Dim Sums: Agricultural Markets in China

A National Grain Work Conference was held on January 20. The Grain Bureau chief, Nie Chengbang, noted that there is still downward pressure on prices since domestic prices are still above international prices and China had a big harvest this year. In this situation, Nie said China has to prevent excessive imported grain from flooding into the domestic market. Li Guoyang, from the Academy of Social Sciences, told the meeting that China can't restrict soybean trade because of its WTO commitments, but "corn requires more caution." Nie noted that the government had supported prices by announcing three rounds of temporary state reserve increases totaling 50.5 mmt. Most recently [on Jan. 12] a fourth round of 8 mmt procurement was announced [3 mmt northeastern soybeans and 8 mmt of southern rice]. A January 12 article lists the four rounds of procurement: Oct. 20, 16.5 mmt Dec. 1, 14 mmt Dec. 24, 10 mmt (corn) Jan. 12, 8 mmt The National Grain and Oils Information center'...

According to Chinese customs statistics, China’s imports of soybeans for calendar year (CY) 2008 (Jan-Dec): Volume up 32% (up 6.6 mmt to a CY2008 total 37.4 mmt) Value up 90% (up $10.35 bil to a CY2008 total $21.8 bil) China imports soybeans from the U.S., Brazil, and Argentina. CY2008 imports from Brazil were up only 10% by volume from CY2007 and were essentially the same as in CY2006. Imports from the U.S. were up 33% (3.8mmt) by volume in CY2008 and rose a cumulative 56% (5.5 mmt) from CY2006 to CY2008. The average unit value (average CIF price) of soybean imports from the U.S. was up 49% in CY2008, while the unit value for soybeans from Brazil was up 70% and 55% for soybeans from Argentina in CY2006 and CY2007 U.S. unit values (CIF prices) were close to those of Brazil and Argentina, but in CY2008 Brazilian unit value averaged 14.5% higher than U.S. unit value (Brazilian beans were more expensive), consistent with the shift of imports to U.S. sources.

Some commentators hailed the third plenum meeting last October as a major land reform that allows farmers to transfer land use rights and establish big farms. In fact, it has been possible to do this for some time. There are already arrangements to transfer and consolidate land in relatively rich areas of eastern China where people have alternatives to farming. A recent article describes the arrangements and government policies that have supported land transfers for several years. Cixi is an area in eastern Zhejiang Province that used to be a major rice-producing area but has now morphed into a center for industry. On average, each family is allocated about 2 mu of land (less than half-acre), usually split into multiple plots. The local government issued a document in 1999 that supported land use rights trading, and the local government allocated 2 million yuan per year from 2000 to 2003 to support land transfer infrastructure and services. A network of 289 village land transfer statio...

A dairy industry conference was held in Beijing on January 19 to “discuss” experiences and measures to address food safety problems. Although the conference was held by the “China Dairy Industry Association,” the head of the Ministry of Agriculture’s (MOA) Livestock Industry Office is listed as the first chairperson, followed by the head of the dairy association. The MOA official’s comments are featured in a paragraph followed by a paragraph of comments by the dairy industry association head. Listing the MOA official first is a reminder of government's centrality in food safety in China. (In many industries, even the “industry association” itself is a thinly disguised government planning bureau.) Representatives of the big dairy companies and regional associations were also present but their views are not revealed. Among dairy companies there have been two approaches to tightening up their supply chains. Guangming, Sanyuan, Yinqiao, and Flying Goose have concentrated on developing ...

The Chinese government has announced a new system for monitoring hog prices that specifies criteria for intervening in markets when prices fall below specified thresholds. They have a list of price indicators that they plan to monitor and manipulate through market interventions. Can China engineer its way out of the hog cycle? On January 9, 2009, the National Development and Reform Commission and Ministries of Finance, Agriculture, Commerce, Commercial Bureau, and AQSIQ jointly issued a document that announces China’s intention to iron out fluctuations in hog prices . The document affirms the leading role of market forces but with government control. The new system identifies a list of indicators that the government will watch to assess the state of the hog market. Indicators include live hog, grain, pork, feeder pig prices and hog inventories. The system aims at maintaining specified ratios between prices and minimum inventories of hogs. The chief indicator is the ratio of hog price t...

A Newsweek article "Give Them a Raise" hits on the fundamental problem creating huge economic imbalances that contribute to the financial crisis: the incredibly low wages paid to Asian laborers. The American consumer is being castigated for buying too much, but how can we resist buying when stuff is so cheap? When DVD players are $40 and a computer is $300, who can resist? Low wages are one of the factors (but not the only one) behind the bargain basement prices that we've come to expect. The article correctly points out that laborers with low wages can't afford to buy much. A century earlier, when the U.S. was the world's factory, we also had figured out how to turn out massive amounts of product, beyond the capacity of the market to absorb it. Henry Ford recognized the problem and raised wages so that his workers could afford the cars they made. The Newsweek writer, however, provides the wrong prescription. He calls for a pan-Asian minimum wage. This is unwork...

