Wednesday, April 27, 2011

Unsellable Vegetables On Sale Now

In a sharp reversal from last year's crisis of high vegetable prices, the latest crisis this month is a glut of vegetables. Lots of news stories tell about farmers who can't sell their vegetables even at rock-bottom prices.

On April 26, the Ministry of Commerce released a set of 13 policy measures to address the "hard to sell" vegetable problem.

The first two measures involve arm-twisting of supermarket chains. In each locality officials will "guide" supermarkets to buy "hard to sell" vegetables directly from farmers. Supermarkets engaged in the "farmer-supermarket linkage" program will be reminded of their social responsibility. They will buy produce at "reasonable" prices and set up special sale counters for the "hard to sell" vegetables.

In agricultural demonstration areas large wholesale markets and marketing enterprises will play a leadership and demonstration role by buying and selling "hard to sell" vegetables. Big wholesale markets subsidized by a "double-100" program will set up special areas where farmers can sell their "hard to sell" vegetables with no stall fee paid to the market. Companies with cold storage will be encouraged to purchase and store vegetables.

There will be a network of community vegetable markets set up in cities. City markets will set aside areas for farmers to sell their vegetables with no stall fees. Cooperatives and farmers will be encouraged to go into cities to sell their vegetables directly to urban citizens. They are studying the prospects for setting up weekend vegetable markets, similar to American farmers' markets.

Please Build Some Moral Culture

On April 14, Premier Wen Jiabao gave a speech at Zhongnanhai in Beijing to a group of newly-appointed officials of the Central Institute for Cultural Research.

In his speech Wen exhorted his listeners to "research" the building of "moral culture" during China's period of rapid social change. On one hand he asserts China has made great progress in this, but then he cites terrible food safety incidents in recent years like “toxic milk powder,” “lean meat powders,” “gutter oil,” “dyed mantou” that "show a lack of integrity" and that "the moral decline has already reached a seriously low point." Wen warns that a country that is not able to increase its moral strength cannot become a really strong country, a country that is respected. Wen said the party central committee and the state council pay much attention to building culture.

Wen said building moral culture in the whole society creates an atmosphere of public opinion with integrity, responsibility and good conscience. This is necessary for preserving normal production and social order. Wen said he hopes the institute can make progress in this area.

China can build factories, stadiums, railroads, etc., so why not build some morality too?

Tuesday, April 26, 2011

Land and the Invisible Boot

You've probably heard about Adam Smith's "invisible hand," the mysterious working of the market mechanism to allocate resources with nobody really in charge. In rural China the market mechanism is supplemented by what one experienced China hand has called "the invisible boot," a behind-the-scenes kick in the pants to get peasants to toe the party line. In today's market economy Chinese officials cling to many of the old-school tactics of pressure, rewards, punishment, threats, and cajoling to accomplish policy objectives. This is most evident in policies involving land. Nominally, land is collectively owned by village families, but de facto ownership of land is in the hands of officials. With the "invisible hand" handcuffed in land use decisions, Chinese officials jump in with their "invisible boot" swinging to make sure land is used as they see fit.

In recent years Chinese officials have been complaining about the increasing frequency of abandoned farmland. As wages go up and migrants leave villages many families are leaving their land idle or abandoned. A township official in Hunan posted his experience in addressing the problem of abandoned farmland in his district. His article was posted last month on a web site for communist party officials to give other officials suggestions on how to handle the problem. The article opens a window on how Chinese officialdom uses the invisible boot to achieve desired results.

This district of Hunan Province has about 9700 acres of cultivatable land, 68 administrative villages and a population of 90,000, of whom roughly 20% have left to work elsewhere. The official says they managed to reduce the amount of abandoned land to 48.5 mu, less than 8 acres.

The township required local officials to sign an "abandonded land responsibility" agreement. Officials will be subject to disciplinary action if there are patches of abandoned land of 3 mu or more. Township officials make regular inspection visits to villages to check up on the abandoned land situation and "make suggestions."

Village families can get awards as "10-star civilized households" and "five-good" families. Families living in an "agricultural protection district" can't get this rating if they leave land idle or build a house, factory, grave, or fish pond on land designated for crops.

Another strategy is to hold old-school communist study sessions. They spread "land propaganda" through a June 25 "land day," radio broadcasts, and "propaganda vehicle tours." The officials organized "study days," law/regulation forums, and rounded up officials, government workers and rural cadres to study documents, laws and regulations on abandoned land.

