Wednesday, March 23, 2011

Shuanghui's Morality Pledge

Shuanghui Group, China's largest meat-processing company, was recently caught selling pork tainted with illegal feed additives.

Ironically, in January 2009 Shuanghui was a key company in launching a "moral food company" campaign. This event came several months after the melamine crisis broke, so apparently it was aimed at restoring consumer confidence in food. The campaign was organized by the Central Civilization Office, a communist party propaganda organization. The Shuanghui site still has a special section devoted to the morality campaign.

The Shuanghui "moral company" event consisted of a big meeting attended by company executives, the vice mayor of Luohe City (Shuanghui's home base), officials from the Agency for Quality Inspection and Quarantine, and civilization office officials. There was much pomp and pageantry.

The main theme was Shuanghui Group's commitment to be a moral company of integrity. Shuanghui made "a solemn commitment" to the entire society through spiritual civilization media: “Adhere to business integrity, Abide by company morality; manufacture and sell food products with assurance; improve service system, have a responsibility to consumers.”

Shuanghui promised to keep in mind its responsibility to improve food safety over the entire industry chain, especially by controlling animal-raising.

Executives and factory workers made speeches and signed a giant copy of the company pledge. The company's six subsidiaries were hooked up by video. Workers lined up on the factory floor and recited a pledge to use safe practices and uphold their commitment to society.

The chairman of Shuanghui signs the morality pledge

The chairman recites the pledge with workers

Factory workers recite the pledge. The banner reads, "strict business management, manufacture and sell food with assurance."

Workers at a Shuanghui farm pledge. "Create green animal husbandry, supply pork with assurance."

Tuesday, March 22, 2011

Corn: Warehouse versus Food

The China Grain Net site carried an article about a feed conference held in Guangzhou where speakers fretted about industrial users competing with feed mills for a tight supply of corn. This article noted that industrial use of corn has grown despite the National Development and Reform Commission's 2006 order for a slowdown. After that, projects were canceled or scrapped and there has been no new capacity added.

The NDRC order didn't stop the industry from expanding production. Demand rose sharply last year as food, pharmaceutical, paper, and textile industries grew in double digits. Exports of starch and other corn products also were up. In 2010, domestic processing consumption was about 45 mmt, accounting for 28% of corn consumption, beyond the planned target of 26%.

An expert at the conference said demand for corn industrial products could easily grow 12%-15% annually, but the supply of corn will be a brake on the industry's growth. In the 12th five-year plan there are provisions to slow down the growth of corn processing industries.

The general manager of Sinograin, China's company responsible for holding grain reserves, had complained at the National Peoples Congress that manufacturers of industrial products like alcohol, starch, and monosodium glutamate are expanding their use of corn too quickly, threatening grain security. He said China's grain reserves are overall quite high, except for corn reserves which are an issue. He called for controls on industrial growth.

In the same article, an official with COFCO--one of the biggest producers of corn industrial products--offers a different view. He argues that industrial products still consume a relatively small share of corn that doesn't threaten grain security. He points out that they are making products that are daily necessities for consumers. They add value and nutritional value to corn, and these products use corn more efficiently than does consuming corn as raw grain.

So basically, the Sinograin official wants to put priority on buying corn to stash away in warehouses, while the COFCO official wants to use corn to make products people want to consume. This debate crystalizes the "grain security" issue: pay bureaucrats to store grain or let companies make food for consumers. Who is promoting "food security" here?

The COFCO official also points out that the plan to curb the industry's growth will produce a reshuffling that will create opportunities for companies that have access to cash and technology (like COFCO).

The Clenbuterol Crisis

On March 15, China Central Television’s “weekly quality and safety report” revealed the widespread use of “lean meat powder” in raising hogs in Henan Province. Here's the video.

Chinese consumers have in recent years begun to prefer lean pork over the traditional fatty pork. When “lean meat powders” like clenbuterol, ractopamine, salbutamol, terbutaline sulfate, and dopamine hydrochloride are added to feed, the hog’s body devotes energy to building muscle instead of fat. The result is what is called in China a “healthy, beautiful pig,” muscular hogs that bring higher prices from traders and slaughterhouses. Industry people say the use of “lean meat powder” became a general practice, and some refer to it as the meat industry’s “melamine.”

