Monday, May 31, 2010

Storing Up Garlic, or Not?

Last week, the chief economist of the National Bureau of Statistics claimed there was no evidence that "hot money" was flowing into markets for agricultural commodities like garlic. One of his points was that garlic is sold as a fresh good that couldn't be stored.

Recent news articles probing the situation show that the garlic market is highly competitive, surprisingly sophisticated and capital-intensive. Actually, after garlic is harvested much of it is purchased by dealers who place it in temperature-controlled warehouses. The garlic is held until the peak consumption season during the mid-autumn and spring festivals. During the fall and winter months, all the garlic in the retail market comes from such warehouses. An article about Cangshan County in Shandong Province, one of the leading garlic-producing areas, reports that the area has 180,000 metric tons of storage space and 20,000 mt of space was added this year.

A garlic farmer in Cangshan, Shandong Province. Cangshan specializes in harvesting garlic tops.

Merchants can only make money if the price goes up between the harvest and the fall-winter sale period. If the price goes down, they lose not only the difference between their purchase and sale prices, they also lose warehouse fees, transportation, and interest on bank loans. The fixed cost of garlic storing is said to be at least 0.7 yuan, including electricity, labor, repairs, bags, medicine and other costs. Moreover garlic usually has 8% spoilage losses.

Interviews with merchants say that many are wary of stocking up on garlic since the price is unusually high. One merchant said last year he stored up 50,000 yuan of garlic but this year: “high price high risk, if the price falls, I don’t want to be holding inventories, who can bear the losses?” He says you can easily lose 100,000 yuan.

A lot of capital is needed for this business. Articles say banks are not willing to give loans because the business is too risky, so merchants have to get loans through informal channels (minjian daikuan)--"hot money" perhaps? One garlic merchant said, "No one knows how much capital is coming into the garlic market." He likens the current garlic business to the stock market where share prices can soar or plummet without warning. Another compares it to the real estate market.

One article describes the situation in Cangshan as the harvest comes out of the field. The road is said to be crowded with merchants from the local area as well as other parts of Shandong looking to buy garlic. This year cold weather reduced the harvest, and it is said that a panic-buying mentality has set in. Merchants are checking websites and calling around to learn the garlic price in various places. Competition among buyers has sent the price up to a record of 3.6 yuan/jin (roughly $.50/lb) in Cangshan.

At a wholesale market in Jinan, Shandong's capital, a farmer named Bi from Laiwu sold garlic at 2.6 yuan/jin and declared, "In 20 years, I've never sold garlic at this price." Others point out that the price in wholesale markets is actually less than the purchasing price at the production point in Cangshan.

At a retail vegetable market in Jinan, a reporter found that garlic sales were slow due to the high price. Only one vendor offered garlic; a few customers came by his stand but kept moving when they heard the price. A vendor named Gao said he's not stocking garlic because he's afraid it won't sell. He notes that garlic is now more expensive than eggs.

In past years, the price often fell dramatically as the new harvest came on the market. One farmer recalled a year when the price was 2.3 yuan before the harvest, but it had gone down to 0.3 yuan when he was ready to sell his garlic. The price doesn't move as dramatically now, but there is strong possibility that it will fall. In one production area it is estimated that only about one-fourth of the usual amount is being held in inventory.

However, if inventories are down by that much, the lack of warehouse supplies in the fall and winter months may keep the price at a high level throughout the year.

Low prices in 2007 and 2008 discouraged farmers from planting garlic. In 2008, it is said that you could trade a sack of garlic for a pack of cigarettes in Henan Province. A 30% drop in plantings led to a rising price in 2009. This year planted area was up, but poor weather reduced yields by as much as 40%.

China is also the leading exporter of garlic. It accounts for 70% of world production and exports about 1.5 million metric tons annually. Most garlic consumed in the United States comes from China. High prices have not cut into exports. Earlier this year, exports were running 10% ahead of last year. Moreover, the price of exports is 20 yuan/jin, about four times the domestic price.

Despite China's dominant position in the world market, one article quotes an industry representative who complains about foreign countries' "green barriers" to exports. He calls for preferential policies for garlic and government reserve-holding. Another laments that China doesn't add enough value to its garlic. It is said that some garlic is exported, processed into tablets and sold back to China.

Sunday, May 30, 2010

"Hot Money" crackdown in ag markets

China has been pumping vast amounts of money into its economy since last year. It's believed that a lot that "stimulus" money went into real estate and stock market speculation. The government moved to clamp down on these markets, and now investors are looking around for other place to stash the cash. Is it going into commodities?

