dead pigs and 30 sick pigs were discovered in a truck carrying 260 pigs when it arrived at a slaughter facility in Zhengzhou City, Henan Province. Today, tests by China's national animal disease center confirmed that African Swine Fever (ASF) was the cause of the illness and death. 

Inspection and quarantine documents showed that the truckload of ASF-infected pigs discovered in Zhengzhou originated from a market in Heli Town, located in the Jiamusi district of Heilongjiang Province, about 1,350 miles northeast of Zhengzhou. Jiamusi is in the eastern part of Heilongjiang where authorities had been conducting surveillance earlier this year to watch for ASF in wild pigs. The new discovery of the highly contagious virus in Zhengzhou is about 750 miles south of the previous discovery of ASF in Shenyang on August 3.

Following the latest discovery of ASF in Zhengzhou, Chinese authorities blockaded the region to prevent transport of pigs and other susceptible animals and their products, disposed of pigs, and carried out disinfections. An investigation team was sent to Heilongjiang. Authorities have pronounced the disease to be under "effective control" in Zhengzhou.

A spokesman from Zhengzhou's publicity office claimed to have no knowledge of the matter.

On August 15, authorities pronounced the disease to be under effective control in Shenyang after culling 8,116 pigs there. Authorities are paying 800 yuan per head in compensation for culled pigs.

At current market prices a 100-kg hog would be worth 1264 yuan in the northeastern provinces and 1391 yuan in eastern provinces. 

Tuesday, August 7, 2018

African Swine Fever's Great Leap to China

China reported its first outbreak of African Swine Fever last week despite over a decade of preparations to block the virus from entering the country. The virus appears to have made a vast intercontinental leap to Eastern China that parallels China's "Belt and Road," raising the possibility that China's new trade links may also create new vectors for the spread of disease.

On August 3 the Ministry of Agriculture and Rural Affairs announced China's first outbreak of African Swine Fever (ASF) on a farm on the outskirts of Shenyang in northeastern China. Officials said 47 pigs had died from suspected ASF infection on a 383-head pig farm in Shenyang's Shenbei New District. Officials announced they had culled over 900 pigs in the area to prevent spread of the disease. Yesterday--4 days after the outbreak--communist party news media declared that the ASF outbreak has been brought under control.

The virus is endemic in most African countries. It jumped to the Caucasus region in 2007 and has been spreading across western Russia, the Baltics, Belarus, Poland and the Czech Republic during recent years. Recent outbreaks had been reported thousands of miles from china--in Romania during June, and in Russia during July.
skinning a wild pig at a May 2018 training session on African Swine Fever prevention

Chinese officials have been on guard against the spread of ASF for many years. Two years ago, the Ministry of Agriculture's 2016-2020 plan for the swine industry warned of continuing risk of African Swine Fever spreading to China. In April 2017, the Ministry of Agriculture ordered provinces to be on high alert to prevent ASF from spreading to China. In October 2017 China's Ministry of Agriculture published an African Swine Fever emergency program notice instructing provinces to make preparations for dealing with an ASF outbreak.

Heilongjiang Province has been a focus of concern. Heilongjiang has a long Russian border and probably has China's largest population of wild pigs--a common vector of transmission. In May 2018, a technical training was held to teach officials along China's northeastern border how to detect ASF in wild pigs, investigate and control outbreaks. The training was held in Da Hing'an Ling district in the northern reaches of Heilongjiang Province and was attended by 50 workers from Inner Mongolia, Heilongjiang and Jilin Province.

Chinese authorities have focused ASF-prevention efforts on the southeastern corner of Heilongjiang Province that borders the tip of far eastern Russia that dips down to the port of Vladivostock:

It is puzzling why southeastern Heilongjiang is a focus of concern since Russian outbreaks--including the most recent on in Belgorod--were in western Russia thousands of miles from China. The closest cases were in Irkutsk in March 2017, still 1000 km west of China.

