Dim Sums: Agricultural Markets in China

According to a reporter in Wuhan , the "quick-growing chicken" incident presents an opportunity for Chinese restaurant chains to hasten their rise and grab market share from foreign fast food chains. The reporter visited several McDonalds outlets in Wuhan, China and found that the prices of many items had been increased by 10-to-20 percent. According to industry people, customers stopped buying from the main chicken supplier (implicated in the pharmaceutical scandal). This limited the supply of the "white feather" chicken used by McDonalds, raising the price of chicken about 20 percent. McDonalds says the prices were raised due to higher operating expenses and labor costs. Some local people say this incident will chisel away market share from McDonalds and KFC. The reporter claimed to see few customers in McDonalds restaurants visited around noon time, because of "chicken phobia." A student interviewed by the reporter said, "Even if they claim to...

Last week, the China Women's News warned readers about the serious threat of pollution from livestock , a far greater source of pollution than industry. The article reported that the latest data (2010) from Ministry of Environmental Protection surveys showed that livestock was the largest source of chemical oxygen demand (COD, a measure of water pollution), accounting for 45 percent of the total, and it also accounted for 25 percent of ammonia emissions. The COD from livestock was reportedly over 4 times industrial COD and ammonia emissions were 3 times industrial emissions. If you'd like examples of the impacts of livestock pollution, click on the "pollution" tag at the bottom of this post. With rising living standards and a big boost from government officials since the 1980s, China's livestock industry grew to become the world's biggest. Until the 1970s, China's livestock were relatively few in number and they were scattered over the countryside. Manu...

Chinese officials are quite pleased with their policy of steadily raising minimum prices for grains each year. However, there are subtle signs that the minimum price policy is actually re-creating the same problems that plagued the grain marketing system during the 1990s--the "hard to sell" phenomenon is back and farmers are getting paid with IOUs. Here is a January 17 online post by a rice farmer in Jilin Province on a "local leaders' message board" complaining that the grain depot won't buy his rice: " Greetings, honored leaders and to everyone who can see my post! I am a farmer in [a town in] Jilin Province and my family planted about 10 shang of paddy rice this year. I have had many years of tough experience as a farmer, sweating every day. It’s not easy to make it to the harvest in the fall and now...I can’t get a single grain [of my rice harvest]  from  under the snow. No one will buy my rice since the moisture is so high. This is unimaginabl...

Last week a task force from the Ministry of Agriculture's economic and market information office offered some policy suggestions to deal with some grim problems that have popped up in China's agricultural sector. The task force identified a problem with "upside down" domestic and international prices for cotton, sugar, and dairy sectors. "Upside down" apparently means that Chinese prices are far above international prices. The task force described the cotton and sugar markets as clearly "distorted" because Chinese prices are higher than international prices. They implicitly place the blame on international prices for being too low rather than blaming their price support for keeping Chinese prices artificially high. The task force says that imports are "pressuring" the domestic market and preventing authorities from selling reserves at a favorable price. The task force offers vague suggestions: that China continue its cotton and sug...

Chinese authorities announced the first successful rail shipment of corn in bulk from northeast to south, described as a "breakthrough" in grain logistics. This is an initiative to bring more efficiency to Chinese grain marketing. Currently, most Chinese grain is shoveled into bags, stacked on trucks, moved to trains or boats, etc., before reaching its final destination. Filling and emptying bags, stacking and unstacking them involves high costs and waste at each stage of the supply chain. The Chinese government has launched a "four bulks" program to promote a shift from bags to bulk-handling and transportation of grain as a "modernization" of Chinese logistics. Greater efficiency and reduced waste in grain handling and transport is badly needed as inter-regional grain shipments become more important. The pilot program is in the northeastern region--which is the only major source of surplus corn to supply feed mills across the country. The program was...

China has long been able to count on farmers to churn out cheap food, allowing city consumers to spend their discretionary income on cell phones, hair-dos, trips to the cinema, etc. However, the days of cheap food in China are coming to an end now that farmers have lucrative alternatives to the age-old cycle of planting and harvesting crops. On January 28, a Shanghai newspaper (Xinmin Bao) reporter observed that many snack and bread shops have been raising prices to pass on the increased cost of flour. The boost in flour cost, in turn, is attributed to the government's policy of supporting wheat prices. At one snack shop, the reporter found that the price for four fried bread sticks had been raised from 2.5 yuan to 3 yuan. The price is still equal to less than 50 cents in U.S. dollars, but the price boost represents a 20 percent increase. When asked about the price increase, the proprietor replied explained that his cost for a bag of flour had gone up from 80 yuan to 90 yuan. ...

The founding of the China Apple Industry Association was celebrated in Beijing on January 8. This   boring and seemingly innocuous news item  and others from Shanxi and Gansu Provinces illustrate the government-industry partnership and technology-import strategies that are behind the Chinese "socialist market economy" growth model. China produces half of the world's apples, has accounted for all recent growth in world apple output, and its apple juice concentrate industry dominates the world market . The apple industry association was set up to facilitate the transformation from a big producer of apples  to a strong apple industry . Re-molding a nation of subsistence farmers into an "industry" entails moving from localized varieties, entrenched habits and minimum investment to planting standardized improved varieties, profit maximization and investment in fixed assets. In turn, this implies moving from a web of farmers to an "industry chain" that i...

