Dim Sums: Agricultural Markets in China

In May there was a lot of attention on garlic as one of the commodities with soaring prices. At the time, there was some expectation that the price would fall after newly harvested garlic came on the market. The government introduced a 2-million-yuan fine for anyone caught speculating or hoarding. Two months later, garlic prices have risen even higher. According to a July 19 article , since mid-June the price has gone up 21.2% as of July 18 to 6.57 yuan/jin ($.97/jin or $1932/mt). In an earlier post on this blog, the price was about $.50 per lb. in May . The upward momentum in garlic price is still strong. The price increased 17 days in a row during July. Bad weather during the winter and spring cut the harvest. According to government surveys in Shandong's Jinxiang County, production there is down 13% this year. Traders anticipated the production shortfall and in the winter started trying to contract with growers to buy their harvest in advance. The price per mu went from about 2...

During the summer months there have been a series of incidents where Chinese buses burst into flame. I first noticed this in a story from Beijing last month and saw another story from Tianjin today. Last year, a burning bus killed 24 people and injured 19 in Chengdu. A goole search shows reports of incidents all over the country, including a video of one in Shanghai . One article explains that overloaded buses can overheat in the summer. Bus that caught on fire in Yan'an, Shaanxi Province, July 14 The problem is not confined to buses. Last month I saw a photo of a passenger car that had burst into flame in Beijing. The news article gave few details (such as what happened to the people in the car) and advised readers to keep their cars maintained in the summer months. This has nothing to do with the topic of this blog but it's a reminder of potential quality problems as China gears up to export vehicles to the world.

Heavy rains in central and south China are affecting this year's rice crop. An article from a rice investors report sponsored by Sinograin (China's grain reserve company) reported that heavy rains had caused flooding, inundating rice fields and causing pest infestations in major production regions of Hubei Province. According to one assessment, this year's rice production could be down 10%. In some areas, production may be down 20%. Infestations of insects (planthoppers and leaf rollers) have also hit the rice crop in Hubei. Even worse, pests are affecting grain stored in warehouses. Teams from the Hubei plant protection station were sent out to inspect the rice crop in 11 counties. Most rice fields were inundated with water, conditions that encourage sheath blight, rice blast and bacterial leaf blight. The early-season rice harvest, about 7-15 days away, was also affected in Jiangxi and Anhui Provinces. This could also affect planting of the late-season crop, planted afte...

"Grain banks" are yet another interesting experiment going on under the radar in China's countryside. A "grain bank" is basically a warehouse where farmers deliver their grain after harvest. The farmer gets a passbook where his deposit is recorded. He can return to the bank and "withdraw" grain products like milled rice, flour, or cooking oil at any time and the value is deducted in the passbook. The banks seem to have gotten started in 2006 and are still in the pilot stage in selected areas. A short note about grain banks in Henan appeared last week that kindled my interest. A google search turned up a detailed account of grain banks in Taicang city and Suzhou , another description of pilot programs in Shanxi and grain banks set up in Sichuan after the 2008 earthquake , and a description of a grain bank operated by the Beidahuang Co. in Heilongjiang (the descendent of a massive state farm set up to protect the Russian border in the 1960s) . Yiyu Grai...

Two articles last week, "State Reserves Keep Stocking up on Grain: Underground War" and " 5-fen per Jin Profit Enticement: Sinograin Market Support Purchase Wheat Mystery" , discussed a "wheat war"--hot competition to buy this year's wheat. Eager subsidized government-purchasers, massive new flour mills, and older mills are competing for a wheat crop of unknown size. Farmers are reportedly holding their wheat off the market. This competition for wheat is bidding up prices, but the wheat market has become so convoluted that it's hard to tell whether this is an artificially-induced shortage. China has had a support price for wheat since 2005. Under this program, Sinograin Co., and designated regional affiliates buy wheat for government reserves when the market price is below the support price set by authorities each year. This year, COFCO and the state-owned China Grain Logistics Group have also been approved to purchase under the support price prog...

An article in the Yangzhou Evening News last week reports that sows can be worth more dead than alive. According to a worker with the local insurance company, the company has lost money since it began offering subsidized insurance for breeding sows last year, because farmers are filing twice as many claims for dead sows as they did last year. Comic from Yangzhou Daily: "Sorry brother, I'm waiting to collect the insurance." Because hog prices have been low, raising sows has been unprofitable. Thus, you spend more on the feed and upkeep of the animals than they generate in sales of baby pigs. They could slaughter them and sell the meat but the indemnity payment for a dead sow is more (1000 yuan). There is a mixture of fraud and moral hazard (engaging in risky behavior because you know you're insured). The insurance worker reports that he has seen a lot of farmers neglecting to treat sows for disease in the hope they will die so the farmer can collect the insurance. He ...

This is not your father's communist party. The slogan of Chinese Communist Party (CCP) members used to be, "Serve the People." Today's CCP has adopted a new mantra of "service," but today's motto in money-obsessed China for party members would be closer to, "Serve the Companies." I came across a report on " Optimal Service Measures for Boosting Enterprise Development " from the statistics bureau in Xigang , a town of 131,000 people and 64 villages in Zaozhuang Prefecture in southern Shandong Province. The town has 104 party branches with over 2000 members. The town was a "peoples commune" from 1958 to 1984, and it still has a lot of agriculture, but coal-mining is the major industry. The report portrays the unique role that the communist party has carved out for itself in 21st-century China: a team of management consultants and brokers who orchestrate the development of the economy by planning, organizing, pushing and pullin...

The Ministry of Commerce, National Development and Reform Commission, and Agricultural Development Bank have announced another round of pork reserve purchases. This is the fifth round since late April. The idea of the reserve purchase program is to prevent the pork price from going so low that farmers kill off their sows, leading to a shortage and soaring prices later on. An online article notes that the hog price has started recovering in the northern regions and it has stopped falling in the south. So why another round of purchases? The author proposes several reasons. The hog-grain price ratio is still in the "red" region, under 5:1. According to the regulations for the "hog price alert" program introduced in 2009, when the ratio is this low the government should buy pork for reserves and give 100-yuan per head subsidies for breeding sows and boars on designated farms in "pork surplus counties." The inventory of hogs is declining, and there are fears th...