Dim Sums: Agricultural Markets in China

Chinese officials are sending mixed messages regarding the grain situation. Everything is OK but we have to work hard and hope new seeds and science will magically increase production. A "voice of China" broadcast transcribed on the MOA website tries to dispell concerns about short supplies and rising prices. The Minister of Agriculture, Chen Xiaohua, said that there have been extraordinary efforts to alleviate the effects of this year's natural disasters (drought in the southwest, freezes in the spring, flooding this summer) with clear results. Nevertheless, he says everyone needs to work hard to make sure the fall grain harvest is a good one. China has to achieve grain production of at least 500 million metric tons every year. Not that he's worried about the harvest. He says grain area is up this year and the crops are on a generally good trend. Minister Chen reminds us that China has had six straight years of increases in grain production. In view of China's n...

This summer's heavy flooding washed out significant portions of the early rice crop and in some places rice had to be re-planted. Apparently worried about this fall's rice crop, the State Council held a special meeting on August 11 and announced special measures to support the late-season rice crop. Harvesting late-season rice on a farm in Jiangxi Province. Those guys in blue jeans don't look like farmers. On August 25, the Ministry of Agriculture announced special policy measures to support fall grain production in nine major rice-producing provinces: the three northeastern provinces and six southern provinces. Extra subsidy funds have been handed down to the provinces and they are being used in various ways to subsidize fertilizer and pesticides to promote plant growth at the key stage and prevent plant diseases and pest damage. The amount is apparently not announced, but the MOA press office says it learned that 10 million yuan was allocated in Jiangxi Province to add 10...

This brief report describes meat dealers in a rural town market getting pork carcasses stamped "inspected" after handing over 30 yuan (about $4). It is purportedly a sort of citizen's report from a middle school student in Henan Province's Xiping County but it could have been planted in the press by officials preparing to crack down on the meat industry. The writer said he went to the town market early in the morning on the day before Spring Festival. He observed a young man stop his small truck outside a meat vendor's shop. The young man stamped two hog carcasses with a blue insignia saying "passed inspection", took 30 yuan from the meat vendor and moved on. The writer's suspicions were aroused by this "instant inspection" since the young man did not test or inspect the meat and he wore no uniform or official identification. The writer asked the meat vendor who the young man was, and the vendor replied that he was from the county animal in...

I just came across the Liaoning Province price bureau's report on 2009 corn production costs which was published in April. The report, based on a survey of 211 corn farmers, provides perhaps the best source of information on last year's corn harvest in northeastern China. It also reveals some interesting details about corn production, including rising land rents and seed prices that erase the benefits of rising subsidies. According to the report, the entire northeast was affected by drought last summer and fall, and Liaoning was the most seriously affected. The drought impacts were less serious in Jilin and moderate in Heilongjiang. In the spring, Liaoning had good rainfall and soil moisture, but hot, dry weather in the summer affected pollination and led to low yields and ears with few kernels. The survey shows that province-wide corn yield was down 19% in 2009. The average in the survey was 374.51 kg, down from the previous year’s 462.44 kg. The report says that corn product...

On July 11, a meeting of 30 experts from the Ministry of Agriculture and provincial feed and livestock industry associations and bureaus was held in Suzhou to review the feed industry's situation in the first half of 2010 . The director of the feed office of the Ministry's animal husbandry department said commercial feed production in the first half of 2010 was 66.3 mmt, up 4.6% (2.9 mmt) from a year earlier. (Another industry report I received today said the National Bureau of Statistics' estimate of feed industry output (for above-scale firms) was a much higher 76 mmt, and it was up 28%.) Detailed types of feeds: Hog feed 23.66 mmt, up 18.7% (+3.7 mmt) Layer feed 12.95 mmt, up 2.7% Broiler feed 21.08 mmt, up 5.3% Fish feed 4.63 mmt, down 25.2% Ruminant feed 2.91 mmt, up 24.2% Other feed 1.08 mmt, up 9.6% The hog industry experienced widespread losses but feed production increased anyway. Feed for aquatic products was down in the first half of the year due to weather that ...