The Chinese leadership has become alarmed about the possibility that "hot money" is inflating new bubbles in unusual places like markets for garlic, mung beans, and medicinal herbs. Vegetable prices have long been incredibly low, but it is pointed out that now garlic is more expensive than pork.

In this comic, cloves of garlic are soaring toward the sky, and the pig warns, "I've just been there and it's a hard fall on the way down." This is warning that sky-high garlic prices will eventually fall, just as pork prices did in 2009 after reaching a record high in 2008.

On May 22, the chief economist of the National Bureau of Statistics reported there is "no evidence" that hot money is causing the increase in vegetable prices. He claimed that investors can't invest in vegetables since they're consumed fresh and can't be stored. According to him, the rising prices are due to unusual weather--drought in the southwestern provinces and low temperatures in eastern China. As summer vegetables come on the market, prices will come back down.

However, on the same day the National Development and Reform Commission (NDRC) sounded the alarm on "hot money," and directed local price bureaus to crack down on speculative behavior, including malicious hoarding, spreading false information about prices, collusive behavior, and efforts to corner the market. One official linked the flow of money into markets with the cooling of the property market and depressed stock market. He said supply and demand are in tight balance and vulnerable to speculation.

The central leadership's response is to fall back on its central planning instincts: gather vast amounts of information and use vaguely-defined criteria to identify and crack down on price criminals. The NDRC has directed local price bureaus to strengthen their monitoring of prices and set up "early warning systems." When they detect abnormal situations they are to promptly report them up the chain to higher authorities. Information should be collected on commodity supply, demand, production costs, value-added in distribution, inventory changes, and "firmly prevent 'hot money' speculation."

Price controls entail exertion of authority and interference with free exchange. This involves "strengthening propaganda guidance," and "clarifing false rumors." Price departments are instructed to "crack down on illegal price behavior," "stop the spread of false news and publicize illegal price behavior through frequent media releases."

Friday, May 28, 2010

China complains about U.S. trade barriers

On May 26, the China Ministry of Agriculture International Cooperation office reported that Vice Minister Niu Dun met USDA Undersecretary Jim Miller and USTR agricultural trade negotiator Isi Siddiqui as part of the China-U.S. strategic and economic dialogue. The two sides exchanged views on agricultural trade issues.

Undersecretary Jim Miller meets Vice Minister Niu Dun in Beijing.

Niu noted that China-US agricultural trade has grown rapidly this year, but there are still "serious imbalances." China has a big deficit, and he said the U.S. should open its agricultural market to more Chinese products. He specifically raised problems with poultry, aquaculture, fruit, and bonsai trees.

Niu complained that the U.S. had promised to solve the problem of Chinese poultry meat access, but there has still be no substantive trade. According to Niu, "The Chinese side adheres to the WTO animal health organization regionalization principle and places import restrictions on products from some U.S. regions where avian influenza outbreaks have occurred, but the U.S. continues to prohibit all poultry meat from China." Niu also brought up discriminatory “automatic detention” [by FDA] of Chinese aquaproducts, and he noted that Chinese horticultural product exports to the U.S. have been under negotiation for over 10 years, but there is still no resolution.

In response to the U.S. side's inquiries about problems with pork and poultry exports to China, Niu stressed that China-US agricultural trade problems must adhere to scientific standards and principles. U.S. pork to Europe must be free of ractopamine, so China should have the same requirement. Niu complained that China has given the U.S. more than 10 avian influenza virus strains, but the U.S. has not supplied any low pathogenic avian influenza virus strains.

The Chinese MOA is paying a lot of attention to problems and hopes the U.S. side can set a timetable and roadmap to lift these restrictions on Chinese agricultural exports to the U.S.

Undersecretary Miller appreciated the concerns raised by Vice Minister Niu and said USDA would work on these issues and make progress on Chinese poultry meat, Ya pears, and bonsais.

Monday, May 24, 2010

Watch Out for Animal Diseases

Disease continues to be a problem among China's livestock. Last month, this blog reported on dead pigs in the river in Guangzhou and underground slaughterhouses in Shenzhen that serve up the meat from dead pigs. In February there was an outbreak of Type-O foot and mouth disease in over 1,400 pigs outside Guangzhou. In 2009, Type-A foot and mouth disease appeared in China for the first time and there have now been outbreaks in Wuhan, Shanghai, and Xinjiang. Also, last year there was a strange new disease affecting the immune system of ducks that was estimated to have infected one-third of the ducks in Shandong.

