Vietnamese Rice Temporarily Fills a Void

A team from the China Grain Net reported on a tour of rice-producing areas in Hunan and Jiangxi Provinces last week. The team found that rice supplies are tight in the region. At a grain depot in Hunan's Xiangtan County, a trader said that there is only a little late-season rice from last year in the market that is bought sporadically at 1.38 yuan per 500g. In northern Jiangxi Province rice mills complained that the business is very tough this year. Prices they pay for paddy rice are up and profits are virtually nil.

Rice mills in Jiangxi and Hunan have been buying modest amounts of cheap rice from Vietnam and Pakistan as a cost-saving measure to mix with local rice. However, the quality and taste of the cheap imported rice--mostly from Vietnam--is poor and is not well-received by consumers. They use no more than a 20% proportion of imported rice.  According to the reports, rice mills are afraid to use a lot of it because it might harm their brand's reputation. In Jiangxi, they are only using the imported rice for local sales while their shipments to Shenzhen and Guangzhou use only good quality rice. The imported rice is said to be a temporary stop-gap measure. They say the Vietnamese rice has a limited effect on the market in China.

The team emphasized the exodus of labor out of villages and land left uncultivated, especially the phenomenon of switching from double-cropped rice to a single crop. The reports emphasize this year's Ministry of Agriculture campaign to promote concentrated rice transplanting. This program gives subsidies to help companies and other units produce rice seedlings that are transplanted in fields. This is said to save labor, help the rice mature earlier and raise yields by 10-20% over the method of sowing seed in the paddies.

Hunan's Xiangtan County is one of the top grain-producing counties in China and a focus of the rice-transplanting campaign. The team visited Two Board Bridge Village where officials arranged for production of 50 mu of seedlings that were provided free to villagers, which raised their enthusiasm for planting an early rice crop. Hunan Province budgeted 120 million yuan for this camapaign but the village committe said the transplanting campaign cost the village 30,000 yuan. The village has 960 mu of rice paddy which officials said was all planted in early rice.

Rice seedlings for transplanting (source: China Grain Net)

The team visited Mr. Zhao who transplanted early rice on all of his 6 mu during March 20-23. Last year he harvested 1000 jin per mu of early rice around July 15 and sold it for 116 yuan per 100 jin. This price was well above the minimum support price of 102 yuan last year. This year costs are up, but the village covered the cost of seedlings, trays, and plastic sheeting. Mr. Zhao estimates this year's production cost will be around 930 yuan per mu, up 30 yuan from last year. He says the subsidy is 140 yuan per mu this year, up from 120 yuan last year. (If these numbers are right they are about twice as high as in other places.) Mr. Zhao estimates you can make about 200 yuan per mu from planting early rice. By comparison, you can make 120 yuan per day working off-farm.

Mr. Zhao would like to rent more land to expand his production. However, he has some elderly neighbors who are not inclined to rent out their land because they think they can earn an amount equal to the rent by planting rice on the land themselves. In Hanshou, another Hunan county, a rice mill boss wishing to expand his "production base" also complains about some farmers don't want to rent out their land. He said he hopes the government can guide them to participate in land transfer.

Migrants Up, Wages Up

The National Bureau of Statistics (NBS) reports that 245 million rural people are employed in nonfarm activities, up 10 million from last year. Their average monthly earnings from nonfarm employment were up 21% from last year, suggesting rapid growth in wages (average hours of work decreased). The numbers reflect an exodus out of agriculture and rising opportunity cost of labor in farming.

Each year NBS surveys 200,000 rural laborers from over 7500 villages in 899 counties to ascertain the number and characteristics of rural people engaged in nonfarm employment. The survey total includes rural people engaged in a nonagricultural job or business for at least 6 months of the current year. It includes migrants working outside their home township and people employed near home (in their home township).

Source: Dimsums chart created using data from National Bureau of Statistics. 

Nonfarm jobs are primarily in urban areas, prompting a huge migration of itinerant workers equal to the population of a large country. The survey estimated the number of migrants--people working outside their home township--was 158.6 million while 94.2 million were employed near their home. The migration tends to divide families--only 32.8 million of migrants were part of entire families working away from home while 125.8 million migrants were away from families still in the countryside. The population of 158.6 million migrants is similar to the population of Nigeria (the world's 8th-largest country), slightly less than the population of Bangladesh and slightly more than the population of Russia.

The numbers are another reflection of the socioeconomic transformation of the Chinese countryside. "Rural" and "farm" are no longer synonymous. Censuses show that there are roughly 250 million rural households, thus the new number suggests that there is on average 1 person in nonfarm employment from each rural household. The number in nonfarm employment increased 27.6 million from 2008 to 2011. The growth was faster than in 2009 (when the economy slowed due to the world financial crisis) but slower than in 2010.

The average monthly earnings of nonfarm workers was 2049 yuan (about $320) and increased 21% from last year. Average earnings were 2053 yuan in the east and 1990 yuan in the west, a difference of only 3%. Growth in earnings was 21-22% in every region.

The monthly average earnings from nonfarm work (2049 yuan) reported here is almost as much as an entire year's per capita earnings from farming (2520 yuan, reported in an earlier post on household income statistics for 2011). In other words, you can work off-farm for a month and earn nearly as much as you would earn from staying home and farming all year. The 2011 household income statistics also showed that urban incomes were three times rural household income.

