Zhejiang Province is giving subsidies to ten business entities who grow rice in northeastern provinces. The Zhejiang Grain Bureau compiled a list that includes rice-milling companies, cooperatives and large-scale farmers who planted a combined total of 15,700 acres of short-grain rice in the northeast. According to the list, the production bases are in 14 villages in Jilin and Heilongjiang Provinces and most projects were set up in early 2012 or 2011. They are set to run for 5 to 20 years.
This is a new initiative by Zhejiang--China's richest province but also short of farmland--to encourage large farming entities to grow grain in other provinces and transport it back to Zhejiang. Each company has a quota of rice and gets a subsidy of 100 yuan per metric ton for within-quota rice and 120 yuan/metric ton for over-quota rice. The subsidy appears to be to cover the costs of transporting the rice back to Zhejiang. The producers are expected to sell the rice themselves in Zhejiang.
According to the Zhejiang Daily's explanation of the program, Zhejiang is deficient in rice and relies on other provinces for much of its supply. Hangzhou, the capital, consumes 3.5 million metric tons of rice annually, all of it coming from other provinces (34% from the northeast, 30% from Jiangsu, 28% from Anhui). The Zhejiang Grain Bureau says the province set up production bases of 500,000 acres outside the provicne last year.
The total program is capped at 60,000 metric tons and 6 million yuan of subsidy funds annually. The program is expected to bring 47,000 metric tons of rice to Zhejiang this year.
Zhejiang's Grain Bureau is also paying local farmers extra subsidies to deliver their rice to them. In Shaoxing, another Zhejiang city, the Grain Bureau has signed up over 190 farmers to deliver 7700 metric tons of local rice under contract this fall, a four-fold increase from last year. These farmers get a subsidy of 300 yuan per metric ton in addition to the sale price for rice sold to the local grain reserve.
Tuesday, November 27, 2012
Sunday, November 25, 2012
Higher Subsidies for Oilseeds Under Consideration
According to a China Business News report earlier this month, Chinese officials are considering a boost in subsidies for soybeans, rapeseed, and peanuts to stimulate more production and ease upward pressure on cooking oil prices.
The only subsidy for farmers growing oilseeds now is a payment of 10 yuan per mu (about $10 per acre) for using improved strains of seed. Sources told the China Business News reporter that two proposals are under discussion. The first is to raise the seed subsidy to 40 yuan per mu ($39 per acre) for soybeans, rapeseed and peanuts and give the subsidies to farmers nationwide instead of confining them to main production regions. A second proposal is to give farmers a subsidy based on the volume of soybeans they sell to reserve companies. Officials in the Ministries of Agriculture and Finance are reportedly in discussions about how to increase subsidies for oilseed producers.
China's first direct subsidy program was a pilot program for soybean seeds begun in 2002. Seed subsidies were extended to rapeseed in 2008 and to peanuts in 2010. However, the subsidies are much less than those for grain production which include a direct payment of 10-to-20 yuan per mu, a "general input subsidy" of 50-to-100 yuan per mu, and a seed subsidy of 10 or 15 yuan per mu. Some in the industry complain that oilseeds don't get as much policy attention as grains that are traditionally thought of as "staple food." Oilseeds play a key role by supporting China's seemingly insatiable demand for cooking oil and as a raw material for animal feed.
Some officials and industry people fret about China's increasing reliance on imports of vegetable oils and oilseeds. Production has been declining for several years because returns to planting soybeans and rapeseed are less than returns to planting corn, wheat, and rice. One reason for low returns is the lower volume of oilseeds per acre of land. Of course, the price of oilseeds could rise to compensate farmers for their lower yield, but China's liberal import policy for oilseeds tends to put a lid on prices.
Chinese grains are shielded by a wall of tariff rate quotas that only allow imports amounting to about 5 percent of domestic consumption to enter the market at a low tariff of 1 percent (imports over the quota have high tariffs of 74 percent or more). Reserving most of the import quota for state-owned trading companies and using arcane mechanisms to allocate quota to private users further reduces the effective quota. In contrast, trade in oilseeds is uninhibited by quotas and imports of soybeans and rapeseed have been surging. When oilseed prices rise, imports of oilseeds rise. Additionally, a higher domestic oilseed price raises costs for Chinese processors, which makes it cheaper to import vegetable oil. The price competition from imports prevents soybean and rapeseed prices from rising at the same rate as prices of grains. This is the main reason why returns between grains and oilseeds have not equilibrated.
In another measure apparently aimed at stimulating soybean production, on November 15 the Chinese government announced a higher support price of 4.6 yuan per kilogram for soybeans produced in northeastern provinces during 2012. This is 15 percent higher than the 2011 support price, and equal to about $740 per metric ton. By comparison, the U.S. Chicago Board of Trade soybean price is about $522 per metric ton.
The China Business News article reports that there have been calls to raise the tariff on imported oilseeds. It's not clear whether the Chinese government is seriously considering this. There were similar demands in late 2008, but officials decided instead to give processors a temporary subsidy to process domestic soybeans.
