Dim Sums: Agricultural Markets in China

A Beijing Normal University professor conducted a study of income distribution in China which reveals how the urbanization process is ripping-off Chinese peasants due to their lack of property rights. About half of China's GDP "growth" comes from building things, usually on farmland. If farmers had secure ownership rights to their land, they would be benefiting greatly from the rising value of their land. In reality, most benefits from rising land values accrue to developers and government officials who act as brokers in these real estate deals. In most cases, collectively-owned village land on the fringe of urban areas is leased to a developer who pays rent to a government organization. The villagers, theoretically the collective owners, generally get a fraction of the rent paid by the developer. The report found that 40 million peasants have "lost" their land, which seems to mean that it has been rented out for urban uses. The report profiles Bailian village ...

Feed warehouse of Mr. Liu's company. An interview with a feed industry executive titled "Feed Industry Re-shuffle" provides some interesting perspective on the evolution of China's animal feed industry. The interview follows up on a speech given to an aquaculture industry conference by Liu Hanyuan, the chairman of a fish feed company in September. (Actually, the website of Liu's company says it is a conglomerate composed of feed, fish, food, pharmaceutical, chemical and solar energy companies.) The interview begins by discussing the growing role of state-owned companies in the feed industry. Mr. Liu provides some historical background. He traces the feed industry's mostly-private character back to the 1980s when Deng Xiaoping proclaimed that the feed industry would be open to everyone. After 30 years, the industry has transitioned from state-owned to companies with private or mixed ownership, "highly marketized and responsive." The entry of state-ow...

More cracks are appearing in China's rock-bottom-price-export juggernaut. Apple juice, which came out of nowhere to dominate the world market during the last decade, is losing its competitiveness due to a surge in apple prices. The Consumers Daily reported the story about rising apple costs on October 25. According to the article, the price of apples used for making juice is up to 1400 yuan (US$220) per ton, which translates to a raw material cost of US$1430. (It takes 6.5 tons of apples to make 1 ton of apple juice concentrate for export.) Adding the cost processing, fuel, transportation and steel drums there is no room for profit at the current FOB export price for juice concentrate of US$ 1850 per ton. "Processors would rather stop production than lose money." One processor said the raw material price went up to 1600 yuan (US$250) per ton in the last couple of days. The break-even price for juice is US$2200 per ton with this level of raw material cost. Chinese juice is...

Piles of soybeans. Source: Jinrong Shijie (Banking World) China's soybean traders are taking advantage of their ability to get credit to become suppliers of cash to the underground lending market. The story is an interesting merger of several megatrends: the booming demand for imported commodities, hot demand for short-term financing at high interest rates, and financial whiz-kids gaming the strategy of steadily appreciating the Chinese currency. The Ministry of Commerce's International Commerce News reports the story . The reporter says many ports have mountains of hundreds of thousands of tons of soybeans that have been imported faster than the market can absorb them. Warehouses in many ports are said to be nearly filled with soybeans. One analyst estimates the total soybean inventories held in ports to be 6.6 million metric tons, an historical high. According to the reporter's explanation, "soybean banking" works as follows. A trading company with rights to imp...

There is consensus among analysts that China's soybean production is down substantially this year. The Jilin Province Commerce Department estimates that production is down 30% this year, to 12 million metric tons (mmt). Another estimate from a crop tour organized by a futures exchange group observes that soybean planted area is down 25%-30% in Heilongjiang, but estimates this year's national crop at 14 mmt, down 8%-9%. An article in the Huaxia Times reports varying estimates of the decline in soybean production. One soybean analyst estimates a 17% decline, but the article adds a caveat: "compared with some other estimates this seems optimistic." The same analyst estimates that production in Heilongjiang Province could be down 26%. Another futures analyst says he found on a crop tour of the northeast that soybean area has been declining since 2008 and is down one-third to one-half in many areas. The Huaxia Times report uses military rhetoric to sound an alarmist ton...

As forecasts of Chinese corn imports inflate, it's worth keeping in mind that China has a tariff rate quota (TRQ) system that limits corn imports to 7.2 million metric tons annually. Some of the arcane restrictions associated with the system could limit imports by even more. A closer look shows that the TRQ system is stacked in favor of state-owned companies...er, a state-owned company. Last month, the National Development and Reform Commission announced the annual application for 2012 corn import quotas . The total quota available is 7.2 mmt, of which 4.32 mmt is reserved for state-owned traders. That leaves 2.88 mmt for private companies. These amounts were set at the time of China's WTO accession in 2001 and have not changed since then. Corn imported within the quota is assessed a tariff of just 1% while over-quota imports are charged a tariff of over 70%. According the NDRC announcement, applicants for corn quota must register with the state commercial and industrial manag...

The eight straight increases in grain harvest since 2003 continues to get a strong propaganda push in China. But an inquisitive Chinese citizen might ask, "If we're producing so much grain, why do grain prices keep going up?" An essay by an Academy of Social Sciences Researcher posted on many Chinese web sites this week takes on this issue. The author begins with some startling statistics. From 2004 to 2010, China's grain production rose by a cumulative total of 120 million metric tons (mmt), a remarkable increase of 26.9% in six years. Yet grain prices went up about 80% over that period. The author notes that it looks like grain output will be up again this year, yet this year's grain price is up 10% from 2010. The author, Li Guoxiang, credits agricultural policy for the steady increase in grain production. He emphasizes the role of the minimum price policy. While the minimum price has generally been less than the market price in most years, the built-in ex...

