Thursday, December 31, 2009

Livestock 2010: Serious Challenges

On December 29, the Ministry of Agriculture held its meeting to discuss work on livestock and animal disease control in 2010. The new agriculture minister, Han Changfu, and the vice minister, Gao Jibing, gave speeches.

The meeting conveys a sense of urgency about problems facing the industry. China's livestock industry is growing rapidly and experiencing rapid structural transformation. It faces the challenges of supplying the Chinese population's demand for animal products, avoiding food safety scandals like the melamine disaster, and preventing dangerous disease epidemics. Vice Minister Gao depicts the situation as grim and warns specifically of avian influenza, hoof and mouth disease and the threat of cross-border epidemics.

The meeting called for fully implementing "modern" livestock industry, and laid out 9 points for work in 2010 that reflect concerns about instability in livestock markets, problems with out-of-control rogue vendors, and animal disease. The solutions mainly involve reorganizing livestock, feed, and veterinary drug industries into fewer larger farms/companies that are easier to monitor and regulate. Lack of qualified veterinary personnel is a weak point in animal disease prevention reflected in the last couple of points. Here are the points for work in 2010:

1. Maintain an effective supply of livestock products and stabilize production of meat, eggs, and dairy. Implement the new round of the “vegetable basket” project for supplying food to cities, expand production capacity. Implement central government support policies for livestock, strengthen the system for disseminating good breeds and subsidies for them. Expand production capacity through grants to hog-supply counties, improve the egg industry. Set up a network of quality milk production bases. Continue strengthening livestock economy process monitoring and supervision, strengthen information publication.

2. Keep increasing the scale of livestock farms and standardize production. Work out the issue of conflicts over land for use by large livestock farms and environmental controls. Implement poultry and livestock record-keeping systems. Get farmers to work together to share experience and encourage adoption of Good Agricultural Practices where appropriate.

3. Strengthen food safety supervision/regulation. Quickly complete rectification program for milk purchase stations. Shut down uncompliant feed companies and milk stations. Thoroughly investigate people who deal in prohibited feed additives and drugs.

4. Implement basic pasture protection, balanced pasture and grazing rotation system. Reform pasture operations systems, push pasture contract operation regulation pilot programs. Organize and implement pasture protection projects. Strengthen pasture supervision system and pasture fire prevention work.

5. Strengthen animal disease prevention and control by implementing a system that specifies responsibilities at each level. Work on immunization, surveillance, reporting, quarantine regulation, emergency response and do a good job on emergency training drills. Strengthen guidance.

6. Strengthen regulation of veterinary medicines and enforcement of animal health regulations. Supervise production and use of veterinary medicines and promote concentration of the industry. Guide farmers in safe use. Organize and implement a veterinary drug residue monitoring plan. Monitor animal bacterial resistance, strictly monitor veterinary microbiology lab safety. Strengthen animal and animal product quarantine. Push animal tag and disease traceability system. Advance animal veterinary general legal compliance.

7. Coordinate issuance of national animal disease immunization system plan. Research veterinary drug “December 5” plan. Form important immunization and prevention medium and long-term plans, research improvement of disease prevention subsidy policies and standards. Integrate veterinary science resources, advance industry research relations.

8. Fully implement qualification exams for veterinary practitioners and continue establishing an official veterinary system. Implement veterinary training regulations. Step up rural veterinary and rural level immunization personnel training.

9. More international exchange and cooperation by veterinary personnel. Strenthen external affairs training for central and provincial personnel. Set up a reasonable national veterinary organization assessment system.

Wednesday, December 23, 2009

Pork Outlook for Spring Pessimistic

The Chinese pork sector is subject to cyclical ups and downs in prices. In Sichuan Province, 135 tons of live hogs went unsold at an auction, raising fears that the industry may be facing a downturn. The provincial government got concerned and sent a group of officials out to investigate the situation. Their preliminary conclusions are that there is not currently a serious problem with unsold pigs because it's the peak season for pork consumption (leading up to the Chinese new year). However, farmers are having trouble selling feeder pigs. Corn prices are up, cutting into profits. Pork demand will fall off in the spring months, so farmers are not eager to buy a lot of replacement pigs.

This year has been a mild roller coaster for Chinese pig farmers. The industry suffered losses in April-June due to a cyclical surge in supply and fears of catching H1N1 from pork. The industry recovered beginning in July. Now profits are still positive but shrinking due to a rising corn price. Farmers are not optimistic about the situation several months out when pork consumption reaches its seasonal lull.

Loans for Grain Price Support Purchases

The Agricultural Development Bank of China [the bank in charge of financing grain, cotton, and edible oil policies] issued a “Notice on Supply and Management of Loan Funds for Completion of Northeastern Fall Grain Procurement” to implement the central government's minimum price procurement policy. Branches of the bank are to supply funds to designated grain enterprises and Sinograin Co. from now until the end of April 2010 to purchase japonica rice, corn, and soybeans at minimum prices set by the government and to rotate grain reserves. Loans must be issued during the time when grain is purchased and according to the actual amount of grain purchased. Purchasers cannot refuse or limit grain purchases [from farmers]. The notice also directs banks to provide loans to fund subsidies and working capital for soybean crushing enterprises for purchase of soybeans.

Environmental "Problem Villages" Policy

Central government leaders announced that they will put priority on addressing serious pollution in "problem villages" that have serious environmental hazards that affect villagers health and impede rural sustainable development. The environmental protection minister made the announcement at a national rural environmental protection and ecological improvement work meeting.

The "using awards to promote governance" policy will be used to give financial awards to encourage the masses to address environmental hazards in rural areas, both developed and less-developed areas where rural people face health hazards. The Environment Minister said the central government will allocate 1.5 billion yuan to support 2160 rural environamental rectification and ecological improvement projects, combined with 2.5 billion yuan of local government funds. This is expected to benefit 13 million rural people and improve the appearance of most villages.

Wednesday, December 16, 2009

Returned migrants raising livestock

How 'ya gonna keep 'em down on the farm once they've seen Dongguan? Give them some subsidies and training!

In 2007-08, there were many reports of farmers abandoning small-scale livestock production. Now they are returning to the industry with a little prodding from Jiangxi Province officials. Early this year, the big concern was about rural migrants who lost their jobs in closed export factories. China's economic planners in Jiangxi apparently decided to put migrants to work in raising livestock.

According to Farmers Daily (Dec. 17), Jiangxi provincial officials claim that 90,000 returned migrants are now raising livestock. Of those, 42,000 set up their own farms, and 48,000 are employed on large-scale farms, in companies, and "production bases." They are reportedly tending 26 million animals and poultry. Officials claim that these farmers' monthly income is 511 yuan higher than it was working as migrants last year.

Provincial officials plugged migrants into the subsidy gravy train. They took advantage of national and provincial subsidies for sow and dairy cow insurance, breeding sow subsidies, good quality dairy cattle subsidies, interest-free loans, and training programs. Financial programs encourage "dragon head" enterprises, farmer cooperative organizations, farmer loans, joint lending, and dragon head enterprise loan guarantees to supply funds for returned migrants. Officials estimate that 2 billion yuan in financial capital has been supplied through various channels.

Livestock farming is encouraged through vertical integration: "Company + cooperative + farmer," and contracting arrangements similar to those in the U.S. where companies either supply animals to farmers and buy them back or where companies keep ownership of the animals while farmers raise them.

The provincial veterinary bureau has held many livestock training sessions to spread standardized production techniques, ecological methods, immunization and disease control, manure handling to support retunred migrants.

Thursday, December 10, 2009

"Develop the West" Reflects Imbalance in China's Economy

On November 30th a 2-day meeting was held in Guiyang, capital of Guizhou Province, to mark the 10th anniversary of the “Develop the West” policy and discuss improvements in the policy. Zhang Ping, chairman of the National Development and Reform Commission, Lin Shusen, the governor of Guizhou, and Du Ying, vice-chair of NDRC were the featured participants.

The policy is basically a massive investment project that pours money into China’s 12 western provinces to build infrastructure, industrial parks, and factories. This has an impact on the world agri-food system. China’s dominance of the world apple juice market, tomato paste exports, a big chunk of China’s cotton production, and rising trade with central and southeast Asia are linked to this program.

The meeting cited “great achievements” of the program. The growth rate of the western region exceeded the national rate in the third quarter of this year. The western region is in a “new stage of development,” and the program “faces many conflicts and issues.”

The western development strategy reflects the general imbalance in the Chinese economy--the strategy of maximizing GDP growth by building lots of stuff without regard to whether it's needed. The meeting warned that the western region still relies too much on investment for GDP growth, not enough on creating endogenous growth. Industries focus on mass-production of low-end products and many industries have excess capacity. Farmers face difficulty in raising their incomes.

The NDRC’s report urges the western region to follow the central government’s economic work conference directive to improve the quality and efficiency of GDP growth, re-orient the direction of economic development and industrial restructuring, promote reform and innovation. Other goals are to stabilize civil affairs and society. [In other words, arrest, jail or shoot all protestors, religious leaders, human rights lawyers, and troublesome journalists.]