This week, after the Shenyang outbreak was discovered, investigators were sent back to a conservation district in Da Hing'an Ling in northern Heilongjiang (where the May 2018 training session was held) and to Gan'nan County in western Heilongjiang to check for signs of ASF.

This appears to be a farm to protect native breeds of pigs in a conservation area of Da Hing'an Ling, Heilongjiang Province, where an ASF monitoring investigation was conducted August 5-6, 2018.
While ASF may be under control in the area surrounding the farm near Shenyang, it seems probable that the virus is present elsewhere in China. The first announced occurrence of ASF in Liaoning Province was far from any international border and over 900 km from southeastern Heilongjiang where authorities have been watching for the disease. It seems probable ASF had been spreading for some time in China before it reached Liaoning Province.

How did ASF jump from eastern Europe to eastern China? A logical risk factor is China's "One Belt One Road" program which has been aggressively targeting new trade links with regions where ASF is present: Africa, eastern Europe, and Russia. These new trade routes also have the potential to create dangerous new vectors for the spread of disease. While China does not allow imports of livestock or meat from these countries, the virus or ticks that spread it could potentially tag along on clothing, commodities, equipment, or other materials transported from infected regions.

On August 3, China's customs administration issued an African Swine Fever alert ordering inspectors to inspect luggage, postal items, ships, airplanes and vehicles arriving from foreign regions infected with ASF and turn away or destroy any pigs, wild pigs or their products they find. But the alert was issued after the outbreak in China occurred--too late to prevent the virus from entering the country.

Chinese farms in Russia are another possible risk factor. The southeastern Mudanjiang district in Heilongjiang is also one of the most active regions in developing farming businesses across the border in Russia. With growing traffic of people, equipment, and commodities crossing the border in recent years there have been greater opportunities for viruses to spread.

Risk analysis is a good idea, but diseases tend to spread in unexpected ways. No one ever conclusively figured out how the PED virus apparently jumped from eastern China to the United States about 5 years ago. The results were devastating in the U.S. which has a lot of experience dealing with animal disease.

It is also inconvenient that China in the midst of a big project to shift swine production to northeastern provinces--which doesn't look like such a good idea now that the region is threatened with a highly contagious disease.

Sunday, August 5, 2018

Support Livestock Farms in Trade War: China Expert

Preventing impacts on meat production is the main concern regarding soybeans in the trade war with the United States, the former president of China Agriculture University said last week.

In an article issued by Farmers Daily, a Ministry of Agriculture-controlled paper, former Ag University President (and ag economist) Ke Bingsheng said China faces a choice of stopping soybean imports from the U.S. or continuing to import them after assessing a 25% tariff. If China were to stop buying U.S. soybeans, it would be left with a 10-to-20-million-ton deficit since other countries could not increase exports enough to replace U.S. soybeans. If China continues importing U.S. soybeans the imports will be more expensive due to the 25% tax, Professor Ke said. The tax would affect consumer prices by raising the cost of soybean meal which would, in turn, raise the price of meat, according to Prof. Ke. He said Chinese experts estimate the effect on China's CPI would be 0.1% and no more than 0.4%.

Prof. Ke said the main concern is how more expensive soybeans would affect meat production. Raising the price of soybean meal could reduce the inclination of farmers to raise pigs and chickens, causing the price of meat to rise. The article warned that a small change in production can cause large changes in price, citing an 8% decrease in pork production during 2006/07 that coincided with a 60% increase in pork price.

Prof. Ke suggested that authorities consider ways to support livestock producers in a way that offsets any rise in production cost due to higher soybean meal prices. This is needed to prevent a dip in production that could have reverberations for months or years through the "cobweb" hog cycle.

The article began with standard rhetoric about "no winners in a trade war" and asserted that U.S. tariffs are politically-motivated, not economically motivated and China had to respond in kind. It reviewed the rapid growth in soybean trade, the importance of China as importer and the U.S., Brazil, and Argentina as the main exporters.