On June 30, authorities demolished the houses of ten villagers on the outskirts of Xinyang, a city in Henan Province. The county housing bureau demolition team, composed of dozens of uniformed workers, produced no documents authorizing them to demolish the houses. The villagers were rousted from their houses and one villager claims he didn't even have a chance to retrieve his clothes. Villagers argue with demolition team workers This is an example of low compensation for land discussed on yesterday's post about a new regulation on land compensation . The villagers were unhappy because authorities were paying them only 41 yuan per square meter in compensation. One man named Yi claimed that this amount is the standard from ten years earlier. He said he's getting 10,000 yuan ($1,464) for his 400 square-meter house, but prices have gone up a lot since ten years ago. The situation reveals the vulnerabilities of poor people when laws and regulation are ambiguous and property rig...

Since a major banking reform in 1994, commercial banks have mostly abandoned rural areas. In recent years, authorities have been trying different ways to get rich urban banks to start making more loans in the countryside. In Shandong Province urban banks have expanded their rural business to cover about half of the province's rural areas. Under the "guidance" and "encouragement" of the provincial branch of the China Bank Regulatory Commission, Shandong's urban banks began a "collective down to the countryside" campaign. Shandong has 14 commercial banks, the most of any province. Authorities divided up the province geographically according to different indicators (GDP and bank interest per capita, number of small and medium businesses) and determined where banks were needed. Local governments were "invited" to help solve the problem by offering banks inducements to operate in rural areas; inducements include putting government funds on dep...

As China urbanizes, rural land is often requisitioned by local authorities for urban development. Compensation is paid, but it is funneled through local authorities who skim off or misappropriate the money. According to an article in China Economic Times July 30 , the Chinese government took a significant step toward resolving this issue in July when the Ministry of Land Resources issued a “notice on further improving land requisition management work” that requires local financial departments requisitioning rural land to pay compensation directly to farmers instead of issuing funds through township or village governments. The idea is to prevent township and village officials from skimming off of misappropriating funds before the money gets to farmers. Experts say this is a step forward in helping farmers and reducing corruption. A Renmin University professor describes it as a “...big step in affirming farmers’ property rights, their right to know and preservation of their asset ownersh...

A post last month described the wild situation in the wheat market in Henan. A brief news item appearing on dozens of web sites August 9 says that since late July wheat prices have been falling in the area around Suqian in Jiangsu Province. The article originated from the grain bureau and appears to be an announcement that the government has called a halt to rising wheat prices. According to "investigations of grass roots" wheat activity by local grain bureau personnel, the price paid by state-owned enterprises and companies with controlling ownership by the state is .94-.98 yuan/jin, down about .01-.02 yuan from the previous month. Prices gradually rose after new wheat came on the market, from .92 yuan to a peak of .99 yuan in late July. Industry insiders give five reasons for the decline in prices which basically say that the government decided there was too much speculative purchasing and gaming of the price support program, so they called it to a halt. 1. "Macro con...

China's first significant imports of corn from the United States have been arriving. Is this the beginning of a new era of China as a corn importer, or is it a temporary phenomenon? No one knows for sure, but an article by Cheng Guoqiang, an advisor to the State Council, sheds some light on the situation and what policymakers are thinking. The article, published in a communist party publication on May 28 , describes corn price increases as "abonormal price fluctuations." Cheng asserts that rising corn prices do not reflect a short supply of corn. China has plenty of corn in reserve, so he says. These "abnormal price fluctuations arise from a complicated mechanism." Unfortunately, outsiders looking at official statistics will mistakenly conclude that rising prices reflect rising demand. The corn production estimate for last fall published in China's Statistical Abstract is 163.97 mmt, down just 1.2% from the previous year. However, Cheng makes no reference to...

The conventional view is that imported commodities compete head-to-head with domestic commodities. Inside China, the domestic soybean industry is often described as having been devastated by unfair competition from imports. The soybean industry is often held up as a scary example of what can happen if imports are allowed to take over the market. An article from the May issue of China’s Agricultural Outlook magazine written by an analyst from China's feed industry association reveals a more nuanced view of China's soybean market. It has become largely segmented--non-GMO domestic beans are now mostly used for making soy-based foods while vegetable oil and soy meal are made almost exclusively from imported beans. Domestic and imported soybeans don't exactly compete head-to-head; each fills a niche in the market. Food use of soybeans to make foods like tofu, soymilk, and protein powder (mostly using domestic beans that are non-GMO) is now 9 mmt, up from 7 mmt in 2002. The arti...