The meeting stressed that support for the “develop the west” policy will continue. Focus will be “two continues” national strategy: continued infrastructure construction and continued ecological balance and environmental protection. Another strategy is “three investments”: investments in improving peoples’ livelihood, self-development capacity, and institutional innovation.

Wednesday, December 9, 2009

How to Stamp Out Christianity in Your Village

All sorts of religious movements have flourished in rural China during the last few decades. We can get some insights about the Communist Party’s approach to religion from a document apparently prepared to instruct village party leaders on how to stamp out religious movements in their communities.

The article discusses Xinzhai Village in Pingtang County, an “autonomous” region populated by the Miao minority (known as Hmong in southeast Asia) in Guizhou Province, south of Guiyang. The Miao have their own traditional religions, but Christian belief has spread widely among the Miao in China in recent years (as it did among Hmong in Laos in earlier decades).

The article reports that a Christian Church has been active in Xiuzhai Village since 1993. There were 23 people (in a village of over 2000 people) who joined the church activities--16 men and 7 women, ranging in age from 34 to 64. They not only believed themselves, but also brought family members to religious activities. After joining religious activities they relied on Jesus for sustenance, praying day and night. The article warns that “religious masses” neglect agricultural production, don’t see a doctor when they were ill, stopped participating in village undertakings, and didn’t get along with other villagers, causing discord in the village. The article says the more Christian families believed, the poorer they got. These people “were used by unscrupulous elements, becoming a hidden source of instability for the community.” “Instability” is the party’s main fear, so the party’s branch in the village went to work to stamp this out.

“The party branch enthusiastically put into play the effects of its basic fighting force to help religious people get free from the shackles of religious thought to concentrate on poverty alleviation.” The party branch organized a party member support system in which each party member was responsible for one religious household. The party member was to help them solve production problems where “each person has a helper, each household has a manager.”

The article describes Yang Shaogui, who believed in religion, hoping it would give his family peace. Two of his three sons had died in accidents. When his third son was killed by a wasp sting while gathering firewood in 2007, Yang and his wife lost their last means of support and became disheartened. They spent all day praying, neglected production and became poor.

The village set up a “party member support system,” and the village party secretary Yang Rongfu took them under his wing. At the end of 2007 they were offered rural welfare support to solve their poverty problem. They were resistant to receiving welfare, but village leaders did not give up. Party secretary Yang frequently brought comrades from the party branch to greet them in their home and brought gifts at holidays. His task was to help them gain confidence in their life, and guide them to see that old peoples’ religion can’t give them peace, nor can it solve food and clothing problems. The key is relying on their own hands to get a richer, better life. Through the patient education and guidance of the party branch, special care for their lives, the two old people’s concept gradually changed. Now the two have “come out of the shadows,” enthusiastically undertake production, and their life has stabilized. They get along with their neighbors.

The article concludes that religion appeals to the old, weak, sick, and uneducated. When they join the church, they are under the influence of other people and they hope for blessings, peace, and safety in the Lord. They lack common sense and discernment. It’s easy for them to be organized and cheated by cults and lawless elements. This presents a security risk and a threat to grassroots social harmony and stability.

The article argues that they are not actually true Christians because they don’t understand the doctrines and beliefs and have not gone through any official ceremony to join the church. It complains that they don’t understand or participate in officially recognized church organizations.

The article stresses that the communist party can’t just let this activity go unhindered. Each level of party organization must pay close attention to these movements and undertake propaganda work. “We have to address their poverty issues so religious people feel the warmth and care of party organizations, so we can guide them to develop production.”

The implied message is that religion is OK as long as it is under the party’s control. The supernatural doesn’t have credibility with a party devoted to “scientific development.” Religion has to be a materialistic, focused on giving people more material goods and promoting “harmony” in society.

Monday, December 7, 2009

Class system in Inner Mongolia village sparks outrage

A news report about a 5-class system in a village in Inner Mongolia crystallized some of the fundamental strains placed on China’s anachronistic rural land system.

According to the December 1 news report, Yinliuyao village, on the outskirts of Baotou City, has divided families in the village into five classes according to the year the family moved to the village. The first class includes those who settled in the village before 1963. The second class is those who settled there during 1963-75, third class 1976-85, fourth class 1986-96, and fifth class includes those who arrived after 1996.

The classes reflect waves of migration to the village. Some earlier migrants were resettled when their villages were flooded by new reservoirs. More recent arrivals came seeking urban jobs. Apparently, new arrivals were allocated shares of the village collective’s land, so they are entitled to compensation when village land is sold off.

The village, being on the outskirts of the city, has had its land gobbled up by developers (16 apartment buildings were recently completed). Older residents feel a sense of entitlement and don’t want to share payments fully with their newer neighbors. More recent arrivals (those with a lower class) receive less compensation when the village’s land is sold to developers. Class 1 families get 100% of the per-household compensation payment, class 2 get 85%, and so on, until the class 5 families get nothing. Note that fifth-class people could have lived in the village for as long as 14 years.

A researcher from the Chinese Academy of Social Sciences says he has never heard of this system. In most Chinese villages, compensation to a family is based on the amount of land contracted to them or the number of people in the household.

The class status in Yinliuyao village is inherited by children, so being a “first class” family is a valuable status. According to the article, young people seeking a spouse look for someone with “first class” status. A “first class” woman would never marry a second- or third-class groom.

The article attracted outrage from Chinese netizens. Dividing citizens into classes and allowing inheritance of class status smacks of “feudalism” and “imperial” exploitation for many who left comments on electronic bulletin boards.

The Baotou press office put out a semi-coherent rebuttal, claiming that the reporter misunderstands Chinese land policy. Interestingly, the Baotou rebuttal says not to blame their officials; if you want to place blame somewhere, blame the country’s land policy. Farmers get contract rights to farmland for 30 or 50 years, and the rights can be passed on to children. Baotou officials and academics say the situation is different in each locality. They argue that there are fundamental conflicts between various laws covering rural land, contracting, and village governance. It is especially difficult to tie land to families in areas where a lot of people are moving in and out. Baotou officials say this kind of class system is common in their region.

The class system has survived through the democratic process. The “first class” families are in the majority, so voting has upheld the system.

The “class system” reflects the increasing value of agricultural land and the movement of people. China set up its “household responsibility system” in the 1970s when no one could conceive of land as a tradable asset and villagers were locked into the villages they had inhabited for generations. Three decades later, land is a valuable asset and people are moving in and out, putting pressure on an anachronistic system.

In a market economy, valuable assets like land are traded through exchange. With no market for land and unclear property rights, conflicts inevitably arise over allocation of valuable assets. The right to perform the allocation itself becomes a valuable right, providing all sorts of incentives for corruption and nepotism.

The comments left on electronic bulletin boards regarding the “class system” reflect the cynicism of Chinese netizens:

“Not to speak of a single village, the whole country is separated into [classes]”

“Corrupt to the core”

“Are outsiders and Beijing natives the same? The capital city is like this, so it’s not at all strange that the countryside should be the same.”

“The people are the cheapest, so divide them into classes as you see fit”

“Baotou is chaotic, the government is the same. Everything is just a pyramid scheme. But no one oversees it.”

“Eliminate the residence registration”

“Strictly speaking, this is a result of the land contract system.”

“Chinese people are in 3 classes, city, rural, 'black households'”

“First class people are public servants, what’s so strange?”

“Old hundred names is always the object of bullying”

Monday, November 30, 2009

More Subsidies for China's Northeastern Grain/Soybeans

As the 2009 harvest finishes, China's northeastern region has a glut of grain coming on the market, so the central government has announced another round of subsidies to bribe companies to buy the grain at minimum prices.

The Farmers Daily announced on November 30 that minimum price procurement policies for northeastern soybeans and corn will be continued. Companies can get a subsidy for each kilogram of soybeans they process, and companies in other parts of the country can get subsidies to transport corn or japonica rice out of the northeastern region.

This year, corn's temporary reserve purchase price will be 0.76 yuan/jin in Inner Mongolia and Liaoning, 0.75 yuan/jin in Jilin, and 0.74 yuan in Heilongjiang. The soybean temporary reserve purchase price will be 1.87 yuan/jin [3740 yuan/mt, up from 3700 yuan last year]. The purchase period is December 1, 2009 to April 30, 2010.

The notice said the peoples’ government in the northeastern provinces chose soybean crushing enterprises with relatively large scale, relatively good reputation, statistically standardized according to national regulations to purchase newly-produced 2009 soybeans from farmers. They can organize the purchase, crushing, and sale of soybeans themselves and bear their own profits and losses.

The central finance ministry authorized one-time subsidies of .08 yuan/jin [160 yuan per metric ton] to offset costs for designated soybean crushers and Sinograin Co. The central finance ministry designated soybean crushers with capacity and actual purchasing and processing quantities according to the actual soybean rotation situation in the northeast. The subsidy period will be December 1, 2009 to April 30, 2010.

