Dim Sums: Agricultural Markets in China

Shuanghui Group--known as "Shineway" in English--has announced its plan to acquire Smithfield Foods, a huge link-up between the two leading pork suppliers in the world's two leading pork markets. Shuanghui is paying $4.7 billion for Smithfield's stock and taking on $2.3 billion in Smithfield's debt--a $7 billion deal. According to company lore, Shuanghui's Chairman, Wan Long, took over a failing state-owned slaughterhouse in Luohe City--a small unremarkable city in Henan  Province--and turned it into the largest meat-processing operation in China. Shuanghui is a private company, not state-owned. Shuanghui reportedly used its own cash and capital raised by Morgan Stanley for the acquisition. Unlike other high-profile deals in Chinese agribusiness industry, this one apparently did not involve the  China Development Bank, the government's giant ATM for favored companies. According to Mr. Wan Long , "the government encourages and supports big compani...

China's support price program for rapeseed is duplicating the bizarre phenomenon that its cotton market has been experiencing over the past two years: the government pays companies to buy up the crop at a minimum price that exceeds the price of imported commodities. No one wants to buy the domestic commodity, so most of the domestic harvest gets put into a "temporary" reserve and stored while imports soar. Rapeseed is traditionally the main type of raw material used for cooking oil in provinces of central China, mostly along the Yangzi River (in North America we know it mainly by the name of its Canadian variety, "canola"). It is estimated that domestic rapeseed oil now constitutes about 19-20% of China's edible oil consumption, while soybean oil accounts for 40% and palm oil 20%. The support price program for rapeseed was put in place in 2008 to encourage farmers to keep planting rapeseed by ensuring that the price won't fall below a specified minim...

Unmanned aircraft that spray pesticides are the latest thing in Chinese agriculture. In Hebei Province's Zhao County, an extension worker scouts the wheat fields for pests and sends a gizmo that looks like a space ship over the fields to spray them with insecticides. The head of Hebei Province's plant protection station says that all localities have invested in unmanned aircraft sprayers and other mechanized pesticide application equipment this year. In a 6-to-8 hour day the aircraft can spray 300-400 mu (50-65 acres), what would normally take 20-80 people. He claims it also improves the effective utilization of pesticide by 30 percent. It reduces exposure of people to toxic pesticides and doesn't damage the crop by driving machines through the field. In recent years, China's Ministry of Agriculture has featured an annual "one spray, three preventions" campaign as a measure to prevent pest damage to the wheat crop. The bug spray program is financially su...

China has millions of restaurants and cafeterias that generate an estimated 60 million metric tons of food waste annually. A large, but unknown, portion of this waste is used to feed pigs. There are many online articles about swill-feeding of pigs and crackdown efforts. Local authorities concerned about spoilage and the potential to spread disease, have been trying to stamp out this swill-feeding activity. A renewed effort is underway, apparently motivated by the connection of "gutter oil" as a by-product of cooking down the restaurant waste. A reporter visited a village outside Changsha in Hunan Province where large boiling vats filled with food waste gave off a pungent odor. After cooking, the swill will be fed to hogs. The oil forms a thin layer on the top of the vat and is siphoned off and placed in metal drums to be sold as "gutter oil." The director of the local food and drug bureau calls these swill farms a "headache" and claims they are hard to...

This blog has reported on water quality problems created by pig farms in China. In 2010, the Ministry of Environmental Protection called attention to livestock pollution and Shandong Province issued regulations restricting hog farms. Pollution from livestock has gotten more attention recently and its control was included in the 2011-15 five-year plan. Over the past year, the communist party has quietly been mobilizing local authorities to close down pig farms to address water pollution concerns. In Guangdong Province communist party authorities have been carrying out a remediation campaign to close "scattered, small, and chaotic" pig farms. Party officials are being mobilized to participate, propaganda about pig farms is being disseminated, and pig farmers are required to sign clean-up agreements. Last October, a village in Guangdong's Yongning Management District closed down a collective hog farm that was sited on the edge of a reservoir. The village communist p...

As of May 5, Chinese authorities had purchased 27.5 million metric tons (mmt) of the 2012/13 corn harvest under the price support program in northeastern provinces. The totals by province were: Heilongjiang 12.95 mmt; Jilin 8.73 mmt; Inner Mongolia 3.48 mmt; and Liaoning 2.76 mmt. The total is expected to reach about 30 mmt by the end of May when purchases are now scheduled to conclude. Price support purchases are only conducted in these four provinces. As of April 25, the grain bureau says that the total volume of corn purchased by all buyers was 102.5 mmt in 11 major producing provinces. That suggests that 27.5-mmt support-price purchases constitute about one-fourth of corn marketed has been sold. The reserve purchases constitute 13 percent of the 208 mmt corn produced. Much of the corn purchased for reserves has high moisture content, but corn had to meet minimum standards to be purchased for the reserve. Reports indicate that a lot of corn in northeastern pr...

China's rice market is becoming segmented. Short grain japonica rice--especially that from the northeastern provinces--is gaining popularity while hybrid indica rice is increasingly shunned by consumers who can afford better-tasting rice. Indica rice is diverted to food processing, liquor, and flour where it has to compete with cheap rice imported from Vietnam and Pakistan. A report from Hangzhou describes Old Song's shop that used to sell a lot of cheap hybrid indica rice to elderly people and migrant workers, but now stocks short-grain japonica rice almost exclusively. According to market managers, it's now hard to find indica rice in Hangzhou--one of China's most prosperous areas. People there consume mainly rice from the northeastern provinces or japonica rice from Jiangsu and Anhui. Only about 10 percent of the rice in the market is indica and it's bought mainly by food processors and factory cafeterias. Japonica rice has a short, rounder grain--Guangdong ...

A May 8 meeting of the State Council on agricultural problems was chaired by Premier Li Keqiang and featured at the top of the page on the Peoples Daily . The article was also posted on Central China TV and read out word by word. While the article insisted that agriculture is overall stable and this year's wheat and early-season rice crops are doing well, it warns that "agriculture faces major difficulties": The northeast has had serious spring flooding Drought in the northwest and southwest regions still has not eased Hog prices are falling Supplies of beef and mutton are tight H7N9 avian influenza are causing serious losses in the poultry industry The April earthquake in Lushan, Sichuan Province seriously affected agriculture in that region In light of these problems, warns the article, it is critical to take precautionary measures to prevent inflation, maintain balance between supply and demand of agricultural commodities, and keep farmers' income grow...

China is having trouble supporting corn prices. Purchases of corn at support prices were scheduled to conclude on April 30, but the Grain Bureau has extended the purchase period  another month, to May 31, 2013. China introduced a "temporary reserve" program to support the price of corn in 2008. The program operates only in four northeastern provinces. A floor price is set for each province and China's grain reserve corporation buys corn if the market price falls below the floor. About 35 million metric tons of corn were purchased during the first year of the program. Purchases of the 2009-2011 harvests were relatively small since strong demand pushed prices higher. Stockpiling corn at a depot in Hegang, Heilongjiang Province. Following the 2012 corn harvest a perfect storm of conditions put downward pressure on corn prices in the northeast. Overall, the quantity harvested was large (but in some districts of Jilin Province yields were down 30 percent due to pest p...