It's much easier to blame your problems on foreigners. One Chinese feed industry official blames American farm subsidies for China's surging soybean imports. He claims that the USDA gives American soybean producers ten times as much subsidies as Chinese farmers. This doesn't explain why soybeans from Brazil and Argentina have a similar price advantage over Chinese soybeans and account for more than half of imports. The article also describes a Tianjin company's highly profitable venture that imports palm oil grown on 400,000 hectares of rented plantation land in Southeast Asia, presumably without subsidies.
An official from the Tianjin company warns that raising tariffs or using other protective measures would boost prices higher, possibly causing an inflationary spiral.
The only subsidy for farmers growing oilseeds now is a payment of 10 yuan per mu (about $10 per acre) for using improved strains of seed. Sources told the China Business News reporter that two proposals are under discussion. The first is to raise the seed subsidy to 40 yuan per mu ($39 per acre) for soybeans, rapeseed and peanuts and give the subsidies to farmers nationwide instead of confining them to main production regions. A second proposal is to give farmers a subsidy based on the volume of soybeans they sell to reserve companies. Officials in the Ministries of Agriculture and Finance are reportedly in discussions about how to increase subsidies for oilseed producers.
China's first direct subsidy program was a pilot program for soybean seeds begun in 2002. Seed subsidies were extended to rapeseed in 2008 and to peanuts in 2010. However, the subsidies are much less than those for grain production which include a direct payment of 10-to-20 yuan per mu, a "general input subsidy" of 50-to-100 yuan per mu, and a seed subsidy of 10 or 15 yuan per mu. Some in the industry complain that oilseeds don't get as much policy attention as grains that are traditionally thought of as "staple food." Oilseeds play a key role by supporting China's seemingly insatiable demand for cooking oil and as a raw material for animal feed.
Some officials and industry people fret about China's increasing reliance on imports of vegetable oils and oilseeds. Production has been declining for several years because returns to planting soybeans and rapeseed are less than returns to planting corn, wheat, and rice. One reason for low returns is the lower volume of oilseeds per acre of land. Of course, the price of oilseeds could rise to compensate farmers for their lower yield, but China's liberal import policy for oilseeds tends to put a lid on prices.
Chinese grains are shielded by a wall of tariff rate quotas that only allow imports amounting to about 5 percent of domestic consumption to enter the market at a low tariff of 1 percent (imports over the quota have high tariffs of 74 percent or more). Reserving most of the import quota for state-owned trading companies and using arcane mechanisms to allocate quota to private users further reduces the effective quota. In contrast, trade in oilseeds is uninhibited by quotas and imports of soybeans and rapeseed have been surging. When oilseed prices rise, imports of oilseeds rise. Additionally, a higher domestic oilseed price raises costs for Chinese processors, which makes it cheaper to import vegetable oil. The price competition from imports prevents soybean and rapeseed prices from rising at the same rate as prices of grains. This is the main reason why returns between grains and oilseeds have not equilibrated.
In another measure apparently aimed at stimulating soybean production, on November 15 the Chinese government announced a higher support price of 4.6 yuan per kilogram for soybeans produced in northeastern provinces during 2012. This is 15 percent higher than the 2011 support price, and equal to about $740 per metric ton. By comparison, the U.S. Chicago Board of Trade soybean price is about $522 per metric ton.
The China Business News article reports that there have been calls to raise the tariff on imported oilseeds. It's not clear whether the Chinese government is seriously considering this. There were similar demands in late 2008, but officials decided instead to give processors a temporary subsidy to process domestic soybeans.
It's much easier to blame your problems on foreigners. One Chinese feed industry official blames American farm subsidies for China's surging soybean imports. He claims that the USDA gives American soybean producers ten times as much subsidies as Chinese farmers. This doesn't explain why soybeans from Brazil and Argentina have a similar price advantage over Chinese soybeans and account for more than half of imports. The article also describes a Tianjin company's highly profitable venture that imports palm oil grown on 400,000 hectares of rented plantation land in Southeast Asia, presumably without subsidies.
An official from the Tianjin company warns that raising tariffs or using other protective measures would boost prices higher, possibly causing an inflationary spiral.
Tuesday, November 20, 2012
China's Food Trade Goes Upscale
The buzz at this year's Canton Trade Fair is that China's food market is going upscale. Earlier this month, Xinhua reporters talked with representatives of several Chinese companies about this remarkable transition.
One Anhui food trader remarked that China now exports less canned fruit to America and imports more canned meat from Europe. Chinese consumers are in transition from just filling their stomachs to eating well.
With export prices falling due to the slow economy overseas and a robust domestic market, Chinese food companies are turning their attention from exporting to importing and serving the domestic market. A manager from Jiangsu Grain and Oil Food Group said his company imported products valued at less than 1 million yuan 3 or 4 years ago, but this year they have over 50 million yuan of import business.
In past years, China would export its best food products and leave the lowest-quality items for domestic consumers. Now that pattern is reversing, say the merchants. The best products are kept for the Chinese market while a shrinking surplus is available for export.
Companies at the Canton Fair agreed that costs are rising: labor, land rent, pesticide prices... Economist Li Guoxiang from the Chinese Academy of Social Sciences has documented a 106-percent increase in agricultural prices from 2002 to 2011. He says many Chinese prices are now higher than international prices and will go even higher in the future.
