Dim Sums: Agricultural Markets in China

The quarterly feed industry development meeting was held in Changchun on Nov. 26. The vice director of Ministry of Agriculture's livestock office described this year's feed industry development as "overall not optimistic." The meeting reported feed output statistics that reveal a big shift toward formula feed and discussed consolidation in the feed milling industry. The feed industry is on a general upward trend, but this year it faced numerous natural disasters (droughts, floods, disease?), pig prices were low in the first half of the year, and raw materials for feed are in short supply. Commercial feed production for January to August of this year totaled 90 million metric tons (mmt), up 5.7% from last year. There was a big change in the composition of feed. Production of complete formula feed increased 9.3% while production of feed concentrates was down 9.6% and feed additives were down 7.1%. The change in composition represents a shift from the traditional practi...

An article in the Daily Economy News reports that soybean farmers are complaining about the government's efforts to control commodity prices. Corn, rice, and other prices have gone up this year and now the government is trying to stop prices from climbing. The soybean farmers' complaint is that soybean prices didn't go up as much as other prices and now they won't have a chance to catch up with other commodities. According to He Shuwen, head of a soybean cooperative in Heilongjiang Province's Heihe City, soybean prices are about 1.9 yuan/jin this year, up from 1.87 yuan last year. This is not much compared with 10-percent increases for corn and rice. With the government trying to control prices, he says the 2-yuan price farmers hope for will be hard to attain. He says a lot of farmers are considering switching from soybeans to rice in response to the price difference. Meanwhile, the government is reporting that rural household income is rising rapidly. In the first ...

Grain purchase station in Anyang This week Sinograin Net posted a report on a survey team's visit to Anyang in Henan Province , a major wheat- and corn-producing area in the northern part of the province. The team's interviews with grain purchasers reveal that the recent measures taken by the Chinese government have had a minor effect on cooling off corn prices on the demand side. However, expectations of higher future prices and less dependence on income from grain are motivating farmers to hold on to their corn. Officials are blaming speculation and trying to root out "speculators" from futures markets, etc., but the lack of corn in the market--despite a good harvest--is due to speculation by millions of farmers. And the expectation of ever-rising prices has been built in by government policies. The Sinograin team learned that this year's weather in Anyang was more or less normal, and both wheat and corn production were up from last year. The quality of the corn...

An early November article from the Pingyin County price bureau in Shandong Province reports that prices for local apples have been rising quickly since about October 20. Like a number of other commodities, a weather-related supply disruption in combination with the current inflationary climate have lured traders and speculators and prices are spiraling upward. In Hongyuanchi Town, the October retail price for “Fuji” apples is 4.4 yuan/kg, up 22.2% from September and up 37.5% year-on-year. The report offers five reasons for climbing prices. The first reason is a drop in production in the northwest. There was a late spring and hail in apple-producing areas of Gansu and Shaanxi earlier this year. This affected apple blossoms and reduced production. The report says the amount of apples coming into the area from other regions has dropped a lot. Second, the purchase price of apples was up to 0.4 yuan this year and costs of transportation, storage and other services have risen. Third, there ...

Chinese officials tend to be fixated on grain. They have been pointing out that rising grain prices are good for farmeres. But what about livestock farmers? For them higher grain prices increase their costs. A Harbin Daily reporter went to the local market and found prices had risen quite a bit this year. He went to the countryside to learn whether livestock farmers are benefiting from the high prices. A farmer named Wang in Yuanbao village is the largest hog farmer around; he raises about 2000 hogs a year and has invested over 2 million yuan. Wang told the reporter that in 5 years of raising pigs he had earned money two years, lost money two years, and one year it was completely futile. Early this year the price for hogs was just 4.2 yuan per jin and he lost 200 yuan on every hog. In July, the hog price went up to 5.8 yuan and he was making money again. However, corn and soy meal prices went up too, narrowing his profit to 0.5 yuan per jin--about 100 yuan per head and about enough to...

The latest news suggests that Chinese officials are watching commodity prices, hoping they don't go up too fast, trying various measures to cool off markets, and saving direct price controls as a last resort. Destroy commodity price increases On Nov. 19, the State Council announced 16 measures for addressing price increases that include boosting agricultural production, "coordinating" purchases and sales of commodities through the "governors' grain bag" and "mayors' vegetable basket" responsibility sytems, waiving tolls for trucks carrying ag commodities, and boosting oversight of prices, costs, and markets. Vice-chief of the Grain Bureau, Mdme. Zeng Liying, has made one of her usual appearances to reassure the public that China has plenty of grain on hand and there is no reason for prices to be shooting upward. Ms. Zeng says that it's now clear that the fall harvest was another good one. The supply of corn, rice, and soybeans in the north...