High earnings in cities suck people out of the countryside. The bigger the city, the higher the earnings. In the largest cities (Beijing, Shanghai, Tianjin) earnings averaged 2302 yuan versus 2047 yuan in provincial capitals. In small (county-level) cities the average was 1982 yuan and in towns it was 1961 yuan. The proportion of workers with unpaid wages fell from 4% in 2006 to less than 1% in 2011.

Migration predominantly means working for someone else: 95% of migrants are employees and only 5% are in business for themselves. Among those working near home, 28% were in business for themselves. Those in business are most often engaged in wholesale or retail trade. The share of nonfarm workers in business for themselves fell sharply in 2011. People in business for themselves made an average of 2684 yuan monthly, 33% more than earnings by employees (2015 yuan). 

Most migrants are deposited in work site enclaves. Half of migrant employees have housing provided by their employer or work unit, and 9% get a housing subsidy. Thirty-two percent of migrants live in an employer's dormitory and 16% live on their work site in barracks, shacks or in the place of business itself. Nineteen percent share rented quarters with others, 14% rent their own dwelling and 13% go home at night. Less than 1% of rural migrants own a home. Essentially, rural migrants are guest workers.

Migrants spend an average of 9.8 months a year away from home. They work 25 days a month, 8.8 hours a day on average. 84% work more than 5 days a week, 42% work over 8 hours a day, and 85% work more than 44 hours a week. The amount of time worked was down slightly from 2010, thus the increase in earnings reflects increased wages.

Based on these numbers, the average hourly wage of rural workers is equal to 9.3 yuan or 1.45 U.S. dollars per hour.  Based on 9.8 months of work at 2040 yuan per month, the average annual earnings of a rural migrant total 20,000 yuan or 3140 U.S. dollars per year. That's slightly less than the per capita household income of Chinese urban families.

Nonsalary benefits are becoming more common but relatively rare and migrants are mostly excluded from urban social insurance schemes. Only 17% of rural nonfarm employees have medical insurance, 14% are covered by a pension, 24% by worker's compensation, 8% by unemployment insurance, and 6% by pregnancy insurance. All of these were up by several percentage points from 2010. Benefits were received by about twice as many rural workers in the eastern region compared with the central and western regions.

While there is still a strong attraction to cities, the numbers indicate that it's getting easier to find a job near home in rural areas. In 2011, the increase in nonfarm employment was equally split between migrants and residents working near home (over 5 million each). This contrasts with 2010 when the increase in migrants (8 million) exceeded the increase in workers staying home (4.4 million). It's easier to find a job near home in the east: 62% of rural people working near home were in the eastern region. Migrants (those working away from home) are evenly spread over the eastern (32%), central (36%) and western (32%) regions. Most migrants (53%) work within their home province, while less than half (47%) work outside their home province.

Nonfarm employment is chiefly a guy thing: 65% of those in nonfarm employment were males. They tend to be young: 39% were between ages 16 and 30. However, participation by more mature rural people is rising. Nonfarm workers over age 40 increased from 30% of the total in 2008 to 38% in 2011. Those working near home are more likely to be married and older than those who migrate.

Manufacturing is the largest sector for nonfarm employment of rural people, accounting for 36%. Construction is the second-largest and has been the chief source of job growth. Construction's share of nonfarm rural employment grew from 13.8% in 2008 to 17.7% in 2011, the only industry with a big growth in share. The construction industry's importance is magnified by its high wages. Construction (2382 yuan per month) pays 24%-higher wages than manufacturing (1920 yuan per month). However, workers in construction are much less likely to receive benefits than are manufacturing workers. Hotels and food service (1807 yuan) and household service (1820 yuan) pay the lowest wages. Hotels and food service are also skimpy on benefits.

The migrant worker statistics reflect the concentration of capital and investment in cities. Rural people own virtually no assets except their house and their savings. Rural land is expropriated from farmers for the price of a few bushels of wheat and thereafter generates huge windfalls for developers and city tax coffers. This money sloshes around in the banking system and is doled out to big companies run by the cronies of government officials. City tycoons recruit unskilled migrants, sequester them at work sites for a few months, then send them on their way.  Loans are rarely doled out to small entrepreneurs.

The migration statistics also illustrate the problem facing Chinese agriculture. The most capable (young and educated) workers are sucked out of agriculture which promises low earnings (unless you can rent your neighbors' land and cobble together 10 acres or so) and high risk. Those who remain behind are old people who prefer the rural way of life. Money sent home from children in city dormitories lets the the old folks back home in the village refurbish their house and buy rice and TV sets. More and more, those who stay in the village can find nonfarm work nearby. Even though village people continue working their small plots of land, putting in a few days of work here and there, they have little incentive or inclination to improve their yields. Why should you build an irrigation system or an expensive pig barn if your land might be turned into an industrial park in a few years?

Pigs Destroy Water Quality

One of the "dirty" secrets of China's pork industry is the widespread degradation of water quality. The advantage of pigs--and the reason they are the source of over 60% of meat in China--is that they can and do eat just about anything. Their disadvantage is that their digestive system is inefficient. Lots of undigested matter comes out the other end. In past decades pig manure was spread on fields as organic fertilizer. But in the age of concentrated pig production--hundreds of pigs in a single location--the manure is concentrated. Plus, you have to clean out pig facilities to keep them sanitary and prevent disease. This requires lots of water which has to go somewhere after the cleaning is done.

