Monday, September 26, 2011

Pork Imports a "Problem"?

On September 13, a widely-circulated commentary offered the opinion, "Large Imports of American Pork are a Big Problem." The commentary was prompted by the USDA's report that U.S. exports of pork to China during the first seven months of 2011 totaled 200 million lbs., five times more than the same period last year. A number of commentaries make much of the large percentage increase in imports this year, but they fail to note that U.S. imports were at minimal levels during most of last year due to an H1N1-motivated Chinese ban.

The article's title seems to be sounding an alarm, but the text is ambiguous. The commentator points out that imports are beneficial for cooling off what is called "pork inflation" in China. He argues that high pork prices are a reflection of China's limited grain supplies. He says high grain prices are good for farmers, but they erode Chinese farmers' international competitiveness. He asserts that imports pose a long-term problem for food security by discouraging Chinese farmers from planting grain and calls for more subsidies for farmers.

Last week, Fujian's Southeast Net said, "With pork prices at a high level, American pigs have come to the rescue." In Fuzhou Province, customs data show that imports of pork totaled 7,757 metric tons during January to August of this year. Imports have been coming in at a rate of 1000 tons per month since April. Of the total, more than half came from the United States. Other sources were Canada and Taiwan. The price of imported U.S. pork is calculated to be about 6 yuan per jin, about half the domestic pork price of 11 yuan.

The manager of a processing plant in Xiamen says the imports are mainly frozen pork used for making processed products like braised pork and sausages. The head of the Fuzhou hog industry association says the taste of frozen pork is not as good as fresh pork. He says Fuzhou people like to eat "hot" (freshly slaughtered) pork and the frozen pork is mainly bought by processing plants and dining halls. Still, the processing plant manager points out that the imports reduce the demand for local Fujian pork. The article notes that imports are increasing in various regions of China.

The article cites the USDA's forecast that China's imports will continue into next year. The article notes that China's pork market is "open," with no barriers to import. Pork imports have not received much attention in recent years, it says, because domestic prices have been low. Imports have surged this year because domestic Chinese prices have risen sharply, giving imports an advantage.

According to the article, people in the industry think imports have a limited role in "stabilizing" the market. The vice director of the livestock industry association says pork prices will likely stay at a high level through the end of the year due to high feed costs and limited supplies. Fujian Province data show that hog supplies cannot rebound very quickly.

Fuzhou city is exploring the establishment of a frozen pork reserve to add to the reserve of live hogs as a measure for controlling pork prices.

Sunday, September 25, 2011

Out of the Hills in Chongqing

New residents of the city are happy they no longer have to walk up and down the mountain.

Some areas of China are carrying out massive social engineering projects that involve moving vast numbers of rural people around the countryside. In many cases, the projects remove people from the path of water projects. But there also is a strategy of depopulating overcrowded rural areas to free up land for farming.

One of the most adventurous regions is Chongqing, an area traditionally dominated by poor, small farms on hillsides that is now receiving massive investment as a focal point of the "develop the west" strategy. Last week, The Chongqing Morning News profiled families that moved from the country to a city and others that moved from a mountain village to a better piece of land. A T.V. news broadcast also profiled farmers who had moved to the city and were making money raising rabbits.

Ms. Yang was among the first families in Kai county to be moved to Feng Le Town at the end of 2010. She pointed out the window and said her former home was to the north of a nearby hill. She had to walk 30 minutes up and down the mountain to get to a market.

Describing the isolation of her former home, Ms. Yang said, "Six years ago, when there was no road, we had to ask someone to climb the hill in order to get pesticides and fertilizer. I had to pay two people 10 yuan each to carry a pig down the hill when it was ready for market."

Ms. Yang's determination to leave the countryside is linked to a "geological disaster" in 2005 when her house collapsed. A quick Google search shows that "geological disasters" (land slides?) in reservoir districts have long been a major concern in the Three Gorges region of the Yangtze River. In 2005, this was described as a hot topic raised by the Chongqing delegation at the National Peoples Congress. The 30-meter fluctuation of water levels between winter and summer in the Three Gorges reservoir undermined the river bank.

