Dim Sums: Agricultural Markets in China

Last week, the Farmers Daily contained a long article explaining why vegetable prices increased in 2010 . The article notes that the rapid increase in prices attracted a lot of attention and prompted the central government to issue a series of 16 policies to address the issue. According to the authors, a clear understanding of the reasons for rising prices is necessary in order to make good policies. Many factors contributed to rising prices. While some regions had unusual weather last year and urbanization gobbled up land, the article insists that supply and demand are basically balanced. Ministry of Agriculture statistics show that acreage planted in vegetables went up 8 million mu last year. Rather, the article points to rising costs in each stage of the supply chain as the main reason. The author argues that rising costs are not unreasonable and points out that profits need to be spread evenly among the various actors--farmers, traders, retailers--to preserve a stable long-term sup...

An online posting lists trends for the feed industry over the next five years. It notes that China's feed industry has reached a stage of maturity following two decades of growth. The article describes the industry as one where everyone is trying to expand, resulting in keen competition that will lead to consolidation and a greater attention to raising capital. The article sees consolidation, more attention to raw material costs, forward-integration into livestock farming, and more attention to health, safety, and corporate responsibility. The article sees rapid consolidation in the industry. It predicts that 30% of feed companies will exit the market over the next five years. In 2009 alone 1321 feed companies disappeared, but there were still 12,291 companies left. The industry will transition from labor-intensity to capital-intensity. More firms will go into equity markets to raise capital. Small and medium companies will become merger targets. The feed industry will enter a ...

Last week the National Bureau of Statistics released its annual statistical communique with the first set of macroeconomic statistics for 2010. News reports focused on the CPI growth of 3.3% and food CPI growth of 7.2%. Food and agricultural products are certainly the main source of price growth in China. Farm prices rose at an even higher rate: 12%-to-13% for grains and oilseeds, 57% for cotton, vegetables 17%, fruit 19%. Hogs were about the only agricultural commodity whose price did not rise. Energy and metals prices also rose at rates similar to those of ag commodity prices. The housing component of the CPI was up 4.5% and health care up 3%. Outside of basic commodities there is not much inflation. Manufactured products showed little or no increase in prices. The CPI for clothing was down 1%, durable goods were down slightly, and household goods showed no change. A related factor is the composition of the 10.3% GDP growth. Fixed asset investment rose 23.8% and real estate investme...

While in Henan Province to inspect drought mitigation work, Premier Wen Jiabao dropped in to check on corn breeding at the municipal academy of agricultural sciences in Hebi City. In the institute's exhibition hall met with Mr. Cheng Xiangwen and his colleagues and ther he saw the evidence of their achivements: wooden bowls filled with golden corn seeds. So far, Cheng and his colleagues have developed 11 new corn varieties, including one that received a third-level national award. One variety, "Jundan 20," was developed by Cheng after 19 years of breeding. It is suitable for close planting, drought tolerant and high-yielding, reaching 700-800 kg per mu. In 2010, this variety was the second-most popular corn variety, planted on 47 million mu, mainly in Henan and other parts of the Huang-Huai region. Wen Jiabao heard this and exclaimed, “That’s not easy!” Wen encouraged Cheng: “Henan Province makes the most important contribution to national wheat production, and its contri...

While General Secretary Hu Jintao was engaged in international diplomacy in the United States, Premier Wen Jiabao was visiting parched wheat fields in Henan Province. Against the background of Henan's serious drought, Wen signaled that this year's big emphasis will be on improving irrigation infrastructure. Indications are that this will be the centerpiece of this year's "No. 1 Document" on rural policy to be released in February. This year northern China has been experiencing varying degrees of drought. On January 22, Premier Wen visited a high-yield wheat demonstration area in Hebi City of Henan to see the drought mitigation work being carried out there. Guo Tiancai, a professor at Henan Agricultural University, told Premier Wen that the area had a soaking rain in the fall and the soil moisture is not bad. However, after only 3 cm of precipitation in 100 days drought conditions are serious. An experts group convened to look at the issue thinks that there probabl...