Sunday, July 29, 2018

Audit of China Grain Reserve to Uncover Hidden Dangers

How much grain does China's government have in its bloated reserves? Have local officials duped top leaders by inflating the numbers? Is the grain too rotten to be eaten? It will take more than a year for Chinese officials to get the answers through a massive audit of the sprawling grain reserve system. If it turns out that China doesn't have as much grain as officials thought, there is no promise that the audit results will be revealed to common Chinese citizens or to market analysts.

On July 13 China's State Council ordered a complete check-up of national and local grain reserves to find out the actual quantity, quality, and location of the grain. The program will be conducted in a series of steps that will take 15 months to complete by the end of September 2019.

On July 26, Xinhua News Service said the grain inventory check-up is urgently needed following the accumulation of grain from price support programs in recent years, “difficulties of managing the reserves,” and "hidden dangers" to food security. Xinhua formulate plans to dispose of excess stockpiles, formulate targeted policies and assign responsibilities to central and local governments, warehouses, and grain enterprises.

Some of the specific concerns can be inferred from the State Council document:
  • Statistics on grain purchases and reserves reported to higher-level authorities have been inflated
  • Warehouses receive subsidy payments and loans for holding grain that they don't actually have
  • Grain was not deducted from reported holdings after being sold or transferred to another province
  • An unknown proportion of grain held in inventory is inedible or even toxic--i.e., is a food security hazard
The main part of the program will be an audit of "policy-type" grain reserves held by various companies and a check of commercial grain inventories held by grain reserve companies (presumably branches of Sinograin, the government's grain reserve corporation). "Policy-type grain" includes:
  • central reserves
  • minimum price purchase reserves 
  • national temporary reserves
  • national one-time reserve purchases 
  • local reserves
Inspection teams will be formed to check inventories of all warehouses controlled by Sinograin, other enterprises, and warehouses hired to hold reserves. The audit will check physical quantities held against what is on the books.

The grain reserve audit will begin with a pilot conducted in 2 pilot counties each in 10 provinces from October to January. Most of the national audit work will be conducted in March-May 2019 through filing of reports and onsite inspections, with final results reported to the State Council by September 2019.

Previous grain reserve checks were conducted in 2001 and 2009, Xinhua said. The results of previous grain reserve investigations have never been revealed to the public. The results of this one will be reported to the State Council, but there is no mention of reporting the results to the Chinese public to assure them that their food supply is secure.

Monday, July 23, 2018

China's Poor Quality Wheat Must be Purchased

Local officials have been ordered to buy up large volumes of Chinese substandard wheat harvested this summer. A July 20 document on wheat procurement work in "disaster areas" said large volumes of wheat produced this year do not meet national standards due to lodging, germination, sprouting, and mold caused by heavy winds and rain at harvest time in regions of the middle and lower Yangtze River valley and the Huang-Huai region.

The document issued by the National Development and Reform Commission and eight other government organizations and companies orders local governments, grain depots, mills, and banks to buy up the substandard wheat and finance purchases to ensure that farmers are able to sell their off-grade wheat. Insurance companies are ordered to pay out contractually obligated indemnities to farmers and inspections of insurance companies are to be conducted. Agricultural Development Bank managers are ordered to simplify and speed up approvals for loans. Officials are warned to have a sense of responsibility and urgency and to prioritize wheat-buying as a political task in order to preserve social stability. The document says farmers are very concerned.

The National Bureau of Statistics report on summer grain output said winter wheat production totaled 128.35 million metric tons, down 2.2% from last year. The Statistics Bureau report did not mention quality problems and described the harvest as "relatively good." But the large amounts of substandard wheat will reduce the actual supply of milling-quality wheat more than statistics indicate.

State-owned companies are urged to go into the market to buy up wheat and downstream processors can be given awards to stock up on wheat inventories. (State-owned companies Sinograin, COFCO, China Supply and Marketing Group, and Sinochem are among the issuers of the document.) This year's revised program for minimum price purchases of wheat and rice urges provincial authorities to organize "temporary reserve" purchases of off-grade wheat when large volumes do not meet the standard of grade 3 or higher for national minimum price procurement.