The mantra now in exporting is less volume and higher price. In the 1980s--during the days of an overvalued Chinese currency--the main objective in exporting agricultural products was to earn foreign currency, but those days are long gone now that China has the world's largest foreign currency reserves. China also has an appreciating currency that magnifies its cost increases when converted to dollars.
Now Chinese companies are moving up the value chain. Instead of exporting unprocessed low-products, they are moving into processed and branded products. The Jiangsu company used to buy agricultural commodities and then look for somebody with a factory to process them. Now they have an integrated supply chain that includes its own supply base and cold storage in Dalian.
One Anhui food trader remarked that China now exports less canned fruit to America and imports more canned meat from Europe. Chinese consumers are in transition from just filling their stomachs to eating well.
With export prices falling due to the slow economy overseas and a robust domestic market, Chinese food companies are turning their attention from exporting to importing and serving the domestic market. A manager from Jiangsu Grain and Oil Food Group said his company imported products valued at less than 1 million yuan 3 or 4 years ago, but this year they have over 50 million yuan of import business.
In past years, China would export its best food products and leave the lowest-quality items for domestic consumers. Now that pattern is reversing, say the merchants. The best products are kept for the Chinese market while a shrinking surplus is available for export.
Companies at the Canton Fair agreed that costs are rising: labor, land rent, pesticide prices... Economist Li Guoxiang from the Chinese Academy of Social Sciences has documented a 106-percent increase in agricultural prices from 2002 to 2011. He says many Chinese prices are now higher than international prices and will go even higher in the future.
The mantra now in exporting is less volume and higher price. In the 1980s--during the days of an overvalued Chinese currency--the main objective in exporting agricultural products was to earn foreign currency, but those days are long gone now that China has the world's largest foreign currency reserves. China also has an appreciating currency that magnifies its cost increases when converted to dollars.
Now Chinese companies are moving up the value chain. Instead of exporting unprocessed low-products, they are moving into processed and branded products. The Jiangsu company used to buy agricultural commodities and then look for somebody with a factory to process them. Now they have an integrated supply chain that includes its own supply base and cold storage in Dalian.
Monday, November 19, 2012
Agricultural Trade Crisis Forum
On November 15, a “2012 International Forum on Agricultural Trade Policy” was hosted in Beijing by the Chinese Ministry of Agriculture’s Agricultural Trade Promotion Center and the University of Foreign Economy and Trade. The scholars and officials speaking at the forum reflected the Ministry's bipolar attitude toward agricultural trade, alternately praising China's more-open trade regime while worrying about a rising tide of agricultural imports.
The theme of the forum was "crisis and international trade." It was attended by 180 representatives from China and a number of foreign countries. The remarks by the Chinese speakers regurgitated themes advanced last year in a Farmers Daily article by Minister of Agriculture Han Changfu that assessed the impact of 10 years of WTO membership on agriculture in China. China's agricultural trade has grown rapidly and it is now the third-largest trader after the United States and European Union. Trade increased the supply of agricultural commodities in China, brought improvements in industry and increased income for farmers. Agricultural trade is a focus of the government and the broader society.
Chinese officials at the forum expressed concern about a surge of agricultural imports this year and a drop in farm exports due to weakness in Europe and other foreign markets for Chinese products. China has seen a surge of grain, cotton, oilseed, and sugar imports this year. One speaker attributes the drop in Chinese farm exports to increased protection of foreign markets, rising production costs, and the appreciating Chinese currency.
Another report on agricultural trade for the first nine months of 2012 shows a deficit between agricultural imports and exports that grew 61.9 percent from last year. Imports of corn are up to 4.1 million metric tons even though China had a huge record corn harvest last year and despite elevated U.S. corn prices due to this year's drought. Even wheat and rice imports are up. Cotton imports doubled from last year and sugar imports are up 80 percent from last year.
The opening speaker at the trade forum, repeating another Ministry of Agricultural talking point, warned that agriculture is still one of the most distorted sectors in international trade and a sticking point in multilateral trade negotiations. He identified several conflicts China has to pay attention to: (1) how to deal with pressure from imports on small-scale farmers in central and western regions, (2) how to preserve domestic "industry security" while expanding foreign investment and (3) how to maintain self-sufficiency while advancing the "going out" policy of investing in overseas sources of agricultural commodities.
Another speaker echoed an opportunities and threats theme apparently drawn from the same playbook that produced Minister Han's article from last year. Agricultural trade has improved resource allocation since WTO accession, but China needs to figure out how to utilize foreign resources to meet Chinese demand while preventing imports from putting pressure on domestic prices that would slow development of domestic industry.
This "two resources, two markets" concept of utilizing foreign resources to meet Chinese demand is often recited in speeches but never explicitly spelled out. It seems to entail compartmentalizing markets, i.e. allowing massive imports of certain commodities--like soybeans and cotton--while protecting other commodities--like rice, wheat and corn. Minister Han Changfu explained last year that China insisted on tariff rate quotas for key commodities with much of the quota controlled by state-owned enterprises to insulate these commodities from international markets. Han said the lack of quotas and low tariffs for soybeans allowed them to flood into the Chinese market, and China now only produces 22 percent of the soybeans it consumes. China must guard against this happening in other industries, warned Han.