A muscular "lean meat powder" pig dares the wolf to eat him.

Clenbuterol can cause anxiety, palpitations, dizziness, and even induce a coma. There were incidents in 2006 and 2009 when citizens of Shanghai and Guangzhou were sickened by ingesting pork containing traces of clenbuterol. Clenbuterol and ractopamine are illegal for use in animal feed in China.

A subsidiary of Shuanghui (Shineway)—China’s largest producer of processed meat products—in several counties of Henan Province was implicated in the scandal. The incident undermines Chinese consumer confidence since Shuanghui has marketed itself as a purveyor of safe meat products. Meat counters in supermarkets offering Shuanghui pork display big signs with the slogan, “18 tests, 18 assurances,” with the implication that their extensive testing should put the consumer at ease. A former employee explained in a news article that the tests actually only apply to internal operations of the plant. Moreover, Shuanghui was the leader of a campaign to create “companies with integrity” in the food industry. Last year online news articles showed Shuanghui executives signing a food safety pledge and factory workers lined up reciting similar pledges.

A China Grain Net commentary calls Shuanghui’s slogans “empty words.” A Xinhua News Agency article describes Shuanghui’s ambiguous attitude as hiding “the seemingly perfect but actually fragile food safety monitoring chain.”

The lean meat powder appears to be an arrangement between farmers, procurement officers in the local branch of Shuanghui, local officials, traders and truck drivers. If farmers don’t use it, their hogs will be too fatty and traders will not want to buy them. According to one commentator, farmers pay money to get a plaque that says they have been certified as “no harm” (wu gong hai), but officials tip them off before the auditors come Officials check feed for “lean meat powder” and find 99% compliance, but powder is manufactured by drug or chemical factories and traders sell it to farmers who mix it with the feed themselves. Small, backyard farmers are being blamed as culprits.

The pigs from Henan could get a health certificate for 10 yuan. A number of them were transported to the market in Nanjing. At Nanjing the Henan health papers were accepted. Pigs’ urine is tested for clenbuterol but drivers submitted their own urine for the tests.

The China Grain Net commentator complains that “...regulators have lost their sense of duty, having become like a person who sits at the cash register,” just collecting bribes or even helping with the fraud. “Collect money, stamp certificates, lean meat powder flows to all capillaries of the consumers.”

None of this is news to the industry or to government regulators. Last summer this blog reported on the sale of pig health certificates in Henan. There was a crackdown on "lean meat powder" in Henan announced last summer. At the time, officials claimed that 99% of the samples passed tests. The Ministry of Agriculture announced a crackdown on lean meat powder in December.

It's probably not a coincidence that the incident was announced as the National Peoples Congress ended last week. No bad news was allowed during the two big meetings; they must have been sitting on this for a while.

Consumers are cutting back on pork consumption for a while. Supermarkets and large food markets in Beijing, Nanjing, Jinan, Shanghai, Shenzhen, Ningbo, and Guangzhou all took Shuanghui meat products off their shelves, and some sold off Shuanghui products at a discount. Hog market analysts are anticipating a drop in hog prices in coming months.

The incident may have bigger consequences. It’s another in a string of food safety incidents, which the China Grain Net commentator described as “hitting the nerve of food safety,” and “an alarm bell for the food industry,” and “China’s food hygiene is having another strong earthquake.”

The incident shows one of the basic flaws in Chinese bureaucratic management embodied in the saying, “The mountains are high and the emperor is far away.” Top company executives and government officials may sincerely want to crack down on use of clenbuterol and sincerely issue orders to do so, but the enforcement depends on passing orders down to the local level. There is a strong tradition among local officials of giving lip service to orders from above, tidying up when the upper-level people come around, but going about their business the rest of the time. This carries over to companies where bosses have little control over their underlings or even their subsidiary companies. The incident also demonstrates that you can’t take anything at face value in China. Certifications, plaques on the wall, testing, company organizations, audits and inspections do not necessarily represent what actually goes on.