Is China running out of corn? Nobody knows since corn reserves are a state secret (see yesterday's post). On November 16, over 300,000 metric tons of corn from reserves were offered for sale at auctions in four northeastern provinces. Only about 30% of the corn was actually purchased--this is in contrast with the situation last summer when all corn put up for auction was sold. Corn was mostly from last year’s crop but included corn from as far back as 2006. Here's what was offered by year the corn was originally purchased: 4,102 mt from 2006 (99.7% sold at 1640 yuan/mt) 50,100 mt from 2007 (37% sold at 1629 yuan/mt) 44,400 mt from 2008 (30% sold at 1569 yuan/mt) 202,400 mt from 2009 (37% sold at 1617 yuan/mt) Interestingly, Jilin, the largest corn-producing province, only put up 20,000 mt and nearly all of it sold. In Heilongjiang and Inner Mongolia, larger amounts were offered and less than one-third sold. Maybe there is a spot shortage in Jilin. In Heilongjiang 141,400 mt (99...

According to government statistics, China has had seven straight increases in grain production from 2003 to 2010. The Farmers Daily online interviewed three of China's leading agricultural economists to ask them to explain the reasons behind this unprecedented string of big harvests. Guess what? All three stressed that the policies of the communist party and the government were the key factors behind the big harvests. Han Jun, a top rural policy advisor in the State Council's Development Research Center, said in his interview that China has gone through cycles in grain production over the past three decades, but the 7-straight increases are unprecendented. He calls this a "golden period" and says it is remarkable considering the challenges faced, including this year's bad weather, market volatility, and inflationary expectations. Han says two-thirds of the increase in production came from rising yields and one-third came from increased grain area. Ke Bingsheng, p...

This year's corn has been harvested and it looks like a more or less "normal" harvest, certainly better than last year's that was devastated by drought in parts of the northeast. Farmers have corn but they're not selling it. Prices have been rising in recent weeks, but the market is at a standstill, waiting to see if prices keep rising. Jilin Province--the major corn producer--announced a "three encouragement, one oversight" campaign for this year's corn marketing season. Encourage farmers to sell grain, to sell good grain at a good price. Farmers have grain on hand but they are hesitant to sell. Grain departments are to publish forecasts and market information so farmers know the actual situation. Encourage processors to buy grain according to state policies to solve their production raw materials problem. Financial organizations (banks) should make plenty of credit available to facilitate grain purchases. Encourage grain enterprises to go into the ...

We all try to keep secrets from time to time. But in China keeping secrets is a national policy that is the responsibility of every citizen. It's surprising to outsiders what is considered a state secret in China. And this is serious business: many dissidents have been jailed for "revealing state secrets." I happened to come across a message announcing that all employees of the Jilin Provincial Grain Exchange would be organized to study the revised national law on state secrets. A google search shows that all government organs were carrying out such activities in September of this year. The purpose was to "seriously implement the 'PRC preservation of state secrets law,' strengthen security secrecy consciousness, raise secrecy quality capability, spread the firm establishment of security concept and secrecy legal concept to all officials, protect national security and interests." Staff were instructed to design flexible, eye-catching propaganda and put i...

Earlier this year the Ministry of Commerce issued a plan for reorganizing the pork industry. Now provinces are putting it into action. In October, Jiangsu released its plan to consolidate slaughterhouses and set up a nice orderly system of four grades of slaughter and processing enterprises during 2010-15. Slaughter enterprises will be divided into four classes: 4-star: 1000 hogs or more per day capacity 3-star: 500-1000 hogs per day 2-star: 200-500 hogs per day 1-star: 50-200 hogs per day The government will give unspecified "policy support" to enterprises that can meet the standards for 3-star or higher and give them encouragement and guidance in developing cold-chain facilities and engage in interregional sales of pork. All new slaughter enterprises have to be at the three-star level or higher and have inspection capabilities and testing labs. Their layout, equipment and facilities must be at international standards. There will be two flagship four-star enterprises with ca...

Vice Minister of Agriculture, Chen Xiaohua, reported at a national meeting that China now has 310,000 farmer cooperatives with 26 million members, about 10 percent of the rural population. According to an agriculture ministry official, farmer cooperatives are intended to overcome the shortcoming of China's household responsibility system--small, scattered farmers need to enter a big agricultural market. A reporter for the 21st Century Economic Herald found that many of the cooperatives were agricultural companies that had converted themselves into cooperatives to take advantage of favorable policies. In Anhui Province, the reporter visited the Sanhe Village Tea cooperative that formerly had been a small tea company. In fact, it still had the former company's sign hanging in the courtyard. The cooperative was set up in 2008 and has 200 members and encompasses 200 mu of tea bushes. A vegetable cooperative in He County, Anhui Province. The cooperative was formed by a company that...