Anhui Province launched a purchase program for off-grade wheat last week. Hubei Province launched a program June 8. A district in Hubei is paying 1600-1900 yuan per metric ton for wheat with excessive mold. One district of Anhui says 50 million yuan of insurance indemnities have been paid out to 340,000 farmers whose wheat was damaged by frost, storms, and pests.

According to the document, funds for programs to buy up substandard wheat can come from the provincial "grain risk fund." If additional funds are needed, they should be included in the provincial budget.

At the same time, the document cautions the same officials to ensure food safety by preventing moldy wheat from contaminating the food supply with mycotoxins.

Wheat buyers are warned not to limit purchases of qualified wheat, nor to downgrade wheat, withhold payment, to issue IOUs, or exaggerate prices paid. They are warned not to steal subsidy funds and not to cheat farmers or charge them high interest rates. Wheat-buying officials are admonished to keep reserve wheat separate from wheat purchased at market prices and to prevent damp wheat, off-grade wheat, and foreign material from mixing with reserves.

Tuesday, July 17, 2018

Stop Illegal GMO Corn by Legalizing It, China Scientists Say

Illegal planting and sale of genetically modified corn seeds is a persisting problem in China. The best way to deal with the problem is to legalize GMOs, Chinese scientists say.

An article in Science and Technology Daily this week notes that China's top corn seed company was recently implicated in the illegal sale of 50 kg. of genetically modified corn seed, an incident the company attributes to "internal management problems." The reporter observes that such incidents of illegal sale and planting of GMO corn seeds have appeared regularly in recent years.

Industry experts told Science and Technology Daily that the main reason for the persistence of illegal GMO corn-planting is that farmers "love" the seeds. Farmers growing conventional corn have suffered serious losses from pests, and scientists say mold from pest-damaged corn contaminates other corn when the ears are mixed together, resulting in further losses from mycotoxins. China has varieties of corn genetically altered to resist pests using genes from bacteria which can reduce pest losses, raise yields 10-30%, and increase income by about 40 yuan per mu (about $40 per acre).

According to Science and Technology Daily, farmers have found no safety problems from planting GMO corn. Some merchants will gladly violate regulations to supply GMO seeds as long as farmers are eager to get the seeds. Huang Dafang, chief scientist of a biotechnology institute, says seed companies faced with vicious competition and tiny profits are strongly tempted to deal illegally in GMO seeds.

Wang Dayuan, former head of China's National Rice Research Institute, assures readers that GMO corn is evaluated by supervisory organizations and is just as safe as conventional corn varieties. He cites a report issued by ISAAA (International Service for the Acquisition of Agri-biotech Applications) which estimates that 189.8 million hectares of land in 24 countries have been planted in GMO crops and no food safety or environmental safety harm has been verified in 21 years of planting GMO crops worldwide. China has planted GMO cotton and imported GMO soybeans for more than 20 years without problems either.

Huang Dafang says legalizing the planting of GMO corn in China would be welcomed by most farmers, seed companies, and processors. Making persistent illegal behavior legal would help China become internationally competitive, reduce use of chemical pesticides, and spur a new round of innovation in Chinese agricultural science, Huang told Science and Technology Daily.

Huang claims that Chinese scientists have intellectual property rights to insect-resistant and herbicide-tolerant corn varieties they have developed.

Perhaps it's a coincidence, but Economic Observer reveals that Denghai--the seed company caught growing illegal seed--was engaged in a cooperative GMO research project with Dabeinong (aka DBN) whose executive pled guilty to stealing seeds from test plots in the United States several years ago. Investigations in the U.S. revealed that DBN employees had carried the seeds back to China disguised as boxes of popcorn.

The advocacy of GMO legalization appears to be part of a concerted campaign. The day after the Denghai company admitted its seed incident last week, another academician from China's Academy of Sciences also advocated GMO legalization at a seed industry meeting, saying, "If China waits until the entire general public accepts GMOs to commercialize them, that day will never come."