Dim Sums: Agricultural Markets in China

The Ministers of Commerce and Agriculture announced a new campaign to improve city vegetable supplies by pushing forward the "Farmer-Supermarket Counterpart" program. This is an arrangement in which supermarket chains buy fresh produce directly from farmer cooperatives. By cutting out the middlemen (traders, brokers, wholesale markets), farmers should get a higher price and supermarkets reduce their cost. Ideally, supermarkets form stable long-term supplier relationships with cooperatives, sign contracts at fixed prices, provide standards and technical training, and help the cooperatives develop brand names for their products. Retailers exert more control over producers and it becomes easier to trace products back to their source. Earlier this year it was announced that the "farmer-supermarket counterpart" would be expanded, and another meeting was held in October 2009 The program's Chinese name, nong chao dui jie (农超对接), is hard to translate. Above, I translat...

A bag of DDGS from a Chinese ethanol company in a Jilin Province feed mill China announced an antidumping investigation against distillers dried grain with solubles (DDGS), a feed ingredient imported from the United States. DDGS is a byproduct of the production process for making ethanol. Chinese feed mills began importing DDGS from the U.S. in significant quantities in September 2009. Chinese customs statistics show that imports during the 12 months ending in October this year totaled about 3 million metric tons (mmt). (To put this number in perspective, China's imports of corn were about 1.5 mmt during that period and imports of soybeans were about 50 mmt. China uses roughly 70 mmt of corn for feed each year.) The interest in importing DDGS is reflected by the many queries posted on Chinese electronic discussion boards seeking information about DDGS and how to import it. According to Chinese web sites, DDGS is a byproduct of the fermentation process that produces ethanol and carb...

Today's Peoples Daily features an article about the government's policy of putting more money in peoples' pockets to boost domestic consumption . This year's macroeconomic policy mantra is to change the structure of the economy by expanding consumer demand. The article says that a "bulging money bag" is the best way to improve peoples' livelihood, boost consumption, and allow "more people to enjoy the results of development." The article cites four major ways that the government has put money in rural peoples' pockets: raising minimum wages, raising minimum purchase prices for grain, increasing farm subsidies, and increasing loans for farmers. With all this extra money being poured into rural peoples' pockets, it's no wonder food prices are going up. The central government has pressured provinces to institute, increase, and enforce minimum wages. All provinces have now set minimum hourly and monthly wages. Shanghai has the highest mon...

Vice Director of the Grain Bureau, Ren Zhengxiao, said at a recent conference that policy-type purchases of wheat, rice, and corn were down 66% year-on-year for the January-November period of 2010. Since grain prices were rising this year authorities didn't have to buy as much grain at support prices. State-owned enterprises still were the main purchasers of grain. They bought 109.6 million metric tons (mmt) of grain during January-November, accounting for 46% of all purchases. While the amount of policy-type grain purchases was down this year, procurement at minimum prices still accounted for nearly one-third of purchases. By my calculation this means total purchases of grain for January-November totaled 238 mmt, over 40% of grain production (540 mmt). This implies still over half of grain is used on farms and never enters the formal marketing system. State-owned enterprises took advantage of rising prices to sell off grain they had stockpiled in 2009. Sales of grain totaled 170 m...

An article from the Xinhua News Service suggests that the rising price of vegetables is a signal that China's economy is entering a new era of high costs. According to Sun Jitao, one of the 30,000 or so traders at Beijing's Xinfadi wholesale market, business is getting worse for vegetable traders. By noon, Sun had sold about a third of the vegetables from his truck. He may make 1000 yuan in a day but he has to split it with seven partners. With the rising purchase cost of vegetables, plus packing, transportation and labor, it's not uncommon to lose money on a truckload. Another trader named Wu selling home-grown ginger complains about the rising cost of production. She said laborers were paid about 7 yuan per hour last year, and this year they can't find workers at 9 yuan per hour (about $1.30). She says it now costs over 8000 yuan to plant one mu of ginger. She says recent government policy measures led to a drop in ginger prices. She thinks people who bought ginger a...