This blog reported on pig pollution last year, again exactly one year ago, and in 2010. Many localities have tightened up regulations on pig farms and the Ministry of Environmental Protection called attention to the problem in 2010. Officials show visiting delegations nice clean farms and tout their massive program to build 40 million methane digesters and waste treatment tanks, but the problem of water pollution from pig farms remains a serious external cost of China's quest to maintain its diet of home-grown pork.

A google image search for "pig farm pollution" turns up dozens of photos showing black streams and murky drinking water. Below are three recent examples.

Fujian: Drinking Water Source "Terminally Ill"

An article from Fujian Province last month begins by proclaiming, "The Minhou Creek is terminally ill!" This article describes a reporter's visit to a tributary of the Pujiang River which flows into the provincial capital of Fuzhou. The creek's banks are covered with lush vegetation but the water is murky and gives off a foul stench. Some fishing enthusiasts arrived by car with fishing poles in hand but were shocked by the filthy water and smell. 

Local people claimed that the water used to be clear. In the last few years some outsiders arrived and set up about ten pig farms along the banks of the creek even though the local government had banned pig-farming next to the creek. The farms dump waste into the stream and its water is no longer suitable for drinking or washing clothes.

At intervals along the banks of the creek the reporter found bags containing partially decomposed pigs. These are pigs that died of infectious disease. Local people said dogs feed on the carcasses. One person observed that there would be a big accumulation of dead pigs if the dogs didn't eat them.

Decomposing dead pigs in the Minhou Creek (source: Taihai net)

The creek is upstream from the drinking water supply for Fuzhou, the provincial capital. As early as 2009 a county environmental official wrote an article warning of the deteriorating water quality. The creek’s water quality began deteriorating by 2007. A lake downstream showed contamination with cyanobacteria and nutrification. Testing of the creek's water from 2005 to 2009 showed rising concentration of ammonia.

The reporter described one of the farms. Pigs were kept in brick structures surrounded by plastic sheeting. A hole in the wall allowed waste to drain into a plastic pipe which led to the creek.

The drain from a pig farm empties into Minhou Creek (source: Taihai net)

The county claimed to have carried out a check of pig farms starting in 2009 and claimed to have dismantled 100 of them in 2011. However, the reporter found a posting about the creek on a web site for public complaints asking, “After 3 years of complaints why is there still so much pollution from pig farms?”

Zhejiang: Blood in Urine

In Yongkang Prefecture, Zhejiang Province, a news site this month was contacted with a plea from a village resident who reported that many people in his village have blood in their urine. The villagers suspected that extremely high concentrations of nitrites, manganese and ammonia in their drinking water was the cause. They suspected that a neighboring pig farm was the source of the problem.

Testing showed the 37 of 86 people in the village had occult blood (blood cells that are not visually detectable) in their urine. Most were elderly people in their 50s and 60s. Three village representatives took water samples to the city disease control center for testing. The samples did not meet the standards for drinking water. They showed turbidity, visible matter, and excessive amounts of nitrites, manganese and ammonia. The manganese content was 150 times the allowable standard.

Xianling Village's dirty drinking water

The village gets its drinking water from a nearby creek. A pig farm was built a kilometer upstream in 2009 and expanded in 2010. Some waste water from the farm drains into the stream. Last summer village residents noticed that the smell from the farm was getting more pungent and suspected the farm might be the cause of their drinking water quality problems. They already have a device to filter their drinking water.

The pig farm raises 600 Tibetan black "fragrant" pigs, presumably a premium native-style breed that sells at high prices in supermarkets. The farm was built on three-fourths of an acre of vacant (i.e. not farmed) land surrounded by hills. Small pigs wandered around in the barn. Pig manure was piled on the fields next to the road, and a dead pig lay where it had been discarded near the entrance to the farm.

The farm had two sedimentation tanks and a methane gas digester for treating waste. The boss told the reporter the waste water and pig manure are put in the methane digester. After fermentation it is put into the sedimentation tank and treated. However, the water is still dirty and contains white foam after it goes through sedimentation. This water flows through a pipe into the stream that supplies the village's drinking water.

The waste water from periodic cleaning of the facilities cannot be treated in this manner. This water contains bacteria that can't be killed in the methane digester. This water goes straight into the creek.

The boss displays an animal quarantine certificate, business license, and veterinary certificate, but the farm has not been evaluated by an environmental bureau. The boss openly acknowledges that tests would show that the farm affects the local water quality if the government checked it. He says he wants to move the farm elsewhere.

The vice mayor of the town says he has sprung into action after receiving complaints from the masses this month. They quickly set up a water system. Last week they finished laying the pipes. They will send fire trucks to deliver water every morning until the system is complete in a week or so. The environmental protection bureau did an investigation and confirmed that the farm was a problem. Soon they will assess penalties on the farm.

Jiangsu Farm Pollutes Water in Shandong

Last September in Shandong Province's Linshu County, a 67-year-old villager told a reporter that the river nearby had turned murky last summer. The water began to stink and fish started dying. His village of 1600 people gets its drinking water from the river. Their drinking water began to give off an odd smell and became alkaline.