The notice proposed that southern grain-consuming provinces purchase corn from the northeastern provinces to stock up on reserves and enterprise inventories and maintain feed supply according to the requirements of the governors’ grain responsibility system. Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi, Hubei, Hunan, Guangdong, Hainan, Guangxi, Sichuan, Chongqing, Guizhou, Yunnan, and Tibet local grain reserve companies and feed processing enterprises should, under the leadership of their provincial governments jointly set up purchases of 2009 corn from the northeast. From December 1, 2009 to April 30, 2010, they can purchase corn at the minimum price, and will be eligible to receive a one-time subsidy of .035 yuan/jin [70 yuan/mt] subsidy based on the amount of corn they actually transport from the northeast to their own province before June 30, 2010.

The notice proposed that after 2009 japonica rice comes on the market, the central finance ministry will continue giving a subsidy for transportation costs at half the 2008 amount to companies that transport japonica rice outside of the northeastern region between December 1, 2009 and April 30, 2010.

Thursday, November 19, 2009

Dairy supervision training and industry recovery

The Ministry of Agriculture held a training session for over 100 personnel engaged in dairy quality and safety monitoring. The article describes recovery in the industry.

By October, the inventory of dairy cattle had risen 7 months in a row and reached 12.71 million head. Fresh milk output was 2.77 million metric tons, up 6.68%.

Since last year 6,377 milk purchase stations have closed or been shut down. There are now 14,016 nationwide. Now there are 11,412 mechanized milking stations, 81.4% of the total, up 31.4 percentage points from last year.

In 11 provinces, including Beijing, Henan and Jiangsu, accreditation of milk purchasing has been completed. The Ministry of Agriculture organized 13,129 checks of fresh milk and none had melamine over the specified limits, leather hydrolyzed protein, starch, alkalinity.

Since the end of 2008, each level of veterinary stations have cracked down on adulterative substances. Around milk purchase stations and trucks, the two key points, deep launch fresh milk standardized management, fully strengthened fresh milk quality and safety management. They are increasing training and publicity. Based on routine inspections and supervision 1380 cases have been investigated and 9 sent to judicial departments; 2 people were arrested.

Tuesday, November 17, 2009

Chia Tai to cut back poultry business

According to a posting on the China veterinary association site, the Chia Tai Company, known as Zhengda in China, is planning to de-emphasize its poultry business to emphasize its food processing and feed operations. The company plans to reduce the share of its revenue derived from chickens and ducks from 47% to 33%. The company plans to increase the food processing share of sales from 18% to 30-33%. The feed share of sales will be maintained at the current 35% share.

The measure is motivated by fears of market risks due to avian flu. Zhengda is one of the biggest players in the meat and livestock businesses in China. The 2004 outbreak of avian influenza had a major effect on Zhengda. It plans to keep its poultry farm in Thailand and purchase additional poultry from outside the company.

Zhengda has been operating in China for about 30 years and has over 20 poultry-raising enterprises that have capacity to raise about 100 million chicks annually. The company typically raises chicks on its own breeding farms that it supplies to small-scale contract farmers for grow-out. Zhengda also sells the farmers feed, and buys back the chickens for processing.

It is not clear whether operations in China will follow the reorganization plan for operations in Thailand.

Tuesday, November 10, 2009

Crop biomass utilization target: 80%

China plans to promote use of crop biomass (straw, stalks, leaves, etc.) as a clean source of energy, for animal feed, and organic matter for the soil, according to an official of the National Development and Reform Commission at a conference held in Anhui Province, November 9. According to the article from Xinhua, last year the State Council issued a document calling for increased utilization of crop residues--the target is to utilize more than 80% by 2015.

According to the official, a nationwide plan with a rational regional layout will be set up in accordance with each region's crop biomass residue resources and market demand. Practical pricing, subsidy and tax policies will be studied to promote incentives for different uses of crop residues. "Breakthroughs" in scientific research, use of processing equipment, and energy generation technologies will be developed. The strategy includes companies as the "dragon head," forming a harvest, storage, transportation, processing integrated industrial chain.

According to the vice-minister of agriculture, in 1992 China's State Council began a nationwide demonstration program in key provinces for utilizing crop biomass in livestock production [usually translated "straw for beef"]. Last year 220 million metric tons of crop residues were used as feed for cattle, sheep and goats in 16 provinces, including Shandong, Henan, and Anhui.

The vice-minister said that the nation's annual crop biomass/residues of 700 mmt contain 3 mmt of nitrogen, 700,000 mt of phosphorus, and 7 mmt of potassium, an important source of organic nutrients equivalent to 25% of the country's current chemical fertilizer use. As for livestock, he says the nutritional content of the crop residues is equivalent to 200 mmt of grain. In addition to supporting soil and livestock, residues can provide a source of energy and support efficient ecologically-balanced modern agriculture. Crop biomass/residues can be used to produce methane, grow mushrooms, make paper and fiberboard, generate electricity, and for compost.


A farmer chops corn stalks to be fed to goats


Here are some more details from Farmers Daily:
One ton of crop residues can be sold for 200-250 yuan.
A fiberboard manufacturing operation with 50,000 cubic meters capacity can utilize 65,000 mt of residues and directly employ 200 people, and indirectly employ 400 in harvest, storage, and transportation.
The machinery subsidy program has encouraged purchase of 398,300 "return residues to field machines" [literal translation--I don't know what you call such machines in English].
In the 17 years since the crop biomass for livestock program was initiated, 865 million yuan has been spent to develop 597 key demonstration counties.

Friday, November 6, 2009

State Farm Traceability System

China still has a system of massive state farms, mostly in desolate border regions like Heilongjiang, Xinjiang, and Yunnan, and on the outskirts of cities. In Chinese, they are known as "reclamation" farms (nong ken) since many are established in desolate areas or on reclaimed marsh, jungle or mountain land. These are holdovers from the central planning period that have now morphed into big agribusiness enterprises. Since they have large scale and access to government resources, they are on the vanguard of many trends.

The state farm system held a conference in Beijing this week to publicize its traceability system that involves 50 state farm enterprises and 6 local enterprises in 23 provinces. According to Farmer's Daily, it is an early implementation of the objective of bringing into play a “record-keeping in production, product-tracing in distribution, information retrievability, accountability” system. During November 7-14, the Ministry of Agriculture’s state farm bureau, and agricultural product quality and safety supervision bureau will hold a “state farm product quality traceability demonstration week” in Shanghai.

In 2003, the state farm system began its agricultural traceability pilot work; in 2008, with support from the Ministry of Finance and other departments, actual work on the project was initiated. Presently, the traceability system includes nearly 140 products (tea, fruit, vegetables, rice) from 56 state farms.

The farms keep records on what they produce, chemicals applied, time of harvest, etc., and record it in a database. Web sites and electronic kiosks in supermarkets allow retail customers to scan a package and look up the information. (In August we tried to test several of these kiosks in Shanghai and Beijing, but the supermarket staff couldn't get any of them to work. The manager of one supermarket said hardly anyone uses them, but if the kiosks were taken away customers would get suspicious.)

The state farm system, in all, produces over 2000 agricultural products that meet pollution-free, green, and organic food certifications, over 80% of state farm enterprises have set up strict production process and product standards, including 17 product testing centers, over 90% of dragon head enterprises have testing organizations.

Wednesday, November 4, 2009

Wage Statistics To Cover Private Firms

Wage statistics are one of China's "dim sums" that don't reflect reality. Farmer's Daily says The National Bureau of Statistics announced that it will begin to include private firms and small businesses in its survey of wage statistics.

Current statistics are based on surveys that include only government, quasi-government service units, state-owned and collective enterprises. In 2008, the average urban salary was reported as 29,299 yuan, but a survey of private enterprises found their average was just 17,071 yuan, 58% of the reported average. The statistics clearly don't reflect actual earnings of "the masses."

The former survey only covered 110 million urban employed persons. At the end of 2008, it was estimated by NBS that private enterprises employed 66.76 million. It is estimated that there are 50 million small merchants (ge ti hu).

The change is being made partly because the common people ("old hundred names") don't believe official statistics since they don't reflect their low salaries. The article says statistics have been improved a lot in recent years to take into account a broader segment of society and better reflect actual earnings, macroeconomic conditions, and living standards. But there is still room for improvement.

Tuesday, November 3, 2009

Standardized vegetable farm project announced

China is emphasizing large-scale production that standardizes varieties and techniques, introduces branded products, and consolidates scattered plots into big fields. The latest big project is to create large-scale vegetable farms. Watch out California!

The Ministry of Agriculture launched a new plan to set up a nationwide network of 400 standardized vegetable farming areas over the next two years. At a rally held in Yinchuan, capital of Ningxia Hui Autonomous Region in northwestern China, the director of the MOA's crop production office said MOA will set up 200 standardized vegetable farming areas (the Chinese word is "yuan," or garden) that have fields of 200 mu (33 acres) or more, and another "open-field" vegetable farms with fields of 1000 mu (165 acres) or more.

In these projects the production will be standardized (using same varieties and production methods), pest and disease control will be unified, and all vegetables will be grown for the market (not for household consumption). Quality will reach national food safety standards and products will be branded.

MOA is requiring local governments to support and organize the efforts, coordinate different projects, give guidance and training, extend technology, and build road, water, and electric infrastructure to support the activity. The standardized farms are expected to inspire other farmers to follow the road of commercialized large scale production.