China has managed to fill peoples' stomachs, but many people don't get enough vitamins and minerals. Over the past decade, China's leadership embarked on the next stage in food policy by formulating plans to improve the population's diet quality. There has been a national nutritional improvement project since 1995. In 2001, an “Outline for China’s Food and Nutrition Development for 2001-2010” was formulated and a National Nutritional Improvement and Development Center was set up under the powerful National Development and Reform Commission. [Ironically, my computer detected a virus when I visited the nutrition center's web site just now...computer health is a separate issue...] Wen Jiabao launched an “Advance Public Nutrition Improvement Activity” in 2006 as part of the 11th five-year plan. According to an interview with a Professor Yu Xiaodong on the nutrition improvement center's web site , the Chinese public generally lacks iron, zinc, and calcium, vitamins A...

Earlier this week, a university in Beijing held an internal seminar to discuss potential policy measures to recommend that might address China's massive problems with agricultural pollution. I wasn't there and don't know what was actually discussed but the notice about the meeting reveals that the seriousness of agricultural pollution has gotten the attention of policymakers. The notice describes how agricultural pollution has gained prominence as a problem. In 2005, the State Council's Development Research Center found agriculture was responsible for one-third to one-half of pollution in China and identified agricultural pollution as a factor affecting the country's sustainable development. In February 2010, the government's first census of pollution sources showed that agriculture is an even bigger source of pollution than previously thought. The census showed that agricultural sources emitted 57% of nitrogen and 67% of phosphorus. The data showed that agricul...

A truck loaded with corn stalks China has managed to feed a huge number of people on a limited resource base by intensively using its biomass for feeding animals, fertilizing crops, and feeding household cooking stoves and heaters. When rural villages were poor and isolated, people used whatever energy sources they could find nearby and recycled everything--byproducts, manure, and biomass like crop residues--stalks, husks, vines, and leaves. Crop residues, however, are no longer an attractive source of energy when fossil fuels are available, so a lot of biomass gets burned in the fields. Chinese officials are now trying to simultaneously promote fossil-fuel-powered agriculture by subsidizing agricultural mechanization while also promoting the utilization of biomass for feed, fertilizer and energy. The government has had a campaign to utilize the residues from crop production at least since the 1990s, and there seems to be a renewed emphasis now that China is grappling with energy issu...

China's imports of agricultural commodities are rising. It's only natural that a country with over 20% of the world's population and 9% of the world's land will import food. However, the process of China's transition to an agricultural importing nation is complicated and fraught with potential conflict. There are a lot of vested interests in China that don't like it. The growing presence of multinational companies that do not have a national identity is a threat to the emerging nationalistic alliance between big Chinese companies and government that is emerging as China's strategy for carrying out policies and development plans. A steady stream of articles in the Chinese press express fears of foreign companies monopolizing the Chinese markets for agricultural commodities. This week another article, "Foreign Investment Penetration Expanding; Domestic Companies Face Severe Challenges" , on the cn.grain.com.cn web site offers some more insights about...

This month Chinese leaders are discussing macroeconomic policies for 2011. The central economic work meeting concluded on December 12th and the Price Bureau held a meeting on December 15th to talk about price policies. The two key words at the economic work meeting were "change" and "stability." "Change" represents the change in development mode the leadership is trying to engineer during the 12th five-year plan period which begins in 2011. "Stability" refers to keeping inflation under control. The "change" in China's approach to economic growth means shifting from a laser-like focus on growth any way possible as fast as possible to a more balanced approach that narrows differences in income, shifts from direct government investment to guiding private investment, and promoting domestic demand and consumption. The plan is to use government subsidies, subsidized bank loans, establish special government funds and give tax cuts to induc...

Mechanized agriculture has been a sort of holy grail for communists since the days of Stalin. China's Ministry of Agriculture is still obsessed with mechanization, viewing it as an achievement of modern agriculture. Mechanization frees up land that would be used to support draft animals and laborers, substituting petroleum-based energy for plant-based energy. On December 14, the Ministry released its report on achievements in agricultural mechanization this year , breathlessly proclaiming that China has entered a new era of mechanized agriculture as human and animal power are replaced by machines in an historic transition. Mechanization has become "the main force in agricultural production and resistance to disasters," playing a role in China's seven straight years of bountiful harvests. This year "big breakthroughs were made." This year 15.5 billion yuan was budgeted for machinery purchase subsidies, an increase of 2.5 billion yuan, for purchase of 5.25 mil...