This picture appeared in an article about an outbreak of foot and mouth disease in the Guangzhou Daily in February.

On May 21, Vice Minister Gao Jibing stressed the seriousness of the situation at a work meeting on animal disease prevention and control held in Lanzhou. He commanded officials to carry out immunization programs, report problems promptly, strengthen emergency preparedness, and keep a close eye on border areas.

Despite the "remarkable results" of animal disease prevention work, Gao described the major animal disease control work situation as still grim/severe, and said prevention and control are difficult tasks.

According to the article, "Recently, Type-O foot and mouth disease have broken out in some regions, and highly pathogenic blue ear disease, and highly pathogenic avian influenza are still hidden problems."

Gao warned, "...prevention and control work is still a weak link in some regions, inadequate attention is paid to prevention and control work, thought is too relaxed, and immunizations are not in place."

Gao's remarks to the provincial officials stressed seven points for battling disease problems.

First, strengthen disease monitoring and control. The strategy assigns the government responsibility for making sure animals get immunized, and companies are responsible for making sure vaccines are good quality. "...organize assessments of antibody monitoring and immunization effectiveness, preserve vaccine quality."

A lot of problems arise among feeder pigs being transported to markets or grow-out farms (a lot of the dead pigs in rivers are small pigs). Gao told officials to strengthen vaccination measures for piglets prior to transportation, making sure feeder pigs transported are within the effective period of vaccines.

Second, each region should establish a vaccine surveillance system, raise vaccine early warning capability, strengthen prevention work direction and raise efficiency. Increase the frequency and intensity of vaccination reporting, achieve timely detection of problems, "ruling out hidden epidemics."

Third, continue pushing animal health monitoring system reforms, set up complete animal health monitoring enforcement system, raise monitoring enforcement capability and level. Carry out strict quarantine in production areas and slaughter houses. Increase animal health monitoring check stations on highways enforcement to prevent spread of disease from region to region. Strictly require interregional transport of pigs to be reported by recipients to health monitoring organizations within 24 hours of arrival. Do a good job on special disease control work for the Shanghai world expo and Guangzhou Asian Games.

Fourth, each locality must strictly guide livestock enterprises’ comprehensive disease prevention management, focusing on larger-scale livestock farms and livestock production zones. Cull animals and close down farms for disinfection and use other control measures, standardize livestock activities, raise livestock enterprise biosafety level.

Fifth, improve emergency planning, strengthen emergency response training and drills, and stock up on emergency materials. Do a good job on preparations for outbreaks of various epidemics, assign responsibilities, put personnel in place, maintain information flow. When epidemics occur, do a good job on prompt reporting, effective and timely response.

Sixth, focus efforts on border areas. Close coordination between departments, strengthen joint prevention and control to improve control at the border. Xinjiang and other regions must establish a solid border immunization system, strengthen border region inspections and monitoring, and closely watch the external epidemic situation. Strictly crack down on smuggling of animals and their products, prevent external diseases from entering.

Finally, Gao Jibin stressed that each region must strengthen organizational leadership, seriously implementing the disease responsibility system, strengthening monitoring, paying close attention to policy measures. "Do a good job on propaganda work for publicizing laws and control epidemics to maintain a good social environment."

Sunday, May 23, 2010

Checking up on seed companies

Problems with poor quality seeds are a big problem in Chinese agriculture. The seed market is often described as chaotic.

In April, the Ministry of Agriculture released the results of its 2009 tests for seed quality. The Ministry chooses a sample of companies and seed varieties to test each year. At first glance, the compliance rate looks pretty good, but they admit that one-third of the companies selected failed to submit samples. So the results may be meaningless if companies that know their seeds have problems didn't submit to the tests.

The Ministry tested 212 samples of hybrid corn and rice seeds from 139 companies nationwide: 118 corn samples and 94 rice seed samples. Samples were selected from commercial seed varieties sold by the companies. They were tested for moisture, variety purity, and germination rate.

For corn seeds the compliance rate was 89.8%. Seventy of the 81 companies were completely in compliance. Results for rice seeds were better: only 2 samples failed. The Ministry listed the companies and seeds that failed. The chief problems were with excessive moisture and variety purity. The results for the 13 companies that had problems are available in an excel file (in Chinese).