Monday, November 2, 2009

Hoarding grain with Chinese characteristics

An article entitled, "Main characteristics of our country’s new-style grain reserve system," seems to be aimed at assuring the Chinese citizenry that plenty of grain is on hand and the government is wasting much less money on storing it than in past years.

The article says China must have "grain reserves with Chinese characteristics": massive grain reserves that are getting even bigger, stored in bins all over the country, and owned by the government. The article tells us that China needs these massive grain inventories because it has a big population, is in the midst of rapid industrialization and urbanization and because of the small-scale pattern of grain production. Reserves are needed to guarantee food security and intervene in the market to stabilize prices.

Reserves are held by two levels of government: central and local. The central grain reserves are used to make interregional adjustments in grain markets under the State Council's instructions to central grain reserve companies. The local reserves of grain are for adjusting local grain markets according to the local governments’ responsibilities for grain management and maintain local food security. Local reserves are managed mainly by the province. Some regions also keep prefectural or county reserves, but most are managed at the provincial level. "Up to the present, each region has increased grain and oil reserves and improved management according to the requirements of the provincial governors’ responsibility system."

The article emphasizes the "marketization" of grain reserves. Instead of the former state-owned grain bureau system, now there is a company called Sinograin and other designated grain enterprises that carry out grain reserve business and storage under orders and with subsidies from the government. The article says, "In the last few years, grain processing enterprises gradually became the main holders of grain reserves as effects of reform came into play."

Grain can be purchased directly from farmers or through middlemen. Some regions use fixed purchase orders (ding dan) to solve farmers’ difficulty selling grain by providing a stable marketing channel, reduce distribution distribution costs and increase profits in distribution channels.

The main channel for selling reserve grain is through open auction sales in wholesale markets. The second is through negotiated sale to traders or processing enterprises to sell regularly rotated grain. A third channel that is not used so often is to sell processed grain directly to retailers or consumer-oriented companies. The article doesn't mention that much of the grain offered for auction doesn't sell because the opening price is set too high.

The central government established a marketing rotation system in the last few years that rotates one-third of grain each year to maintain the quantity and quality of grain at a reliable level.

Grain reserve infrastructure has improved a lot. Grain is mostly held in modern storage facilities. The quantity and quality of grain reserves is maintained by technology. Since 1998, central government has allocated funding to construct modern grain warehouses, most of which are now in use. Presently, grain storage facilities hardware is up to international standards.

In the last few years, grain storage checks have shown reserves are in line with reported amounts, quality is at its highest level, enterprises management and worker quality have improved. The quality compliance rate of central reserves is 100%, at 97% of advised rate {?}, low-temperature storage has reached 50%. Some biological methods are used in hot regions of the south, chemicals reduced, fumigated, to give the market a safe, quality, “green” grain supply.

Losses from holding grain reserves have been reduced. Now the cost of holding reserves is directly related to how much grain is held through a financial contract system. Sinograin gets a set subsidy for actual grain and oil reserves and for rotation business. By strengthening management and reducing costs, funds are used more efficiently and the problem of losses from grain enterprises has been changed.

Friday, October 30, 2009

New Mutual Aid Funds in Zhejiang

Zhejiang Province introduced new regulations allowing registration of rural mutual aid funds. The regulations were jointly issued by Zhejiang’s commerce bureau and provincial branch of the bank regulatory commission, and they took effect October 28.

The mutual aid funds are described as a cooperative-style community banking organization that can take deposits, make loans, and perform settlement business. They can only do business with members, and business must be in the local community; they cannot form branch organizations. They can be established at the township level with minimum investment of 300,000 yuan (under $44,000) or at the village level with 100,000 yuan ($15,000). No member's share can exceed 10% of the value of stock; bank regulator approval is required if a member's share exceeds 5%.

The article notes that farmers and small rural enterprises can "voluntarily" form mutual aid funds at the township or village level. This contrasts with the rural credit "cooperatives" that everyone was forced to join in the 1950s.

The reporter says many rural financial institutions in China take deposits but don’t make loans, with the funds mostly going into city financial organizations. In recent years, rural mutual aid funds have been tried as pilot programs in many areas of China. From now on, Zhejiang also can also organize this kind of “rural bank.”

Wal-Mart + 1 Million Chinese Farmers

According an online report, a forum on the "Farmer-Supermarket Linkage" program was held in Beijing on October 29, where the Ministries of Commerce and Agriculture signed memoranda of cooperation with Wal-Mart. This project promotes direct purchases of produce by supermarket chains from farmers (actually cooperatives or distribution centers run by farmers). Wal-Mart announced that it plans to involve 1 million Chinese farmers in its “farmer-supermarket linkage” project by the end of 2011.

Since 2007, Wal-Mart has established 11 direct purchasing bases in 7 provinces. The bases cover an area of 150,000 mu [10,000 hectares] and 200,000 farmers directly benefit [10 farmers per hectare!]

Wal-Mart’s International Business chief told a reporter, “The farmer-supermarket linkage program is representative of Wal-Mart’s development strategy in China. We want to bring our world-wide experience in farm product operations into China’s supply chain, spread scientific crop-production, environmental protection, strengthen food safety monitoring, to give customers in China quality products at a low price.”

Thursday, October 29, 2009

China to be a Leader in Ag Science?

The mantra of China's current administration is "scientific development." The implicit assumption is that all problems can be solved by science and technology. And it has to be Chinese technology, not from Dupont, Monsanto, Pioneer, or some other foreign company.

This week, China's Ministry of Agriculture is trumpeting its ambitions to be a leader in science and technology.

On October 26, a meeting on national agricultural science and technology innovation and dissemination work. The Minister of Agriculture, Sun Zhengcai, said China will strive to become a world leader in agricultural science and technology in the next 10 years or so, relying on science and technology with "Chinese characteristics" suited to the special situation of the country and the industry. The speech calls for support for creating agricultural innovations that increase the productive capacity of agriculture. An interesting phrase is the reference to independent innovation--not sure what this means, whether it refers to independence of researchers or China's independence from the global biotech industry. Another facet is building a system to disseminate technology and science to farmers. There is a lot of reference to "service." This may be related to another big push going on to develop farmer cooperatives--many of them are attached to extension stations and technology service is a big part of the rhetoric in that movement. There were a number of other articles about agricultural innovation on the MOA web site this week I haven't had a chance to read.

Another prominent announcement on the Ministry of Agriculture web site today is about the construction of the Ministry's National Agricultural Transgenic Biological Safety Evaluation and Testing Center. This is a big center that will have laboratories to test the composition of transgenic agricultural products and their safety for food and the environment. (As an interesting aside, the project got special funding from China's stimulus package.) The center is expected to be the domestic authority on assessing transgenic crops and animals and to be a world leader in publicizing and regulating transgenic safety, setting standards and issuing "emergency alerts."

China has big ambitions to be a player in agricultural science and technology. They don't plan to sit by and let multinationals sell them seeds and biotech crops. But can shiny buildings filled with imported lab equipment make China a leader? The big problem is that the best and brightest Chinese researchers are exported--they're mostly working in labs in the U.S. and Europe. Can government-run Chinese labs compete with huge companies that have hundreds of years of experience in the business?

Saturday, October 17, 2009

Ecological Compensation System

China is emerging as an interesting player in the world of "green" policy. China knows it has serious environmental/ecological problems, and the country has adopted all kinds of "green" measures. Not many people are aware of the extent of what China has been doing. On October 16, the Farmer's Daily described efforts to install an "ecological compensation system," apparently based on a conference held in Ningxia to discuss ways to improve the program. It's not clear how this works, but it seems to involve government funding to address deforestation and desertification problems, mostly in western China. They have plans to use tax incentives and arm-twisting of banks and companies to chip in funds in the future.

According to the article, China started a pilot fund for central forest ecological efficiency compensation in 2001-04. Since 2005, the Ministry of Finance invested over 20 billion yuan, and the program covers 700 mllion mu of key ecological forests. In 2006, national government issued a document about restoration of mining areas and a pilot compensation program was initiated. The Finance Ministry increased expenditures on environmental protection and developed transfer methods, increasing spending for Qinghai’s three-river area, the south-north water diversion project area, and some natural forest protection areas.

Over the past 10 years compensation projects included implementing reforestation and pasture restoration, natural forest protection, Beijing-Tianjin sandstorm control, northwest karst area desertification control, Qinghai three-river plain natural preservation area, Southern Gansu Yellow River important water resource compensation.

The authoritarian system in China makes it one of the few places where textbook solutions can be implemented. This paragraph sounds like it came from an environmental economics class:

"Through the establishment of the compensation mechanism external costs of ecological environment were internalized, so that those who damage the environment pay protectors of the environment in a rational compensation process that raises the environmental protection consciousness of all segments of society. The 'Ecological Compensation Regulations' will now establish a better legal framework."

