Dim Sums: Agricultural Markets in China

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. Cangs...

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 Bur...

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 f...

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 pr...

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...

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...

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...

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 mig...

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, mainl...

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 chair...

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 ...