Thursday, August 19, 2010

Liaoning corn production down 22.6% last fall

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 production was down 80% in two counties not included in the survey.

Liaoning’s corn production in 2009 is reported to be about 9.2 mmt, down from 2008's 11.89 mmt (a decrease of -2.69 mmt or -22.6%).
Jilin production was 18.1 mmt, down from 20.83 mmt (-2.7 mmt, -13.1%); Heilongjiang’s production for 2009 had not been announced (when the report was issued in April), but was estimated down 3.3% from 2008's 18.22 mmt (I calculate this is -0.6 mmt).

That’s a total of 6 mmt decrease in the three northeastern provinces. That would be 3%-to-4% of national production. The report doesn't say anything about corn production in other regions.

The report has some other interesting details about corn production costs. Total costs were up 5% in 2009.

Land costs increased by 17 yuan per mu, or 10%. The report explains that more farmers want to hold on to their land instead of renting it out because of the rising subsidies and grain prices in recent years. So there is more competition for land and the fees for renting land have been increasing.

In 2009, average corn subsidy income increased 11.63 yuan. The imputed land cost (based on local rents) averaged 184.86 yuan, which I calculate to be US$164 per acre, well above average land rent in the U.S. midwest.

The average land cost increase of 17 yuan is slightly greater than the increase in subsidies of 11.6 yuan. Officials' attempts to benefit farmers with subsidy payments are an uphill battle. All the benefits are erased by rising costs which may be prompted by the subsidization of factors of production (land) and inputs (seeds) that are inelastically supplied.

Seed costs were up, mainly due to rising seed prices. Surveys of the seed trade show rising prices for a couple of popular seed varieties. Some farmers are using more expensive seeds that have a higher germination rate that require about half the volume of seeds per mu compared with conventional seeds.

The survey reports a cost for insurance for the first time. Subsidized insurance for corn is now available in Liaoning. The farmers participate voluntarily and pay 20% of the premium. Local and provincial authorities pay 80%. The cost is 25-to-27 yuan per mu, of which the farmers pay less than 7 yuan on average.

More farmers are using formula fertilizer to replace traditional diammonium. The price of formula fertilizer was down a lot, and use increased 2.78 kg/mu from last year. total fertilizer cost fell 6.26 yuan, down 4.55%.

Labor cost increased due to the outmigration of laborers. The local daily wage increased from 50 to 60 yuan. Farmers are doing more of the labor themselves to replace hired workers.

The corn price was up 10%, but the lower yield meant that gross income was down. Deducting the higher costs meant that corn farmers in Liaoning got lower profits this year.

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