An article in New Capital Times discussed accusations by a handful of parents that infant formula caused the early onset of puberty in infants and young children. There is no conclusive link between early puberty and milk powder, but experts say it's possible there is a connection. The parents blame the formula since their babies didn't eat anything else that could have caused the phenomenon. This incident is not related to the melamine incident. A food safety expert asserted that hormones were not likely added in the manufacturing process. The chairman of the China Dairy Association agreed, noting that hormones would not add any value to the milk powder so there would be no incentive for manufacturers to add them. The dairy association chairman explains, "Hormones are not a permitted additive in milk powder. They can be detected with lab equipment, but tests are not currently required." He wondered if the hormones were introduced in the milk itself at the farm level...

Lately there has been lots of news about workers striking in China, but now pork merchants have gone on strike . The incident provides a close-up look at the recent rebound in pork prices and how it is affecting the market. Empty pork stalls in a Shaoguan market. In the city of Shaoguan in Guangdong Province, operators of pork stalls in the city's meat and vegetable markets went on strike last week. A reporter went to several markets and found the pork sections completely empty except for one operated by the city's food company. A stall operator sitting on the sidewalk outside the "East is Rising" market told the reporter that all 100 pork stalls had decided to shut down the previous day. The pork sellers accuse a local boss of securing a monopoly of the city's four slaughterhouses and forging a new sales agreement that more than doubles the cost of slaughtering pork. Previously, farmers' pigs were slaughtered for a fee of 46.5 yuan per head, but recently the ...

" Policy Hogs" vs. "Market Hogs": Confused Hog Cycle ," which appeared on many hog industry websites Aug. 5, criticized the government's extensive policy intervention for displacing market forces as the driving factor in the hog industry. The author notes that on one hand the government issued ten policy support measures that increased the supply of pork and put downward pressure on hog prices. On the other hand, the government has been buying up pork for reserves to alleviate the surplus created by its support policies. The author refers to the policies as counterproductive and sarcastically notes the result is that "both hands keep busy." The industry has a 3-to-5-year cycle where farmers make money one year then lose for three. But, the article asserts, the support policies have broken the cycle. Instead of making decisions based on the hog-grain price ratio, investors have been attracted by subsidies. "Now there is no way for the market t...

China's hog market was in free fall from December until June. Hog market reports were grim reading until the last two weeks. Suddenly, after being mired in losses for months, on July 29 the National Development and Reform Commission announced that the hog-corn price ratio has rebounded to the profitable range. An article from Hunan reports that, on July 19 at a meat counter in Changsha’s Red Flag market, the price for a ham was 21 yuan/kg, up 3 yuan in half a month. The live hog purchase price in Hunan was 600 yuan per 50 kg (12 yuan/kg), up 120 yuan (1.4 yuan/kg). Photo from Hunan Daily. The Ministry of Agriculture (MOA) is eager to take credit for the rebound. An article cites the government's reserve purchases of frozen pork, MOA's "early warning" system monitoring of the sector, publication of inventory, slaughter and price statistics, and its "guidance" for producers in structural adjustment. According to MOA, because farmers had such good informa...

In Richard McGregor's new book, The Party , Warren Buffett is quoted as saying he has never met a real communist in China. While virtually everyone in China has abandoned the ideology, the party still plays an important role in mobilizing the people who matter to do what the leadership has decided is important. It acts as a vast behind-the-scenes network that is probably more similar to the role of Freemasons in early U.S. history than Democrats or Republicans. A recent Xinhua news service report, apparently announcing a campaign to mobilize students to bolster "modern agriculture," provides a glimpse of how the party continues to operate in much the same way it always has. It revives some elements of the cultural revolution: sending students down to the countryside and rebelling against parents' wishes in order to serve the motherland. It even incorporates a descendent of the state farm system where thousands of students were sent in the 1960s to act as cannon fodder...

According to Chinese customs statistics, June imports of soybeans totaled 6.2 million metric tons. The cumulative total for January to June was 25.8 mmt, up 16.8% year-on-year. A report on a grain bureau web site forecast that the huge 48 mmt import total for 2009/10 would grow to over 50 mmt in 2010/11. The key to this growth is that imported soybeans are cheaper than domestic beans. A support price for Chinese beans made them artificially expensive, raising the cost of oils and soy meal made from them and reducing sales. Many domestic soybean-crushing plants are idle. According to the report, as of July 19 domestic soybeans had an average price of 3536 yuan/mt, while imported beans were 3400 yuan/mt. The appreciation of the Chinese currency is one of the factors cited in eroding the price-competitiveness of domestic beans. The vice-secretary of the Heilongjiang soybean association says about half of his province's 100 soybean crushing plants are idle and experiencing heavy losses...