Dim Sums: Agricultural Markets in China

An article from the Daily Business News reports that this year's wheat purchases are down from last year. State-owned companies are getting a shrinking share of the grain as they have to compete with private-sector purchasers. Grain bureau officials in Dezhou, a district of Shandong Province, describing this year's wheat purchase, said, "This year's volume is not that big, less than usual." According to grain bureau statistics, wheat purchases in the 10 major wheat provinces as of July 5 totaled about 16 mmt, about half the amount that had been purchased last year at the same time (31.9 mmt). The article doesn't explain why purchases are down so much this year. Perhaps last winter's drought had a bigger impact on wheat production than officials have been willing to admit. The article concentrates mainly on the falling share of state-owned grain enterprises. This has been a common theme on the China Grain Net site since last year. So far, state-owned compa...

China's tax bureau has published draft regulations that award a new tax break to agricultural processors. It raises the rate used to deduct the "purchase VAT" on agricultural raw materials from 13% to 17%, in effect reducing the value added tax paid by agricultural manufacturers. The regulations apply to dairy and edible oil manufacturers as "pilot" industries (implying that the plan is to spread it to all agricultural processing industries). Like many countries, China has a value-added tax (VAT) which assesses a tax on the amount of value added at each stage in the industry chain. Each manufacturer calculates the difference between the final value of his products and the value of raw materials, and pays 17% of the difference as tax. The calculation is complicated by the taxation of unprocessed agricultural products at a lower rate of 13%. Under the "old" method, a dairy product manufacturer's VAT is calculated as: VAT = 17%x(value of dairy product...

The Securities Times, a newspaper for Chinese investors, interviewed two executives who offered their opinions on why China is entering an era of permanently higher agricultural prices . The executives are the chairman of the Longping High-Tech Co and two investment fund managers. They argue that agricultural prices are destined to rise, due to increasing scarcity of agricultural resources, cost pressure, and a new policy environment where cities and industries will "feed" agriculture. They say the transition from "traditional" to "modern" agriculture presents many investment opportunities. The Longping Co. chairman emphasized the transition from a 50-year period of chemical-based production to reliance on "biological agriculture." This is what Americans would call sustainable agriculture. Instead of constantly adding chemical fertilizer, soil fertility is maintained by returning biological material to the soil. Biological pest and weed controls...

Using commodity reserves to stabilize prices is bad idea that just doesn't go away. Chinese officials are obsessed with building up larger reserves of every commodity so they can control and adjust the market. Last year, they even began a campaign to build up vegetable reserves . This idea is a reflection of early-twentieth-century hubris when social scientists thought they could apply precise engineering systems to planning economic activity by employing clever bureaucrats equipped with mathematical formulas, reams of statistics, and sharp pencils. Most Chinese leaders were trained as engineers and the current party line is the "scientific outlook on development." The pork market is an excellent example of misguided stabilization policies. According to an announcement by the government's Agricultural Development Bank of China (ADBC), the bank has been busy making loans to finance pork reserves. In the first half of 2011 the bank made loans totalling 2.34 billion yuan...

There is still uncertainty and speculation about whether the major cooking oil producers will raise retail prices of their products. According to a July 22 article in the Southern Metropolitan Daily , an edible oil company executive said that the two leading companies have requested permission to raise prices by 5% and have received tacit approval from the National Development and Reform Commission. However, the companies have still not announced anything and discount this news as rumors. The rumored price increase would be for the two leading edible oil brands, Jinlongyu, sold by Yihai Kerry (Wilmar), and Fulinmen, sold by COFCO. Leading peanut oil producer, Luhua, "tested the waters" by announcing a price increase earlier but retracted it shortly thereafter. An Yihai Kerry official said, "We haven’t applied for a price increase, and have no plan to increase prices.” A COFCO official said the report of a planned price hike is "false news." The year-on-year CPI...

A farmer quoted in an article about high pork prices recently observed that food for pigs costs more than food for humans. As corn prices rise above wheat prices, feed mills are substituting wheat for corn in animal feed. Normally, the wheat price is about 10% higher than the corn price, but declining corn stocks and robust demand have pushed corn prices above wheat prices since April. Wheat is now about 150-yuan more per metric ton than corn. In Gaotang County of Shandong Province, corn is now about 1.1 yuan/500g and wheat is 1.04 yuan/500g. As pig prices soar, feed mills are turning to wheat. One livestock company in Henan has been buying mainly wheat--about 200 metric tons daily--since the wheat harvest came in last month. Since 1998 there have only been two previous periods when the wheat-corn price relationship was inverted. One was during 2001 when wheat stocks were extremely high and wheat prices were depressed. A second was a 14-month period during 2007-08 when a big expansion ...