The incident also calls attention to a fundamental change in the food system in China. Consumers want lean meat, processed food, fast food, exotic foods, and they want it cheap. In the contemporary industrialized food system China is rapidly adopting, food is transformed from an ecological cycle to a chemical assembly line process from field to table. That means you’re not just eating plants and animal protein—you’re eating a chemical product. This is a major change from just a short time ago when nearly everyone in China ate “local food” that only took a matter of hours from field or slaughterhouse to table. And now there is a long chain of anonymous people involved in the process of getting food to you—can you trust them?

The issue of trust is also a major adjustment. In traditional Chinese society you could only trust the people in your clan; everyone outside the village walls is a potential enemy to be tricked and exploited. Chinese companies still tend to operate the same way—they are dominated by powerful individuals and their relatives or cronies. Within a company there are groups that feel a stronger allegiance to the group than to the company as a whole. Organizational charts have little meaning and managers have little control over their underlings. This is not a good foundation for effectively managing large organizations and ensuring food safety.

Thursday, March 17, 2011

Jiangxi's Spring Planting Campaign

The Farmers Daily reports that officials in Jiangxi Province are fanning out across the province to make sure farmers plant lots of grain this spring.

The top leadership has figured out that paying farmers a subsidy without regard to what they plant does not motivate them to produce more. So they have come up with an approach that incentivizes the vast rural bureaucracy instead. China's new approach to agricultural policy is to offer enticements to local officials to motivate them make sure grain-planting campaigns are carried out. The article offers a look at this new strategy in action.

Jiangxi officials are promised more favorable evaluations, subsidies, and better chances at getting funds for special projects if they can meet goals for increasing early-season rice planting and total grain area. (This bodes ill for the accuracy of Jiangxi's agricultural statistics.)

Following Spring Festival, the Jiangxi agricultural department sent out 8 survey teams of rural officials to each prefecture and county to gauge farmers' planting intentions, assess growth in spring crops, farm input supply, and the demand and price situation. The survey teams are holding grassroots cadre and farmer meetings, "which are welcomed by village officials and farmer masses."

One of the important tasks is to make sure farmers get their "three subsidies"--a grain-planting subsidy, a "fine seed" subsidy, and general input subsidy--before planting time. This year, the input subsidy will be raised by 7 yuan per mu. Farmers generally get these subsidies based on their land-holding regardless of what they plant (they are distributed in the spring before the crop is in the ground.) But having handed farmers their subsidies, officials have some leverage to harangue them about their responsibility to plant grain. Jiangxi will continue a new subsidy that is linked to actual planting--a subsidy to "large" farmers who plant at least 100 mu of grain.

Duchang County gives an in-kind subsidy to model farmers. Each model farmer got a 50-yuan voucher for buying fertilizer plus a box of borax fertilizer. Four 100-mu large farmers got 4 jin of seed and 50 jin of fertilizer for each mu they plant.

In recent years idle fields have become common as larger numbers of migrants go out to work in cities. Officials are to make sure that no land is left idle and they are trying to reverse the trend toward planting only one rice crop per year. Farmers are being told to plant an early-season rice crop, raise yields, and plant hybrid rice on dry land. There is a campaign to make maximum use of land, plant grain on hillsides, and plant more grain in the Bin and Poyang lake areas. Officials envision a giant rice-growing region.

Better seeds are one of the current emphases. All officials are instructed to have an orientation toward service. Extension agents are instructed to make systematic visits to villages and confirm that the visits are actually made. They are spreading special seeds for early and late season rice, dense-planting, new methods for cultivating seedlings, and 5-unified methods of farmers collectively making plans for planting, doing soil preparation, buying seeds, and planting.

A 50-something farmer named Hu attending a rally in the square of Xishan Town clutches some scientific books and manuals and proclaims that he is glad the cadres came and told him what seeds are good since he had no idea what he should plant.

Tuesday, March 15, 2011

Bankrolling the New Socialist Countryside

China's economy during the last decade has followed a strategy of "if you build it they will come," or "build now, ask questions later." This year's rural policy emphasis is on building things in the countryside, especially water projects. The government already has been increasing budgetary spending on rural construction and subsidies at a rapid rate. They are turning to the banks to pump more money into building the "new socialist countryside." Last month, the major banks were told to increase loans for various rural projects this year.