The article says, "The overall basic weakness of our country’s ecological protection has not been changed. The advance of ecological improvement and environmental protection benefits has still not been rationalized." Spokespeople from NDRC and Ministry of Environmental Protection said establishing an environmental compensation system is a new task with various work just at the beginning, the coverage is not yet determined, and the compensation standard is not scientific, compensation methods are standardized, funding sources lacking, and policy and regulation system are lagging.

They plan to continue working on the pilot project, including the karst desertification project and a new one on the Tibetan plateau. They will expand coverage of the forest ecological compensation system and raise the amount of compensation. They plan to build infrastructure and public service systems, and explore land and population control policies, tax policies, getting investment from commercial banks and "social capital."

This last part is an important and unique reflection of how China carries out policies. It uses its control over land and financial institutions to control how land is used and generate huge amounts of funds for new policies quickly. "Social capital" means convincing companies to invest in projects favored by the government in exchange for access to some other lucrative market. This control over land and capital enables China to implement policies like this much quicker than in democratic countries.

Wednesday, October 14, 2009

Grain marketing under the microscope

Each April local teams conduct surveys of a sample of farmers' grain sales, income, and on-farm stocks for the preceding 12-month period. The samples are small and results are released for only a few prefectures, but the surveys provide a small window into what's happening in grain markets. Like Chinese grain farmers under a microscope.

I came across two articles--one from Suyu in northern Jiangsu and a second from Wenling in eastern Zhejiang. Farmers in both areas grow long-grain indica rice and short-grain japonica rice. In Suyu they also grow some wheat.

The Suyu article emphasizes the effect of improved indica rice varieties. Traditionally, farmers here prefer japonica rice, but a new indica variety with high yield and improved taste has made inroads. Farmers have been switching to indica because it has lower production cost and the price is now about the same as for japonica. They're eating more indica rice too.

The Suyu article also emphasizes the social changes. Most families have someone who either works in a city or a township enterprise. With fewer people at home, rice consumption is down. People mainly consume rice they grow, but more are buying rice in the open market.

In 2008-09, the district’s household average grain production was 5494.36 kg per farm, up 6% from last year. Grain used for food averaged 1049.49 kg, down 94.12 kg from the previous year. Sales averaged 4927 kg per farm, up 427.87 kg from the previous year’s.

In Wenling, grain sales were down, but there was a diversification of sales channels. Both surveys cite the farmers' enthusiasm for the minimum price purchase policy. In Wenling, a little more rice was sold to state-owned grain purchasing units due to the policy. The survey says there was a big increase in the share of rice sold to private traders who go door to door, making it easy and convenient to sell. Sales to big companies were down due to the effects of the financial crisis (and public purchases "crowding out" private purchases?).

In Wenling, average grain production per household was down 2.1% due to less planted area. Average sales were down 7.48 kg and inventory increased. On April 1, 2009, average grain inventory was 772 kg, up 46.83 kg (an increase of 6.46%). Late indica rice inventories accounted for 57%, early indica 4%, japonica 37%. The main food is late indica rice inventory, about half. Inventories mainly were for food, feed until new grain arrives. Sales are just 17.5% of production in Wenling.

Saturday, October 10, 2009

Grain Inventory Results: 225.4 mmt

In April 2009 the State Council ordered a nationwide check to find out the actual level of grain inventories. There were 10 government departments involved and thousands of provincial, prefecture, and county people involved. The check was carried out in response to rumors that warehouses supposedly filled with grain were actually empty.

The results show that at the end of March 2009 national state-owned grain enterprises held inventories of 450.8 billion jin (225.4 million metric tons in unmilled grain). This is in line with figures revealed previously. The inventory surpassed half of the 2008 harvest (roughly 6 months of consumption). The March date was presumably chosen because it precedes the summer grain harvest and inventories would be near their seasonal low.

This total appears to be central government reserves. There are also provincial and county-level reserves. It does not include private sector reserves (probably much smaller). Usually there are surveys of on-farm reserves conducted in April but I didn't see any this year. They usually report about 300-400 kg per farm on average, which could translate to 60-70 mmt of grain stored on-farm at the end of March.

Other results of the grain inventory check are vague. The mix of grains has become more reasonable and the regional distribution is improved. Accounts are 99.7% accurate, quality generally good, with a compliance rate of 97.1% and 99.1% of inventories are at their proper level. Management was generally good, but some unspecified problems were uncovered. A small amount of grain was poor in quality. Policies were carried out unevenly. Issues raised by each locality are being addressed through rectification work.

Dollar Drags Yuan Down WIth It

The dollar is sinking. That tends to happen when you print vast amounts of your currency and drive interest rates to zero. Making matters worse, Australia and some others are starting think maybe it's time to start raising interest rates. Can you hear the great sucking sound of currency leaving the U.S.?

What no one seems to be talking about is the U.S. dollar is taking the Chinese yuan down with it. The dollar has not depreciated substantially against the Chinese yuan because Chinese monetary authorities won't let it do so. They have kept the exchange rate pegged at near 6.84 yuan per dollar since July 2008. That means as the dollar goes down it takes the yuan with it. The U.S. dollar has depreciated by about 13% against the Euro since February, but the yuan has depreciated by 13% against the Euro as well. That means bargain vacations at the Great Wall and cheaper adoptions of Chinese orphan girls for Europeans. But how can the currency of the country that supposedly is leading the world out of the recession (China) be depreciating? How is the trade deficit and its twin--the growing mountain of Chinese dollar holdings--ever going to go away if the yuan never appreciates against the dollar?

The Chinese leaders have painted themselves into a corner. They now hold huge dollar assets, so a depreciation against the dollar would cause them to lose huge amounts of money on their Treasury Bills and other dollar investments. So they can't break the dollar peg without impoverishing themselves. And the dollar peg combined with an unmitigated trade surplus means the Chinese keep piling up even more dollars. Meanwhile, one-in-ten U.S. workers is unemployed and we make less and less of our stuff at home. Where does this road lead?

Oh, and you say the dollar-yuan peg is not that important since U.S.-China trade is not that big. Well, not true, because China's competitors/traders are very conscious of how their exports are priced vis-a-vis China's, so they don't let the yuan devalue too much against their currencies. The yen has depreciated only 3.5% against the yuan since February.

Tuesday, October 6, 2009

Anti-U.S. Food Safety Propaganda

On September 27, the Ministry of Commerce issued documents announcing an antidumping investigation of imported chicken products originating in the United States. The investigation covers broiler products of chicken products. In case you're wondering, this includes HS codes 02071100、02071200、02071311、02071319、02071321、02071329、02071411、02071419、02071421、02071422、02071429 and 05040021。

On September 30, an article posted by the National Food Quality and Safety Supervision and Testing Center trumpets "Emerging Problems with Imported Food From the United States." A google search shows the article was carried on dozens of Chinese web sites.

According to the article, testing by Chinese inspection officials have been catching an increasing number of food products from the United States. Of a 154-name “black list”, 39 problem products came from the United States. Of those, 12 were frozen pork and frozen chicken meat. "Lean meat powder" (probably ractopamine which is legal in the U.S.; in China this term usually refers to clenbuterol) was detected in some frozen pork and pig feet, and staphylococcus aureus and nitrofurazone were found on some chicken. These contaminants are frequently found in US exported products.

Companies like Mead Johnson, Coca Cola, Pepsi, and Proctor and Gamble are on the “black list.” The article says, statistics clearly show that problems with America food quality are rising.

After the domestic dairy industry crisis, how can more food safety problems becoming from America? A knowledgeable person about the industry in southern China says, “The financial crisis is putting cost pressure on American food industry. Companies are cutting corners on raw materials and internal quality control to save on costs. This trend directly affects the quality of American food.”

"That’s not all," says the expert. “What’s worse is that some companies are using cheaper ingredients to substitute for usual ones. Worse yet, some companies are sending ‘garbage’ that won’t pass U.S. quality inspections to sell in the Chinese market.”

Sounds to me like he's reading from the Chinese manufacturer's instruction manual.

Monday, October 5, 2009

Land Transfers on a Slow Rise

Everybody knows that Chinese farmers have been moving to cities in greater numbers and renting out their land to others in recent years. But nobody really knows the extent of renting out land. A short article by Wu Zhigang published in the annual report of China's Research Center for Rural Economy (RCRE) provides a good set of statistics on land renting from a large national sample of rural households. Better yet, they survey more or less the same farmers every year, so the data can show us whether farmers are increasing their rental of land.

From 2003 to 2008, more and more farm households transferred land. About 8% of all rural households subcontracted land to others in 2003. That share fell in 2004 (coinciding with the introduction of farm subsidies that year), but it rose to over 8% again in 2006-07 and reached 9.8% in 2008. The rise reflects increasing departure from agriculture.

The share of all rural households who subcontract land from others has been fairly steady at about 6%. More households rent out land than rent in and the difference is widening, reflecting a modest concentration of land operation. Subcontracting land from others is becoming more common among those actually engaged in farming. The share of households who cultivate land that subcontracted land from others rose from 10.7% in 2003 to 12.5% in 2008.

The average amount of land operated and subcontracted by farm households has changed at a slower pace. The average cultivated land area operated by rural households in 2003 was just under 7 mu (1.14 acres) in 2003. It rose to 7.33 mu in 2004 (consistent with the decline in subcontracting that year) and then gradually declined to 7.25 mu in 2008. The average number of plots per household fell from 4.9 in 2003 to 4.2 in 2008.