Chinese officials have an unfounded confidence in subsidies as a cure-all. In a companion article on WTO last year, Vice Minister Niu Dun attributed the dominance of foreign soybeans in China to foreign countries' subsidies. So the obvious countermeasure is to subsidize China's commodities. Minister Han noted that China had introduced its first subsidies in 2002 for soybean seeds to help the industry deal with competition from imports. But he failed to connect the dots: Chinese soybeans have been subsidized for 10 years but this did absolutely nothing to improve the Chinese industry's competitiveness.
China's crisis in agricultural trade will continue as long as officials keep blaming all problems on external bogeymen. The problems with eroding Chinese competitiveness are home made. The good thing is that there seems to be an increasing buzz about dealing with the fundamental problems of constraints on land, interest rate rigidity and limits on entry to rural banking. The question is whether they will adopt more convoluted jerry-rigged mechanisms to trade imaginary land rights and sprinkle "micro loans" around, or remove the fundamental obstacles to resource allocation that hold back Chinese agriculture.
The theme of the forum was "crisis and international trade." It was attended by 180 representatives from China and a number of foreign countries. The remarks by the Chinese speakers regurgitated themes advanced last year in a Farmers Daily article by Minister of Agriculture Han Changfu that assessed the impact of 10 years of WTO membership on agriculture in China. China's agricultural trade has grown rapidly and it is now the third-largest trader after the United States and European Union. Trade increased the supply of agricultural commodities in China, brought improvements in industry and increased income for farmers. Agricultural trade is a focus of the government and the broader society.
Chinese officials at the forum expressed concern about a surge of agricultural imports this year and a drop in farm exports due to weakness in Europe and other foreign markets for Chinese products. China has seen a surge of grain, cotton, oilseed, and sugar imports this year. One speaker attributes the drop in Chinese farm exports to increased protection of foreign markets, rising production costs, and the appreciating Chinese currency.
Another report on agricultural trade for the first nine months of 2012 shows a deficit between agricultural imports and exports that grew 61.9 percent from last year. Imports of corn are up to 4.1 million metric tons even though China had a huge record corn harvest last year and despite elevated U.S. corn prices due to this year's drought. Even wheat and rice imports are up. Cotton imports doubled from last year and sugar imports are up 80 percent from last year.
| January-September 2012 China agricultural trade data |
|||
| Item | Unit | Value | Change from 2011 |
| Exports | bil$ | 45.3 | 16.50% |
| Imports | bil$ | 83.6 | 24.50% |
| Deficit | bil$ | 38.3 | 61.90% |
| Imports: | |||
| Wheat | mmt | 3.2 | 232% |
| Corn | mmt | 4.1 | 548% |
| Rice | mmt | 1.9 | 276% |
| Other grains | mmt | 6.2 | 36% |
| Soybeans | mmt | 44.3 | 18% |
| Edible oils | mmt | 5.5 | 19% |
| Cotton | mmt | 4.2 | 100% |
| Sugar | mmt | 3.0 | 80% |
The opening speaker at the trade forum, repeating another Ministry of Agricultural talking point, warned that agriculture is still one of the most distorted sectors in international trade and a sticking point in multilateral trade negotiations. He identified several conflicts China has to pay attention to: (1) how to deal with pressure from imports on small-scale farmers in central and western regions, (2) how to preserve domestic "industry security" while expanding foreign investment and (3) how to maintain self-sufficiency while advancing the "going out" policy of investing in overseas sources of agricultural commodities.
Another speaker echoed an opportunities and threats theme apparently drawn from the same playbook that produced Minister Han's article from last year. Agricultural trade has improved resource allocation since WTO accession, but China needs to figure out how to utilize foreign resources to meet Chinese demand while preventing imports from putting pressure on domestic prices that would slow development of domestic industry.
This "two resources, two markets" concept of utilizing foreign resources to meet Chinese demand is often recited in speeches but never explicitly spelled out. It seems to entail compartmentalizing markets, i.e. allowing massive imports of certain commodities--like soybeans and cotton--while protecting other commodities--like rice, wheat and corn. Minister Han Changfu explained last year that China insisted on tariff rate quotas for key commodities with much of the quota controlled by state-owned enterprises to insulate these commodities from international markets. Han said the lack of quotas and low tariffs for soybeans allowed them to flood into the Chinese market, and China now only produces 22 percent of the soybeans it consumes. China must guard against this happening in other industries, warned Han.
Chinese officials have an unfounded confidence in subsidies as a cure-all. In a companion article on WTO last year, Vice Minister Niu Dun attributed the dominance of foreign soybeans in China to foreign countries' subsidies. So the obvious countermeasure is to subsidize China's commodities. Minister Han noted that China had introduced its first subsidies in 2002 for soybean seeds to help the industry deal with competition from imports. But he failed to connect the dots: Chinese soybeans have been subsidized for 10 years but this did absolutely nothing to improve the Chinese industry's competitiveness.