While the government gave a subsidy to rebuild the Yangs' house, they decided to move to the Fengle Town. They found a piece of land to rent and spent 80,000 yuan to build a 2-room house on it. One of the rooms was rented to her father and older sister. Mr. and Ms. Yang lived in the other room. The house's value is now up to 200,000 yuan.

Late in 2010, the Yangs heard about Chongqing's household registration (hukou) reform. She went to the household registration reform office and got her residence status changed from rural to urban. Her house has already been demolished and the land it occupied has been converted to farmland. The Yangs got 70,000 yuan in compensation for the land.

The Yangs invested 60,000 yuan in the social insurance fund which entitles them to an annuity of 1000 yuan per month. Ms. Yang says the 1000-yuan pension is enough for them and she expects the government to raise it in the future. The Yangs say they are accustomed to urban life. They take their grandson to school and hang out on the street after dinner.

The second part of the Chongqing strategy is "rural to rural" movement of poor rural people onto the land freed up by rich people who have moved into the city. The head of the Kai County hukou reform office puts it this way: "Poor people from high mountains can rent the land and houses of rich rural people who move into the city!" Over the past two years, Chongqing has moved 260,000 people into cities and has completed 15,000 "rural to rural" moves.

In Kai County's Maocheng Village, Lai Congzhen was the first of 10 households to move down from the mountains. Lai says the soil was so poor on the mountain they could only grow sweet potatoes. If they wanted to eat rice or other food they had to get cash to buy it by taking something to the town to sell. In their new home they can grow 1000 jin of millet. The rights to the land they cultivate have been reassigned to the Lais.

On the mountain it was hard to get medications and Ms. Lai was determined to move off the mountain so her children could get educated and find spouses. Another family, the Gaos, bought their house from their land lord for just 30,000 yuan in 2009. By now it has quadrupled in value. The Gaos harvest 2000 jin of millet and their children earn money from working.

Thursday, September 8, 2011

5-Year Plan: More Subsidies, Higher Prices

On September 2, China's Ministry of Agriculture released the "12th five-year plan for agriculture and the rural economy." Interestingly, the full document seems to have disappeared from the Ministry's web site and doesn't appear to be available anywhere on the Internet. A summary by Chinese investment advisors reveals the general contents, and another article containing comments from a National Development and Reform Commission (NDRC) spokeswoman reveals some insights about the serious challenges the plan is seeking to address.

The plan reiterates the priorities of maintaining grain security and steady increases in rural income that have been broad policy goals since at least the 1990s. To achieve these broad goals, the plan calls for reshaping agricultural industry--speeding up development of "modern agriculture," continuing to "build a socialist countryside. In perhaps a last-gasp effort by the Hu Jintao-Wen Jiabao leadership to cement its legacy, the plan once again calls for creating an "all-round well-off" (xiaokang) society during the plan period.

The plan sets a target of maintaining 95-percent self-sufficiency in grain, but the target for grain production is set at 540 million metric tons, approximately the same as the output in 2010. The plan acknowledges that agriculture must compete with urbanization and industrialization for a limited resource base. The plan sets a target of maintaining the amount of land planted in grain at 1.6 billion mu (107 million hectares).

In light of the loss of land to urbanization, the plan emphasizes that grain yields must rise in order to maintain grain production. It also acknowledges the shortage of water resources. Consequently, a major emphasis of the plan is increasing productive capacity, most prominently through investment in irrigation facilities and equipment. The plan also emphasizes the need to develop and disseminate new plant varieties and mechanize agriculture. Another part of the plan's strategy is to manipulate the mix of crops to maximize yields, concentrate production of each commodity in the most productive regions and improve logistics to promote interregional trade. There is also an emphasis on improving rural financial services to facilitate investment.

Investment alone is not sufficient. Farmers also need strong incentives, so the plan also casts a vision of ever-increasing subsidies and rising agricultural prices in order to encourage farmers to keep producing and increase rural incomes. The NDRC comments describe agricultural prices as "very low." The plan calls for more subsidies, guidance, market control, and a guaranteed pattern of ever-rising farm prices.

The NDRC comments emphasize the challenges, tensions, and pressure China faces in increasing policy support. NDRC says, "The biggest challenge is increased tension in agricultural production, continued conflicts in product structure, regional imbalances, conservation of agricultural resources and pressure to preserve the environment."

