Tuesday, April 28, 2009

Cash for On-Farm Grain Storage

At a meeting on April 22, Premier Wen Jiabao announced that the central government will start giving farmers subsidies to build improved grain storage facilities.

Most grain inventories are held by state-owned grain enterprises at different levels--national, provincial, and local--and commercial enterprises. According The amount of grain reserve storage reported by different departments varies. The Grain Bureau says 350 mmt; the Ministry of Agriculture says 300 mmt; the National Development and Reform Commission says 250 mmt. I think this is capacity, not amount in inventory. If facilities are near capacity, China has more than half a year's production/consumption in storage. The FAO guideline is 17-18%.

According to Li Chenggui, a researcher at the China Academy of Social Sciences, about half of China's grain stocks have been held by farmers in recent years.
After 5 consecutive big grain harvests and a big grain purchase program to support prices this year, storage facilities are overwhelmed.

There are varying stories on how much grain farmers hold. According to one expert, farmers held 2-to-3 years' of grain consumption in inventory in the early years of "reform and opening" [1980s and 90s], but grain stock-holding has fallen as farmers have migrated to cities and figured out they can buy grain if they need it. According to the expert, many young farmers don't store any grain while older farmers still keep 6-to-12 months of grain consumption on hand.

Li explained that farmers have low storage costs, but facilities are poor. [They usually store it in 50-kg bags somewhere in their house, courtyard, or attic.] A lot of grain is lost due to mold, pests, etc. The idea is that less grain will be wasted and farmers can store it until the price is right if they have better storage facilities.

Due to various conditions [unspecified] the subsidy program will be limited to relatively few large-scale farmers in major production areas. It will not be available to most "common" farmers.

Saturday, April 18, 2009

Big Job: Handing out cash to farmers

When China joined the WTO in 2001, officials were busy trying to come up with ways to protect their farmers from big subsidized farmers in the United States and other countries. One of the "countermeasures" was to give out direct subsidies to farmers. Sounds simple, but the reality is that it takes a small army of accountants and clerks to compile lists of eligible farmers, figure out how much each farmer should get, verify it, and send out the money to 200 million farmers. Then make sure the money doesn't get skimmed off before getting to the farmers.

China began its grain subsidy program in 13 provinces in 2004. At first, many localities deducted the subsidy amount from their taxes instead of giving out cash. The government took pains to publicize the subsidy program so farmers would know how much was due them and prevent officials from stealing the money.

Over the years, the distribution methods have evolved. In recent years, they have been distributing funds by depositing money in farmers' accounts at rural credit cooperatives that they can withdraw with a bank card. A 2007 article about this new system quoted a farmer in Qi County, Henan Province, as saying, "This [program] is great. It makes sure the benefits of the Party's policies go directly to farmers and eliminates our suspicions of officials."

An April 1 article describes new changes in the distribution method for 2009. In previous years, the grain subsidy funds came from the finance bureau to a special account at the township, so the township financial office had to pass the funds through township financial organizations, and they distributed the funds to farmers’ bank accounts. This year, funds will be sent directly from the prefectural finance bureau to farmers’ accounts. First the township finance office will report farmers’ subsidy amounts and accounts to the prefecture finance bureau. After verification by the prefecture finance bureau, the planned amount of subsidy funding will be sent to the prefecture-level financial organization, finally the prefecture level financial organization will send funds directly to farmers’ accounts. The reporter thought it was important to mention that the entire amount of funds left over in township special accounts for the subsidies is to be returned to the prefecture finance bureau (i.e. not used to purchase a Buick for the township accountant).

Another change is that subsidies can now be distributed through two financial insitutions. In previous years, grain subsidy funds were transferred through rural credit cooperative accounts. This year they can also be distributed through postal savings banks as well (a postal savings bank was incorporated in December 2007).

The reporter understands that the provincial finance bureau is now verifying subsidy information and grain subsidy funds will be distributed in early April. A number of other counties report having already distributed subsidies in March.

This seems like an awful lot of work for the amount of funds being distributed. The 2007 article cited above reported that 52 million yuan ($764,000, or one "jumbo mortgage" in the U.S.) was being distributed to 241,300 farmers in Qi county, an average of 215 yuan or $32 per farmer. No reports on how many clerks, accountants, and officials it takes to hand out the cash.

China’s new crop of greenhouses

Little of China’s massive fixed asset investment has found its way into the agricultural sector. But authorities are now encouraging investment through subsidies for machinery purchases and a number of other strategies that include building infrastructure, breeding stations, barns, bioenergy facilities, and other fixed assets. They typically include modest subsidies split among central, provincial, and local governments and enticements to private agribusiness companies. Many of these campaigns fall under the rubric of developing “modern agriculture.”

One of these campaigns is “facilities agriculture” which seems to encompass mainly building greenhouses to produce vegetables. It includes construction of various kinds of greenhouses, demonstration projects, breeding stations, and technical training. “Facilities agriculture” was featured in the 11th 5-year plan and the “Decision” of the 3rd plenum of the 17th party congress in October 2008. Campaigns to build greenhouses have been around a while, but this seems to be a coordinated nationwide, well-subsidized effort.