Where do the banks get this money? The Agricultural Development Bank of China (ADBC) is turning to bond markets to raise 400 billion yuan this year for "new countryside" construction. This is 43 percent more than they raised last year.

On March 10, the bank's vice chairman, Ding Jie, told Farmers Daily that this is a difficult time to raise funds. According to Ding, the central leadership required financial organizations to increase support for san nong, but commercial bank credit plans have also been curtailed. ADBC's credit plan for this year is the same as last year, at 210 billion yuan.

Ding said, "With the return to sound monetary policy, tightening of market liquidity, difficulties arranging loans increasing, the ADBC will increase its capital funds mainly through issuing large amounts of bonds." They will use various strategies to raise the money. The bank has already issued bonds valued at 75 billion yuan.

In order to implement the no. 1 document, The Peoples Bank of China (the central bank) will provide ADBC with special funds this year to support provincial level plans for field irrigation project construction, river and lake management and rural drinking water projects.

Ding said ADBC plans to issue 100 billion yuan in credit for "new socialist countryside construction," of which 30-to-40 billion yuan is for water projects. Presumably, the remainder of its 210 billion yuan credit plan is for funding procurement of grains, oilseeds and cotton, its traditional business. It's not clear what the remainder of the 400-billion-yuan bond-issue is for.

It's not clear who buys these bonds. Probably big companies are pressured to buy them. Maybe even other banks. Money moves in mysterious ways in China to keep the building going.

Agricultural Exporters Complain

According to the Farmers' Daily, agricultural exporters are encountering hard times.

In one of a series of articles released by the Farmers Daily based on interviews with the big-wigs attending the National Peoples Congress in Beijing this week, several executives of Chinese agribusinesses offered their opinions on difficulties faced by agricultural exporters.

According to the article, many agricultural exporting enterprises face the biggest difficulties in the last 10 years. Export competition is increasing, antidumping threats are increasing, costs are rising, currency appreciation is accelerating.

Jiang Hongbin, chairman of Heilongjiang Province's Zhengda Shiye Ltd Co, said, “Really, at present our agricultural exporting enterprises face the accumulation of long-term pressures.” He cited the livestock industry's long-time mode of “low investment, low standard, low benefit” as a problem.

But Jiang blames China's lack of subsidies for weak competitiveness in the world market. He complains that developed countries gave subsidies for exports and production, but in China subsidies were relatively small. He also blames "green barriers" as an important reason limiting China's agricultural exports. Some developed countries had technical requirements for production, packaging, waste treatment that our agricultural exports normally could not meet.

Jiang goes on to complain that Chinese exporters have lost their price advantage in world markets due to Chinese currency appreciation and rising costs.

The chairman of Wuhan City's Lingpeng Group doesn't blame all his problems on foreigners. He says companies have to raise their internal management and raise the quality of their products. However, he also looks to the government: "It must give various support measures to different industries."

Jiang suggests giving financial and tax support to agricultural "dragon head enterprises" to set up "model export production bases." [In fact, they are already doing this.]

An official from COFCO, one of the government's industry champions acknowledges that agricultural exporters are facing greater difficulties, but he suggests shifting focus to the domestic market instead.

Sunday, March 13, 2011

Seed emergency notice

The National Development and Reform Commission and Ministry of Agriculture jointly released an emergency notice requiring agricultural and price monitoring departments to check up on seed prices and quality. The campaign is motivated by rising seed prices ahead of the spring planting period and abnormal weather events.

The notice calls for setting up a seed market monitoring and reporting system. They are to make sure seed supply and demand are balanced in each region, watch the structure of seed varieties, marketing channels, and sale methods. The reports are supposed to be released to the public to guide farmers in "scientifically" choosing seeds.

The emergency system will attempt to guide seed prices, adopting price controls when necessary, to prevent large increases in seed prices. Illegal speculators or hoarders will be severely punished.

