Monday, June 15, 2009

Agricultural insurance supports rural loans

Agricultural insurance and construction of infrastructure are two building blocks of China's rural financial system. So said Liu Shiyu, the vice-chairman of the Peoples Bank of China at a conference on the results of rural finance surveys held at Qinghua University on June 13.

According to Liu, village mutual lending organizations generally have only about 300,000 yuan in capital, which means about 1,000 yuan per farmer in loans to support purchases of fertilizer and pesticides. Without agricultural insurance, loans can go unpaid in the event of a natural disaster.

The reporter learned from company representatives that the Shaanxi Branch of Peoples Insurance Company and Anhui's Guoyuan Agriculural Insurance Company are among the companies exploring agricultural insurance business. Some products are already offered.

The example given in the article is "facilities agriculture." Agriculture's water, electric, gas and road infrastructure need improvement. Subsidized agricultural insurance has been implemented in the hog and dairy industry nationwide and in the outlying areas of Shanghai.

Liu claims that China's agricultural insurance system is way behind the rest of the world. However, in actuality, agricultural insurance typically requires government subsidies, and that's the case in China. The framework for insurance in China relies on financial subsidies for insurance. Bank loans are given with insurance as the security. The article fails to point out that the companies offering agricultural insurance are state-owned too. The reporter says agricultural insurance is a cooperative venture between insurance companies and banks that relies on financial subsidies.

Monday, June 8, 2009

VAT rebates for exports: so much for Chinese demand

On June 1, the value added tax (VAT) rebate was raised for exports of 2600 labor-intensive, high-tech, and "deep processed" commodities. Included were corn starch and ethanol products, for which the rebate was raised from 0 to 5%, and apple juice and canned food, which now get a 15% rebate, up from 13%. Yogurt and butter get a full 17% rebate to support the limping post-melamine dairy industry.

The Guangzhou Daily pointed out that this was the seventh round of VAT rebate increases since August 2008. A representative from the Guangdong Province trade bureau said this round of VAT increases was mostly in light industry and food processing, as the central government hopes these will create jobs and improve peoples' livelihoods. It is rumored in industry circles in Guangdong that the VAT rebate will be raised to its maximum of 17%.

This is a reminder that the Chinese economy's main objective is to keep people producing things even if it means dumping the products on the foreign market. So much for relying on domestic demand in China to pull the world out of recession. Grind up some more surplus corn and apples to sell cheap starch and apple juice to the Americans and Europeans.

Sunday, June 7, 2009

Return of the cooperative: grain reserve purchases

"Cooperatives" generally leave a bad taste in the mouths of Chinese farmers. The communes they were forced to join in the 1950s were called "cooperatives" although there was more coercion than cooperation. Farmers could not independently form their own cooperatives or associations until a new law was enacted in 2007.

Now Chinese officials have resurrected the cooperative and are pushing them as the new mode for organizing small farmers in China. Each province has a web site listing cooperatives in the province and products they sell. Cooperatives get support from the government, and there is a supermarket-farmer linkage program in which supermarkets purchase (mostly vegetables and fruits) from farmer cooperatives or distribution centers.

According to a June 4 article, warehouses in Shaanxi Province that purchase grain for central government reserves have been instructed to place orders with specialized farmer cooperatives in grain-producing areas. A notice issued by the Shaanxi Province agriculture department and Sinograin Co.'s Xian branch requires various levels of agricultural departments and central grain reserves to develop links between national grain reserves and farmers specialized cooperatives.

Each municipality and county agriculture bureau, agricultural management station, and technology station must lead their local farmer specialized cooperatives that have grain production and marketing capacity to form links with central grain reserve warehouses in their area. They should enthusiastically coordinate the signing of contract orders for grain, purchase and marketing work, and solve remaining problems between production and marketing counterparts. Each central reserve station should strengthen its relationship and coordination with local agriculture departments, controlling the production dynamics, carrying out grain procurement policy and implementing convenient services to cooperatives and grain farmers to the fullest extent possible to ensure that orders for grain are fulfilled and safeguard farmers from harm.

At the end of the year, the provincial agriculture department and Xian branch of Sinograin will evaluate the work and give incentives to units that do the work well.

The notice also reported each municipality’s and county’s high-yield demonstration field situation and issued the name and contact phone number of leaders of each agricultural management station, extension station, central reserve station director, and purchasing company manager to facilitate linkages between grain reserve warehouses and farmer specialized cooperatives.

Wednesday, June 3, 2009

Green shoots for China's cotton stockpile?

Chinese authorities have stockpiled huge amounts of nearly every commodity this year, mostly in an effort to prevent prices from falling. Now that farmers have sold most of their harvest from last fall, they're looking for the right time to unload their stash.

In 2008, China's textile and apparel exports fell off a cliff. The weak demand translated to weak demand for cotton. China's State Council issued a document calling for policies to stabilize farmers' incomes and preventing downward pressure on farm prices that included buying cotton for reserves at a support price. The April cotton market report from the National Development and Reform Commission presents an optimistic picture after months of dismal news.

According to customs statistics, April textile and apparel exports were $12.49 billion, down 12.6% from last year, but up 2.7% from the previous month. The report says exports have been warming up since March. Textile exports for the 2008 cotton year could be $112.8 billion, down 1% from last year.

In April, the reserve purchases were completed. In all, 2.72 mmt of this year’s cotton had been purchased for reserves, of which inland cotton was 1.18 mmt and Xinjiang cotton was 1.54 mmt. That's roughly half the cotton crop. With that much cotton stockpiled, imports have been down sharply. April cotton imports were 146,000 mt, down 44.7% from last year. The report expects exports for the market year to total 885,000 mt, down 44%. However the report tells us that, with the 1% tariff, the cost of imported cotton averaged 10,447 yuan/mt, 2132 yuan lower than the domestic market price.

The report says reserve purchases helped domestic cotton prices rise quickly. In April, the average domestic seed cotton procurement price was 2.78 yuan/jin (582 yuan/dan for lint cotton), up 8.7% from the previous month. The inland cotton price was up 9.1% and the Zhengzhou exchange July futures price was up 6.7%. China's prices appear to be following the upward swing in international prices. The international price was up 13.9%.

Now the prices are coming back up a little, farmers have sold nearly all of their cotton, and there seem to be some signs of life in the textile industry, officials think it's time to start dumping their stockpile. Another NDRC report says that cotton reserves would start to be released into the market on May 31. A total of 1.532 mmt will be sold.