Mr. Liu displays water he says comes from their village well. (Source: Southern Shandong Net)

Last September three small pollution sources were shut down by the local government. However, a large pig farm 2.5 kilometers away across the provincial boundary in Jiangsu Province's Donghai County--possibly the largest source of pollution--was still operating and allegedly dumping waste into the river. There was nothing the local government could do. According to the reporter (writing in September 2011), the villagers had to sit silently as manure flowed downstream to their village.

An official from the Linshu County environmental protection bureau said there's nothing they can do about the pig farm since it's in a different province. He says they have been in communication with their counterparts in Jiangsu and are trying to come up with a mechanism for dealing with the cross-border pollution problem. 

The pig farm reportedly has acquired waste treatment equipment, but excavation equipment on the site show that the farm is in the process of expanding and creating even more manure.

Jiangsu pig farm pollutes drinking water in Shandong (source: Southern Shandong Net).

Food Security for China's Cadres

An article in a journal for communist officials (Chinese Cadres Tribune) offers a policymaker’s view of China’s commodity supply and demand situation and outlook. The article includes some worries but seems to be relatively optimistic. The author anticipates that rice consumption and production will remain in balance, China will have an excess supply of wheat and a modestly-growing deficit in corn and vegetable oils.

The author, Cheng Guoqiang, is an agricultural economist with the State Council’s Development Research Center. The article, “current situation and medium and long-term trends in our country’s grain supply and demand,” is a tutorial for communist party officials on China’s food security situation.

The article reports a massive 140-metric ton increase in grain output over the past 8 years, an average increase of 17.5 mmt per year. Cheng says the annual growth in grain output averaged 3.1%, faster than the average growth from 1978 to 1999 and faster than the world average. Grain yield per hectare increased 7 kg per year. The burst of grain output has relieved the tight supply-demand situation. Cheng says China’s food security is now at one of its strongest points in history.

Cheng says the supply and demand for rice and wheat is roughly in balance. Per capita consumption of rice peaked at 155 kg in 1991 and has since fallen to 143 kg in 2009. Per capita wheat consumption peaked at 90 kg in 1988 and fell to 78 kg in 2009.  Aggregate rice and wheat consumption both grew only 0.6% per year over the past 5 years and supply has outpaced demand growth. In the last five years, rice production was up 1.8% and wheat 4.5% per year.

Consumers are shifting consumption toward higher-quality products like japonica rice, special-use flour and flour products, animal protein, plant oil, and sugar. In the north, some consumers are switching from flour products to japonica (short grain) rice. Cheng reports that indica (long-grain) rice production in southern China has been falling as farmers plant less. Japonica rice production (mostly in the northeast) has been growing.
Corn consumption has outpaced supply, growing at 3.6% per year, says Cheng. He says corn supply exceeded consumption by 1 mmt in 2009 and expanded to 10 mmt in 2011. (Cheng cites a corn production figure of 154 mmt for 2009, about 10 mmt less than the official figure of 164 mmt estimated by China’s National Bureau of Statistics.) China has switched from a net exporter to a net importer of corn. Imports of corn totaled 1.57 mmt in 2010 and 1.75 during 2011. He notes that the tariff rate quota for corn of 7.2 mmt has room for more imports.

Self-sufficiency in vegetable oil has fallen. Rapeseed output increased from 35.33 mmt in 1990 to 47.84 mmt in 2010, an average increase of 1.5%. On the other hand soybean production has been stagnant at about 15 to 16 mmt over that past 10 years.

Domestic vegetable oil production went from 7 mmt in 1990 to 10 mmt in 2010. Consumption rose from 11 mmt in 1998 to 27.5 mmt in 2010, an average growth of 8% annually. At 19 kg in 2010, China’s per capita vegetable oil consumption exceeds the world average of 16 kg, but is still behind the 24-25 kg in developed countries.

Soybean imports went from 3.85 mmt in 1998 to 54.8 mmt in 2010. According to Cheng, now 84% of China’s soybeans are imported, and China accounts for 61% of world soybean imports. Cheng tells his readers that it would be impossible for China to be self-sufficient in soybeans. He estimates that—at China’s current yields—in order to plant enough soybeans to remain self-sufficient in vegetable oil it would take cropland area equivalent to the amount of land devoted to rice and corn combined.

There are fewer provinces able to meet their own grain needs. Some provinces that used to produce more grain than they consumed now have a deficit. In 2010, 13 grain producing provinces (Heilongjiang, Liaoning, Jilin, Inner Mongolia, Hebei, Jiangsu, Anhui, Jiangxi, Shandong, Henan, Hubei, Hunan, Sichuan) accounted for 71.5% of the national area planted in grain and 75% of grain output.

Cheng discusses some cross-commodity relationships. As people upgrade their diets they are eating more sweeteners and meat. Normally, this would increase demand for sugar and corn (as animal feed). Cheng notes that corn can be used to make sweeteners and is cheap relative to sugar. This is a factor encouraging the industrial use of corn to make sweeteners to substitute for expensive sugar.

The increased demand for corn has raised its price too. Wheat supply has grown faster then wheat consumption, however, so wheat is now cheaper than corn. Consequently, wheat is being used as a substitute for corn in animal feed rations. Cheng puts feed use of wheat at 17.5 mmt in 2011, up from its usual level of 10 mmt. He says cheap wheat for feed relieves some of the tight supply-demand tension in the corn market. Use of corn for sweeteners relieves some of the tension in the sugar market.