Chinese customs statistics report that soybean imports totaled 58.38 million metric tons during calendar year 2012. That was up 11.2 percent from 2011 and a new record. The average unit value was $599 per metric ton, up 5.8 percent. Yet another article in the Chinese news media worries about the rising dependence on imported soybeans. Domestic Chinese soybean production continues to fall. A Ministry of Agriculture researcher says that area planted in soybeans fell from 60 million mu (4 million hectares) in 2009 to 40 million mu (2.67 million hectares) because net returns from soybeans are not as good as those for corn and rice. An Academy of Social Sciences researcher frets that the imports are a "hidden danger" to food security. However, the article also reports that China would need 400 million mu (26.7 million hectares) of land to produce 58 million metric tons of imported soybeans at home. The MOA researcher reports that the cost of domestic soybeans is 70-to...

Chinese dairy companies have been shifting their product mix to from their traditionally dominant ultra-high temperature milk products to pasteurized milk as a strategy for regaining consumer confidence. Pasteurized milk was the featured topic of discussion at a meeting of Chinese dairy company leaders held in Chengdu in December 2012. The Chinese industry early on adopted ultra-high temperature (UHT) technology for sanitizing milk. UHT allows the milk to be stored at room temperature without spoiling, a valuable feature in a market where refrigeration is often unavailable, unreliable or costly. UHT allowed milk production to be diffused in far-flung areas like Inner Mongolia and Heilongjiang, and ship it hundreds of miles to consumer markets. The melamine incident and other food safety problems have created a consumer confidence crisis in the Chinese dairy industry and companies are looking for ways to restore confidence in their products. Shifting away from UHT to fresh...

Selling meat from pigs that die of disease has been called the achilles heel of pork safety . This blog has reported on various raids and crackdowns. In October 2011 the Ministry of Commerce announced  a major crackdown on illegal butchers  nationwide that would ensure that all pork sold came from legally-designated slaughterhouses by June 2012. So the problems was solved last year, right? Well, not exactly. A pair of December 2012 news articles on illegal butcher raids in the city of Rui'an in southern Zhejiang Province suggest a "Keystone Kops" approach to food safety enforcement in China. Another story from Hunan Province reports that a veterinarian acted as a broker for dead pig butchers. Midnight Raids "Educate" Perps After midnight on December 11 , over 100 enforcement personnel from the city's food safety office and its commerce, agriculture and forestry, public security, food and drug monitoring, technical supervision, and environmental protect...

Another article complaining about China's increasing reliance on imported soybeans blames the twin bogeymen of genetically modified seeds and foreign subsidies. These two culprits are often trotted out in articles like this, but this one claims that subsidies and genetically modified seeds are two sides of the same coin. This article reveals the misperceptions and twisted reasoning that are common in China and sometimes generate conflict when they influence trade barriers and antidumping investigations. The article begins with a visit to Heilongjiang Province's Mingshui county where the local agricultural officials say soybean plantings this year were one-tenth of their peak of 400,000 mu. A local farmer explains why he planted less than usual. Corn yields are 650-700 kg per mu and soybeans only yield 130-150 kg per mu. The price of soybeans is a little over twice the price of corn, not enough to make up for the difference in yield. The vice secretary of the provincial soyb...

China's price support program for soybeans actually has become a subsidy for foreign farmers, according to a December 2012 article on a Chinese financial news site . The article featured an interview with the head of the largest soybean processor in China--Yihai Kerry, a subsidiary of the Singapore company Wilmar. The interview began by discussing the necessity of continuing to expand into new products and innovate in the highly competitive soybean processing industry. The article then noted the irony of the steady decline in Chinese soybean production in recent years despite the government's attempt to support domestic soybean prices. According to people in the industry, processors in China don't want to buy domestic soybeans because the price support is higher than the price of imported soybeans. Consequently, many of the China-produced soybeans go into government warehouses instead of into the market. The gap is filled by imported soybeans. The increased demand for...

The December 2012 scandal about drug use in "quick chickens" was a reminder that Chinese consumers are unable to trust the supply chain that delivers their meat. The news media recently carried several reports about direct arrangements in which consumers commission farmers to raise a pig using traditional "backyard" methods that raise pigs at a much slower rate than common commercial methods. In a story from Sichuan Province , Mr. Yang made the 70-kilometer trek to collect the meat from a pig he commissioned a farmer to raise for him using only grains. The pig grew to just over 50 kg in nine months. The farmer raised another group of pigs from the same litter to the usual slaughter weight of 100 kg in three-and-a-half months using commercial feed. The farmer said these "grain pigs" require 5 kg of feed per kilogram of weight gain, more than the usual 3:1 ratio. He said the production cost is two-thirds higher than that of pigs on commercial feed. Mr. ...