The Shandong Province agricultural price information office reported that corn production costs were up 22% in 2010, yet farmers' profits still increased. Shandong is the second-leading corn-producing province, accounting for 12% of national production. The corn area has been stable since 2007 and the province has undertaken some yield-improvement programs. Corn output reached a record of 19.215 million metric tons (mmt) in 2009. In 2010, Shandong's corn production was up 1.3% from 2009, reaching an estimated 19.32 mmt, up 105,000 mt or .54% from the previous year. The yield was 438.76 kg per mu (6581 kg/ha), unchanged from last year. The article says demand for corn from both feed and industrial uses was strong. Price monitoring data show the Shandong price of corn rose from 1.8 yuan/kg in January to a peak of 2.08 yuan/kg in September. Prices fell 4.8% in October as new corn came on the market. Government price control measures kept the price from rising during November and D...

The Chinese government has begun to purchase corn to replenish its reserves. Normally, if the government were to go into the market to purchase it would have to compete with other purchasers and probably drive prices higher. To avoid this, the government has ordered corn processors to stop purchasing. Sinograin and its related "deep processing" factories stopped purchasing January 15. According to news from the market, all the major corn processors in Jilin Province have stopped buying corn one after another, making room for government purchases to proceed. The stockstar futures news says , "although reserve corn purchases have started, processors have left the market so there isn’t a lot of competition." That means all the corn being purchased now goes into state warehouses. Little grain is in commercial distribution channels, tightening the supply in the market. The article says fewer farmers are selling corn ahead of the spring festival. Another measure being con...

In 2010 the Chinese government announced a crackdown on illegal butchers who slaughter sick or dead hogs and breeding sows. Local newspaper accounts reporting on the raids reveal that underground butchers are widespread, hard to stamp out, and the story highlights the degree of uncertainty modern Chinese consumers face as the number of intermediaries between them and the source of their food increases. It seems to be a classic case of a "lemon market" where no one knows whether the food they're buying might be fake or dangerous. On November 10, a 50-person enforcement team from commerce and police departments in Hengyang City, Henan province , swooped down on a village in a convoy of 6 vehicles rode at 2:30 am, "wearing helmets and neatly dressed," where they found an illegal butcher operation with lights blazing in a village house. They seized 11 sick pigs and slaughtering equipment. The head of the city industry-commerce bureau enforcement team triumphantly pr...

When the Peoples Republic of China was founded it was mainly a country of peasant farmers. Sixty years later, the Chinese communists are obsessed with companies and giving them a multitude of subsidies and tax breaks carefully designed to entice them to industrialize the backward agricultural sector. This strategy of "industry feeding agriculture" and "cities supporting the countryside" sometimes appears carefully-crafted, but it changes from year to year depending on what crisis has popped up. Ironically, a Farmers Daily article about Yunnan Province's "No. 1 Document" for this year emphasizes tax breaks, interest subsidies, and favorable access to land for agribusiness companies that lead farmers out of poverty to become full participants in the modern global economy. While this is only a provincial document, the provisions of bigger investment and integrating companies with farmers seem to be a general strategy for the 12th five-year plan that begi...

An article on the feedtrade.com.cn web site discusses the prospects for importing large amounts of corn this year. According to customs statistics, 1.6 million metric tons (mmt) of corn was imported during 2010, mostly for feed manufacturing. When the first import contracts were signed, the domestic price of corn was 1850 yuan/mt and the cost of imported corn was 1750 yuan/mt, a profit of 100 yuan. Now, "due to national subsidies, inflation and other influences," the domestic price is up to 2050 yuan/mu and the landed price of imported corn has gone up too. The article reports that some in China are calling for a waiver of the 13-percent value added tax on imports to reduce their cost. The article also reports that the Chinese and Argentine Ministries of Agriculture reached an agreement for China to import 5.5 mmt of corn from Argentina, apparently over 2 years. Some kind of agreement was signed by Chinese inspection and quarantine authorities to allow the Argentine corn int...

Cold temperatures in Guizhou Province are making transportation difficult and causing increases in the prices of some necessities. Guizhou officials have announced subsidies and regulations to address the rise in food prices . A "Price Adjustment Fund" has been set up. Trucks transporting fresh ag products can get subsidies, there are awards to agricultural markets so they can eliminate vendor fees and subsidies for warehouse costs. There is a "hog slaughterhouse subsidy mechanism," and a subsidy of 30 yuan per head to transport hogs out of production areas to designated slaughterhouses. Local officials are to make sure basic foods are available, ensuring that vendor stalls in markets are manned and do not run out of stock. There are subsidies to help poor people buy coal and there are subsidies to farmers in coal-producing areas. Another thrust is to monitor and regulate prices. Vendors in Guiyang's 8 supermarkets and 47 wet markets have been ordered to keep pr...