Cheng reports that the policy environment in China is more complex. Policymakers face a difficult challenge of balancing the interests of farmers and urban consumers as they implement price policies. Stabilizing prices is particularly difficult.

Cheng refers readers to a report from his organization (I cannot find it online) which worries about rising production costs and new influences on farming: energy intensity, climate change, financial influences, and mechanization that make it more difficult to impose “macro controls” on grain markets. The report claims that high income elasticity of demand for food is pushing grain prices up. This seems implausible for rice and wheat (per capita consumption is falling). Even corn consumption is growing at about half the rate of per capita income, implying an income elasticity of .5. The second influence is rising money supply, a more plausible explanation. Finally, inefficient production restricts growth in supply, exacerbating the growth in grain prices.

Cheng provides some projections for the year 2020. He anticipates that rice consumption will be 194.6 mmt, slightly less than output of 195.5 mmt. He projects wheat consumption at 105.75 mmt with a surplus of 8 mmt in 2020.

Cheng anticipates that the corn deficit will widen to 17 mmt by 2020. However, this number could be larger or smaller, depending in large part on yield growth. He says the average yield was 5.3 mt per ha over the last five years, far below the U.S. average of 9.6 mt/ha. He says Argentina’s experience in raising yields offers a precedent for catching up with the U.S. If China can raise yields by 27% by 2020 production would increase enough to produce a surplus of corn. He notes that use of wheat for feed can substitute for corn.

On the other hand, if China keeps exporting industrial products made from corn the deficit could be bigger. Cheng seems to endorse expanding the tariff rate quota for sugar from 2.9 mmt to 4 mmt. By importing more sugar, there will be less pressure to use corn for sweeteners.

Grain Market Intervention Monopoly Restored

In 2004, China introduced a price support program for rice. Later this "minimum price procurement" was extended to wheat. In 2008 and 2009 intervention plans were introduced for corn, soybeans and rapeseed. Under these programs, companies commissioned by the government buys up commodities when the market price falls below the support price set by the government each year. The government pays the company to buy and store the grain and it is later auctioned off, always at a higher price than the company paid.

Initially, the state-owned reserve-management company, Sinograin, was the single buyer of grain and oilseeds under the price support program. In 2010, the government decided to give Sinograin some competition by allowing three other state-owned companies--COFCO, Chinatex, and China Logistics--to participate in price support purchasing. However, this year that decision has been reversed. Sinograin will again be the sole buyer of grain and oilseeds for the price-support program beginning with this summer's grain crop.

An Economic Observer article explains that the diversification strategy backfired. It led to massive grain-hoarding and added upward pressure on grain prices. There was insufficient oversight and lots of opportunity for corruption and the government found it actually became more difficult to control grain prices.

Authorities became alarmed during the first year of the diversification program in 2010 when there was panic-buying of wheat in Henan, Anhui and Shandong Provinces. This year corn prices are hitting record levels and the government is reportedly restoring the Sinograin monopoly to cool off prices and restore oversight to the price support program.

The price support program gives the designated buyers strong incentives to buy and hold as much grain as they can. They get subsidies for the costs of procuring grain and storing it, and they don't have to sell it until the price goes up enough for them to make a profit. Most of the auctions held to sell off the grain bought under the price support only sell a small proportion of the grain offered. The article calls these auctions "air conditioning." Consequently, much of the grain is locked up in company warehouses, reducing the volume available to processors who actually use the grain.

A separate article, "Research on Our Country's Grain Market-Support Purchase and Sale Policy," that appeared in the academic journal China Soft Science in 2011 had similar criticisms about grain-hoarding and guaranteed profits. The article pointed out that state-owned grain companies made profits for the first time in 47 years after the price support program geared up and the "iron rice bowl" of subsidies weakened the urgency of reforming these companies. Meanwhile, the article observed that inflated corn prices had turned profits into losses for alcohol and starch manufacturers while grain was hoarded by government-designated purchasers.

The Economic Observer says that Sinograin and its agents bought up 60% of all wheat marketed in 2006. Many companies "illegally bought grain," purchased low-quality grain, and stored it outdoors or in poor conditions. In 2008 Sinograin claimed to have bought 80% of the wheat produced in Henan, but many questioned this and claimed this figure implied fake transactions through grain "round-tripping." A number of Sinograin depot managers have been jailed for corruption and one Henan Sinograin official fled the country with millions of embezzled dollars.

Industry sources told the Economic Observer that the government's financial burden became even more heavy after more companies were allowed to participate in support price purchases and control over the grain market was weakened.

The article warned that absence of limits on price support purchases created a danger of duplicating the heavy financial burden that resulted from the "protection price" arrangement during 1998-2001 when there was no limit on government grain purchases, grain piled up in warehouses and the government lost billions of dollars.

Grain Subsidy Criticism

When China joined the WTO, its leaders designed a "decoupled" grain subsidy policy. Because the subsidies are handed out on the basis of a fixed land-holding (in most cases) and theoretically do not "distort the market," WTO rules allow China to exclude these payments when they calculate how much government support they are giving to agriculture. While the government hails its policies for boosting grain production 8 years in a row, on the ground the payments are widely acknowledged as ineffectual and act as a tiny entitlement for the rural population. After nearly a decade the subsidies have some perverse outcomes.