Officials convince farmers who don't want to cultivate their land to sub-lease their land to someone else. Families that abandon their land are assessed "rehabilitation fees" and induced to let others cultivate their land for them. Migrants who work elsewhere are encouraged to give up their land rights (no mention of compensation) so it can be allocated to someone else. Villages are expected to broker land transfers to consolidate land into large plots that could be farmed by big farmers or companies.

They make sure subsidy funds are passed down to farmers. Households who have left their land idle for several years have their subsidies canceled. Officials adhere to the principle of "whoever plants gets subsidies" which apparently means the subsidy goes to the renter, not to the "owner."

Agricultural officials deliver inputs to families to encourage them to plant crops on their land. In rice paddies where the irrigation infrastructure was broken down, officials either gave funds to repair equipment or encouraged families to transfer their land to someone who could grow dryland crops on the paddy land.

Old people and other families who don't have enough workers are encouraged to plant flowers or fruit trees that don't require much labor. Each village was told to organize labor-aid teams during the peak planting and harvest periods to help families who lack labor to do their farm work.

Finally, the officials strictly enforce the land use plan to prevent unauthorized construction on farmland. Land that has been set aside for a project but still had no construction underway after a year is assessed an idle land fee of 6-to-10 yuan per square meter.

Monday, April 25, 2011

Black Water, Black Smoke: Pig Pollution

Photographing black water created by pig manure, not in one of the places mentioned in this article

Everybody knows China has a pollution problem. What few people know is that pigs are the single biggest source of it. Several studies in China estimated that pollution from livestock and poultry was about 3 times the amount of pollution emitted by industry. According to a 2006 study published by China Academy of Sciences researchers, pigs accounted for nearly half of the livestock pollution.

A reporter from Shanghai's New People Evening News went out to a village to check out complaints of polluted water sent in by villagers. He saw the water had turned green and the surface of the river was covered with a black substance that gave off a powerful stench. The villagers told him this black stuff was manure washed into the river every morning by about a dozen hog farms.

One villager told him the manure appears in the river each morning and the water stops flowing. By afternoon the water starts to flow and it becomes bearable. When summer comes, he says the smell is so nasty they don't dare open their windows. He said if you use this water to irrigate your vegetables you won't need to use any chemical fertilizer.

The reporter came upon a plaque pronouncing this a "model responsibility river" featuring clear water free of waste and other substances. The villagers said the river had in fact been cleaned up several years ago, but since the hog farms had started operations the water had gotten worse, probably worse than before the clean-up.

Villagers say they complained to the village committee and the town environmental department but nothing had been done.

Mr. Zhou, the village committee head explained that the land used by the hog farms had previously been used for chicken houses. It had been rented to outsiders to set up hog farms. The villagers began complaining about the pollution early on. According to Mr. Zhou, officials from the town agricultural and environmental departments had already been out to negotiate with the farms and he says they agreed to shut down this year.

In an online forum posting from 2009, a college student who returned to his village pled for suggestions about how to deal with pollution from pigs. He said many people in his village raise pigs--mostly about 10 at a time. The manure is dumped in a pit and the smell is intolerable. When it rains manure flows out and forms a kind of stream. He said no one cares since the village is far from any big city.

The student also observes that most of the farmers feed their pigs leftover food from restaurantsin the county town. Apparently leftover cooking oil is a large part of it. He says the villagers know the source and will not buy the pork from these pigs. He adds that the farmers need to cook the slop before feeding it to the pigs, but there's not much firewood available. So they burn scrap cloth and plastic, which creates an acrid black smoke. At times the wind blows the smoke into his family's home.

The student wanted to know whether these odors and fumes were toxic and harmful to health. He got three responses. One described the environmental hazards of hog production but no useful advice about how to deal with the problem. Another suggested that the farmers put their pigs together in a hog-raising community (yang zhi xiao qu) and said there are many ways of handling manure they can learn. A third respondent suggests the farmers build a fermentation pit to produce cooking gas from the manure that could reduce the use of coal for cooking.

Wednesday, April 20, 2011

Farmer Land Protection Associations

China has lots of people and not much land. That means land is scarce and expensive. Can markets be trusted to allocate land and assign values to it? On one hand, China is busy setting up all kinds of markets to trade land and assets and assign market values, but there remains a lingering distrust of market solutions for land.