An April 9 article on the MOA web site gives a rundown on progress in facilities agriculture programs in select provinces. A total of 8 billion yuan will be for support of these programs. Funds for subsidies are to come from three levels of government: provincial, municipal (prefecture), and county. Provincial governments are scheduled to contribute the biggest share—nearly 3 billion yuan, followed by about 2.9 billion yuan from counties, and 2.2 billion yuan from municipal governments. The total is roughly half of the amount of grain subsidies allocated for this year. Eight provinces are expected to allocate over 100 million yuan each (Beijing, Liaoning, Shanghai, Tianjin, Jiangsu, Jilin, Ningxia, Inner Mongolia). The article doesn’t mention any contributions from the central government but each province has similar subsidies and targets, indicating this is a national program directed by the central government with actual responsibilities devolved to local governments.

Facilities include greenhouses heated by sunlight, greenhouses formed by constructing a bamboo frame covered with plastic sheeting, and mesh netting placed on a 4-5-foot frame over an outdoor vegetable patch. Greenhouses typically have an earthen or concrete wall on one side and a frame covered with plastic film on the southern exposure. Only a few well-capitalized companies have glass-enclosed greenhouses and drip irrigation. Mesh netting appears to be used mainly in Jiangsu Province. Small plastic-covered frames are commonly used in fields to start seedlings. “Facilities agriculture” is part of China’s broader “modern agriculture” campaign. It also emphasizes building county plant breeding farms, offering training for farmers, and setting up demonstration areas.

Each province has established subsidy standards for each type of greenhouse and most have ambitious targets for increasing the area covered by facilities agriculture. The subsidy varies from province to province. In Jiangsu, the subsidy is higher in poorer, agricultural regions in the north of the province where a steel-framed greenhouse is subsidized at 2500 yuan per mu, compared with 1500 yuan per mu in the richer southern part of the province. In Beijing, the subsidy for steel-framed greenhouses is 10,000 yuan per mu. Shanghai is subsidizing vegetable production base facilities of 300 mu or larger at 40,000 yuan/mu.

Already there are places where the ground is completely covered by plastic greenhouses. According to China’s agricultural census, greenhouses covered over 1 million hectares of planting area in 2006, about three-fourths of that planted in vegetables. Shandong Province is by far the leader in greenhouse agriculture, with about 20% of the greenhouse area in 2006. Shouguang of Shandong (ground zero for China’s greenhouse/vegetable explosion) is a demonstration area for greenhouse area where the fields are blanketed with plastic structures. Shouguang has one of the biggest wholesale vegetable markets and a massive research center with surreal giant fiberglass vegetables decorating the courtyard.

Provinces have set ambitious goals to expand area sharply. For example, Liaoning plans to have 8 million mu of greenhouse area by 2010, up from its 1.4 million mu total in 2006. Jilin and Tianjin have targets of 1 million mu by 2011 and 2012.

Thursday, April 2, 2009

Cotton area down 11.6% this year

The Ministry of Agriculture held its cotton work conference in Beijing on April 1. With lower textile exports, plunging prices, and "pressure from imported cotton," farmers are not eager to plant cotton this year. The MOA's planting survey shows that cotton area will be down 11.6% this year. The article on the conference describes the situation as "grim", but the 5.1 million hectares forecast for this year is about the same as 2005 and roughly the historical average since 1949. Why do Chinese officials think the country needs to produce so much cotton? The country has been using massive amounts of cotton that was turned into blue jeans that landed on shelves of the Gap and Wal-Mart in the rest of the world. Now it's back to reasonable levels. This is not a problem; we're getting back to sanity.

Nevertheless, "facing the current grim situation," MOA vice minister Wei Chao'an emphasized the need to raise this year’s cotton production. Cotton seedlings are already emerging and now is the time to implement policies in all regions, "transferring intentions to the field." This year the State spread its quality seed subsidy for cotton from 8 provinces last year to 25 this year, covering 33.33 million mu (2.22 mil ha). Each region must formulate an implementation plan, scientifically ascertain the varieties for subsidy, earnestly implement the subsidy, and strengthen cotton seed market supervision.

This year MOA will set up 200 10,000-mu demonstration fields in 198 advantaged cotton counties with 150,000 mu or more of planted area and develop high yield cotton development programs. Each region should learn from the best practices of raising grain yields, multi-level development high yield creation. Presently, thin density is a problem facing hybrid cotton, preventing high yield. A hybrid cotton increased density program will start this year. The plan is to increase the number of stalks per mu by 500 to reach 2000 stalks per mu, close to the 2200 achieved in high-yield demonstration fields. At the same time an emphasis will be on spreading disease-resistant varieties, strengthening cotton pest and disease forecasting and disseminating specialized disease and pest control methods.