The survey shows that about 12% of farmland is subcontracted now. On average, farmers who operated land in 2003 subcontracted .64 mu from others--9.3% of land operated was subcontracted. Subcontracted land peaked at .88 mu per household in 2007 (12.1% of land operated) and fell slightly to .85 mu (11.8% of land operated) in 2008. Doing a similar calculation shows that 58% of U.S. farmland is rented.

The average amount of land subcontracted from others exceeds the average land subcontracted to others, reflecting a slight concentration of land operation.

Modes of land transfer include subcontract, transfer of contract, exchange, rent, and other modes. A 2008 special survey by RCRE shows that subcontracting is used by 89% of rural households who transfer land to others. Eleven percent "permanently" transferred their use rights by transferring their land contract (zhuan rang). This method is used mainly by households in which all members have gone out to work.
A few households exchanged land with another household and some lease land to village collectives which then lease it to other farmers. This is generally mobile/flexible land (ji dong di), or land on mountains or riverbanks for which the use rights are auctioned to villagers or land contracted to the collective or other economic organizations for a fixed rent

From the survey we can see there are two main effects of land transfer:

(1) A trend of large farmers accumulating farmland is emerging. Of the households who operate land, those who subcontracted land operated an average of 13.15 mu, of which 3.69 mu was subcontracted from others. This is much higher than the overall average of 7.25 mu operated.

(2) There is an adjustment of production structure. In 2008, grain accounted for 71.6% of cultivated area for all households, but just 62.8% of subcontracted land was planted in grain. Farmers who subcontract land plant a higher proportion of it in cash crops, vegetables, fruit trees, fish ponds, and nonagricultural uses.

Most contracting is between relatives and neighbors. Of households who subcontracted to others, relatives got 38.2%, neighbors 30.2%, and 31.6% to collectives and economic organizations.

The survey shows that land subcontracted mostly comes from within the village. However, 25% of those subcontracting land dealt with people outside the village, including 12.5% who subcontracted to someone outside their county.

Most subcontracts of land are informal arms-length agreements, not for a fixed period, nor with a clear written contract. Only 22.1% of households who subcontracted other peoples’ land signed a contract. Of those who subcontracted to others, 32.7% signed a contract. Many places have established land transfer accounts, have no contract. The contracts are not enforceable. There are all kinds. The lessor and lessee’s rights are not clearly specified, leading to many needless disputes.

Sunday, October 4, 2009

Adam Smith beats Mao in Rural China Labor Market

Recently, there have been reports of labor shortages in China's coastal manufacturing regions. A Sept. 30 article in the Farmers Daily provides some good economic analysis of the emergent labor scarcity.

The article notes that a July report from Zhejiang Province said employers were only able to hire 354,000 of the 603,000 they wanted, and a Shenzhen's labor shortage increased form 23,000 in April to 60,000 in June. The author asks, "Where did all those people go?" Moreover, there are seemingly contradictory reports of many rural workers who can't find satisfactory work and other factories who have no problem finding work.

The author argues that China doesn't have a shortage of labor; it has a shortage of cheap labor. The recent experience of factories hiring workers as commodities at rock-bottom wages is not the future of China. Rural Chinese people are gaining more skills and higher expectations for their lives. Moreover, they have more choices. There are more employment opportunities in cities in central or western provinces, or even in rural areas near their homes. Even agriculture is getting better--it's no longer the last resort. The article argues that China is entering a new stage where rural peasants no longer are consigned to a choice between grinding poverty in the rice fields or accepting low wages from factories in coastal cities.

The so-called labor shortage is a conflict between the diversity of choices available to rural migrants and the continued expectation of urban factory owners that peasants will still work for low wages.

The author points out that returns to labor and capital have been out of balance--labor gets a low return and capital a high return. He says some economists think a whole string of problems are due to this imbalance--overinvestment, trade surplus, curency appreciation, skyrocketing real estate values, high pollution, energy inefficiency. Upward pressure on wages may start to restore balance. The "backward" labor-intensive, polluting, energy-wasting companies that depend on low-wage labor may be driven out of business. Higher wages can wean China off its dependence on export industry by creating more domestic demand.

The Farmers' Daily argues that the "labor shortage" occurred due to laborers voting with their feet and the effects of the market's visible hand. Solid neoclassical economic analysis in the Communist Party's mouthpiece for peasants--Adam Smith prevails over Chairman Mao in China's countryside.

Monday, September 21, 2009

Who's dumping?

Officials in China have made noise about the U.S. “dumping” poultry, auto parts, and even soybeans in retaliation for tariffs on tires.

Want to find dumping? We can find it without using any dicey “nonmarket economy” methods (e.g., picking a reference price out of an Indian newspaper). Consider China’s apple exports. Chinese customs statistics show that exported apples had an average price leaving China in July of 68 cents per kg. The average Chinese retail price of apples was 4.44 yuan/500g in mid-July, which works out to $1.30 per kg. Exported apples cost about half what Chinese consumers pay for them. For reference, the average retail price in the United States works out to be $2.60 per kg, but you won't find any Chinese apples in a U.S. supermarket.
Source: calculations based on data from Chinaprice.gov.cn, Jinan Price Information Net, customs statistics, exchange rate from St. Louis Federal Reserve.

Apples are expensive to transport in China. They’re heavy and there’s lots of waste, bruising and spoilage. The price is a lot higher in Guangzhou and Shanghai than in Shandong Province, the main source of exports. But the export price historically has been about equal to the average retail price in Shandong, and right now the Shandong retail price is also way above the export price.

Hello Chinese consumers, you’re over-paying for apples!

Is it costing more to produce apples in China? Wages in rural China have been rising rapidly in the last few years (see chart above, from Chinese cost of production surveys). But it’s still just $3.70 per day (NOT per hour) when converted at the official exchange rate.

Labor cost is only a tiny fraction of the price of Chinese apples. The cost per kilogram shot up in 2007, but the price at the farm level shot up even more. Nearly half of revenue represented net profit. (Demand was strong, China had a bad harvest that year and juice processors bid up prices as they scrambled to grab as many apples as possible.)

China doesn’t “dump” these apples in the United States--the U.S. doesn’t let in Chinese apples due to disease and pest concerns. Chinese officials complain about unfairly being shut out of foreign markets by bogus barriers. But what would happen if China exported even more apples? Increased demand would increase the Chinese price even more. You can see already that the Chinese retail price has roughly doubled since 2005.

While China doesn’t export apples to the United States in fresh form, it exports millions of metric tons in the form of apple juice concentrate. This has been the major demand growth factor in the Chinese apple market. But that’s another story.

Monday, September 14, 2009

Quarantine Bureau Helps Exporters

The provincial and local branches of China's inspection and quarantine bureaus undertake a lot of programs to introduce and promote international quality and safety standards, and help companies qualify for export markets.

The Henan branch of China's Inspection and Quarantine Administration (AQSIQ) has been busy helping farms register to export live hogs and pork to Hong Kong. The provincial bureau has a program to “cultivate a group of potential enterprises, support a group of large enterprises, elevate a group of advantaged enterprises” to cultivate and assist companies obtain eligibility to export and encourage enterprises to upgrade product quality and their profile.

AQSIQ approved 7 farms of Yuming Livestock Ltd. Co. in Luoshan County of Henan Province to supply live hogs to Hong Kong, bringing the total farms approved in Henan to 36. The production capacity is now 700,000 head. The bureau’s animal inspection office inspected the company and six others in the county for export of live hogs. Personnel from the bureau made many visits to the companies to help them and give corrective guidance in gaining registration from the AQSIQ.

In 2008, Henan exported 203,661 hogs to Hong Kong, the most of any province. This year in the first 8 months, Henan exported 217,762 hogs, an increase of 57%, surpassing last year’s total. In June the Ministry of Commerce increased Henan’s quota by 156,000 hogs. In 2009, Henan could export up to 320,000 hogs to Hong Kong.

"Through the ceaseless efforts of quarantine bureau and companies," 8 farms of Neixiang County’s Muyuan Husbandry Ltd. Co. with annual output of 1 million hogs have passed inspections to export meat products, the first in the county and potentially Henan Province’s largest exporter of frozen pork. The Nanyang branch of the inspection and quarantine bureau included this as a key project of its program to cultivate and assist companies obtain eligibility to export and encourage enterprises to upgrade product quality and their profile.

This year, Henan’s inspection and quarantine bureau helped companies survive the effects of the financial crisis, increase exports and achieve a “quality and safety year,” as a “company service year” activity.

Monday, September 7, 2009

Milk tests: No more melamine

The Ministry of Agriculture press office reports that tests of 600 batches of milk from 300 collection stations sampled from 5 provinces found no melamine. Compliance was 100%. No starch was found either. According to the Ministry, the overall milk quality and safety situation now is good.