Friday, March 11, 2011

Wheat Reserve: 100 Million Tons

On March 7, Zhang Ping, the head of the National Development and Reform Commission, held a press conference at the Great Hall of the People where he announced that China has 100 million metric tons of wheat in reserve. He said this is about enough for an entire year's consumption, and he assured everyone that this big stockpile gives them the ability to stabilize prices.

Mr. Zhang assures everyone that his agency has the ability to keep prices stable. He said that most industrial commodities are in a state where supply exceeds demand. As for grain, he said, "Let me give you a number." The normal amount of grain reserves recommended by the UN's Food and Agriculture Organization is 17-18 percent of a year's consumption. Well, China has 40 percent, more than double the normal stock level.

Forty percent works out to over 200 million metric tons. At a price of $200 per ton, that's over $40 billion-worth of grain sitting in storage.

Butcher Bust in Beijing

This blog has posted a number of articles about crackdowns on "black dens" that butcher and sell meat from sick pigs. Last November a "black den" was discovered right in Beijing's Haidian District, showing that it is not a phenomenon restricted to small cities and rural areas. This one also includes lots of photos.

The operator of the "black den" allegedly bought dead pigs for several yuan, butchered them and sold the meat to pork vendors, small restaurants and a few meat shops.

A small van delivering pork allegedly from dead pigs.

Freezers inside the "black den" hold pork allegedly from dead pigs.

Thursday, March 10, 2011

Fake Seed Crackdown

Chinese agriculture departments and police are in the midst of a campaign to crack down on seed crooks: violators of intellectual property and those who manufacture or sell counterfeit or poor quality seed. The Ministry of Agriculture featured a rally held in a square in Wuwei City, Gansu Province. They announced that 30 metric tons of fake and poor quality corn seed was destroyed.

This campaign was launched after the State Council announced a broader crackdown on intellectual property right violators and sellers of fake and poor quality goods.

According to the article, fake seeds "flood the market", having serious effects on farmers' profits, causing confusion in the market, and seriously affecting the reputation of the communist party and the government.

Since the campaign started, they have mobilized thousands of personnel to perform thousands of investigations and crackdowns. Forty producers of fake seeds have been shut down, 925,000 kg of fake seeds have been seized, 42 cases are being prosecuted, and 8 people have been arrested. There have been similar numbers of cases involving violations of intellectual property rights.

It's a good thing they're finally solving the problem of fake seeds, right? Well, there was news about an almost identical crackdown on fake seeds a year ago but the problem apparently didn't go away.

Saturday, March 5, 2011

Organic Confusion

Organic food from China is a controversial issue. Last year one of the biggest organic certifiers pulled out of China when it was determined that its use of personnel from the Organic Food Development Center (OFDC) to certify government-owned companies constituted a conflict of interest. In 2008, a TV news segment questioned Whole Foods supermarkets' sale of organics sourced from China, and Whole Foods responded by cutting most of its China-sourced organics and put an explanation on its web site which claims that it's possible to produce organic food in China.

Meanwhile, the popularity of organic food in China is growing, but Chinese organics are being undermined by the same problem with fakes experienced by every other industry in the country. China now has a growing segment of consumers willing to pay premium prices for safe, healthy, ecologically-friendly foods, but many hesitate to buy "organic" food because they don't have confidence in the certification.

An article from March 2010 in the Southern Metropolitan Daily described the chaotic regulation of domestic organic food as weakening consumers' confidence.

The OFDC, a unit of the government's Ministry of Environmental Protection, was the first in China to promote organic agriculture in the late 1980s and early 1990s. Shortly after, the Ministry of Agriculture began promoting a less stringent "Green Food" certification/logo aimed at reducing pesticides and contamination as a means of promoting food exports. Green Food later developed its own organic standard. For a while there were dueling organic standards.

According to the article, organic was initially one of the strictest certifications, but now "...this certification is riddled with confusion, becoming one that consumers have a hard time trusting."

The Guangdong branch of the China Organic Certification Center (the descendent of "Green Food" organic) is so strict, that it has only done 9 organic food certifications in the province in 7 years since it was started. A company (most certified organic farms are run by companies) applies to the certification organization, documents its choice of varieties, harvest, storage and processing traceability system. The certification requires 2-3 years to complete, and then there is a 1-3 year organic conversion period.