A new survey conducted by the Chinese Center for Agricultural Policy at the Chinese Academy of Sciences has found that slightly over half of consumers surveyed were either strongly or moderately receptive to genetically modified foods. Only 16% were strongly opposed and 27% were neutral. The survey covered 400 families in six cities of Guangdong and Jiangsu Provinces. Professor Huang Jikun, leader of the study, said that the results show that Chinese consumers still have a higher degree of acceptance of GMOs than consumers in other countries. However, the degree of acceptance appears to be on a downward trend. In 2002 and 2003 the Center conducted similar surveys that showed 61% were receptive to GMOs and only 8% were strongly opposed. About the same proportion were neutral. Huang attributes the declining acceptance to negative publicity about GMOs disseminated on the Internet in recent years. The only major food in China containing significant genetically-modified material at present ...

On July 14, China's Ministry of Agriculture issued a notice requiring each agricultural officials at the national, provincial and local levels to strengthen supervision of vaccines for large animals, ensure their quality and effectiveness, and put a strong barrier in place against the spread of disease. This seems to confirm the faulty vaccine problems described in yesterday's dimsums posting . The notice addressed the problems of sub-standard vaccines, poor storage facilities, and the black market in vaccines. The order to "earnestly do a good job on supervising production, distribution, storage, and use of vaccines" included five parts: 1. Supervision of production and distribution of vaccines. Implement strict testing to make sure vaccines conform to standards and regulations, prohibit fake products and guard against advertising that contains exaggerated claims or is misleading to the user. 2. Strengthen management of the vaccine bidding procurement system, set u...

China's rising commodity prices are both a microeconomic and a macroeconomic phenomenon. A recent article on the soaring peanut market opens a window on the factors driving the price of a little-noticed commodity skyward. According to the article, the price of raw peanuts has doubled in the past year and is at a record-high level. The price increased 44% from March to June. The increase in raw peanut cost has far outstripped the increase in final products. The peanut oil price is up 40% and the peanut meal price is up 16% over the past year. Thus, the rise in raw material cost has put peanut oil processors in serious loss-making territory. The article estimates that crushers lose 2200 to 2900 yuan for each ton of peanuts they process. The article poses several reasons for the rise in peanut prices. The first reason is microeconomic--the constant battle to determine what crops will be planted on a limited supply of cropland. There is a campaign to expand planting of peanuts to new ...

Seemingly enlightened policies like distributing free hog vaccines have unintended consequences that can be deadly. A May article in Economic Information reported that many Chinese hog farmers throw away free vaccines distributed by the government because the medicines often don't work and have bad side effects. Instead, farmers who want to protect their hogs from disease buy vaccines from the black market. A technician working on a hog farm told the reporter, “Free distribution of foot and mouth vaccines to hog farms is a very good thing for us. However, the free vaccines are either never received or thrown away." The technician explained that the quality of the vaccines is poor. They don’t protect the pigs and they have bad side effects, inducing abortions by sows and sometimes even spreading blue ear disease. The Chinese government requires farmers to vaccinate their pigs against foot and mouth disease, blue ear disease and swine fever. The government procures these vaccin...

On July 15, the National Development and Reform Commission held a press conference where officials announced that edible oil prices will remain stable in the second half of the year. The increase in retail vegetable oil prices will not as large as people think. The main reason NDRC gave was that China is largely dependent on imported soybeans and vegetable oil. International output has increased, thus stabilizing prices. An article from China Fats and Oils network sums up the edible oils market as "oil weak, meal strong." It says companies are inclined to raise prices to cover rising costs, but they hesitate to do since final demand for their products is not that strong. Meanwhile, soy meal demand is strengthening as high prices for pork stimulate a build-up of hog inventories and demand for feed rises. The article reports that Luhua Company backed off its plan to raise prices. Media reports last week reported that Luhua, mainly a peanut oil producer, was planning to be the...

The National Bureau of Statistics reports that this year's winter wheat harvest was 110.79 million metric tons, up 2.12 mmt from last year. The average yield was 4902 kg/ha, up 77 kg or 1.6% from last year. P lanted area increased 79,000 hectares, or about 0.3% (they don't report harvested area). The increase in production is surprising given the panic-filled reports on the worst drought in 50 years last winter in wheat-producing areas. Production increased in the main winter wheat-growing areas of Hebei, Shandong, Henan, Anhui, and Jiangsu by 1.53 mmt. The increase in wheat output is consistent with reports from the field during last month's harvest period. Estimated spring wheat production in three northwestern provinces (Gansu, Ningxia, and Xinjiang) was down 750,000 mt due to decreases in both yield and area planted. Spring wheat estimates are preliminary since the spring wheat crop matures later. Summer grain production rebounded in southwestern provinces (mainly Yunn...

Last month, the Ministry of Agriculture announced a set of pork industry policies that the dim sums blog observed were much more restrained than the aggressive policies announced in 2007, a time of similar soaring pork prices. We thought perhaps the government learned from their mistakes last time around when 2007 hog stimulus policies ended up driving the industry into severe losses by 2009. Dimsums was wrong. Politicians--whether Democrats, Republicans, or Communists--have to "do something" about every problem. So, on July 12, Premier Wen Jiabao chaired a state council meeting where another set of hog stimulus policies were announced . I count 13 policy measures. The policies are quite similar to those announced in 2007. In fact, most are already in place. The subsidy for sows has been revived. There is a preoccupation with disease problems and protecting students from rising prices. The policies include: 1. Subsidies for building commercial-scale hog farms totaling 2.5 bi...