In 2011, a Chinese researcher and commentator on rural affairs called for eliminating grain subsidies. His article, "Grain Subsidies Are Not as Good as Raising the Minimum Procurement Price," takes journalists to task for reporting marvelous benefits of subsidies when in fact they have virtually no impact on grain production or farmer income.

The author, Li Changping, is a researcher at a rural affairs research institute in Hebei Province but apparently lives in Beijing. He spent many years as a local official and says that he frequently meets rural officials for tea and visits no less than 100 villages each year.

Li begins his article by saying, "In all my contacts with first-level officials, they have virtually nothing good to say about the grain subsidy policy." In his visits to villages, he says, "What I hear from farmers is that they say the grain subsidy policy is corrupt and plays no role in grain production."

To make his case, Li provides three stories from his experience.

Story 1: Grain subsidies given to non-farmers

Li has a friend who is a university professor. The friend still holds rights to farmland in his home village although no one in his family has been engaged in farming for over 10 years. He rents the land to other village members who actually plant crops on it. The rent is 300 yuan per mu each year. The non-farming professor collects grain subsidies and 300 yuan in rent from each mu of land. The farmers who pay the rent in order to cultivate the land do not get any subsidies.

Story 2: Subsidies for not planting grain

In a district of southern China farmers used to grow two rice crops a year. Now they have converted about 80% of their land to fish ponds and non-grain crops but they still collect "grain subsidies." In fact, these farmers produce little grain and buy most of the rice they eat, but the government raises their subsidies every year.

Story 3: Local official eats subsidies

In Heilongjiang Province there is an official who retained control of 2000 mu of land that was not distributed to collective members. He rents it out to villagers for 300 yuan per mu. In addition, he collects various subsidies totaling 200,000 yuan each year. He claims the same thing happens all over the country and is not limited to grain subsidies. The same happens, Li says, with subsidies for forests, pigs, appliance purchases, and agricultural machinery purchases. The money subsidizes "those who have a head and a face."

Based on these anecdotes, says the author, we can see that subsidies "have no significance" for grain production. In fact, his stories sound a lot like U.S. farm subsidies which largely end up as subsidies to wealthy land-owners (including not a few American professors), not people who grow crops.

However, says Li, "We often hear TV reports about how good the grain subsidies are." But the subsidies actually end up far from the farmers. He describes the increase in grain subsidies as "purely a big fudge."

Li then attacks media reports about subsidies for irrigation. Li observes that farmers actually invest little in irrigation systems. Regulations prevent officials from assessing fees that would finance water projects and farmers seldom work on joint projects since there is no way to solve the "free rider" problem. Grain is not profitable enough to justify high costs of large irrigation projects for small farms, so only a few large farms make the investments.

Consequently, rural irrigation infrastructure deteriorates.  Li castigates frequent news media reports of "100 year droughts" causing disaster for farmers. Li asserts that the problem was not so much the dry conditions as the fact that farmers had no irrigation capability, leaving them "defenseless in years of drought."

Li says the basic problem for farmers is low grain prices which he claims are "deliberately suppressed." He says since 1990 grain prices have gone up at a much slower rate than government wages. That means farmers' earning and spending power has also risen slowly, a cause of weak internal demand. He argues that low grain prices are the root of the "China model" of reliance on exports, industry that consumes high volumes of raw materials, high pollution, and accumulation of foreign exchange. Low grain prices, he says, are also the cause of "imported inflation."

Li argues that it is necessary to focus on raising peasant incomes by raising grain prices as the solution to China's problems. He calls for eliminating the grain subsidy and using the funds to raise grain prices.

Li's recommendation is essentially a reversal of the subsidy program. In 2004 the direct payment to grain farmers was set up by taking money from provincial "grain risk funds" that had previously been used for procuring grain from farmers at "protection prices" and giving the money to farmers directly as a cash subsidy.

Li's analysis is fast and loose and his economics is not that good, but he incisively points out the perverse results that farm subsidies designed by clever bureaucrats and scholars produce nearly everywhere they are implemented. He also points out fog of misinformation spewed out by Chinese government and news media sources. He gets at the exploitation of peasants that is the dirty secret behind China's economic growth model, but the exploitation comes through depriving farm owners of property rights and financial repression rather than depressing farm prices.

Diarrhea Example of Pig Disease Complexity

Since last year China's swine farms have been having serious problems with diarrhea. A recent article describes the symptoms and treatment in much more detail than you want to know (unless you are a veterinarian working on a pig farm in China). The description of the disease is an example of the trend toward more complex diseases that are not only increasing in prevalence but are hard to treat.

The highest incidence and highest mortality rates of diarrhea are among young piglets. Newborn pigs stop nursing, become listless, and then their body temperature drops. They develop serious diarrhea: yellow, white, yellow-green, gray and watery, smelly. Some pigs have vomiting, weight loss, pale skin. Some get purple orchid-shaped spots on their skin and purple ears. Piglets can start dying two days after exhibiting symptoms. Piglets 15 days older or less have a very high death rate, some pig farms 100%. Diseased pigs are thin, their hair is dull, and their skin is white.