China's crisis in agricultural trade will continue as long as officials keep blaming all problems on external bogeymen. The problems with eroding Chinese competitiveness are home made. The good thing is that there seems to be an increasing buzz about dealing with the fundamental problems of constraints on land, interest rate rigidity and limits on entry to rural banking. The question is whether they will adopt more convoluted jerry-rigged mechanisms to trade imaginary land rights and sprinkle "micro loans" around, or remove the fundamental obstacles to resource allocation that hold back Chinese agriculture.
Sunday, November 11, 2012
High Beef Price Not Bringing More Supply
Beef prices in China are rising skyward, but the high prices are not encouraging farmers to raise more cattle.
According to the Ministry of Agriculture beef prices are up over 20 percent and many cities have beef prices exceeding 30 yuan/500g (about $4.30/lb.) The price of beef is double the price of pork and triple the price of chicken.
Behind the rising beef prices is an exodus of farmers from the cattle industry. A farmer in Hebei Province named Shi has been raising cattle since 2003. He recalls a golden period during 2005-06 when you could earn 600 yuan per head when the price of a calf was 3.5 yuan/500g. But he says the cattle industry has been less lucrative since 2007 due to rising feed prices and better earning opportunities working off-farm.
Mr. Shi says the price of a calf is now 15 yuan/500g and it costs 6000 yuan to buy one. Raising a calf half a year nets 2000 yuan per head after paying labor costs of 1000 yuan, feed cost of 4000 yuan plus electricity, water, and rent. While this is a lot more than he says he earned in 2005-06, Mr. Shi thinks this profit is not enough to justify the trouble and risk. The higher earnings from working off-farm makes the earnings from raising cattle less attractive.
The lengthy production cycle for cattle discourages farmers from raising heifers. It takes two or three years before a cow can be bred and they can only give birth once a year. Farmers don't want to wait so long to get a return on their investment, so fewer farmers are breeding cattle. Mr. Shi only raises one heifer now and fattens about 50 calves.
Mr. Shi said there used to be 30 farmers in his village raising 700 cattle, but now only five or six farmers raise less than 100 cattle. Many have quit and more are thinking about it, said Mr. Shi.
The director of a livestock information web site said he understands that beef cattle numbers have been on a downward trend, falling by as much as 30 percent. Yet the demand for beef is rising. He says the deficit between supply and demand will grow and the price will go higher if farmers don't raise more cattle.
An anonymous source blamed the cattle shortage on lack of support from the government. He says beef cattle only get a 20 yuan subsidy for improved breeds while sows get a 100-yuan subsidy. According to this source, the government needs to "stop just staring at pork" and pay more attention to cattle and sheep.
No mention of why chicken is the cheapest type of meat with virtually no subsidies at all.
According to the Ministry of Agriculture beef prices are up over 20 percent and many cities have beef prices exceeding 30 yuan/500g (about $4.30/lb.) The price of beef is double the price of pork and triple the price of chicken.
Behind the rising beef prices is an exodus of farmers from the cattle industry. A farmer in Hebei Province named Shi has been raising cattle since 2003. He recalls a golden period during 2005-06 when you could earn 600 yuan per head when the price of a calf was 3.5 yuan/500g. But he says the cattle industry has been less lucrative since 2007 due to rising feed prices and better earning opportunities working off-farm.
Mr. Shi says the price of a calf is now 15 yuan/500g and it costs 6000 yuan to buy one. Raising a calf half a year nets 2000 yuan per head after paying labor costs of 1000 yuan, feed cost of 4000 yuan plus electricity, water, and rent. While this is a lot more than he says he earned in 2005-06, Mr. Shi thinks this profit is not enough to justify the trouble and risk. The higher earnings from working off-farm makes the earnings from raising cattle less attractive.
The lengthy production cycle for cattle discourages farmers from raising heifers. It takes two or three years before a cow can be bred and they can only give birth once a year. Farmers don't want to wait so long to get a return on their investment, so fewer farmers are breeding cattle. Mr. Shi only raises one heifer now and fattens about 50 calves.
Mr. Shi said there used to be 30 farmers in his village raising 700 cattle, but now only five or six farmers raise less than 100 cattle. Many have quit and more are thinking about it, said Mr. Shi.
The director of a livestock information web site said he understands that beef cattle numbers have been on a downward trend, falling by as much as 30 percent. Yet the demand for beef is rising. He says the deficit between supply and demand will grow and the price will go higher if farmers don't raise more cattle.
An anonymous source blamed the cattle shortage on lack of support from the government. He says beef cattle only get a 20 yuan subsidy for improved breeds while sows get a 100-yuan subsidy. According to this source, the government needs to "stop just staring at pork" and pay more attention to cattle and sheep.
No mention of why chicken is the cheapest type of meat with virtually no subsidies at all.
Thursday, November 8, 2012
Hu Jintao's Call for Economic Transformation
Outgoing General Secretary Hu Jintao reiterated the mantra of transforming the mode of economic development in coming years in his address to the 18th Chinese Communist Party Congress. Hu's speech stressed that pushing forward with economic reforms and adhering to "scientific development" are necessary to strengthen the country, make people happy, and maintain social harmony.
