Dim Sums: Agricultural Markets in China

News media have been reporting tentative agreements between China and Ukraine in which the Ukraine would export corn to China and China would make investments in Ukraine. In early December, Xinhua announced that an agreement had been signed with COFCO to buy Ukrainian corn, but several days later  an official from a Ukrainian agribusiness company announced that "in principle" Ukrainian corn could enter China, but there seemed to be a hang-up on which Chinese company owned the import quota that would allow them to buy it. At least two meetings on agricultural investment were held during a Ukrainian agribusiness official's December visit to Beijing. One meeting held by the Chinese Animal Agriculture Association was convened specifically to discuss investment opportunities in Ukraine. A second meeting of Chinese business leaders on agricultural investment --both in China and overseas--was sponsored by a business magazine and included the Ukrainian official as well as Chi...

On December 18, China's central television network (CCTV) revealed that some farms use as many as 20 different drugs to raise chickens, and some use excessive doses or banned drugs. This incident again shines a light on pervasive food safety problems in China as the country adopts an industrialized food system. Laws, regulations, and certifications present on paper are routinely flouted and there is seemingly no effective mechanism that can assure final consumers that their food is safe to eat. The main revelation of the CCTV report was that farms in several locations of Shandong Province violated regulations that require farms to stop feeding drugs to chickens 7 days prior to slaughter. The chickens were delivered to local slaughterhouses of big poultry meat companies, Liuhe and Wintech, which supplied fast food chains like KFC and McDonalds. A cartoon from a Chinese commentary  mocking the use of drugs for raising chicken: "Chicken 'famine'" The farm...

According to the China's communist party leaders, private business needs to be able compete with state-owned businesses on equal footing in order to follow the road to socialism with Chinese characteristics. On November 8, General Secretary Hu Jintao gave a typically  long rambling "report" to the 18th party congress of the communist party which noted that China is still in an early stage of socialism and is now entering a new era of urbanization, industrialization, informationization, and modern agriculture. Secretary Hu observed that China faces many opportunities and challenges during this period when the world, China, and the party are encountering fundamental changes in conditions. He worried that China's development is still unbalanced, uncoordinated,  unsustainable. Among the problems he cited were weak innovation capabilities, irrational industry structure, a weak foundation for agriculture, and food safety problems. He scolded some cad...

China is creating a huge stockpile of cotton similar to the infamous "butter mountain" accumulated in the European Union during 1980s and earlier decades. Like the EU and U.S. during the 1980s and earlier, China has a minimum price for cotton that exceeds the market price. That means the government has to buy cotton to maintain the minimum price because private sector businesses can't make a profit buying cotton above the market price. Unlike the E.U. and U.S. price support regimes of earlier decades, China has committed to relatively low tariffs and China is a net importer of cotton. The E.U. and U.S. subsidized exports of their commodity mountains, distorting world markets and leading to the adoption of disciplines on domestic support in the Uruguay Round of GATT. China, however, is accumulating a mountain of domestic cotton AND importing huge quantities of cotton. This is the perverse three-tier market described on this blog in October. As of December 5, China...

The "Number 1 Document" will emphasize a transition to larger-scale farms next year, according to a reporter's posting on the Economy Reference News  microblog . The document will call for rural households to remain the primary operators of farms while encouraging innovations in arrangements that create large individual-operated farms, family farms, cooperatives, and contracting relationships between farmers and companies. However, commercial enterprises will be discouraged from renting large tracts of land from rural households or renting on a long-term basis in order to prevent them from converting land to non-grain or non-agricultural uses. The campaign for new farming arrangements is motivated by the massive outmigration of rural laborers, aging rural population, the emerging dominance of part-time farming and the conundrum of "who will farm"? Against this background, fostering new-style farms has become more "urgent." This is not a new strat...

In another sign of China's transition from a country of farmers to a consumer country, a city in Fujian Province is importing rice from seven countries  this year to keep a lid on prices. Xiamen is a prosperous port just across the straight from Taiwan. This year local grain companies have struck deals with Thailand, Vietnam, Pakistan, Uruguay, Burma, Cambodia and India to supply rice to the local market. Xiamen has imported 100,000 metric tons of rice in the first ten months of this year. There are four new countries supplying imports this year and India will begin exporting to Xiamen after procedures are completed. A representative from a local grain company explained that Xiamen relies on bringing in rice from elsewhere since it doesn't have a lot of local production. The purpose of the imports is to satisfy local demand and keep prices down. The imported rice from Vietnam and Pakistan costs about 2 yuan per 500g, about 40 percent less than Thai rice. The article says ...

An opinion piece circulating on China's Internet calls for China to give up its near-sacred goal of self-sufficiency in grain. For a long time Chinese government officials have stressed the importance of maintaining self-sufficiency in grain with rhetoric like, "The Chinese peoples' rice bowl must be firmly in their own hands." The 2008 medium and long-term plan for food security insisted that China must produce at least 95 percent of the grain it consumes. The Ministry of Agriculture reiterated the self-sufficiency goal in February of this year. The article places the self-sufficiency issue in historical context. It suggests that the insistence on self-sufficiency is based on China's history as an agricultural country with a large population. It refers to the huge famine in the early 1960s, referring to it as a "manmade disaster" (officials still refer to it as several years of "natural disaster"), as an event that influences the grain se...

China had another abundant grain harvest in 2012 that exceeded 589 million metric tons (mmt) according to estimates from the National Bureau of Statistics (NBS) released November 30. NBS estimates that production rose 3.2 percent during 2012, an increase they attribute to good weather and policies. The statistics are shown in a table below. Somehow, Chinese farmers found 694,000 hectares of land to expand the area planted in grain. Grain area increased by 0.6 percent and yield increased by 4.1 percent. NBS estimated that increases in yields contributed 14.78 mmt of additional grain output while expanded plantings contributed 3.58 mmt. A major development highlighted by the statistics is the emergence of corn as China's biggest crop in both area and output. Corn production is estimated at 208 mmt, surpassing rice output (204 mmt) for the first time. The increase in corn output came mainly from increase in area. Corn area rose 4.2 percent and yield grew 3.6 percent. Rice ar...

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 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 be...

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 m...

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...

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 electric...

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 fl...

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 ...

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 wen...

Support prices and actual sale prices from National Development and Reform Commission  production cost surveys. This year the Chinese support price for early indica rice was raised 17.65% from 2011. That followed a 9.7% increase last year. A Futures Daily article this week speculated about how much the price will be raised for next year. Despite big increases the last two years and a recovery in production, officials still worry that farmers are not inclined to plant the early-season rice (planted in early spring, followed by a second rice crop in the summer) because it takes a lot of labor and brings a lot less than working off-farm. Officials also worry about the relative prices and returns of different crops and a 9.8-percent increase in next year's wheat support price was announced earlier this month. Some people in the industry think the early rice support price will need to be raised even more than the wheat price. While officials are worried about raising the pric...