A 2008 China corn market report from the China Corn Net is mostly pessimistic. The corn harvest has been big 5 years in a row. This year it rose a lot (but no estimate given). The government announced three rounds of temporary corn procurement for state reserves to support prices (reported here in December). The 30 mmt would be nearly half of the reserves in the Northeast. Afterward, much of the grain would be in state hands. The procurement is boosting prices as processors and traders try to buy up corn. In parts of Hebei Province there is a scramble for grain as traders are competing for the grain while it's cheap. Processors and feed mills are increasing inventories, preparing for post-spring festival normal operations. Still, demand from industrial users is down. Paper and textile exports (significant users of corn starch) are down. Sugar prices are down, reducing demand for corn sweeteners. In 2008, it is estimated that starch production fell sharply, perhaps by 3%. During the...

China National Grain and Oils Information Center (CNGOIC) raised its estimates of 2008 corn and rice production in its latest report. It raised its corn estimate to 165.5 million metric tons (mmt) from its previous estimate of 156 mmt. Paddy rice production was raised to 193 mmt from 189 mmt. The higher corn number seems to validate the USDA's new China corn estimate...or maybe CNGOIC takes its cues from the USDA reports.

In recent weeks, Chinese buyers have been grabbing lots of soybeans in the U.S. market despite the financial crisis. This surge in demand for imports is ironic, given that China had a big soybean harvest. The explanation is that Chinese soybeans are not being sold because the government has supported the price. Imports are flooding in to replace domestic beans. As reported earlier here, Heilongjiang Province's soybean industry is in crisis. The government sought to support prices at 3.7 yuan/kg. when domestic prices began to follow the downward plunge in global prices this fall. However, China has minimal barriers to soybean imports (the tariff is 3%) and imported soybeans are available at Chinese ports at 3.1 yuan/kg. With such a big price differential, processors don't want to buy domestic beans. An article posted on the China edible oils net (and on many other Chinese news sites) on Jan. 8, plays up the crisis situation with a nationalistic slant. The article attributes the ...

Everybody is talking about China's economic growth for 2009. An article in "China Economic Weekly" gives a run-down of the forecasts. The situation shows a lot of parallels with the Asian Financial Crisis of a decade ago. The article questions whether growth will plummet as it did in 1998. A GDP growth target of 8% was set at the 2009 central economic work conference held on December 8, 2008. The slogan is "keep 8". There was a similar target ten years ago, and many overseas economists (notably Tom Rawski) suggested that the National Bureau of Statistics was overstating GDP growth to meet the target. The outsiders pointed to declining energy consumption and other indicators that implied to growth in the low single digits. A China Academy of Social Sciences population and labor economics research institute vice director explained that the 8% growth rate is necessary to absorb surplus rural labor. He says, "if the economy cannot grow at least 8%, we cannot a...

The Shandong Provincial Branch of the Agricultural Development Bank of China (ADBC) plans lending of 5 billion yuan in 2009 to support minimum price procurement of 2.86 million metric tons of wheat to stabilize supply. Funds for wheat procurement are to rise 130% from the previous year and the amount procured with those funds is up 125% for a new record amount. As of November, the total lending for 2008 by the Shandong ADBC totaled 16.57 billion yuan ($2.45 billion) to support enterprises' procurement of 8.26 mmt of grain, 294,000 mt of cotton, 90,000 mt of edible oils to maintain normal procurement and supplies.

Statistics from the Agricultural Development Bank of China (ADBC) as of Dec. 20, 2008 show that loans for purchases of cotton in Xinjiang Autonomous Region totaled 28 billion yuan (over $4.1 billion) to preserve profits for 1 million cotton producers in that region. New cotton procurement in Xinjiang totaled 2.1 million metric tons. According to provincial agriculture department, 2008 sown area of cotton was 24.338 million mu (1.62 million hectares) and production was 2.8 million metric tons, down about 100,000 mt from 2007. Because purchasing cotton is too risky, the Agricultural Bank of China (a commercial bank) and rural credit cooperatives have withdrawn from lending, leaving the state-run ADBC policy bank as the main source of funds. Given the lack of commercial bank funds, many privately-owned cotton enterprises have gone to the ADBC life line for loans. This financial support keeps farmers profitable.

More evidence that China's food export boom may have peaked. As the full cost of Chinese food products is factored in, prices are rising and demand is slowing. According to a session on aquaculture at the national agriculture work meeting held on Dec. 29 , the value of Chinese fish and shellfish exports rose during 2008 due to the rise in primary commodity prices, but the quantity fell. Fish and shellfish exports totaled 2.18 million metric tons in the first three quarters of 2008, down 0.9%, year on year. However, due to rising prices, the value of fish and shellfish exports was up 9.8%, exceeding 7 billion dollars. The value of exports is expected to exceed 10 billion dollars for the year. Aquaculture exports have slowed their breakneck pace of growth and company profits have fallen since the second half of 2007 due to a host of reasons: changing economic situation, food safety incidents, rising labor costs, tighter environmental controls, rising raw materials and energy costs, c...