Two companies are singled out for having chronic problems. Liaoning Tiexu Scientific had problems with corn seeds in this round and in previous year's tests. The provincial agriculture commission was asked to withdraw this company's license. Shandong Zhouyuan Co. had two types of corn seed that failed purity tests and also had problems in spring 2009 tests. The provincial agriculture commission has been asked to carry out direct monitoring of the company; the company's operations will be suspended during the rectification period.

Of the 207 companies selected for sampling, 68 of them failed to submit seeds for testing. The report notes that the proportion of companies not submitting samples has been increasing due to various reasons, possibly deliberately avoiding testing. A list of the companies that failed to submit samples was published as an attachment.

It's good to see the details of the testing revealed so people can evaluate the results. A step forward for transparency. However, the results reflect continuing problems with China's seeds.

Thursday, May 20, 2010

Vague Environment/Land Programs Announced

On May 19, Chinese officials announced plans to create new farmland and clean up environmental problems in villages. Each program will set up model provinces with billions of dollars of investment shared by the central and provincial governments. Exactly what these programs entail was not revealed, but they involve spending over $10 billion combined.

On May 19, Chinese officials announced a program for creating new farmland that is expected to increase grain production capacity. Investment of 56 billion yuan will be made in ten model provinces, including Hebei, Inner Mongolia, Heilongjiang, Jilin, Jiangsu, and Anhui. The central government will allocated 26 billion yuan and provinces are expected to kick in the other 30 billion yuan. It is expected that 10 million mu of new cultivated land will be created, yielding 20 billion jin of grain. This program is intended to help keep cultivated land area above the 1.8 billion mu "red line." No clues as to where this new land will be found.

In 2008, organization was started in western Jilin, Xinjiang, the three-rivers plain in Heilongjiang, and the Wenchuan region that was hit by the earthquake.

Minister of Finance Zhang Xiaochun announced that the Ministry will spend 12 billion yuan over the next three years for rural environmental comprehensive remediation. An article describing Jiangsu's participation reveals that the project will be concentrated in its two problems areas: the Taihu Lake area and the Huai River watershed. The central government will spend 850 million yuan and Jiangsu will spend no less than 1.275 billion yuan to construct "rural environmentalal infrastructure."

Hunan's article offers a few more clues. The project will address rural drinking water problems, waste disposal, waste from livestock farms, and clean-up of pollution from old mines.

Tuesday, May 18, 2010

We Don't Need Your Corn. Really!

The Chinese corn market is a chief example of a "dim sum." No one knows how much corn China has, so there is huge uncertainty in the market. Last fall, photos of fields decimated by drought were circulated, but official organizations insisted that the harvest only dropped a couple of million tons. Now, Chinese corn prices have surged to about double the U.S. corn price and the first major shipments of corn from the U.S. to China since the mid-1990s have been made.

On May 18, the vice-director of the National Grain Bureau was sent out to give a carefully scripted "interview" to dispell any notion that China is short of grain.

The vice director, Ms. Zeng, insists that the supply of corn still exceeds demand in China and that rising prices reflect speculation, not a lack of corn. Ms. Zeng tells us China has plenty of corn in reserves to keep a steady supply on the market. She doesn't know why some companies have bought U.S. corn--that's their business--but the imports amount to a tiny share of the Chinese market and they would get along fine without it.

Ms. Zeng explains the reasons for rising corn prices in China:

1. Last year production was down in the northeastern region. Everybody has a different opinion on the magnitude and some organizations and enterprises estimate that corn production fell a lot, which has a big impact on the market expectations.
2. The economy is recovering from the effects of the financial crisis, so feed and livestock enterprises and industrial processors are returning to normal operations and demanding more corn.
3. This year’s natural disasters had an impact and low temperatures in the northeast slowed corn planting. The market expectations were for rising prices and enterprises built up inventories. Some large corn processors are holding up to 3 months' worth of corn.
4. Domestic and foreign money is going into the market and pushing futures prices higher.
5. Farmers are holding on to grain stocks due to government provisional purchase policies and rural financial service improvements. In a survey of 7 provinces by the grain bureau, farmers are still holding over 17 mmt of unsold grain.
6. Some people surmised that the State provisional grain reserves were nearly sold out. In fact, the State still has very large inventories of corn due to abundant harvests in the last few years. After the sales of provisional purchases have been completed, the state will start selling corn from its national reserves. The State inventories of corn are sufficient to meet the demand.