China has made a lot of progress in improving farm productivity to the point that farmers encountered "hard to sell" problems in the 1990s and 2000s. Now China is moving to the next stage in developing a modern food system by encouraging marketing infrastructure and management systems. The State Council unveiled a logistics plan for agricultural commodities in July that sets targets and key projects for agricultural and food cold chain development. By 2015, the plan sets targets for 20% of fruits and vegetables, 30% of meat, and 36% of seafood to be marketed through cold chain transportation and storage chains. This is expected to reduce spoilage and increase interregional trade in food commodities. The plan sets targets for spoilage losses of 15% for fruits and vegetables, 8% for meat, and 10% for seafood. Seven main tasks: 1. Spread modern cold chain logistics concepts and technology 2. Improve the cold chain logistics standard system 3. Establish a cold c...

The China Price Information Center is supposed to monitor and report prices to inform policymakers, consumers and businesses about price trends. Normally they post average food prices for about 40 items for three 10-day periods about a week after the end of each month. Now there is more interest than ever in Chinese food prices, so what does the China Price Information Center do? They stop publishing price information. As of December 13, the web site has only posted an abbreviated report for the first 10 days of November with 8 prices: tofu, three kinds of sugar, salt, soy sauce, vinegar, and milk. This is a reminder of the unique role of statistics in China: they are for leaders to know what's going on (although even people in government don't get accurate statistics and discuss among themselves which numbers to believe). Statistics are not for the public. They are only released to the public if they show good news or agree with some other story the leaders want you to hear. T...

Motivated by distrust of the food system, some Chinese city residents are renting garden plots in the countryside to grow their own vegetables or hiring farmers to grow them. The International Herald Tribune reported on the "Little Donkey City Peoples' Garden" in a village outside Beijing's 6th ring road. The garden is dotted with plots, each with a name, rented out to city people where they can raise their own vegetables. Ms. Yi, a retired worker, comes to tend her garden twice a week. She pays 1200 yuan to rent a 30-square-meter plot. By my calculation that's 1/22 of a mu and works out to rent of 25,000 yuan per mu. For comparison purposes, farmland in China typically rents for 300-to-1000 yuan per mu, so this is good money for the peasants. During the 1970s, like many young city people, Ms. Yi was "sent down to the countryside" to "learn from the peasants." Now she's voluntarily going down to the countryside to grow her own food. She...

A Daily Economic News article last week reported that officials had privately instructed major vegetable oil companies not to raise prices before March. These "unofficial" price controls are a good example of the Chinese government's bargain with business: "We help you squash competitors and make money; you help us implement our policies." The reporter learned from knowledgeable sources that the National Development and Reform Commission (NDRC) had held a private one-time meeting with representatives from large vegetable oil producing companies, including Willmar and COFCO, who together control half of the retail market. At the meeting, the companies were told not to raise prices between now and March (when the communist party holds its big annual meetings). Companies were directed to maintain market supply while simultaneously holding down prices. According to the article, the companies fully supported the curbs on prices. The meeting was prompted by surging ve...

A Xinhua News Service article on Dec. 5 was headlined " Ministry of Environmental Protection: Livestock and Poultry Industry Have Become the Leading Source of Agricultural Pollution ." This follows Shandong's widely-publicized introduction of livestock regulations several days earlier. Apparently, there is a campaign to clean up pollution from livestock and poultry. The Dec. 5 article announces that the Ministry of Environmental Protection organized a meeting of representatives from provincial environmental protection departments for training on control of pollution from livestock and poultry and to discuss coordination in agricultural development and environmental protection. The meeting was held in Hohhot, Inner Mongolia. The article reports that the first census on pollution sources showed that commercial-scale livestock and poultry farms were the leading source of agricultural pollution and a major contributor to water pollution. These farms produced 243 million metr...