Hu's (China's) plans for the economy are ambitious. Hu calls for "urbanization," "industrialization," "informatization," and "agricultural modernization" in a coordinated and orderly manner. China is trying to engineer an industrial revolution in a couple of decades that took hundreds of years in western countries--without the social and political upheaval that accompanied the process in the West.
Secretary Hu's economic program is all things to all people--a free marketeer and a statist. His program is virtually indistinguishable from those floated in Washington, London, and Paris. Hu calls for "respecting the law of the market" while also calling for an improved role of the government in the economy. While he says there must be a shake-up and consolidation of state-owned companies, he also calls for new types of public ownership and for expanding the role of state-owned capital in key, "lifeline" sectors. Yet Hu also calls for encouragement, support and guidance for the "non-public" economy, open competition in markets and equal protection under law. He speaks of "comparative advantage," recommends supporting microenterprises and encourages free trade.
In place of ideology, Hu has substituted the mantra of "scientific development," his addition to the trinity of Mao Zedong thought, Deng Xiaoping theory, and [Jiang Zemin's] three representatives. Hu urges the country to "innovate" in science and technology. He suggests an innovation process with Chinese characteristics through a process of attraction, digestion, and absorption. This digestive tract theory of innovation is not explained, but it sounds a lot like stealing and re-engineering technologies from joint venture partners. His approach to "innovation" seems typically Chinese--designing a massive "system" that combines education, research, and industry with big government-fund projects. Translation: "Throw bundles of cash at the wall and see if anything sticks." Almost as an afterthought, Hu suggests implementing "the intellectual property strategy" to encourage innovation.
Another emphasis in Hu's speech is integration between cities and the countryside, basically undoing the dual economy that was constructed to exploit the peasants in the 1950s. Hu calls for reforming the household registration system and making it easier for rural people to move to cities in an orderly manner and gain access to urban public services. Hu says the system of expropriating rural land should give a greater share of benefits to rural people.
Hu recommends establishing a new agricultural system appropriate to China's newly urbanized society. Agriculture and industry should be integrated and develop for their mutual benefit. Agriculture should be concentrated (larger farms), professionalized (skilled professional farmers), organized (farmers join cooperatives or are linked with agribusinesses), and "socialized" (extension, pest control, and machinery services are provided by companies, cooperatives, and other nongovernment organizations). There should be more construction of rural infrastructure, upgrading of villages, and help and support for poor areas, regions populated by minority groups, border regions, and "old industrial areas."
Hu also includes a call for a more open economy that emphasizes both exports and imports. The strategy is to fully utilize foreign resources and seek "win-win" results. Hu encourages speeding up the "going out" strategy of Chinese companies investing overseas. Hu also calls for strengthening the economy's ability to guard against risks of exposure to the international economy.
This speech appears to be Hu Jintao's parting shot to solidify his "all-round well-off society" and "scientific development" mantras. The speech's reflects the priorities and strategies in the 12th five-year plan that calls for transforming the economy from an "export and invest" strategy to a more self-contained sustainable growth model. Can China wean itself from its reliance on sucking in export dollars, expropriating and reselling rural land, importing technologies, and building big projects?
Hu's (China's) plans for the economy are ambitious. Hu calls for "urbanization," "industrialization," "informatization," and "agricultural modernization" in a coordinated and orderly manner. China is trying to engineer an industrial revolution in a couple of decades that took hundreds of years in western countries--without the social and political upheaval that accompanied the process in the West.
Secretary Hu's economic program is all things to all people--a free marketeer and a statist. His program is virtually indistinguishable from those floated in Washington, London, and Paris. Hu calls for "respecting the law of the market" while also calling for an improved role of the government in the economy. While he says there must be a shake-up and consolidation of state-owned companies, he also calls for new types of public ownership and for expanding the role of state-owned capital in key, "lifeline" sectors. Yet Hu also calls for encouragement, support and guidance for the "non-public" economy, open competition in markets and equal protection under law. He speaks of "comparative advantage," recommends supporting microenterprises and encourages free trade.
In place of ideology, Hu has substituted the mantra of "scientific development," his addition to the trinity of Mao Zedong thought, Deng Xiaoping theory, and [Jiang Zemin's] three representatives. Hu urges the country to "innovate" in science and technology. He suggests an innovation process with Chinese characteristics through a process of attraction, digestion, and absorption. This digestive tract theory of innovation is not explained, but it sounds a lot like stealing and re-engineering technologies from joint venture partners. His approach to "innovation" seems typically Chinese--designing a massive "system" that combines education, research, and industry with big government-fund projects. Translation: "Throw bundles of cash at the wall and see if anything sticks." Almost as an afterthought, Hu suggests implementing "the intellectual property strategy" to encourage innovation.
Another emphasis in Hu's speech is integration between cities and the countryside, basically undoing the dual economy that was constructed to exploit the peasants in the 1950s. Hu calls for reforming the household registration system and making it easier for rural people to move to cities in an orderly manner and gain access to urban public services. Hu says the system of expropriating rural land should give a greater share of benefits to rural people.