Ms. Zeng denies that corn auctions were halted last week because they are running out of reserves to sell off. They were halted so the rules could be changed to prohibit hoarding. The new rules require that purchasers take any corn they purchase at auction and process it themselves; they can't resell it to anyone else.

This year the quota for private companies’ imports of corn total 2.8 mmt. In theory all of it can be imported, but genetically modified corn requires a certificate. The U.S. corn that has been purchased already has gotten the license.

Ms Zeng explains, "These imports have virtually no effect on the basic supply-demand. Presently the domestic market does not have a shortage of corn. The corn being imported now is being bought by companies on their own; it’s not being directed by the government to fill market supply. The rise in the corn price is due to the reasons I explained."

Ms. Zeng thinks a gradually rising corn price is a general trend of the market and a good thing. She says, "[The rising price] can encourage corn production and benefit farmers and help us attain our macro adjustment targets."

However, a sharp rise in price is not good and she says the state will step in to stabilize the market price by implementing adjustment policy measures if prices rise unreasonably fast. "Keeping grain prices basically stable is an objective of macroeconomic adjustment."

Market participants apparently weren't reassured. An article about corn markets on May 19 reported that companies continue to stock up on corn, fearing continued increases in prices. Cash and futures prices continued rising despite Ms. Zeng's reassurance that there's plenty of corn for everybody. Auctions held in Heilongjiang and Jilin each sold about 350,000 mt of corn harvested in 2008 at prices ranging from 1560 yuan to 1800 yuan per mt.

Monday, May 17, 2010

This Land is My Land (Maybe)

In the 1940s, Woody Guthrie sang "This land is your land, this land is my land," which originally included a verse denigrating the concept of private property. Too bad he didn't live to see the kind of injusticies that occur when no one really owns the land, and you're at the mercy of the officials who have power to determine who gets it.

An article in the Youth Daily from April 2009 raised the issue of whether rural university students have rights to land in their villages. Suppose you want to go back to your village and take up farming. How do you get land? Suppose your family has some land that is now being sold to build a shopping mall, but you’re away at university. Are you entitled to the proceeds from selling the land?

A young university graduate from a county in Tianjin interviewed by the Youth Daily told of her predicament: “I am a university student from a rural area and I graduated last year. So far I haven’t found a suitable job... Unlike other rural migrants who can go back and do farming if they lose their jobs, I have nothing to fall back on.”

Another young person from Jining in Shandong is a third-year student and he still has “responsibility land” in his village. Recently, a reservoir was built on his land, but he didn’t receive any compensation. He said, “Hasn’t it been said that land will be unchanged for 30 years? Why don’t I get compensation when my land was occupied? Is it because my household registration was changed from my home village?”

These scenarios are probably still pretty uncommon, but they point out how the concept of property rights and land ownership are evolving in rural China as the economy matures. The government has moved to strengthen land rights, but unclear land ownership still leaves villagers at the mercy of village officials.

Rural land is collectively owned by each village and divided up among village members. But who’s a village member? From 1995 to 2003, when a student passed the entrance examination for a university, his/her household registration automatically was transferred to the school he/she attended. That meant he/she became a “nonagricultural” person. To get a share of land and hold onto it you have to be a village resident with an agricultural registration, so if your registration was changed (like the young man from Jining quoted above) you are in a legal limbo with regard to rights to land in your village.

In past years, a nonagricultural registration was a much sought-after commodity that entitled you to escape your village and become a city resident. Back then, land was a liability because you had to pay taxes on it. Now agricultural taxes have been eliminated and land has become an income-producing asset: you can collect rent and subsidies from it, get compensation if it’s sold for a real estate project, put it into a village cooperative and get dividends, or use it to grow your own food if times get hard.

The Youth Daily explains that since 2003 students have had the choice of moving their registration to their school or keeping it in their village. The article says students from poor areas typically changed their registration, but such students had no land to fall back on if they couldn’t find a job after graduation. In rich villages in southern China land can be valuable, so many students kept their village registration.

The law is unclear on how returned students should be treated with regard to land allocations. It’s up to local leaders to decide how to handle the issue. In many of the rich villages, rules are set up so graduates can continue receiving benefits from their home village even after getting a job in a private company. In other places the issue can lead to a lot of complications and disputes. In 2005, 20 rural university students from a village in Shandong went to court to claim a share of compensation payments for land. They won and the court awarded them compensation.