On December 28, China announced an antidumping investigation against imports of U.S. distillers dried grains with solubles (DDGS), the by-product of ethanol production which is used as an animal feed ingredient. An earlier post is here . A January 10 article on the yumi.com.cn site offers some speculation on what may have prompted the investigation of DDGS. The article describes how burgeoning demand for protein among Chinese feed mills prompted the imports. U.S. DDGS has better quality and lower price than domestic DDGS. DDGS imports are not subject to quotas nor limitations on GMO content, so compared with corn, “import problems are relatively easy to solve, the purchase method is relatively convenient.” The article emphasizes competition between imported and domestic DDGS. The author points to a declining trend in Chinese DDGS prices during 2010 that coincided with the imports. He claims that the declining income from the DDGS byproduct combined with high corn prices has squeezed p...

China continues its run of unusual weather and drought problems. Dry, cold weather this winter has created drought conditions in much of Henan Province . Rainfall from October through December was less than 50 mm. This is 86% less than usual. Area suffering from dry conditions in Henan totals 15.86 million mu (about 2.6 million acres) and 167 million mu (275,000 acres) are suffering serious drought conditions. There has been some snowfall in Sanmenxia, southern Luoyang, and northern Nanyang, but not enough to alleviate the drought conditions. According to weather departments, the recent cold air, wind, and low moisture have created an unfavorable outlook for the drought situation. The Provincial government has ordered local officials to pay close attention to irrigation to save the wheat crop. On December 31, the Henan Finance Department issued 50 million yuan ($7.5 million) in dought-mitigation funds, including 20 million yuan ($3 million) in aid from the central government. The cumul...

An article in the Xian Daily promotes the opening of a new specialty shop selling "luxury" pork at 60 yuan per jin, roughly five times the price of common pork. This article appears to be an advertisement masquerading as journalism, but the shop's existence indicates an emerging demand for premium-priced niche products that have perceived health benefits. The meat comes from a special local breed of pig called "guan zhong black pig." As you might guess, its hair is black. The black hair is said to make the pig's meat more healthy by helping it absorb more sunshine, ultraviolet rays, and keeping them warm. A "Healthy Farm"'s web site announcing its acquisition of black pigs says they are hybrids that feature fast growth, disease resistance, healthy meat, and a feed conversion rate of 2.8:1. Guanzhong Black Pigs frolic in the grass near Xi'an The "ecological livestock" company supplying this pork practices what might be called extr...

Shandong Province announced a new mechanism for controlling agricultural prices to start this year. The system's goals are to stabilize agricultural prices and protect the interests of both the urban poor and farmers, while "tilting" the benefits of rising prices toward farmers. The system is referred to as "one fund, one reserve, two guarantees." The "fund" is a special fund for agricultural product subsidies. The "reserve" refers to a complete commodity reserve system that is intended to buy and sell commodities to stabilize prices. The "two guarantees" refers to income thresholds for receiving welfare payments that links subsidies for low-income people to the rise in prices. Details on the program are sparse. The "tilting" of benefits is not explained. It is probably intended to somehow prevent speculators and traders from earning all the profit when prices are rising. Other measures for reducing agricultural prices in...

A propaganda article promoting the Chinese government's vision of "modern agriculture" in the new 5-year plan introduced a model farmer named Hu Guoping. Once, Mr. Hu says, his ambition was to go to university and get out of the countryside. But he now considers himself fortunate to have enjoyed a "golden period" for farmers over the past five years. The government's great policies are making his dream of modern agriculture come true. Six or seven years ago, when the reporter interviewed Hu, the farmer had trouble scraping enough funds together to plant his crops. Today he runs a 100 million-yuan business, is the biggest grain farmer in Jiangxi Province, has 500 employees, and is preparing to start up operations in Africa. In 2004, the government started giving favorable policies for farmers. In 2005, having seen the policy change, Hu began renting more land. When the government announced that the 2600-year-old agricultural tax in 2006, farmer Hu was so exc...