Dim Sums: Agricultural Markets in China

China's officials are worried that tens of millions of migrant workers who lost their jobs in the economic slowdown are a potential cause of unrest. Since the economy started going south last fall, the government has been publicizing its efforts to encourage migrants to start their own businesses when they go back to their villages. An article from the Chongqing Evening News celebrates a "million dollar girl" who went back to the country side to start a hog farm after her business went bust in the financial crisis. The journalist/cheerleader tells us, "The financial crisis is nothing to be afraid of; only be afraid of a 'dead heart.'" The article seems to be a propaganda piece that hearkens back to the socialist "model worker" stories like the apochryphal Lei Feng. The story has a good dose of melodrama (vital to a Chinese story), is calculated to inspire, and assures folks down on their luck that the government is here to help them. The petit...

The weekly report on the soybean market from eastern Heilongjiang reveals that trade in domestic soybeans is slowing even more. The fall in international soybean prices and soft domestic demand pushed domestic prices down by about 0.02 yuan/500g to about 1.62-1.64 yuan/500g (3240-3280 yuan/mt) for farm sale prices. The sale price for processors or traders is 1.65-1.67 yuan/500g. The support price for government reserve purchases is 1.85-1.87 yuan. As market prices fall, the gap between the actual market price and the support price widens, and it becomes less attractive to buy at the support price. So, it's not surprising that farmers are having trouble selling their beans. The report says that not many beans are being bought at the support price. Many of the designated purchasers don't have enough storage capacity--that may be true since usually no one holds large soybean reserves. It is said that some of the reserve beans will be shipped south where there is some excess storag...

It looks like China's officials are worried about keeping the farmers happy and making sure they plant their crops this spring. In Zhejiang Province, farmers are receiving "Five Gifts" from the government : policies, contracts (to purchase grain I guess), technology, farm inputs, and credit. Zhejiang plans to increase rural policy support this year, especially for grain production. The province pledged to increase rural subsidies by 40% in 2009. One farmer named Zhan reports that on February 9 the vice-governor "gave" him 400 kg of rice seed and a 150,000 yuan line of credit at the local bank. Farmer Zhan expresses appreciation for this love straight from the heart of the communist party and pledges to plant more grain and do a good job at it. The article describing the "five gift" program says it is calculated to encourage farmers to plant grain in the key period leading up to the time when they will plant their early-harvested rice crop. It notes the...

In January, the Agricultural Bank of China (ABC) finally became a share-holding company, the last of China's big-4 state-owned banks to do so. It took years to resolve internal problems in ABC to get it ready for the listing. Historically, ABC was made responsible for rural lending when market reforms were implemented in the 1980s. Bank reforms in the 1990s spun off ABC's policy functions (i.e. grain and cotton procurement financing) into a newly-created Agricultural Development Bank of China and ABC was freed up to become a commercial bank. In recent years it has pursued the more promising urban market and most of their business is now urban. You can see ABC branches and ATMs all over Chinese cities. ABC has a pitiful track record in lending. About a quarter of the loans on its books were nonperforming as of last year (and that's with a generous classification.) Over $100 billion of bad loans were taken off its books and dumped into China's version of a "bad bank...

China's support of corn prices in the northeastern provinces is distorting the market. As noted in a post a couple days ago, there is now an unusual situation where prices are higher in the northeast than in provinces further to the south, like Hebei and Shandong. An article from the China Corn Market Net discusses the odd price structure and south-to-north corn movements. Jilin Grain Group has stopped buying corn in Jilin where the price is fixed at 1500 yuan/mt. Instead it has been going south to Henan, Hebei, and Shandong Provinces to buy corn and ship it back north. The price at the Dalian port in north China is 1460 yuan/mt ($213) Wholesale price in Jilin (northeast) 1340 yuan Farmers' sale price in Jilin 1440 yuan Reserve purchase price in Jilin 1500 yuan In Hebei the purchase price is 1300-1350 yuan with better quality and lower moisture. The movement of corn from Hebei to Jilin is bizarre because normally corn moves south to corn-deficit regions like Jiangsu, Fujian, a...

Yesterday, this blog posted an article on the outbreak of "blue ear" disease in Hongdong County of Shanxi Province, wondering why no information was being disseminated by the Ministry of Agriculture. Sometime later that day, MOA posted an article from the Ministry Press Office on its web site announcing the outbreak and assuring us that the Minister and Vice Minister were paying close attention. The Ministry's article says the outbreak is highly pathogenic blue ear disease. This means they are taking it seriously. They have sent a work team to Shanxi. The area has been sealed off and disinfected. They are investigating the spread of the disease in villages, farms, and slaughterhouses, and they claim to have vaccinated 81,000 pigs. They claim no sick or diseased pork has reached the market, but another article says that one sick pig did get sold. Still no information posted on other agriculture information sites. China's animal disease control center's web site th...