There are differing opinions given by officials quoted in the article. One official cites the policy of land use contracting rights being unchanged for 30 years and says students should not be deprived of their rights to village land. The Ministry of Agriculture espouses a principle of no change in land allocations due to increases or decreases in population, so officials are not supposed to take back land when a student leaves the village to study.

A researcher quoted in the article says encouraging students to work in the country side goes against the social trend of reducing rural population pressure and speeding up urbanization. He is skeptical: “How many college graduates will want to go back to the countryside to start a business venture? I’m not that optimistic.”

Friday, May 14, 2010

Whip Inflation Now

Rising prices can gain momentum when an inflationary mindset becomes entrenched and hoarding behavior pushes prices ever-higher. In the 1970s, the United States got so desperate to tame inflation the Gerald Ford administration initiated a short-lived "Whip Inflation Now" with little WIN buttons. China doesn't have a serious inflation problem yet, but Chinese leaders are trying to head off any inflationary psychology.

Toward this end, on May 14 the National Development and Reform Commission (NDRC) price office distributed a question and answer document to reassure the public that inflation is under control.

The National Bureau of Statistics' CPI for April showed a year-on-year increase in prices of 2.8%. The NDRC deconstructs this number to explain why it's not a problem and that inflation will be kept under the government's target of 3% for this year.

Increases in grain, fresh vegetable, and fruit prices account for 1.1 percentage points of the increase, mainly due to short-term factors like drought. NDRC reassures us prices will fall as the supply of vegetables increases with the arrival of spring weather. NDRC says the prices of vegetables in Beijing wholesale markets have fallen 21% since the beginning of May, and in Jiangsu the price of vegetables had fallen 6%.

"Inflation" constitutes a general rise in the price level, but some prices are going down. The NDRC says industrial consumer product prices are still going down. Hog and pork prices are in a slump, despite rising feed prices. In April the live hog price and pork price were down 18.5% and 16.8%, respectively, from the beginning of the year. Bulk soy oil and rapeseed oil retail prices were down 2.1% and .9%.

The news media has focused attention on soaring prices of garlic, Chinese medicine, and mung beans. The last big price spike in February 2008 (when China was hit by unusual winter storms) didn't last long. When pork prices soared in 2007-08, only a few sharp economists anticipated that "what goes up must come down," and pig prices have been on a two-year declining path since 2008. Normally, garlic is much cheaper than pork, but the prices of these two commodities have been converging since 2008. Garlic prices will probably drop like a rock after farmers pump out more of the pungent root this year.

NDRC explains that the rise in garlic prices is due to low prices several years ago that discouraged farmers from planting it. With a smaller supply, the price has been soaring this year. As production recovers, the price will come back down. A lot of Chinese medicine is grown in the southwestern areas hit by drought this year. Meng bean price increase is also due to unusual weather. We will next direct each level of price bureau to watch prices of garlic, Chinese medicine, and mung beans carefully and adopt measures to preserve order in markets if there are "unreasonable" fluctuations.

"The party and government pay close attention to price increases for basic products...All government departments must adopt measures to guarantee supply, stabilize prices, and reduce the impact of price increases on the masses...The government will strengthen monitoring of prices in the southwestern drought area, the Yushu earthquake area products, prices of vegetables around big cities and the price of medium-grain rice.

NDRC promises to continue improving the governors’ “grain bag” and the mayors’ “vegetable basket” responsibility systems. The "grain bag" requires provincial governors to ensure that supply and demand for grain balances in their province. Similarly, the "vegetable basket" system requires mayors to make sure vegetable and meat supplies are adequate for their city. This entails constructing "production bases," arranging interprovincial grain transfers, and storing up grain in warehouses.

NDRC points out that grain reserves were transferred to the drought-stricken southwestern region and transfers of grain reserves from the northeast to other provinces were arranged to even out prices. "Central reserve purchases of frozen pork have also begun to stop the decline in pork prices."

A "green channel" has been established to reduce distribution costs of vegetables, fruits, and meats. This program waives highway tolls for agricultural products, reducing transportation costs.

NDRC gives some examples of local subsidies to boost food supplies. Hunan province and Changsha city invested 16 million yuan to support construction of a vegetable wholesale market; Zhaoyang City is investing 9.8 million yuan to build the largest vegetable production base in that city. Jilin, Shanxi and many other provinces are funding vegetable production and distribution.