Sows and finishing pigs are affected too, but the symptoms tend to be minor and they often recover within a week. While sows have less severe symptoms, their lactation is affected.

There is no fixed pattern to the outbreaks. In some farms only piglets are affected; in others both piglets and sows are sick. In some farms 100% of finishing hogs are affected by the disease but they generally recover.

The onset of the epidemics is rapid, they spread widely and can last a long time. Sometimes the mortality rate is high; sometimes it is low. Farms with weak management that pay scant attention to biosecurity and immunizations have the highest infection rates and major economic losses. However, large scale farms with good management also have the disease. The infection commonly reoccurs after innoculation, sometimes minor, sometimes major with high mortality.

Another article appearing last month sounds an alarm bell over the increasing number, diversity, and complexity of swine diseases. The author asks rhetorically why the number and complexity of pig diseases in increasing, not decreasing. Why are there diseases we can't explain or understand? What are we to do?

Pathogens are mutating, diversifying and the causes of disease are more complex. He gives examples. "Everybody knows 'blue ear disease,'" he says. The author also cites a recent spread of Torque teno virus and the recent diarrhea outbreak. He says there is a crest virus "closely related" to the diarrhea epidemic, but its role is not understood.

When diseases appear, he says, there are usually multiple pathogens present and secondary infections. This leads to clinical complexity and makes accurate clinical and laboratory diagnosis difficult and control is difficult. What is a farm to do when there are two, three or more pathogens and secondary infections. What medication should be used? What immunization?

Another difficulty is the presence of latent infections in carrier animals and sub-clinical symptoms. Pigs can appear healthy but spread a virus like PRRS, pseudorabies, or classical swine fever. It is difficult for a farm to claim with certainty that its pigs are completely free of pathogens, healthy and clean. Building new, large-scale farms is viewed by agriculture officials as an important measure for controlling the spread of disease. However, the author declares that disease problems are escalating on large-scale farms. Disease pressures are becoming greater and greater.

The author applauds the Ministry of Agriculture for its recent announcement of a program to monitor disease on 100 seed-stock breeding farms. Breeding pigs are the key to controlling the spread of disease.

Seed Subsidy: Waste, Corruption, Monopoly

One of China’s flagship farm programs is a subsidy to encourage farmers to purchase improved seed strains. Officials and news media depict it as a glowing success that has encouraged backward farmers to buy commercial seed that raised yields and standardized products. However, the news media seldom report widespread complaints about the program from farmers, seed merchants and village officials. It seems that in many areas the seed subsidy was hijacked to become a honey pot for local agricultural officials and the seed companies historically associated with the agricultural bureaucracy. Some critics accuse the program of hindering the spread of quality seeds and even raising costs for farmers. The Ministry of Agriculture made adjustments to the program but problems seem to persist in some regions.

An Investors News 《投资者报》 article, “Fine Seed Subsidy Pulled into the Quagmire of Competing Interests,” posted on an agricultural news site in February (although it seems to have been written perhaps in 2009) offers a detailed look at complaints about the seed subsidy program. The article highlights the efforts of a retired Academy of Agricultural Sciences worker who noticed the subsidy program’s problems early on and sent letters to the State Council asking for reforms.

The seed subsidy was launched as a pilot program in 2002 to encourage farmers in Heilongjiang to use soybean seeds with high oil content. The following year it was extended to wheat seeds in Henan. In 2004 it became a part of the national grain subsidy package (along with a direct payment and machinery purchase subsidy) and was offered for rice, wheat, corn and soybeans in various regions. In the program’s initial design the subsidy funds were passed down and distributed to designated seed companies who were then to sell seeds to farmers at a discount. The seed supplier and the seeds were chosen by a bidding process in each locality.

Tong Pingya, the retired agricultural researcher, noticed problems and heard complaints about serous problems with the program shortly after its inception in 2004. He spent a year investigating the complaints and wrote a brief critique of the program for seed industry publications in 2006.

Tong’s 2006 article criticized the practice of handing down the subsidy through the agricultural bureaucracy rather than giving funds directly to farmers. This practice generated waste, corruption, and attempts to monopolize local seed markets.

Tong’s first criticism was that selecting the seeds to be offered limited farmers’ autonomy to choose their own seeds. Seeds are highly regionalized and the varieties chosen were inappropriate for local conditions in some areas.

Tong criticized the program for supporting seed companies rather than farmers. Tong observed that in many regions the bidding process for choosing seed suppliers was rigged to ensure a seed company with historical ties to the county agricultural bureaucracy was chosen. One agricultural bureau director reportedly said, “These are the state’s fine seed subsidy funds; of course they support state-owned seed companies. Two hundred people need salaries to eat!” Tong claimed that 60%-70% of wheat seed subsidy funds go to the seed companies. He said some defunct companies had been temporarily revived to handle the subsidy funds.

Tong criticized the waste and corruption in the agricultural bureaucracy. Handing down funds from province to prefecture to county to township results in “goose plucking,” where each level takes a cut and spends money on trips, inspections, banquets, and hotels and veiled bribes. It was reported that some county agricultural bureaus took 20% of the subsidy funds as administrative “service charges.” Others demand a 200,000-yuan fee or a share of seed company profits. In one county, the provincial “research office” demanded .06 yuan for each kilogram of seed plus two Volkswagen cars, 10 computers and a “European trip” (“欧洲游”).