Hu recommends establishing a new agricultural system appropriate to China's newly urbanized society. Agriculture and industry should be integrated and develop for their mutual benefit. Agriculture should be concentrated (larger farms), professionalized (skilled professional farmers), organized (farmers join cooperatives or are linked with agribusinesses), and "socialized" (extension, pest control, and machinery services are provided by companies, cooperatives, and other nongovernment organizations). There should be more construction of rural infrastructure, upgrading of villages, and help and support for poor areas, regions populated by minority groups, border regions, and "old industrial areas."
Hu also includes a call for a more open economy that emphasizes both exports and imports. The strategy is to fully utilize foreign resources and seek "win-win" results. Hu encourages speeding up the "going out" strategy of Chinese companies investing overseas. Hu also calls for strengthening the economy's ability to guard against risks of exposure to the international economy.
This speech appears to be Hu Jintao's parting shot to solidify his "all-round well-off society" and "scientific development" mantras. The speech's reflects the priorities and strategies in the 12th five-year plan that calls for transforming the economy from an "export and invest" strategy to a more self-contained sustainable growth model. Can China wean itself from its reliance on sucking in export dollars, expropriating and reselling rural land, importing technologies, and building big projects?
Wednesday, November 7, 2012
China's Soy meal Bubble Pops
Chinese soybean meal prices have been falling since September, ending a brief boom in prices and "leaving only sighs behind" according to a Securities News article.
In June, soymeal prices began rising rapidly, from about 3200 yuan/mt in May to a peak of 4800 yuan/mt in September. There was some concern about the effect of the rising price on meat prices and general inflation. One posting of an article on the topic was titled, "Crazy Soy Meal Affects Xi Jinping's Market Basket."
Since late September soy meal prices have fallen again. During the price boom, soybean processors in China were relying on soy meal for their profit margins, but now they're losing money on both soy oil and meal. Crushers' raw material costs are up due to high soybean prices--related to the drought impacts on the U.S. supply. Processors have not been able to raise soy oil prices due to behind-the-scenes pressure from China's National Development and Reform Commission to hold prices down. The high soy meal prices provided their profit margin during the summer. But after the decline in meal prices processors are losing money on both meal and oil products. Some crushers are continuing to operate at a loss, but others are cutting back on their operations. According to Securities News, people in the industry think soybean crushers are facing a difficult period following the end of the "meal feeds oil" soymeal price boom.
An industry analyst told Securities News that his calculations showed crushers losing 400 yuan on each ton of imported soybeans processed. This is a big turnaround from an 800-yuan profit just a month earlier. The manager of a Heilongjiang crusher asks in frustration, "Where can you find profits now?" He claims to lose money on every ton of soybeans he processes.
The origin of the soymeal price surge is unclear. It coincided with a spurt in soybean prices related to news about the U.S. drought, but the surge in meal prices was more pronounced. The increase in Chinese prices also paralleled a similar surge in U.S. prices; many blame it on speculation. The increase also coincided with the peak hog production season ahead of the National Day-Moon Festival holiday in early October. The end of the peak season is one reason cited for the decline in soy meal prices.
Chinese farmers have been slow to sell their soybeans after the recent harvest. Oil processing enterprises are paying about 4400 yuan per metric ton for domestic beans. However, farmers expect the government to announce a price for reserve-buying of 4600 yuan and they're waiting to see if prices improve.
In June, soymeal prices began rising rapidly, from about 3200 yuan/mt in May to a peak of 4800 yuan/mt in September. There was some concern about the effect of the rising price on meat prices and general inflation. One posting of an article on the topic was titled, "Crazy Soy Meal Affects Xi Jinping's Market Basket."
Since late September soy meal prices have fallen again. During the price boom, soybean processors in China were relying on soy meal for their profit margins, but now they're losing money on both soy oil and meal. Crushers' raw material costs are up due to high soybean prices--related to the drought impacts on the U.S. supply. Processors have not been able to raise soy oil prices due to behind-the-scenes pressure from China's National Development and Reform Commission to hold prices down. The high soy meal prices provided their profit margin during the summer. But after the decline in meal prices processors are losing money on both meal and oil products. Some crushers are continuing to operate at a loss, but others are cutting back on their operations. According to Securities News, people in the industry think soybean crushers are facing a difficult period following the end of the "meal feeds oil" soymeal price boom.
The origin of the soymeal price surge is unclear. It coincided with a spurt in soybean prices related to news about the U.S. drought, but the surge in meal prices was more pronounced. The increase in Chinese prices also paralleled a similar surge in U.S. prices; many blame it on speculation. The increase also coincided with the peak hog production season ahead of the National Day-Moon Festival holiday in early October. The end of the peak season is one reason cited for the decline in soy meal prices.
Chinese farmers have been slow to sell their soybeans after the recent harvest. Oil processing enterprises are paying about 4400 yuan per metric ton for domestic beans. However, farmers expect the government to announce a price for reserve-buying of 4600 yuan and they're waiting to see if prices improve.
Tuesday, November 6, 2012
China's Corn Production Costs Up
A Securities News article sees China's overall corn crop this year up slightly from last year. This article sees expanded area in the northeast offset by damage from pests and typhoons while better weather in north China boosted production 3.2 percent from last year. Yet prices are relatively weak given the tight supply situation.