The government will crack down on speculation, hoarding, and other behavior driving up prices using drought, low temperatures, hail and other weather events as an excuse. NDRC directed the Guangxi price bureau to "deal with" speculative activity, and the price departments in Guangdong and Yunnan are now dealing with unreasonable price increases for Chinese traditional medicines.

Tuesday, May 4, 2010

Antidumping on chicken feet but losses continue

On February 5, China imposed antidumping duties on imports of U.S. poultry products. A reporter from International Commerce Daily investigated the Chinese industry's situation four months later. The headline touts a "slow recovery," but the reality is that Chinese poultry companies are still losing money and imports from other countries have come in to take the place of U.S. imports.

Chinese industry representatives interviewed for the article complain that "unfair" competition from U.S. products was responsible for massive losses, low capacity utilization, falling sales and low prices during the first half of 2009. In August 2009, with the situation "getting worse and worse," representatives of the China Animal Husbandry Association proposed an antidumping investigation against U.S. chicken products.

The China Food and Native Products Export Association [interestingly, they forgot the word "Import" in the association's name!] vice chairman told the reporter that the antidumping duties have ushered in rare breathing space for the domestic enterprises. However, in the next paragraph the vice chairman is quoted as saying, "The market is still full of dumped products. Although imports from the U.S. are reduced, imports from other countries have increased."

Another industry official says the situation for Chinese poultry companies is not as bad as last year, but there are still losses across the board. There is not a real recovery yet. The price of chicken feet is up a little though.

Meanwhile, another round of tariffs have been added due to "unfair" subsidies for soybeans that give U.S. poultry an unfair advantage. This is totally bogus. About two-thirds of the soybeans China consumes are imported--about half from the United States--and the poultry industry is probably the biggest consumer of the soy meal from those American beans.

Another problem: most of the poultry imports from the United States were chicken feet. Has China figured out how to grow chicken with three feet to meet all that demand for feet?

Guess what happened when the United States tried playing the antidumping card against apple juice and garlice. Virtually no effect--Chinese apple juice and garlic account for most of the market in the United States today.

Sunday, May 2, 2010

Importing corn "not complicated"

China National Grain and Oils Information Center's (CNGOIC) weekly corn market report from last week describes a "hot" corn market. All corn offered for auction from state reserves sold (in contrast to auctions last year where small percentages were actually sold), and the auction prices were up from the previous week.

According to CNGOIC, it is rumored that "many" companies are going through the procedures to import corn, having received import quotas distributed by the National Development and Reform Commission in March. It is rumored that applications for import permits have been made for over 400,000 mt of corn.

CNGOIC says the procedures for importing corn are "not complicated." According to CNGOIC, the basic process is:
(1) exporter provides a genetically modified organism (GMO) safety certificate, presently certificates have been issued for 11 GM corn varieties.
(2) importer applies for corn import quota.
(3) importer applies to the AQSIQ for a quarantine and inspection license.
(4) importer applies for GMO approval stamp from the Ministry of Agriculture GMO Safety Office.
(5) importer and exporter sign contract, importer supplies letter of credit.
(6) After imported corn reaches the port it goes through quality and inspection procedures, customs releases it.

CNGOIC says rumors of signed contracts for imports are increasing. Shandong Xiwang Starch Sweetener, Sichuan New Hope Feed and Guangzhou Shuangqiao Starch Sweetener are among the rumored importers. Most of the rumors are not confirmed since companies don’t want to reveal what they’re doing.

CNGOIC says some industrial processing companies don’t want to use genetically modified (GM) corn from the United States since they export citric acid, lysine, and starch sugars to European customers who are not receptive to GM products. Consequently, CNGOIC says domestic feed enterprises are the main potential importers.

The article above says GM content is not an issue that will block imports--it reports that importers already have GM approvals from the Ministry of Agriculture. Another article in the same CNGOIC report discusses imports of non-GM corn from Southeast Asia totaling 15,000 metric tons during January-March which have a lower "policy risk."

CNGOIC says the market thinks non-GM corn imports could be 300,000 mt, but the supply of corn from southeast Asia is limited due to bad weather in those countries this year. Customs statistics reported by CNGOIC say most of China's corn imports in 2009 were from Burma and Laos, but only a few thousand tons have come from those countries this year. Moreover, the quality of the corn from Southeast Asia is said to be poor--useable only as poultry feed--and not much cheaper than low-quality domestic corn in southern China.