Heilongjiang Province has lots of fertile land and is a big grain producer, but it's far from markets along the east coast. The province has lots of grain that goes into warehouses and rots. So Heilongjiang officials are always trying to hatch some plan to use up all the grain they produce. Their latest plan is to become a huge hog production base. They have a new plan to increase hog slaughter to 50 million head by 2012. That's around 9 percent of current national output. They have identified surburban areas of Harbin, Daqing, Mudanjiang, Jiamusi, and 28 other cities and counties for hog development. They will set up regional breeding centers, subsidize loans for dragon head enterprises, set up 7177 large scale hog farms, increase silage output from 9.8 mmt to 19.2 mmt in 5 years, and build facilities to make methane gas from hog waste. The province will carry out disease surveillance, boost credit through loan guarantees, form cooperatives and associations, promote vertical i...

News is trickling out that dead pigs in Shanxi Province were infected with "blue ear disease." On Feb. 9, a spokesperson for the provincial government reported that 1,000 pigs in Hongdong County, Wan'an Township, were confirmed to be infected with the "highly contagious blue ear disease" after lab tests. The county has 14,122 pigs and as of Feb. 6, 1056 had died: 871 feeder pigs, 157 pigs in grow-out, and 28 sows. "Blue ear" disease, also known as porcine reproductive respiratory syndrome, causes sows to abort, still births, breathing difficulties in piglets, and difficulty nursing. China had a major outbreak in 2007 when it spread to 28 provinces and contributed to huge disruptions in pork supplies and record-high prices. Another article claims the disease is caused by a bacterium called eperythrozoonosis that attaches itself to red blood cells and sometimes destroys them. This article claims it is common in pigs and blames the outbreak on the tempera...

The Xinjiang Production Corps, a giant quasi-military farm and industrial operation in China's far northwest, is China's biggest producer of cotton. In the 1990s, production was expanded rapidly in this arid region. But now it appears that this level of production is unsustainable, and the Corps is planning to cut back cotton acreage and expand production of grain, livestock, and fruit. The government may be growing impatient with the subsidies needed to support production and transport it to eastern China where most of the factories are. Xinjiang has been hit hard by the current economic crisis. A reporter learned from Xinjiang departments that the production corps' sales of cotton this year were only a fourth of sales last year at this time, if sales to government reserves are excluded. According to a Feb. 1 article from China Cotton Association , in 2008, the corps' cotton production was 1.3 mmt, one-sixth of the national output. Cotton accounts for 60% of income for...

The global economic crisis is having its most serious impact on the textile-cotton supply chain in China. Declining sales at the Wal-Mart and Bed, Bath, and Beyond down the street are being felt by cotton farmers in China. Down on the farm it looks like the combination of poor returns from cotton and support prices for grain will lead to plunging cotton area in China this year. One China cotton exchange writer reports on a spring festival visit to his home village in one of the major cotton producing areas of Anhui Province. Farmers told him that returns from cotton plunged due to a double-whammy of declining prices and yields over the last two years. Moreover, fertilizer prices rose, further reducing net profits. Farmers he talked to said the price they receive for seed cotton fell from 3.6 yuan per jin (1 jin = 500g) in 2006 to 3.05 yuan in 2007 and just 2 yuan this year. The provincial authorities claim the cotton price was raised to 2.45 yuan, but the farmers say most of them actu...

Is avian influenza spreading in China? Cases in Hong Kong and Shenzhen led some to assert that the disease is spreading in China. I checked China's Animal Husbandry and Veterinary net web site--surely this is the place to find out--but the latest article is from two weeks ago (Jan. 19), about a network of labs set up in universities to check on avian flu. The article says the avian influenza situation is grim in neighboring countries. As for China, it says in recent years AI has been endemic only in some northern provinces, but AI was detected in an area of Jiangsu Province on December 15, suggesting that it may have spread over a broader area. In January, the article reports, two people in Beijing and Shanxi contracted AI. The victim in Jiangsu was a farmer in Hai'an county . The H5N1 strain was detected in samples, but it was determined to be different from the virus found in southern China (Hong Kong and Shenzhen). Experts concluded it probably was spread by migratory fowl. ...

Normally, the lowest prices for Chinese corn are in the northeastern provinces. This region has huge supplies and it is far from the big markets in coastal areas. As you go south, the corn price tends to go higher. Corn typically flows out of the northeast to southern regions where there is excess demand. This year, the government announced a support price for purchasing 30 mmt of corn in the northeast, about half of the harvest in that region. The price structure is now distorted, with northeastern prices higher than in provinces to the south. A farmer in Zhengding County of Hebei Province complains, "This year the corn price is low, and I can't sell at a price that will bring a profit." The price in Hebei averaged about 1.6 yuan/kg last October, and it fell to 1.33 yuan/kg in January, as new corn came on the market. Farmers' profits have been cut by half. In some areas of the province, the price is just 1.2 yuan/kg. By comparison, the price in the northeast is about...

China's economic planners are trying to create an economic Frankenstein by combining half-understood classical economic concepts with central planning. Will they succeed in creating the perfect economy? Or will their monster run out of control and destroy itself and its creator? This week, China's State Council released another in a 5-year succession of "No. 1 Documents" to show its resolve to address lagging rural incomes. This year's document emphasizes a regional layout plan to concentrate different types of agricultural production in the regions best suited for them. There are 16 major commodities and 58 regions. For example, areas in Inner Mongolia and Heilongjiang have been designated as dairy regions; areas in Henan have been designated for beef. The southern coastal area of Guangdong has been designated as the region to produce aquaculture products for export. The plan is an example of China's hybrid approach to economic development that combines econo...