The NDRC observes that policies have increased grain production, but increases in grain area took land away from cotton and oilseeds. NDRC notes that cotton area and production in Hebei-Shandong-Henan region have fallen, a trend that "cannot be sustained." NDRC says the country cannot continue its reliance on Xinjiang for increased cotton production [perhaps because it requires massive subsidies to transport across the country to textile mills]. NDRC also cites the decline in soybean production this year due to higher profitability of corn and rice in the northeast. NDRC calls for "grasping" rapeseed production in the Yangtze delta region [it often loses out to wheat], and "stabilizing" rice production in the south [where farmers are frequently abandoning the early rice crop]. The answer, of course, is to subsidize every crop and a continued proliferation of subsidies.

NDRC notes that rice and wheat yields have been increasing, but it complains that corn yields still have a lot of space for increase. NDRC complains that increases in corn production have come entirely from increasing the area planted in corn. The NDRC calls for focusing on ways to increase corn production and "controlling" industrial processing of corn. It calls for raising peanut production through increased inputs and investment.

The plan calls for continued modernization and industrialization of livestock and aquaculture industries. The plan aims for livestock's share of agricultural production value to increase to 36% and aquaculture/fisheries to reach 10%. It calls for increased scale of production. By the end of the 12th five-year plan, at least 38% of dairy farms will hold 100 or more head and 50% of hog operations will slaughter 500 or more hogs annually. The aquaculture plan emphasizes ocean cultivation of fish and shellfish in four main coastal regions.

Most articles about the plan seem to be carried on web sites for Chinese investors, a refection of the emphasis on big companies in the strategy. The five-year plan's strategy includes nurturing a set of large companies with revenue of 1 billion yuan or more (about $150 million). The plan calls for encouraging companies to form large conglomerates through mergers, acquisitions, and restructuring. The summary of the plan that appeared on an investors' news site expected that companies supplying inputs to agriculture, including seed, veterinary pharmaceuticals, suppliers of irrigation equipment, and agricultural machinery would benefit from policy support for the strategy of raising productivity through improved varieties, irrigation, mechanization and an emphasis on "feed safety." The investment advisors speculate that big domestic companies similar to Tyson and Chia Tai may be nurtured.

How does the strategy of ever-rising subsidies and agricultural prices square with China's concern about inflation? Raising grain prices also increases the cost of feed for the "modern" livestock producers that use a higher proportion of grain in feed rations. Increased mechanization and use of chemicals increases the demand for energy-intensive inputs and exposes Chinese agriculture to rising energy prices.

Monday, September 5, 2011

Dead Pigs and Hush Money?

A reporter investigates sick pigs on a farm near Guangzhou.

An October 2009 article from China’s Southern Metropolitan Daily illustrates the murky situation at the farm level with regard to services provided by veterinary officials.

A farm near Guangzhou purchased 80 pigs to raise as finishing hogs. The pigs were vaccinated against blue ear diseae (PRRS), foot and mouth disease, and classical swine fever by personnel from the township veterinary station (these vaccinations are mandatory and are to be provided free of charge).

Several months later pigs began vomiting, drooling and redness appeared on their skin, they had convulsions, and other signs of illness. The farmer asked a veterinarian to come look. He thought it was due to high fever. On October 11 the first hog died. After several days, the hogs died one after another, 40 in all. Reporters went to the farm and saw the 30 pigs left that were paralyzed and could only breathe in small gasps. Some dead pigs were among the live ones with swollen abdomens and discoloration on their skin.

The farmer again called the veterinary station but the vice-director didn’t come immediately. After another call, the vice director offered the farmer 200 yuan to bury the pigs on a hill. The farmer worried that the pigs had died from an epidemic, and urged the veterinary station to quickly send someone to look at the pigs to determine what sickness they had.

A veterinarian finally came at 6 pm. The veterinarian did not vaccinate the remaining pigs. Instead he urged the farmer to bury the dead pigs as fast as possible.

The next morning the farmer again called the veterinary station and requested that the vice director himself come. The vice director called back and said he was busy with another matter and would send two workers to help bury the pigs. The farmer argued that the pigs should be examined to determine the cause of their death before they were buried. The vice director came to the farm with some disinfectant, looked around briefly and left.

