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.

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.

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.

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.

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.

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.

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.

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.