Clean-up of Farmers' Burdens

"Reducing farmers' burdens" (cutting taxes and fees) has been one of the slogans guiding China's rural policy during this decade. This translated to one of the biggest tax-cut projects in history in the world's largest Communist nation. Of course, officials everywhere have a strong instinct to extract revenues, and the central government issued a document calling for local officials to clean up remaining pockets of rural fee-extraction. Like many other measures, this one seems tied to maintaining stability around the upcoming 60th anniversary of the Peoples' Republic on October 1.

First, some background: During the 1990s, China's policy was economic growth first and foremost, mostly focused on cities and industry. Government support for rural affairs was neglected and rural officials had free rein to buy cars, seize farmland for industrial parks, and build town squares, hotels and amusement parks with no customers in the name of rural development. By the end of the 1990s, stories of outrageous taxes and fees and exploitation began to multiply. It all came to a head with the publication of the wildly popular but now-banned book An Investigation of Chinese Peasants (Zhongguo Nongmin Diaocha) which told heart-wrenching stories of peasants' exploitation by officials in Anhui Province and their powerlessness to appeal to higher authorities.

Around the year 2000, authorities began experimenting with reform of rural taxes. Between 2004 and 2006 the government eliminated the "agricultural tax" nationwide and sent a stern message that excessive fees should be eliminated. Rural officials claim farmers are happy and no longer pay any taxes. But the central government always has a hard time getting local officials to get on board with their policies.

A document featured by the Ministry of Agriculture's press office today indicates that there are lingering problems with rural taxes and fees. The State Council and seven other ministries (Agriculture, Finance, Education) and National Development Reform Commission jointly issued a notice on eliminating regional disparities in farmer burdens. According to the article, monitoring has shown farmers' burdens are declining, but in some regions farmers are still subject to unreasonable burdens.

Officials in each area are instructed to take special measures to address the problems, especially "chaotic" fees in family planning, funerals, permits for migrant workers to start businesses, and rural education fees. Measures should be taken within a year’s time through unified implementation by local government departments: agricultural, dispute settlement, finance, price, legal and other departments should strengthen supervision. They should standardize work on "one matter, one assessment," an approach to settlement of rural disputes over financial and other issues in villages.

Water fees are singled out for attention, a push that conflicts with economists' recommendations that water fees should be raised to encourage water conservation. Officials are instructed to quickly implement pilot projects on reducing the general burden of agricultural water burdens, clean up illegalities, eliminate unreasonable fees, reasonably determine the level of fees for agricultural water use.

Each province must choose some counties with relatively high farmer burdens to monitor and explore the establishment of a long-term supervision system and village-level welfare investment system to reduce the general burden on farmers throughout the province. Organize checks of farmer burden this year. By the end of the year, each province should start a one-time check of farmer burdens. The checks should be made at the county and township levels using a random sampling method recommended by the State Council.

Effectively strengthen work on farmers’ burden petitions around the period of the national day celebration (October 1), public region method, strengthen agreement on allocation. Repeated petitions from farmers where it’s difficult to find long-term solution should be tracked and proper solutions found. Each dispute settlement department should seriously consider its the responsibility to reduce peasant burdens in cases they investigate.

Sunday, September 6, 2009

Fear the Dragon Head?

In earlier decades, Chinese economic planners adopted the concept of the “dragon head enterprise” (longtou qiye) as a strategy for connecting small-scale farmers with modern markets. To westerners, the “dragon head” sounds sinister and menacing, but in China the dragon is a benevolent creature. The concept comes from the dragon dance where the leader wears the head of the dragon and the rest of the dancers follow him in a line, making up the body of the dragon. Thus, the “dragon head” leads (daidong) a long line of farmers where they need to go—selling to markets (instead of for own consumption or to neighbors) and getting information about markets, new techniques and standards. Some English translations use the words “leading” or “flagship” enterprise instead of a literal translation.

The dragon head enterprises have been a key component of the “agricultural industrialization” strategy. The government has designated hundreds of dragon head companies at the national, provincial, and county level. One government official’s speech recently said about half of agricultural exports come from dragon head enterprises.

Recently, there have been some misgivings about dragon head enterprises. Surveys of farmers found that the dragon heads seldom functioned as advertised. There are lots of stories of broken contracts and exploitation. There have been rumblings for years, but now the official line seems to have shifted. This coincides with a new push to get farmers to join cooperatives, which are seen as an alternative (although many are actually run by dragon heads).

I recently came across a story from November 2008 in a Guangxi newspaper that looks at the experience with poultry dragon head enterprises in a particular county in Guangxi Province from several points of view: a disgruntled farmer, a happy farmer, and the company itself. This seems to be a rare example of balanced Chinese journalism. The following is mostly a direct translation of the article:

Voice 1: Poultry Farmers Have a Similar Fate; Most Cry Loss

In the Wuming County area, over 1300 farms have been recruited to cooperate with companies since 2002. Last November, the reporter spent a few days in Wuming County visiting poultry farmers and companies to investigate problems with the “company + household” mode of operation. According to most of the farmers, they don’t receive the advertised benefits. Companies also complain that they often lose money doing this business. A professor Shao Fahuan said companies and farmers need to form a community of shared interests.

Huang Lijin [every farmer in this article is named Huang!] he was recruited in early 2007 by a technician from a company who said he could get a profit of 1.5 yuan or more per bird if he raised poultry. Huang took out a loan of over 20,000 yuan from the rural credit cooperative and invested all of his savings, a total of 60,000 yuan. He built a chicken farm according to the company’s requirements on “responsibility land” outside the village.

Since then he has raised 7 batches of chickens and earned basically earned no net profit after deducting costs of chicks, feed, medications, interest, transportation, hired labor, and winter heating costs. This year, on November 15, Huang delivered his last flock of birds to the company. The company doesn’t want him to raise any more on the grounds that he always came to the company to make trouble. Now Huang is left with a broken dream, a chicken farm that cost several tens of thousands of yuan, a 20,000 yuan loan due to the credit cooperative in December and 10,000 yuan of other loans.

On November 19, the reporter went to Huang’s home where he stood by the abandoned chicken farm. Huang said before raising chickens he had no loans from the credit cooperative and didn’t borrow from anyone else. After raising chickens he is deep in debt and feels regret: he should have gone out to find work in the city instead—he could have earned 30-40 yuan per day instead of losing money raising chickens.
He’ll have to use earnings from wage labor and crop planting to repay his loans. He and his wife worked morning to night feeding chicks, cleaning the chicken coop, carefully taking care of the birds…why was there no profit? His daughter is working in Nanning city, earning over 1,000 yuan each month. The two of them worked so hard, but earned less than their daughter.

Huang thinks working with the company doesn’t pay, since he bought medication and feed at relatively high prices from them. He shows the reporter receipts for 52 yuan per bottle paid for medication and 130 yuan per bag for feed. Another villager raising chickens on his own pays 114-119 yuan per bag for feed, and it’s delivered to his home.

Huang said he had to ask people to load each batch of chickens on the truck, and he paid the workers and transportation fee himself. He had to heat the chicken coop in the winter, which cost 3000 yuan. There were also water and electricity fees.
In Heqi Village, Huang Rongkang [a different Huang] is recognized as the best chicken farmer. On the afternoon of November 19, the reporter visited Huang Rongkang’s chicken farm and there were still a batch of chickens that Huang and his wife were tending. Huang said these chickens will be slaughtered in a month.
Huang Rongchang started raising chickens for the company in March 2005. Like others, he spent over 60,000 yuan to start his chicken farm. He has already paid back his loan and still has a 10,000 yuan debt that he expects to pay back within a year. He relies on financial subsidies from the company of .2 yuan per bird. If the company stops giving this subsidy he can’t continue. Winter is coming and he will need to buy some coal to heat the chicken house with a few days. Coal prices are rising so he doesn’t dare buy it.

Huang Rongkang digs out a company account form from 2006 to show the reporter. He said, after 2006 the account statement was taken back by the company and this year’s statement will also be taken back, but he told them he had lost it. On the statement, this was recorded for the batch of chickens on May 13, 2006: final value of 15,815.94, less chicks, feed, medications, interest and deposit, left Huang Rongkang with a net of 4867 yuan. But after deducting transport, heating, electricity, water and labor, actual earnings were virtually nil. From the statement it appears he’s making money, but actually not.

Voice 2: Different Companies; Different Treatment

Villager Huang Zhaoxian raises chickens for the Wuming County Department of Kuidong Company of Nanning. He said the Kuidong company started investing in Wuming in August 2005. He naturally gravitated toward cooperation with company. He thinks Kuidong is good compared with other companies. Although the company supplies medications, the required medicines are all posted on the wall; you can decide what kind of medicine to give. The company subsidizes heating costs at 7 fen per bird per day. Last winter he raised 9,000 birds and got a 3,000 yuan “subsidy” (butie). If you use feed beyond the company’s quota, some companies will give you a discount price. The company sends a truck and pays the cost, weighs the birds on site, and the farmer can go directly to the company and collect his payment--very convenient. The most he earned was 2 yuan per bird, but he also lost as much as 2000 yuan on one batch that were too small. Over the long run he makes more money than he would growing crops.