A Wal-Mart in Nanchang, shortly after its opening in 2005 Is there a war against foreign supermarkets in China? The Chongqing arrest of Wal-Mart employees for repeatedly passing off conventional pork as premium "green food" pork has received huge publicity and Wal-Mart has closed all its outlets in Chongqing. In January of this year, Carrefour and Wal-Mart outlets were singled out for fraudulent pricing behavior. Why are Carrefour and Wal-Mart being singled out? Are these fortune-500 companies more shifty and dishonest than other retailers in China? Surely not. These crackdowns are likely to some degree a reflection of growing resentment in China against foreign supermarket chains that is starting to pop up in the Chinese press. The release of the 2010 list of top-100 retailers highlighted the growing influence of foreign chains in the Chinese supermarket sector , noting that five foreign chains opened 140 new stores, a faster growth rate than domestic supermarkets. An art...

On October 10, a scholar from the Chinese Academy of Engineering said 12 mmt of grain are contaminated by heavy metals each year. At a meeting in Guangzhou, Professor Luo Xiwen said, “Soil contamination is extremely serious in our country. Investigations show that heavy metal contamination is above limits on 300 million mu, one-sixth of the cultivated land." According to Luo, environmental pollution, soil pollution already have become a worldwide issue. He said the United States has over 217,000 farms polluted with heavy metals. According to Professor Luo, many countries put a high priority on treating soil pollution issues and air and water pollution issues. [so China should too?] As an engineer, Luo naturally recommends technological solutions. To really address the food safety issue, said Luo, producers, managers, merchants and consumers must be linked up and farm products need to be checked at each stage from breeding, production and sale to table. For example, a sensor can ...

China's Commerce Ministry has announced that it will be one of six departments launching a nine-month crackdown on underground slaughterhouses and butchers. The stated purpose is to improve food safety by addressing "lean meat powder," pumping water into meat, and butchering sick pigs. The campaign plans to outlaw all underground slaughter activity and regulate the meat industry. By the end of June 2012, all meat in cities at the prefecture-level and higher should come only from "designated slaughterhouses." The notice stressed that all localities are to conduct unified crackdowns as directed by the State Council's order. This follows a Ministry of Commerce order in July that required each locality to increase rectification efforts on the hog slaughter industry, cracking down on underground slaughter. The National Development and Reform Commission issued a notice at the end of September reducing inspection fees for hogs, cattle, sheep, dogs, chickens, and d...

A speech by Qiao Yufeng, the head of China's Animal Husbandry Association, at the Fifth International Corn Industry Forum held in Changchun in September offers a frank assessment of China's hog industry. Qiao begins by asking, "Who uses the 180 million metric tons of corn? All of it is used by livestock." [not quite, only about 60% of it.] He then takes pigs as representative of livestock in China and launches into a discussion of high hog prices, cyclical patterns, and problems facing the industry. Qiao observes that China's July CPI was up 6.5% and recalls that the CPI increased by the same amount in 2007, when pork prices were up over 80%. He says the CPI has become a "hog indicator." He notes the transformation of the hog industry from small-scale to large-scale farms and the importance of environmental protection. He asks rhetorically, with the ratio of hog to grain prices now at a high level of 8:1, where is the crisis? He then goes on to identify ...

Graphics promoting the government's subsidies and 350,000 technicians from the Farmers Daily web site The Ministry of Agriculture is pouring on the propaganda about an 8th-straight increase in grain harvest expected this year despite droughts, floods, short supplies of water and land, and the European debt crisis. The Farmers Daily web site has an entire page of articles and a video announcing the magic number of 1.1 billion jin (550 million metric tons) expected for this year. It gives credit to the increase in the government's subsidies and 350,000 technicians in the fields giving guidance to farmers. A Farmers Daily reporter interviewed Mr. Zhang Hongyu , the head of the Ministry of Agriculture's Legal Office, to find out how China could pull off this remarkable string of increases in grain production for eight years in a row. Zhang obligingly explains that the government's policy support is the main factor responsible for increasing grain production. He points to t...

"Buy soybeans" (source: Futures Daily News ) The fall crop tour organized by the Dalian Commodity Exchange also sent teams to investigate the soybean-corn-rice situation in Heilongjiang Province . The main finding was that soybean acreage plunged by 30 to 50 percent--less in some areas and more in other areas. On the giant "Friendship Farm" (a state farm built by the Russians in the 1950s when they were "friends") soybean plantings declined 60% from 315,000 mu last year to 125,000 mu this year. The farm increased corn plantings by 50,000 mu (9%) and increased rice plantings by 120,000 mu (18%). The crop tour reports that some areas were affected by storm damage and drought, but the impacts were not widespread. Yields are estimated to be down from last year but still good. Low earnings from soybeans have discouraged farmers from planting soybeans. Corn is said to have net profits per hectare 3 times higher than soybean profits. Returns from rice are about ...

Corn tour participants interview a farmer (source: Futures Daily http://www.qhdb.com.cn/) The Dalian Commodity Exchange sponsored a series of crop tours in northeastern China this month. There are dozens of reports posted online . The report on the corn tour of Jilin Province ( pt. 1 , pt. 2 ) predicts that Jilin will have another good corn harvest, but warns corn market participants to exercise caution over the coming months. The corn tour made a big circle around Jilin Province to assess this year's corn harvest and learn about market conditions. The tour found widely varying crop conditions. Photos of sample corn cobs from various regions illustrate the wide range of conditions. In some places there was moderate to severe damage from storms, drought, and pests, but they report that damage to the corn crop was either confined to small areas or offset by improved weather later in the growing season. The tour's assessment is that the Jilin corn crop will be good this year. More...