The farmer speculated that the veterinary station was worried that the farmer would demand compensation for ineffective vaccines.

The following day, an official from the township’s communist party committee came to offer the farmer 3000 yuan. There was a difference of opinion over what this 3000 yuan represented. The farmer thought it represented hush money to prevent him from publicizing the incident. The farmer’s son said that the township official’s “attitude suddenly changed”--prompting the 3000-yuan offer--when he was told a reporter was on the way to expose the incident. The township official insisted the 3000 yuan was not compensation, but was rather “sympathy money” for the farmer.

The official said the township’s emergency plan calls for burying dead pigs as fast as possible to prevent spread of the disease. He said the farmer wouldn’t let them come on the farm, so they paid him money to bury to dead pigs. When the reporter asked the official whether he had the power to offer such funds to a farmer the official did not answer.

As always, there are two sides to every story, and this one reveals that disease control in Chinese agriculture is quite complicated. Vaccines are not a guarantee that animals will be free of disease. Should dead animals be buried as soon as possible or should they be examined to determine the cause of death? Farmers face substantial losses from disease. The farmer in this story said he invested 40,000 yuan to buy the 80 pigs. The temptation to sell the dead pigs to a butcher rather than bury them is strong. Why didn’t the veterinarians come when called? Did the farmer misinterpret the veterinarians’ actions?

Friday, September 2, 2011

Government Pork Shops Revived

In the bad old days of the centrally-planned economy, China's urban residents bought basic food necessities from State-run shops at cut-rate prices using ration coupons. The state-run shops have been in mothballs for nearly 20 years now, but some Chinese officials are setting up something similar in a desperate attempt to control food price inflation.

The red banner: "Guigang City Government Limited Price Pork Sanhe Market Sales Outlet"

News articles this month report that a number of cities have opened food shops that sell discounted pork and cooking oil (限价猪肉,食用油销售点). In Guigang, a small city in Guangxi Province, the city government has opened 13 discount pork shops and 6 discount sales points for cooking oil. These shops or sales counters sell government pork--probably from city reserves--at low prices as a strategy of bringing down high market prices for pork.

A reporter in Guigang found a discount pork shop next to one of the city's food markets. It was a pork shop with a sign hung over the door that read, "Guigang City Discount Pork Shop," with 10 or 20 customers buying pork.

The news articles report these shops are being opened in Guangxi and Hainan, and there are a few in Beijing too. Most of the sales points are set up in supermarkets, but some are adjacent to wet markets. Guigang officials say the discount sales are mainly through supermarkets because they are more honest than wet market vendors and they keep records of purchases and sales.

Customers can buy pork or oil at roughly a 10-percent discount. Customers must register (one article reports that the customer must have a residence registration in the city). Then they receive a ticket that they can present to purchase up to 1 kilogram of pork per day.

A worker said the Guigang shop bought two discount-price hog carcasses (about 150 kilograms) that sold out in two hours. The next day the shop bought four hogs that sold out by 10 am. The vice-director of the city commerce bureau says that the city plans to sell 100 discount-price hogs daily, one-fifth of the city's daily supply.

Vendors in the nearby market said the shop was affecting their business. The reporter said vendors had cut their prices by 1 or 2 yuan. Similarly, in a supermarket where discounted oil of certain brands was available, other brands were also on sale with discounts of 7 or 8 yuan per five-liter bottle.

Most of the articles on these shops are propaganda. An article from Danzhou of Hainan Province reports that city residents can't find any discount-price pork to buy. The wet market's three discount-pork sales counters had disappeared and the sign had been removed. A vendor said they had received a notice at 8 am ordering them to stop selling discount pork. The vendor was puzzled, since the government announced in July that sales of discounted pork would continue for two months.

Shoppers in the Danzhou market were also puzzled,but less concerned about the disappearance of the discount pork. One shopper wondered why the sales had been discontinued since pork prices had not gone down yet. However, shoppers also noted that the "discount" pork was actually no cheaper than other pork. A supermarket manager said sale prices on their pork were cheaper than the government's "discount" pork prices.

An official from the local commerce bureau said the program was planned for two months, but they stopped sales of discounted pork for three days to see what would happen. There was no change in the market. They decided to stop the program.