In November 2010, the National Development and Reform Commission ordered the top four vegetable oil companies to freeze their prices as a temporary inflation control measure. According to the Economic Information news site , companies have been losing money and are quietly beginning to raise prices. The large companies claim they have no plan to raise prices, but small and medium prices are feeling the pressure from rising costs. Will the cash-rich large companies be able to wait out the price controls while small and medium companies on the fringe are forced out? The NDRC's "price decree" only applied to the four largest companies--COFCO, Yihai Kerry, Sinotex and Jiusan--but they have a large share of the market. Small and medium companies reportedly did not dare raise prices since they would then face declining sales. The price controls were initially set to continue through March and were then extended for another two months. There has been no announcement but people i...

China's new 5-year plan has set off a development frenzy and rural land is being gobbled up at an accelerated record pace. On July 12, the Ministry of Land Resources held a press conference which conveyed the impression that the Ministry is helpless against a swelling tide of land grabs for city expansion, road-building, and mining. A Ministry of Land Resources official said the Ministry's enforcement is in a generally good direction, but the demand for land is intensifying and there is a resurgence of pressure to violate land laws and regulations. There have been 30,000 incidents of illegal land use covering 278,000 mu of land in the first half of 2011. The number of incidents is up 8% this year and the amount of land is up 15%. [And these are presumably just the ones they have caught.] Here are the observations of the Ministry regarding land pressure: 1. There has been a clear rebound in illegal land use, especially in the western provinces where illegal land use is up 50% ...

China first began experimenting with direct subsidies to farmers in 2002. Since then they have spread to every nook and cranny of rural China. It's sometimes surprising to see what gets subsidized. A mundane article about a meeting to discuss implementation of this year's fine breed subsidies reveals that Yak semen is one of the unusual items receiving subsidies. The fine breed subsidy for livestock is a payment to breeding farms to buy or breed quality breeds of bulls or boars and pay for artificial insemination of farmers' animals at breeding stations using semen from these beasts. This typically means importing animals from north America or Europe like Holstein dairy cattle or landrace, yorkshire or duroc hogs to upgrade the breeding stock. At the meeting, officials claimed that the program has increased dairy cow productivity by 500 kg and shortened the time for hogs to reach a market weight by 5-10 days. They claim the artificial insemination rate for hogs has been i...

China's Ministry of Agriculture is taking some heat for allowing unapproved genetically modified (GMO) varieties of corn and rice leak into the market. On June 30 the Ministry of Agriculture held a meeting to discuss management of GMOs. According an article posted on many web sites this week , the Ministry of Agriculture's oversight of GMOs was described as "relatively chaotic." At the meeting MOA officials repeatedly said, “No imported genetically modified grain seeds have ever been approved and no permits have been given for planting any GMO grains in the country.” However, the article says Chinese fields already have large areas planted in GMO’s, including corn “not approved for commercialization” and GMO rice. In 2010 testing began on three kinds of GMO corn seed: Denghai 3686 (named after a scientist Li Denghai), Zhongnongda 386 and Zhongnongda 4 (apparently named after Central China Agricultural University). In December 2010 the Ministry of Agriculture issued a ...

Vietnam animal health authorities held a meeting where it was reported that foot and mouth disease outbreaks have occurred in 39 provinces [Vietnam has that many?] with 45,000 animals dead. According to the report, disease has been a big problem for Vietnam's livestock industry this year. Livestock producers have lost confidence due to the disease problems and the rising prices of fuel, electricity and other items. According an analyst, Vietnam has a shortage of meat due to blue ear disease and foot and mouth disease. According to Chinese news media reports, many Vietnamese traders have been coming across the border to Guangxi Province in China to buy pigs. Chinese Ministry of Agriculture officials have issued warnings about serious disease problems in neighboring countries...apparently this is an example.

Cartoon that appeared with a news report. The bottle reads "melamine milk powder" Law enforcement officials in the Nan'an District of Chongqing announced that a 38-year-old feed trader named Tang has been arrested for allegedly selling milk powder that contained melamine that far exceeded the legal limit. According to the report in the Chongqing Evening News , for the last 2 years Mr. Tang had been engaged in procuring milk powder from various places such as Guangdong and Zhejiang to sell to feed mills in Chongqing and Chengdu. The report says the business started in August 2009, when Tang went to a county near Shijiazhuang in Hebei Province to purchase milk powder. He spent 14,000 yuan buying up 6.75 metric tons of milk powder on that first deal, planning to sell most of it in Chongqing and some in Chengdu. Tang allegedly struck up a business relaionship with a counterpart named Zhang in Chongqing in 2009, doing 5 or 6 deals over the last two years. Zhang would receive t...