A Farmers Daily article describing "farmer cultivated land protection associations" recently posted on many official websites appears to be part of a campaign to slow down the loss of farmland to urbanization. Jintan, a prefecture in Jiangsu Province, set up a network of committees in each of the 157 administrative villages in the prefecture. The article describes the associations as putting farmers in charge of enforcing the government's land regulations. Farmers are described as the "first guardians of the land." The city has been labeled as a model city for protecting land and delegations of rural officials are trooping in to Jintan to learn how to protect land.

The associations seem to function as a sort of police force of old people who keep an eye on the village's land to make sure no land is illegally converted to nonfarm uses. Each "association" is composed of 32 elderly communist party members, teachers, retired government officials and elderly residents of the area. The association has a land protection inspection group that conducts monthly inspections of the whole village to make sure nobody has misused their land. Land policy propaganda groups hold a monthly meeting to study and discuss the importance and necessity of protecting land.

Last August, 50-year-old farmer Chen Youcai--a party member and head of a village group--learned that a merchant was investing in a poultry purchasing station in the village. Although the project was set to bring compensation of 600,000 yuan to villagers, Chen was so troubled he couldn't sleep because this would occupy 20 mu of farmland. Early the next day, he went out before breakfast to find the village and town leaders and land management departments to get the project shut down. Zhili Village communist party secretary Yuan Fangqing said, “Although we may lose the quick money, we will preserve the land for our grandchildren and descendents.”

Jintan City land resources bureau chief Huang Kehong said, “Farmer land protection associations make farmers the first guardians of the land...building a strong fortress to protect cultivated land.”

Monday, April 18, 2011

Corn Processing: More Regulation Rumors

Last week, the China grain net web site reported rumors that the government is planning measures to slow down industrial processing of corn. This is part of the government's attempt to slow inflation.

Earlier this year officials ordered manufacturers of starch and alcohol products in the northeastern provinces of Jilin and Heilongjiang to stop buying corn and checked up on their inventories. The rumors say that the government is planning to spread restrictions to corn processors in all corn-producing regions. There is also a rumor that the value added tax (VAT) for corn products will be "adjusted." It's not clear what this means...there are other rumors that VATs will be eliminated on some products (to lower their final price), but it also could refer to canceling the VAT refund for exported corn products. [update Apr. 19--a Bloomberg news story says the VAT on processed corn products will be raised.]

The government's concern is that demand for corn is outpacing supply, potentially putting upward pressure on prices. The National Development and Reform Commission (NDRC) has been trying to slow down the growth of industrial processing of corn since 2006 when it stopped new corn ethanol projects. Then in September 2007 NDRC issued a document calling for industrial processing to consume no more than 26% of China's corn. According to some estimates the share has nevertheless risen to 28% this year.

Another article posted on the China Grain site in March cited the large number of small companies processing corn that have high energy use, low efficiency, and high pollution emissions. As a precedent, the article cites the temporary shut-down of corn processors in northern China to reduce pollution during the Olympics in 2008. An April 2010 notice called for a reduction of 1 mmt in capacity by 2011. The article said that 658,000 mt had been eliminated by September 2010. The article predicted that the government will soon take more steps to eliminate small plants--the 12th five-year plan calls for such a consolidation.

Wednesday, April 13, 2011

Reports from Rapeseed Fields

Rapeseed is planted all over central China along the Yangtze River. It produces flowers in the spring and its seeds are crushed to make vegetable oil. April is a key period for the rapeseed crop's growth, and field reports from Hunan, Hubei, and Anhui Provinces on the crop offer a window into how the growing economy is affecting agriculture.

Lack of labor for farm work and rising wages are a major theme in all the reports. In northern Hunan most young people have left the villages and wages are up. A reporter noticed that the fields were full of weeds and rapeseed plants were uneven. A farmer explained that the old people still doing farm work don't want to spend the time and labor to transplant seedlings in straight rows, so they had been broadcasting the seed in the fields. Transplanting gives a higher yield, but it takes more labor.

In a major producing-region in southwestern Anhui big fields are planted in straight rows, but labor is an issue here too. The nearby city had built an industrial park that consumed large tracts of farmland. Many farmers had gone into the city to earn 80 to 100 yuan per day. Net earnings from planting a mu of rapeseed are estimated at 100 to 200 yuan, about the same as could be earned by renting out the land and slightly more than a day's wages.

Rapeseed fields in Anqing, southwestern Anhui Province

Farmers often choose to plant the crop that has the least labor requirement. In Hunan the farmers like to plant rapeseed because it doesn't take much labor. Once it sprouts it doesn't need much care. Cotton prices are high, but it also requires more spraying of pesticides than does rapeseed.