Huang Songhui previously raised chickens for another company. He has raised chickens for Kuidong Company since 2006. He now has 3 farms, each with 8000 chicks. Huang Songhui said, Kuidong’s deposit is 4 yuan per bird. If you don’t pay enough deposit, the company can charge interest [don’t quite understand this arrangement, but another article I read noted that many companies are making farmers pay a deposit to ensure they sell to the company when birds are finished]. Now his chicken farm has raised 7 batches of chickens. He made money on 5 and lost on 2. If losses are due to disease, the company will collect less deposit. His best earnings on a batch of chickens were 2.6 yuan per bird. His chicken farm investment is pretty much paid back now. He’s unhappy that one time his chickens got sick. He called the company’s technician, but the technician had 5 chicken farms of his own -- he refused to come look since he was afraid of carrying the disease back to his own farm. All his chickens died and he lost over 30,000 yuan.

Voice 3: Raising Chickens on Your Own is More Cost Effective

Huang Songru started raising chickens with the company in 2005, but he quit this year, and started raising them on his own.

Huang Songru received chicks, feed, medications from the company when he worked with them. The price was fixed by the company. The market price of chicks was only 1 yuan, but the company charged over 3 yuan. You have to pay 0.5 yuan per bird for medication even if they don’t get sick. If you do lose your chickens to disease, the farmer bears the loss. For example, in 2007 he lost an entire flock of 8000 birds that were slaughtered at the request of the company to prevent avian flu. The company only agreed to give him 2000 yuan, just enough to pay for the coal used to heat the chicken house. Finally the company promised 4000 yuan, but the company was not willing to sign. They finally gave him only 2000 yuan.

Now he does it himself. The cost of feed, medicines are lower. The market price he receives is sometimes higher, sometimes lower. In February 2007, when avian flu was hitting Nanning, chickens from Guangdong were being sold here and he lost 10,000 yuan. But he has made a big profit on his latest batch. Huang Songru says, “I think it’s better to do it yourself.”

The Company: Farmers Sell Chickens on the Side; The Company also Faces Risk
The reporter went to visit Ning Chengdong, the Chairman of Kuidong Company, on the afternoon of November 23. He said the company has five service departments in the Nanning region, one of which is the Wuming branch. He said the operations of the Wuming branch are presently OK, but not as good as some other branches. On average, chickens from the Huang County branch sell for 0.4 yuan more than chickens from Wuming. This year the Wuming branch had losses. However, the company hasn’t been operating there for long. Other companies have problems as Kuidong does. For example, farmers sell company chickens on their own into the open market. Sometimes, anticipating a market downturn, the company postpones the delivery of finished chickens; farmers worry about rising costs of keeping the chickens longer and sell chickens privately.

When farmers sell company chickens into the market, Kuidong Company’s experience in Yulin region is for the local chicken association to monitor or the local police to watch for it. The company will stop supplying chicks to farmers who do this. It’s hard to determine whether or not this constitutes fraud. Private selling causes losses to the company, so the company can’t sit idly by. The reason farmers bear the risk of raising chickens is that they have differing abilities in raising chickens. Quality and survival rates vary by farmer, so the risks are borne by the farmers to encourage them to do a better job. Although contracts specify that farmers bear risks of weather or disease loss, when ice storms and other actual disasters occurred, the company gave farmers some help and reduced their deposits.

Mr. Ning said, if farmers earn little money they won’t want to raise chickens which doesn’t help the company. The company will reduce the deposit to keep farmers who raise good quality chickens.

Regarding chicks, medicines, and feed prices being higher than market prices…Mr. Ning said this is consistent with higher prices paid for chickens. For example, the market price for chickens is about 15 yuan per kg, but the company pays 20 yuan. Typically, the farmer can earn a net profit of about 2 yuan per chicken. The heating and other costs are not the company’s responsibility. Company workers tell farmers to read the entire contract before signing it. Most farmers are not careful about it.
Mr. Ning also said, when the company and farmers have a problem, it is the company’s own doing. From the point of view of the company…the market fluctuates, if chickens can’t be sold on the market the company will delay taking delivery of chickens out of self-interest. The effect on farmers cannot be avoided.

Expert’s suggestions: Establish a system that spreads benefits equally

Zhao Fahuan, Professor of commerce in the Guangxi University, is an expert on agricultural industrialization. On November 22, he said this mode has brought opportunities to farmers since its inception and has advanced the industrialization of agriculture, but it has had some issues in its implementation, mainly because of the unequal standing of companies and farmers. Contracts, distribution of benefits are decided by the company. Farmers are in a weak position. Companies dominate everything. Farmers come last in production, marketing, etc. For example, companies’ publicity doesn’t always match the actual distribution of benefits. Publicity is misleading; the commitments promised are not honored. Contracts between companies and farmers are unilaterally set by the company for their benefit. Farmers lack awareness of operational and legal matters, which the companies take advantage of, and disputes inevitably arise.

Professor Zhao offers the following suggestions. First, companies need a new operational philosophy that doesn’t see farmers as an adversary and shares benefits with farmers, jointly bears risks, the formation of a community of interests to protect profits of three parties: company, sellers, and farmers for mutual benefit. Farmers need a stronger awareness of legal matters and clear understanding of contract provisions and their responsibilities and rights to understand and maintain their own interests. From the government’s point of view, departments should standardize and urge both parties to establish a mutually beneficial system. If the government fails to supervise, bad companies will have a chance to deceive farmers. Government supervision is especially important to protect farmers’ interests.

Saturday, September 5, 2009

Livestock improved breed subsidies

As part of its push to achieve "modern" agriculture, China has been ramping up subsidies for improved livestock breeds. Initially, the subsidies have been focused on dairy cattle and hogs. Now there are plans to expand the program to beef cattle and sheep. September 3-5, the Ministry of Agriculture is holding a training conference in Changchun for 150 officials from veterinary and breeding stations who are in charge of carrying out the program.

According to the Ministry, there are already clear results from the program. Over half of dairy cattle are covered by the subsidy and national milk production per cow has risen about 10%. The utilization of boar breeding in project areas has risen ten-fold and the rate of artificial insemination has risen 8-10 percentage points nationally. Dairy and hog farmers’ subsidies for breed improvement have increase their incomes about 23 billion yuan with clear increases in profits. The breeding system has been improved. Dairy cattle breed improvement subsidies have rapidly increased the construction of breeding stations and strengthened the farmers’ knowledge of good quality semen. Hog breeding stations have also been built and a network of artificial insemination stations has been established. The project has also reduced the spread of disease, set up a grass roots network of technical support teams for the basis of a modern livestock industry.

The coverage of the program will be expanded in 2009 and funding will increase to include pilot projects for beef cattle, sheep breed improvement. The director of the Ministry's animal husbandry office stressed that each region should take on greater responsibility and urgency in implementing the program in 2009. Grasp supervision of the breeding and semen quality; standardize utilization of funding; stable advancement of beef and sheep breed improvement pilots; provide sufficient manpower to arrange the hog breed subsidies; preserve livestock farm profits.

China's corn crop: What's up (or down)

Northeastern China and parts of other provinces have had severe drought this summer. Recently there have been some rains, alleviating drought conditions, but the damage has already been done to the crop. It's a question of how much production will fall and there are widely differing opinions.

A yumi.com.cn report from on a field trip through the northeast painted a fairly dire scenario, showing fields that were dried up and comparisons of corn cobs from last year and this year. The report had a county by county estimate of corn production that showed declines of 50% or more in the worst-hit areas.

National Grain and Oils Information Center's latest weekly report downplays the effects of the drought. One segment of the report says that estimates of the reduction in corn output range from 5 to 20 mmt; another says the increase in area will probably offset the effects of the drought on yield.

Another report from the Jiangsu grain net says reports on field trips to the northeast from various organizations average out to a 20% decrease in production in that region. They say the current forecast is a decline of 15 mmt. As noted before, the anticipated decline in production is roughly equal to the amount of excess corn the government is holding in reserves. The corn in reserves has high moisture content and vulnerable to rot. Users are worried about mycotoxins.

Corn prices are on the upswing. Corn is over 1900 yuan/mt in Shenzhen now. The livestock industry finally seems to have recovered, so feed demand has picked up. A lot of corn from north China (Shandong/Hebei) was sent down to the south, so inventories are unusually tight in that region. The sales of corn reserves have been fairly brisk lately, offsetting some of the upward pressure on corn prices, but according to some reports it has been hard to get corn down to the southern regions due to transportation bottlenecks. Some small feedmills in the south have reportedly not been able to buy corn.

We may never know the actual impact. The harvest in the northeast is about a month away, and the time of first frost has a major impact on production. In that region, corn doesn't actually come to the market until November or later. In north China it's October. There are always stories at that time of year about farmers holding their corn off the market waiting for a better price or weather affecting the drying process for corn.

Recall earlier this year drought impacts on wheat were being reported as a major crisis, but statistics came out showing another huge harvest. However, field reports this summer say many farmers claim they lost big portions of their wheat this year.

Friday, September 4, 2009

Video of rural China


Here's a link to a Youtube video of photos from rural Anhui, Hubei, Shanghai, and Beijing: