Dim Sums: Agricultural Markets in China

On January 26-28, the Ministry of Agriculture called in representatives of its elite "dragon head" enterprises (also known as "leading" or "flagship" enterprises) to instruct them on the communist party's new direction for businesses. The vice-minister of agriculture, Chen Xiaohua, outlined China's new strategy for agricultural companies at a "training class" for representatives of national-level agricultural "dragon head" enterprises. At the training, the company representatives were devoted to "serious study" of the central communist party's work meetings on the economy, rural affairs, and agriculture. The meeting is an example of how the party/government instructs large businesses who get certain benefits from the government on how to carry out the party/government's strategy. If you're watching what's happening or doing business in China, you should be aware of the behind-the-scenes string-pulling t...

Last year, Chinese authorities introduced a new program aimed at stabilizing pork markets by buying up pork when the ratio of hog to grain prices falls below a certain threshold. A Sept. 3, 2009 article about the selection of a company in Mengcheng of Anhui Province reveals a little about how the pork purchases work. According to the article, provincial authorities chose some large scale processing enterprises near central cities to purchase up to a 4-month inventory of frozen pork for the reserve program. Companies had to have at least 2000 tons of temperature-controlled warehouse capacity and daily slaughter capacity of 1000 head or more. The companies were chosen through a competitive bidding process. Dongsheng (East Rising) company, assigned 1,200 tons of frozen meat reserves, receives lump sum financial support of 800,000 yuan for its costs. "Reserve purchases bring the “reservoir” effect into play, preventing declines in hog prices, stabilizing county-wide production of hogs...

An article that appeared in the Chongqing Evening News last September reports the story of Mr. Chen who found a bottle of toxic pesticide mixed in with his rice. The story provides an example of the combination of ignorance, minimal regulation, and callous disregard for other peoples' welfare that creates China's severe food safety problems. Mr. Chen bought a 10-jin bag of rice at the supermarket, brought it home, and as he was preparing dinner, his child noticed a small plastic bottle in the bag. The child exclaimed, "There's a bottle in the rice!" Photo from Chongqing Evening News The bottle was about the width of a finger and contained a powder. It had a tiny hole drilled in the side. Mr. Chen picked up the bottle, and it gave off a strong odor. He examined the label and found that it was a highly toxic pesticide called aluminum phosphide. The label said it was forbidden for home use. As he thought about it, Mr. Chen became more nervous, recalling many other b...

China's "Go Global" (literally, "Going Out" or "Zou Chu Qu") strategy of foreign investment to raise crops overseas has gotten a lot of bad publicity. There was an outcry in the Philippines over a Chinese project a couple of years ago, and last month the Kazakhstan President provoked an uproar in his country when he floated a plan to rent 1 million hectares to China. No one knows too much about this strategy. An article by several Chinese authors in International Cooperation last year described the strategy and offered a frank critique. The program offers a window into China's intertwining of government and business in which companies are enlisted to work toward achieving the government's objectives. This strategy seems to be a very expensive way to get more food. The strategy has been around since the government picked some companies to become international players in the early 1990s. The 2007 No. 1 Document of the Communist Party called ...

The weekly corn report from the National Grain and Oils Information Center reports that the difference in corn prices between northeast and south has temporarily narrowed. The corn price in Dalian and elsewhere in the northeast has been rising as farmers have been hesitant to sell corn. Corn purchases from farmers in the northeast are well behind last year's pace at this time. Meanwhile, in Guangdong the price has been more or less stable. Starting in November, large quantities of corn were transported south. NGOIC says commercial corn inventories in Guangzhou are now about 300,000 metric tons, much higher than normal inventories of 150,000-200,000 metric tons. The cost of shipping from Dalian to Guangzhou has fallen from 170 yuan per ton in November to 90 yuan now. Nevertheless, the profit for traders has shrunk from 50 yuan per ton to nothing due to the higher Dalian price. NGOIC says some traders are keeping an open interest in corn for two reasons. One is to be ready in case a ...

On January 11, China's Commerce Ministry released a document outlining its ambitious vision for reengineering the hog slaughter and processing industry . The pork industry is plagued by excess capacity and food safety concerns. The plan calls for eliminating 50% of "backward" hog slaughter capacity by 2015. The plan features a multilevel system consisting of small slaughter facilities that serve local markets and relatively few large mechanized facilities that produce frozen cuts of pork and processed, branded products and ship them around the country and overseas. Large cities of over 5 million people are to have 3 or less large slaughter facilities, and smaller county cities have 1 or none. Part of the plan is to change Chinese consumers' pork consumption habits. The traditional mode is to send an entire fresh pig carcass the same day it is slaughtered to the market where a butcher cuts off slices for the shopper. The new plan wants to get consumers to start consumi...

Farmers in a village in Pulandian, near Dalian in Liaoning Province, want to know why no hog traders have come knocking at their door lately. Normally, at this time of the year--ahead of the Spring Festival--hog traders will come to the village and go door to door trying to buy hogs as the peak season approaches. In previous years, farmers got a good price of 6.2 to 7.5 yuan per jin. That was enough to make a profit and encouraged them to raise hogs. A reporter got a call from a farmer looking for help to sell pigs. The reporter went to investigate and found that nearly every family in the village raises pigs or other livestock. Ten families raise 20-30 pigs and the others generally raise 4-to-5 pigs. Few traders came to buy hogs since last November. None came after the new year, and none called on the phone either. Farmers heard that this year's price is about 6 yuan or less, about 1 yuan lower than in previous years. With higher feed prices this year, they anticipate losses at th...