Certification shopping is one of the problems. The Guangdong center received an application from a company in 2009 and advised the applicant on what it needed to do to achieve certification. However, two months later the center learned that the company had obtained a certification from another organization. According to the article, if you can pay money someone will give you a certification.

In the 1990s, OFDC did nearly all organic certifications, but in 2004 the Chinese National Accreditation agency (CNCA) was given power to authorize organizations to perform organic certifications for food sold in the Chinese market. The CNCA's list shows 26 organizations accredited to do organic certifications.

The article suggests that the large number of certifiers contributes to confusion. Moreover, many unaccredited organizations falsely advertise that they can do organic certifications.

In the Guangdong region, there are about 10 organizations doing organic certifications. The reporter’s investigation found that half or more of these are agents of various certification organizations or self-styled “close relations with certification organizations” who “guarantee we can help you get certification.”

Some provincial and prefecture level agricultural science and technology units advertise that they can help you pass certification, but the reporter learned they are only accredited to do testing of products; they cannot carry out certifications themselves.

One certification organization in Zhuhai calls itself an "official certification organization." The organization will send someone to investigate within a month after receiving a company's application, advise them on preparing materials, and complete the procedures in 2 or 3 months. It charges after 40,000 to 50,000 yuan.

A representative from this organization claimed they have accreditation from the EU and Japan, while other organizations are only accredited in China. However, the Guangdong China Certification Center's representative says this is false; only the OFDC is recognized overseas. If a Chinese certifier claims they are accredited overseas they are not telling the truth.

The article claims that the differing levels of administration for various certifications contributes to confusion. Organic and Green Food certificatoins are administered at the national level, but the less-stringent Pollution Free (无公害), a basic certification for safety, is carried out much more widely and administered by provincial authorities.

Once a company passes organic certification, there is little additional oversight. Companies mostly are responsible for regulating themselves. It is very rare for anyone to lose their certification.

According to a technician at the "East is Rising" farm near Guangzhou, most of the testing of vegetables is done on the farm. The district agriculture department conducts tests 1 or 2 times a month. The technician said the province and prefecture departments never check them, only people from the district occasionally come to the farm.

According to national regulations, the provincial and prefecture (city) agriculture departments are responsible for testing vegetables in the market. However, an official said that they rarely test organic vegetables because they are presumed to be relatively safe. As long as no obvious problems arise, they mostly don't bother testing organic vegetables.

A government certification worker tells a story illustrating the shortcomings of the testing process. Several years earlier a Green Food rice product was sent to the Zhenjiang national-level testing center, results showed the water was not up to standard. The city’s agriculture department notified the company, and allowed them to substitute a different sample of clean water. "This is not a secret, most in the industry do this,” said the worker.

Online forums have many discussions of what is organic food and questions about how you tell whether it's real or not. A web site for advising Chinese consumers on organic food warns people to watch out for fakes. It advises consumers to only buy organic food from special counters in supermarkets in packages with labels affixed. They should check companies on line to verify that they are legitimate.

Tuesday, March 1, 2011

The Starch Monster is Hungry

Another article from frets about the competition between industrial processors and feed mills in procuring corn. The demand for corn from both types of users is continuing its rapid growth, putting pressure on corn prices.

The traditional major use for corn is for livestock feed, and there are feed mills and livestock all over the country. During the early part of the 2000s the government promoted factories producing starch, sweeteners, lysine, alcohol, and other chemicals and pharmaceuticals made from corn. At the time China had a huge surplus of corn. Most of these industrial use projects are in Shandong and Jilin Provinces.

The article worries that the industrial use is continuing the rapid pace set in 2009/10 while feed demand increases as well. According to the article, the industrial share of corn use, already high, is increasing.

The government, having created the starch monster last decade when corn was in surplus, is now struggling to rein it in. The government has taken several short-term measures (like telling them not to buy corn in the northeast) to slow demand and reduce the competition with feed use. But the article says the medium- long-term outlook is for continued growth in industrial use of corn.