In October, a Futures Daily reporter visited corn farmers in Liaoning Province, an area Securities News described as having been affected by typhoon damage, pests, rats and mold. The farmers seem to confirm that the crop had some problems this year but their main concern is rising costs.
Zhao Wei, a farmer in Green Water Town north of Shengyang, mainly complained about the cost of renting land. Mr. Zhao has 15 mu (about 2 acres) of his own land and this year he rented 75 mu (about 12 acres) from neighbors to plant corn. The rent went up from 300-to-400 yuan/mu ($285-to-$380 per acre) last year to 500 yuan ($475 per acre) this year. Seed prices went up from 4-to-5 yuan/500g last year to 15 yuan this year. Mr. Zhao thinks he got a yield of 500-to-600 kg/mu from his corn fields, but typhoons and pests did some damage. He has his corn stored in 29 bins and hopes to sell it around the time of Chinese New Year.
Zhang Wen, a farmer near Tieling city, told the reporter he thinks he will stop renting land and just plant his own land next year if the corn price doesn't improve. Although he gets subsidies of 60-to-70 yuan per mu ($57-to-$65 per acre), the costs of production went up quite a bit. He says the current price is about .86-.87 yuan per 500g, but he thinks the price will improve if he waits.
Yu Weihong, a small-scale corn trader in Golden Gulch Town near Kaiyuan City, said he thought farmers would wait for a good price considering the high costs this year. The cost of labor for drying corn is up to 200 yuan ($31) per day. The labor and other expenses of drying could add 60-to-70 yuan/metric ton to the price of corn (about 4 percent).
In Liaoning's Changtu County and Jilin's Lishu County a lot of corn was blown over by the typhoon that hit late in the growing season. Yields in this area are believed to be down from 750 kg/mu last year to about 675 kg/mu this year. In this region farmers are hoping for a better price than last year's 1.1 yuan/500g to compensate them for this year's higher costs. The article says these farmers are more eager to plant corn next year because it's getting harder to find off-farm jobs.
In the north China region, Shandong Province's Junan County price bureau's survey says this year's corn costs were up 8 percent due to increases in fertilizer, fuel, mechanized services and labor costs. Yield was up 4.9 percent in this region. There was a serious drought at planting time and some farmers waited 15 extra days for rainfall before planting their corn. There was some lodging of corn due to a typhoon, but rainfall and sunshine were good during the later stages of growth. Farmers increased their fertilizer application by 15% and the price went up too. An increase in wages was offset by a 15-percent decrease in labor use. In Junan the corn price is actually 7 percent lower than last year at this time. Although there was a bigger harvest, the net income from corn is down this year since costs have risen.
In October, a Futures Daily reporter visited corn farmers in Liaoning Province, an area Securities News described as having been affected by typhoon damage, pests, rats and mold. The farmers seem to confirm that the crop had some problems this year but their main concern is rising costs.
Zhao Wei, a farmer in Green Water Town north of Shengyang, mainly complained about the cost of renting land. Mr. Zhao has 15 mu (about 2 acres) of his own land and this year he rented 75 mu (about 12 acres) from neighbors to plant corn. The rent went up from 300-to-400 yuan/mu ($285-to-$380 per acre) last year to 500 yuan ($475 per acre) this year. Seed prices went up from 4-to-5 yuan/500g last year to 15 yuan this year. Mr. Zhao thinks he got a yield of 500-to-600 kg/mu from his corn fields, but typhoons and pests did some damage. He has his corn stored in 29 bins and hopes to sell it around the time of Chinese New Year.
Zhang Wen, a farmer near Tieling city, told the reporter he thinks he will stop renting land and just plant his own land next year if the corn price doesn't improve. Although he gets subsidies of 60-to-70 yuan per mu ($57-to-$65 per acre), the costs of production went up quite a bit. He says the current price is about .86-.87 yuan per 500g, but he thinks the price will improve if he waits.
Yu Weihong, a small-scale corn trader in Golden Gulch Town near Kaiyuan City, said he thought farmers would wait for a good price considering the high costs this year. The cost of labor for drying corn is up to 200 yuan ($31) per day. The labor and other expenses of drying could add 60-to-70 yuan/metric ton to the price of corn (about 4 percent).
In Liaoning's Changtu County and Jilin's Lishu County a lot of corn was blown over by the typhoon that hit late in the growing season. Yields in this area are believed to be down from 750 kg/mu last year to about 675 kg/mu this year. In this region farmers are hoping for a better price than last year's 1.1 yuan/500g to compensate them for this year's higher costs. The article says these farmers are more eager to plant corn next year because it's getting harder to find off-farm jobs.
In the north China region, Shandong Province's Junan County price bureau's survey says this year's corn costs were up 8 percent due to increases in fertilizer, fuel, mechanized services and labor costs. Yield was up 4.9 percent in this region. There was a serious drought at planting time and some farmers waited 15 extra days for rainfall before planting their corn. There was some lodging of corn due to a typhoon, but rainfall and sunshine were good during the later stages of growth. Farmers increased their fertilizer application by 15% and the price went up too. An increase in wages was offset by a 15-percent decrease in labor use. In Junan the corn price is actually 7 percent lower than last year at this time. Although there was a bigger harvest, the net income from corn is down this year since costs have risen.
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