The Investors News article asserts that the seed program became a nest for breeding corrupt officials. The article offers more examples. One seed company representative in Henan said county officials demand “service charges” of .05-to-.10 yuan per kg even though the provincial government had allocated 50,000-to-400,000 yuan to cover the costs of administering the program. In another district of Henan the county agricultural bureau director demanded 1 yuan per kg in 2006 and raised it to 2 yuan the next year. The seed company representative asked, “Is this a bribe?” noting that officials assessed fees but provided no service. Another retired county official in Henan requested 20,000 yuan through an intermediary and asked for .1 yuan for himself in addition to the .06 yuan service charge.

Tong argued that the program degraded the quality of seed since some companies used to program to distribute old seeds they could not otherwise sell. Some seed dealers say that varieties developed in the 1990s that were chosen for the program had degraded over time. In 2008 in southern Henan local seeds were poor and seeds had to be bought from Jiangsu and Shandong. During a 2009 drought in southern Henan, a local official said low wheat production was due more to poor seeds with low germination rates than dry conditions.

In some cases there was outright fraud. In one district of Heilongjiang the “seed supplier” sold stockpiled commercial soybeans to farmers at a discount which were then resold at the market price; farmers pocketed .2-to-.4-yuan per kg. A township official, outraged by the scam, noted that the designated seed company has a “special relationship” with the county agricultural bureau.

The program distributes funds on the basis of farmer reports of area planted to the subsidized crops. So another means of defrauding the program is to have farmers over-report the area they plant. In a region of Henan farmers were given 1 yuan per mu to falsely report area planted in cotton. The seed company stockpiled more subsidized seed than was needed and sold it to another company. One knowledgeable person claimed that Henan reported over 5.9 million of cotton area for the subsidy program in 2008 but only about 2 million mu was actually planted. They claimed some counties reported cotton area that was six times greater than what was actually planted.

Tong and others argue that the government-dominated operation of the program hinders competition and choice in the seed market. He argues that the program threatens to revive the planned economy model in which there is a local monopoly on supplying seed.

A 2010 article in Shandong Agricultural Science reports similar problems with wheat seed subsidies in Weifang, a district of Shandong. The authors’ survey found that most farmers received subsidized seeds but few knew anything about the program. Farmers complained that seeds were sometimes inappropriate for their area, were expensive and of uncertain quality. The article reported complaints about the program’s wasteful administration, the unclear process of choosing designated seed suppliers and use of the program to create a local monopoly by preventing non-local companies from winning the bid.

Mr. Tong wrote a letter to State Council Premier Wen Jiabao in November 2008 that called for giving the subsidy directly to farmers. The following month the Ministry of Agriculture issued documents revising the program and the “No. 1 Document” issued in January 2009 called for improving agricultural subsidy methods. Mr. Tong is quoted as saying, “When I read the no. 1 document I knew my letter had reached the central leaders.”

The Investors News article reports that the government began investigating cases of corruption following receipt of Tong’s letter. It says officials in Henan, Anhui and other localities were fired for skimming subsidy funds.

However, the same article reports that seed merchants and officials remained unhappy. After the central leadership announced an expansion of the subsidy in March 2008, eleven Henan Province seed companies jointly wrote to the provincial government asking for funds to be given directly to farmers. They argued that planned economy methods cannot be used in a market economy; the government should not choose which companies will live and which will die. The seed companies insisted that the government restrict its role to regulating the market, ensuring seed quality and order in the market while letting farmers make their own choice about what seeds to buy.

Reportedly, after receiving the letter Henan officials gave funds directly to farmers. However, county agricultural officials reportedly responded with their own letter. They used the excuse of a highly publicized wheat production target the following year to drum up support for seed subsidies.

In recent years the Ministry of Agriculture has allowed the seed subsidy to be distributed as cash to farmers in many locations. The MOA's recent policy announcement for this year said that the rice, rapeseed, and corn seed subsidies are distributed as cash and wheat, cotton and soybean subsidies can be given either as a discount or cash, whichever is easier for each province. 

Concerns apparently persist. In 2011 someone from Anhui posted a request on a provincial government message board urging Anhui Province officials to distribute the seed subsidy as a cash payment like they do in Henan. The post expressed concern that planting the same wheat varieties over and over in the same varieties could cause ecological damage by spreading disease widely. He said some experts have brought this problem up with agricultural leaders, but they just give the problem lip service "since the government makes a lot of profit from buying wheat seeds in this area." 

The post continues: "Some agricultural officials have their own seed companies; they hoodwink people in this area. There is no suspense in the bidding. After winning the bid they give farmers the worst seed." He says that companies have to pay "tips" to officials if they want their varieties chosen. "Everywhere the seed conpaies can be seen with party secretaries and village directors. If you want to sell seeds you don't go to the market; you go to the officials."

The Anhui Province Agricultural Commission was posted a response which recounted all the great results of the seed subsidy in expanding use of improved seeds and raising productivity. The response insisted the government needed to be involved to screen the seeds properly, prevent chaos in the market and prevent farmers from "choosing blindly."

The response from the ag commission concludes: "Of course some improvements can be made. We are investigating some of the illegal activities reported by the netizen’s post."