A reporter in a small city in Hubei Province discovered an unusual practice in the local slaughterhouse . When pigs are slaughtered, employees are forced to separate out the small intestines from the meat and offal for sale to an individual who takes them away and sells them for a much higher price. "If any employee of the slaughterhouse tries to prevent this, they are beaten up. They comply out of fear." The reporter says he went to the slaughterhouse at 5 am on December 1 to see what was happening. About 80 pigs were slaughtered, the offal was separated from the carcasses and moved to another room. As workers were cleaning the offal, a lady who was not an employee of the factory came and separated out the small intestines, put them in a bag and took them away. At 6 am, a pork dealer came to buy the pork and offal to sell at markets in the city. A trader told the reporter the intestines are purchased for 10 yuan and resold to a specialized wholesaler for as much as 25 yuan. ...

Livestock farms are increasingly viewed as a nuisance and a hazard, and more localities are implementing regulations to restrict their numbers. China's first pollution census results released in January showed that livestock waste was the largest contributor to water pollution, perhaps adding momentum to the trend. On December 2, many websites carried a brief article describing draft regulations for livestock production in Shandong Province . The new regulations forbid construction of new livestock and poultry farms in areas that supply drinking water for urban residents. The regulations also instruct county (rural) governments to ban livestock farms in residential zones in rural areas. New livestock farms are banned in areas that supply water for household use, scenic areas, protected wilderness areas, urban residential zones, and places where populations of school and research institutes are concentrated. Rural officials have to set aside "appropriate" zones in rural ar...

A Dec. 2 report posted on the China Livestock and Veterinary Association web site provides a good analysis of China's feed grain situation and outlook. The report discusses China's growing demand for grain as livestock feed in the context of worries about food security. As feed demand accounts for a rising share of grain use, will China have to import grain? China has a diverse mix of grains, including corn, rice, wheat, millet, sorghum, and tubers. Soybeans are traditionally included in the Chinese concept of "grain," although they are not directly consumed as feed. Soymeal is the most important source of protein in feed. China also uses a lot of by-products from grain milling, processing and liquor manufacturing. About 40% of grain is used for animal feed, a total of 200 mmt. Nearly all feed comes from domestic sources except for soymeal which is nearly all imported. The proportion of various grains used for feeds varies. The report estimates the feed consumption of...

According to the latest issue of China Livestock and Veterinary Bulletin , Liu Xiaoyu, chairman of COFCO's feed department and vice-chair of the China Feed Association, estimated this year’s feed production may surpass 150 million metric tons (mmt). The increased demand contributes to the recent increase in corn demand and increased corn prices and volatility. China’s feed output last year was 148 mmt. Liu estimates that national feed production will rise to 250 mmt by 2020. That's an increase of 100 mmt, or 10 mmt per year! Liu said, “COFCO’s feed output now is 700,000-800,000 mt, and could rise to 6 mmt in five years.” While COFCO is a huge player in China's grain and feed market, this number suggests that it accounts for a tiny share of feed output. As for this year’s surging price of corn and other agricultural commodities, Liu says it was related to extreme weather, natural disasters, worries in the market about corn production, plus inflationary expectations. However,...

Today the National Bureau of Statistics announced its estimate of grain production for 2010 . "According to sample surveys and complete statistics" grain output for 2010 totaled 546.41 million metric tons (mmt), an increase of 2.9% from last year. Sown area in grain totaled 109.872 million hectares, an increase of 886,000 ha or 0.8% from last year. Grain yield was 4973 kg/ha, up 103 kg. which I calculate to be a 2% increase. The report attributes the yield increase partly to a 1.3-million-hectare expansion of corn, a crop with high yields. Overall, 20 provinces had increases in grain production and 11 had decreases. In the thirteen primary grain producing provinces 2010 grain output was 411.85 mmt, up 14.75 mmt or 3.7% from last year. Most of the increase in this year's production was in the northeastern provinces (Jilin, Liaoning, Heilongjiang) and Inner Mongolia. This region's grain production was up 13.93 mmt, an increase of 13.4%. Total output for the four northe...

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...