According to a brief article from China Securities News in October , the number of state-owned grain enterprises has fallen by nearly half since 2004. The reporter learned from the Grain Bureau that there were over 18,000 state-owned enterprises in the grain indsustry at the end of 2009, down more than 16,000 since a "property rights breakthrough" in 2004, with steady structural change and industry-upgrading as the objective. Since 1998, state-owned grain enterprises have shed 2.67 million employees, an 81% decrease. That doesn't mean the grain industry has been privatized. According to the report, from 2006 to 2009 state-owned enterprises accounted for 57.8% of national grain purchases. "After reform of the grain market...state-owned enterprises continue to play a leading role in grain purchase." Since the beginning of 2007 grain enterprises have earned good profits. State-owned grain enterprises' net assets (equity?) totaled 81.7 billion yuan at the end of...

Caijing Magazine's website reports today that an official with Yili, one of China's largest milk companies, said that the dairy industry is about to raise prices as the peak season for milk consumption arrives. The industry has been under rising cost pressure since August, presumably due to rising raw material prices, and profit margins have been shrinking. The vice director of Guangzhou City's milk office told the reporter that the industry is under great pressure and probably cannot avoid raising prices. They will probably concentrate on raising prices for premium high-value products. Factors behind the price increase include rising prices for raw milk and consumers' rising income and acceptance of higher prices. Comment: current conditions are strikingly similar to those of 3 years ago. In the fall of 2007 milk prices rose rapidly and the Chinese government imposed price controls. The rising costs and booming demand put pressure on margins and sent companies on a sc...

"You must learn from them." In Chongqing Municipality, the 1970s program of sending students "down to the countryside" is being revived. The "climb the mountain, go down to the countryside" program sends university students to "learn the actual situation at the grassroots." According to the Chongqing Evening News , the purpose of the program is to improve the general quality and practical capabilities of students. "Practical training is necessary for students." The cartoon above shows a teacher urging the apprehensive student to learn well from the peasant, worker and soldier. A clip from the local news shows students being mobilized to go down the countryside to plant trees, learn from peasants, workers and soldiers, do social surveys and other activities for no less than four months. The clip also displays footage from the 1970s "Great Cultural Revolution" period when "young intellectuals" were sent down to the co...

China's agricultural sector is made up of scattered, fragmented peasant farmers who have an average of about 1 acre of land broken up into 4-to-5 small plots. The government's "agricultural industrialization" strategy involves linking up these small farmers with strong agribusiness companies who provide them with a marketing channel and a source of technical and market information. These agribusiness companies are called "dragon head" enterprises. The dragon is a benevolent creature in Chinese mythology, and "dragon head" refers to the traditional dragon dance in which a series of dancers insider the dragon costume follows the dragon head in a nice orderly line. The company is a "dragon head" that leads the farmers into the market. The farmers don't need to know where they're going; they just follow the dragon head wherever it goes. The government designates companies that meet criteria for size, success, technical capability, and...

Over the past decade, "lightening the peasants' burden"--reducing taxes and fees assessed on peasants--has been one of official mantras for rural officials. The "agricultural tax" was phased out nationwide between 2004 and 2006 and officials are not allowed to impose arbitrary fees and taxes. Last month, the State Council held a meeting to discuss this year's investigation of peasants' burden . It involves the Ministries of Agriculture and Finance, State Council Rectification Office, National Development and Reform Commission, State Council legal office, education ministry, and news media. The investigation will concentrate on village administration and finances, including assessments, fund-raising, and contributions of labor for public works and infrastructure projects. It will investigate assessments or requests for donations from village organizations by government departments or units. While the elimination of taxes on peasants has been publicized as...

A November 1 Washington Post article describes young professionals in Shanghai who are trying to become organic farmers. Interesting piece with nice photos. The Washington Post article describes "bottom-up" organic farmers in the western mold of educated people who want to get back to the land. The organic "movement" in China is mostly a quite different "top-down" mode--government agencies and companies see a market and a way to improve food safety and then rent land from farmers or organize a bunch of farmers into a "production base" to grow organic food. In the industrialized "top-down" approach used in China the farmers have little concept of what organic agriculture really is. Chongming Island, where the farmers are operating their farms, is an interesting place. It used to be carved up into state-owned farms and a lot of Shanghai residents were "sent down" there during the cultural revolution. Now it has become a big eco-...

A farmer herds his cattle in Hubei Province, august 2009 Mechanization is one of the measures China is pursuing to modernize its agricultural sector. Since 2004, there has been an expanding subsidy program to encourage purchase of all kinds of agricultural machinery. This is a profound change in the rural ecology of China. Traditionally, crops, livestock, and people existed in an interlocking cycle that supported huge numbers of people on a very limited land base. Farm work was performed by a combination of back-breaking labor by people with the help of water buffalo and cattle. In exchange for their work ploughing for a week or two and various other tasks, the cattle got to loaf around and wallow in rice paddies the rest of the year. When their useful life as draft animals was finished, they were turned into a beef dinner. The mechanization program actually has a slogan of “machines replacing cattle (ji dai niu)” that has the objective of eliminating the use of draft cattle. Based on ...