Dim Sums: Agricultural Markets in China

China is desperate to raise agricultural productivity. Multinational companies are eager to do business in China and can offer technology and improved breeds. Yet many in China fear that allowing multinationals free rein in the country will wipe out weak domestic seed companies. The Ministry of Agriculture recently released new draft regulations on licensing in the seed industry that are open for public comment until September 25. According to Farmer's Daily , the purpose of the new regulations is to raise the threshold for entering the seed industry, promoting development of stronger, integrated seed companies through mergers and acquisitions. The regulations raise capital requirements for companies engaged in rice and corn breeding six-fold and triples the capital requirements for seed-trading companies. Companies are required to have their own breeding personnel, fixed seed production areas, a complete after-sale service system and have their varieties validated. China has o...

Local governments in China have a surprising degree of autonomy in finances. But as some provinces get wealthy, the financial gap between localities is widening. In particular, agricultural provinces tend to have weaker finances. As the Henans and Heilongjiangs try to keep up with the Guangdongs and Shanghais, they rack up debts and are tempted to seize more farmland to build tax-generating projects. In agricultural policy, the Chinese government is trying to even out the fiscal burden for maintaining a national priority: "food security." Various mechanisms are being tried out to shift more of the financial responsibility for grain subsidies and other policy measures onto the rich coastal provinces. One of the recent trends in China has been to transfer revenue from the central government to the financially weaker grain-producing provinces to help them fund subsidies (using tax revenue collected mainly from rich coastal provinces). Meanwhile, the richer coastal provinces ar...

A series of cost of production survey reports conducted by survey teams across China provide some on-the-ground insight about the inflation process in Chinese agriculture. This year's wheat crop was affected by last winter's drought to an uncertain degree that is hard to discern from these reports, but what is clear is that Chinese agricultural producers face rising costs across the board. Chinese agriculture is rapidly industrializing, adopting chemical fertilizer, mechanization, and commercial seeds--raising productivity but also exposing Chinese agriculture to rising fuel and chemical prices. Rural land and farm labor--virtually free goods a decade ago--have now become scarce commodities with rising prices as urban development and demand for all kinds of agricultural commodities increases their opportunity costs. It takes a year before complete national data from crop production cost surveys are published, but many local survey teams publish brief statistical reports on ...

Waste from hog housing in Zhuzhou leaks into the river Some municipalities in China are banning hog farms due to concerns over the water pollution they create. This micro-trend reflects the bigger conflict between boosting agricultural production and protecting the environment that China faces. According to reports, Putian, a city in Fujian Province, has formulated a new land zoning plan that will require livestock and poultry farms in certain districts to move or shut down by November 30. The stated reasons are environmental improvement and a shift toward commercial-scale hog farms. A commentary on the Putian plan posted on many agricultural news sites argues that the restrictions on hog farms are unjustified and harmful to hog farmers. The commentator points out that the restriction is in direct conflict with a 2007 directive from the State Council which clearly stated that local governments may not prohibit or restrict hog farms on the basis on "new countryside constr...

A news report on a pork industry web site says that China's imports of fresh, chilled and frozen pork for January to June of 2011 reached 126,269 metric tons. Imports increased 43% from the same period in 2010. More than half of the pork imports came from the United States. It attributes increases in pork exports by the U.S. and Denmark to increased demand from China, South Korea, and Japan. The report notes that China and the United States have differences over use of "lean meat powders," but the report observes that no effect on pork trade is evident right now. The report speculates that opening the pork market to imports is an important measure to "fill the temporary shortage" in the market. So, does that mean Chinese quarantine authorities will suddenly start finding banned additives in U.S. pork when the "temporary shortage" of pork dissipates next year? Keep in mind, during the year-earlier January-June 2010 period Chinese pork prices...

The early-season rice crop has now been mostly harvested. There are varying reports on the status of the crop. The official party line is that the crop is good, and China has an eight-consecutive increase in "summer grain" production. Other reports note that losses to floods and droughts are serious. One report cites data from the National Development and Reform Commission and China Grain Net that show a good harvest and production "back to normal." The China Grain Net balance sheet estimates that supply of early rice exceeds use by 1.2 million metric tons. Another article says that the volume of rice is larger this year. However, due to rain the moisture content is high and there are lots of impurities. While costs are up and the supply-demand balance is tight, putting upward pressure on prices, quality problems will mean a generally low for much of the early rice. The early rice crop is strategic because the government uses it to fill grain reserve b...

One of the new strategies for transforming Chinese agriculture is to create a new cadre of educated farmers who will take the place of China's missing extension service by becoming early adopters of new techniques and transmitting them to their neighbors. An article appearing on the Zhejiang Daily news site tells the story of 27-year-old Wang Binbin who took up a career as a rice farmer following his graduation from university. This appears to be a propaganda piece that provides a model of the new breed of farmers China would like to cultivate. His story includes many of the new trends in agriculture now being promoted by Chinese officialdom: college students "sent down" to the countryside, adoption of ecological pest control, large-scale farming, entrepreneurship, cooperatives, and mechanization. Zhang graduated from Anhui University with a degree in Law in 2005 (In China a law degree seems to be primarily preparation for a career as a communist party official, q...

An article on low fruit prices in Tianjin illustrates the complexity of agricultural markets and the difficulty of measuring "inflation" in China. The article has been posted on dozens of industry web sites, many with a subtitle speculating that the "dive" in fruit prices might relieve upward pressure on the CPI. The article reports on steep declines in prices for watermelons, peaches, grapes, litchees, and bananas in Tianjin markets. The prices of each of these fruits tend to decline during the summer when new harvests hit the market, but the price declines have been especially sharp this year for various reasons. The manager of Tianjin's Red Flag wholesale market says that, “Due to weather influences, this year most fruit is in excess supply, and this is creating downward pressure on prices.” In June, ripening watermelons from Shandong, Anhui and other regions hit the market, pushing prices down 60% from their May levels. They came back up a little in...

New data show that disposable incomes of China's urban residents rose 13.2% and rural incomes grew 20.4% in the first half of 2011. A China Grain Net commentary on the new statistics warns that these eye-popping growth rates are both good news and potentially bad news for an economy on a knife's edge. The rapid growth reflects both economic growth trickling down to the lower rungs of China's economic ladder and upward pressure on commodity prices and housing prices. China's CPI was up 5.4%. After deducting inflation, the real growth in urban incomes was 7.6% but real rural income growth was still a blazing 13.7%. In the first half of 2011, 18 provinces lifted their minimum wages. Urban employment increased by 6.5 million in the first half of 2011. Social insurance is also being ratcheted up. Rural incomes rose due to rising income from off-farm employment and rising commodity prices. Income from employment rose 20.1%. Income from household business operations (chiefly...