Wuhu, a region of central Anhui, is a major region for growing rapeseed, rice, and wheat. Farmers say rice grows well when it's planted after a rapeseed crop, but many are switching to wheat because it is mechanized and requires even less labor--3-to-4 days per mu versus 6-to-7 days for rapeseed. In the Wuhu area, rapeseed is often grown to make oil for home cooking--farmers don't earn much profit by selling it. Another influence is the subsidy--about 47 yuan per mu for wheat versus only 10 yuan for rapeseed in the Wuhu area.

Rapeseed planting last fall was down in most areas, an average of 19% according to one estimate. This reflects relatively low prices last year. The government set support prices for rapeseed the last three years and commissioned local companies to buy rapeseed and oil and store it in reserves. Reserve purchases totaled 2.4 million metric tons (mmt) in 2010, 4.4 mmt in 2009, and 1.5 mmt in 2008. With production down this year and vegetable oil companies expanding, a scramble for rapeseed and rising prices are expected this spring. The government is not expected to offer a support price. The rising market price will push the price of rapeseed oil higher, to over 11,000 yuan/mt by one estimate.

Friday, April 8, 2011

Dairy Industry Shakeout

In the latest scandal to rock China's dairy industry, 3 children in Gansu Province were fatally poisoned by milk adulterated with nitrite, a chemical often used in curing meat. 75 people, mostly children, were hospitalized.

This comes immediately after a massive inspection of dairy companies closed nearly half of them. After chronic problems with melamine adulteration, "leather milk", and other problems, last November the government announced that all dairy companies would have to be inspected to have their production licenses renewed. The inspections were originally to be completed by the end of 2010, but it was extended to March 31. Provincial technical supervision bureaus inspected dairy companies to make sure they have an acceptable factory layout and equipment that can test for 64 different substances, including melamine.

Of China's 1,176 dairy companies, 426 have been shut down and 107 must stop production until they can meet the standards. In Zhejiang, 19 companies were relicensed, 11 withdrew their applications, and 5 did not pass the inspection. In Shanxi, only 12 of 42 companies were relicensed and in Yunnan only 30% passed. Companies have 15 days to upgrade to meet standards. Some companies are reapplying or asking for reconsideration.

The dairy company shut-down may be more than it seems. At least one industry expert sees the inspection serving as a shake-out to shave off excess capacity. Nearly every food industry in China has more processing capacity than the industry can support. On one end there is vicious competition for sales and market share, investments in advertising and price-cutting. On the other end, companies compete with each other to procure raw milk (pork, corn, etc.) to utilize capacity and spread the costs of their factory over larger volume. Consequently, processors have little control over their raw materials, have incentive to accept poor quality materials, and suppliers get away with watering down milk or using toxic additives. In every industry the government has plans to eliminate small, "backward" producers to address the excess capacity problem.

Meeting the new requirements for testing equipment, labs, technicians, automated cleaning equipment, air purifiers, etc. requires an investment of 2-to-3 million yuan. A licensing official in Shandong estimates that the 44 companies that got re-licensed invested 320 million yuan in improvements, an average of 7 million yuan each.

Medium and small companies can't afford these improvements, so most of the companies shut down are small ones. A Ministry of Agriculture dairy analyst estimates that the re-licensing campaign will shut down 20% of dairy companies, but will reduce capacity by just 5% because they are small companies. Another analyst estimates the industry's capacity will be reduced 20%.

Some analysts see this as part of a major consolidation of the dairy industry. Coincidentally, a number of companies recently released their 2010 financial reports. The biggest companies--Yili, Mengniu, and Guangming--report big gains in sales and profits last year. However, second- and third-tier companies had weaker performance as they continued to suffer from the effects of milk safety scandals.

According to an Inner Mongolia official in charge of the relicensing campaign, the biggest (and richest) companies, Mengniu and Yili, invested 100 million yuan to upgrade their facilities. Many of the companies are investing in huge company-operated farms to gain control over their source of raw milk. One recent article estimates that these company-operated farms account for 10%-15% of milk. An alternative is the animal production zone where farmers keep their cattle together and companies send a technician to oversee production and milking. These are estimated to account for 25% of milk. But still 60% of milk comes from small, scattered farmers.

A 10,000 head dairy farm operated by a company in Shandong Province