An article in the Farmers Daily boasts that the Hog Market Intervention Program introduced in January 2009 has stabilized the pork industry. A year ago, the National Development and Reform Commission, Commerce and Trade Ministry, Agriculture Ministry, Commercial Bureaus, and import/export/quarantine administration jointly issued regulations on controlling falling hog prices. According to the plan, the government will monitor certain indicators, chiefly the ratio of hog and grain prices, and buy up pork when the hog-grain price ratio gets too low. On January 12, an NDRC spokesman said the regulations had reduced cyclical fluctuations in hog prices and promoted stable development of the hog sector. He said last May the hog-grain price ratio went down to 6:1--the loss threshold--and farmers started losing money. After purchases of pork started in June, the hog price revived and commercial producers returned to profitability. According to NDRC surveys, in May 2009, commercial-scale hog pro...

The news media portrays China as buying up land in Africa to grow food for China. The reality of China's involvement in African agriculture is more oriented toward foreign aid, probably calculated to build goodwill and access to minerals and petroleum. Below is my translation of a January 9, 2010 article from the Hubei Daily newspaper describing efforts by a coalition of Hubei provincial government officials, scientists, and a company owned by the province's land reclamation bureau and 19 other State-owned companies apparently set up to specifically carry out this program. "Yesterday, the provincial government held a special meeting to investigate the development of 'Going Global' in agriculture. The vice governor stressed that Hubei agriculture has had a lot of success in the “going global” strategy, and we must plan to intensify, integrate resources, cultivate personnel, speed up overseas agricultural development. Since the 1970s, the province has undertaken agr...

In China's collective ownership system for rural land, leaders have made clear that cropland can not be used as collateral for a loan. China's leaders acknowledge that farmers need to get loans and their lack of assets to secure them is a problem. But they are worried about what happens if a loan secured by farmland goes into foreclosure--farmers lose their land and their main means of support. Forests are not as sensitive as cropland, so the government has allowed forest land to be used as collateral in recent years. There are experiments with marketizing other kinds of rural land and housing as well. A Farmers Daily article today advertises the Agricultural Development Bank of China's (ADBC) forest loan program that began in September 2006. As of November 2009, ADBC loans secured by collective forest rights totaled 5.3 billion yuan. Most of the money is going to public works and big companies. Of the loan total, 1.1 billion yuan supported industrialized enterprises, 520 m...

This is an article I came across this week produced by the Shanxi Province branch of Xinhua News Service in 2004. It's more than 5 years old and China has been working on these problems, but environmental monitoring reports published this year suggest that the problems persist. My translation of the article follows: When people talk about pollution, they mostly discuss industry. In fact, nonpoint pollution from agriculture is hard to track and control. From “lean meat powder”(clenbuterol) to toxic food, from food pollution to soil degradation, agricultural pollution is a heavy topic. Sewage is often discharged directly into wager supplies. The reporter went to visit some rural areas near the city of Taiyuan. Farmers there use large amounts of chemical fertilizer to increase soil fertility. One farmer said: “Before we used two bags of fertilizer for 5 mu of land, but now we use three or four bags.” The reporter asked, “Why not use household waste as fertilizer?” The response: “That’...

A January 5 article in China Commerce News describes the city of Beijing's new three-prong food safety control system consisting of government monitoring, company self-checks, and third-party testing. City commerce bureau vice chair Wang Jianhua said 30 million yuan in special funds were allocated by the city government in 2009 for food safety testing equipment placed in 114 markets, supermarket and malls. The reporter notes that many shoppers entering the Maliandao Carrefour Supermarket noticed a “Food Safety Self-Testing Lab” sign on the cash registers as they came in the door. Computers and testing equipment fill a 7-8 square meter room. The head of the city commerce bureau food safety monitoring center told the reporter that this quick-testing ewquipment can check for 43 kinds of toxic substances, such as pesticide residues on vegetables, sulfoxylate, and formaldehyde. Ten large markets and supermarkets with testing centers include Carrefour, Xinfadi wholesale market, and Wal...

This week, the communist party is expected to issue a seventh consecutive “Number One Document” highlighting rural policy as a priority in 2010. This year’s document is expected to highlight improved treatment of rural migrants and higher living standards for farmers. The main emphases are stabilizing grain supply, increasing income and living standards, coordinated rural-urban growth, strengthening infrastructure. While the rest of the world sees China as the bright spot in the world economy, Chinese leaders seem to be pretty nervous about the state of the rural economy. As reported last month on this blog, the December meeting on rural work in 2010 stressed that rural and agricultural development is still facing an “extremely grim situation.” An article describing this year’s rural policy prospects repeats this assessment, and warns long-term constraints have not been eliminated and new unexpected conflicts are popping up. According to the article, 2010 will be a complicated and extr...

In the last couple of years Chinese companies have been flying in foreign breeding pigs to build massive breeding farms and take advantage of subsidies for "improved breeds." But at the same time, a smaller group of entrepreneurs are carving out a niche to preserve local and "wild" pork breeds in China's new factory-style pork industry. Chinese consumers claim that pork turned out by factory-style farms lacks flavor. They yearn for the strong flavor and smell of traditional pork breeds. Everyone has their preferred local type of pork (tu zhu), such as Baoshan pigs in Sichuan and Minzhu in Heilongjiang. Companies have sprung up to process local pork and sell it to supermarkets either as fresh pork or as sausage or other processed products. Some contract with farmers to raise local breeds of pigs. In Gansu Province, some farmers are raising "wild pigs" (ye zhu). In their natural state, wild pigs run around in the mountains rooting for food. In comparison...