Posts

Showing posts from 2014

China Cooking Oil Prices 2-year Slide

Image
With plentiful supplies of soybeans worldwide and weak demand, China's cooking oil prices have been falling for the last two years. A Hangzhou newspaper reports that a five-liter bottle of soybean oil is under 30 yuan (about $4.90). A supermarket procurement officer estimates that retail prices in his store this December are down 40-percent from a year ago. Cooking oil companies have been running frequent promotions with bright stickers on shelves and posters. They give away a small bottle taped to a large five-liter bottle. Early in 2014 the free bottles were 300 ml, but now companies are giving away 700 ml bottles. The supermarket procurement manager says the two biggest cooking oil companies have had two price cuts this year--one in April and the second in October--each about 10-percent. The supermarket manager says the decline in prices is linked to declines in soybean prices on the Chicago Board of Trade. According to the National Grain and Oils Information Center, the ...

Chinese Swine Industry's "New Normal"

Image
A swine industry meeting held by Shuanghui Group (the company that acquired Smithfield Foods in 2013) this month discussed the "new normal" for China's swine production. The era of massive expansion and big profits is over; now the industry needs to consolidate, cut costs, adopt new concepts of environmental protection and biosecurity, and develop a self-sustaining supply of breeding stock. "New normal" is a reference to President Xi Jinping's declaration of an era of slower but higher-quality GDP growth. An official from the Luohe City animal husbandry bureau said the "new normal" for the swine industry means thin profit margins and slower growth. The industry should not expect a return to big profits. Instead, the industry will need to restructure and producers should focus on controlling costs, develop environmental protection concepts, promote farmer cooperatives, and stick together "for warmth" to increase their say over prices...

Aussie FTA and Chinese Dairy Imports

Image
The China-Australia free trade agreement will gradually reduce tariffs to zero on Chinese dairy imports from Australia. This follows a 2008 China-New Zealand FTA that contributed to a New Zealand dairy-export boom. A November article in a Chinese publication, Economic and Nation Weekly , asked whether the competition from imports would pressure the Chinese dairy industry. China's current tariffs on dairy products are mostly 10-to-15-percent, so the tariff reductions in theory could increase imports that would reduce the market share of Chinese companies. The low price of imports is expected to put downward pressure on domestic prices for Chinese companies. Source: China customs data analyzed by dimsums.blogspot.com In fact, China's dairy imports from New Zealand began their explosive growth immediately after its FTA with New Zealand took effect in October 2008. Interestingly, the FTA coincided with China's melamine adulteration crisis (test results showing infant f...

Chicken Plant Blocked by Water Quality Concerns

Local environmental authorities have blocked construction of an industrialized chicken complex planned for a rural county in China's Shaanxi Province. Since when do environmental bureaus in rural counties block big-money projects backed by the county chief? Is this China's "new normal"? Or has the company put the project on hold until the poultry industry recovers? According to a December 2, 2014 report from China's Daily Business News , the country's largest feed manufacturer, New Hope-Liuhe Group, planned to invest 860 million yuan (about $40 million) to build a feed-chicken industrial complex in Fufeng County in Shaanxi Province, about midway between Xi'an and Baoji city. According to the county government's description , the project was to include a feed mill producing 300,000 metric tons of feed annually, a hatchery to supply chicks to farmers, a model commercial chicken-farming base, a slaughter plant that could process 36 million chickens each...

Chinese Rice Mills and Underground Finance

A Jiangxi Province newspaper recently told the cautionary tale of a rice mill owner who disappeared after his side business as an underground lender got him deep into debt to family and friends. The story appears to be a warning about the dangers of underground lending, but it illustrates how China's Ponzi-style economy is unraveling. "Mr. Li" got into the rice-milling business in 2009 when he invested several hundred thousand yuan to buy some milling equipment. He was "instantly transformed from farmer to factory boss." In 2011, he built a mill using a 2-million-yuan loan that was secured by his inventory of unprocessed rice. The debt kept spiraling. During 2012-13, he borrowed 10 million yuan from several banks, but rice-milling business started running into trouble as the Chinese economy slowed. The rice mill wasn't generating enough cash to cover his daily expenses, so Mr. Li became an underground lender in 2013. He lent 8 million yuan to a busine...

Chinese Farmers in Russia Hit by Ruble Crash

Chinese farmers growing crops over the border in Russia have been hit by the fall of the Russian currency . This year Chinese farmers are bringing most of their Russia-grown crops back to China instead of selling them in Russia. There are said to be 70 Sino-Russian cropping, livestock, and agricultural processing projects covering 400,000 hectares in Russia. Over the past decade, there has been a growing stream of Chinese farmers crossing the border to grow crops in Russia. Heilongjiang, Jilin and other provinces have reportedly invested US$ 200 million in Russian farms. Most of the farmers are from the state farm system in Heilongjiang Province where land is scarce and the increase in mechanization has reduced the need for workers. Across the border in Russia's far east they can rent land much cheaper, the soil is good, and they can farm huge farms with large machinery. The Hulin Eastern Star Farm has a 20,000-hectare farm in Russia where they grow 20,000 metric tons of soyb...

China's "Farm Diplomacy"

Chinese President Xi Jinping always makes time for rural visits during his trips abroad. Premier Li Keqiang has been featuring agricultural investment and opening trade with new partners in his trips abroad. This is part of China's "farm diplomacy" which elevates agriculture to an important role in foreign policy. A propaganda piece from the official Xinhua news agency reviewing Xi Jinping's Latin American visit during July 2014 introduced the "farm diplomacy" strategy. Chairman Xi has visited an Argentine ranch, brought seeds along on a visit to Fidel Castro's family hacienda, had coffee at a rural home in Costa Rice, visited a cattle farm in Australia, inspected a farm in Ireland, attended a tulip exhibition in the Netherlands, and drove a tractor in the United States. When he visited the United States as vice president he insisted on holding a meeting on agriculture in Iowa where he got reacquainted with a farm family he had previously visited in t...

China Needs to Test Domestic Corn for GMOs

For more than a year, Chinese border officials have been rejecting shipments of corn containing any trace of unapproved genetically-modified strains. No GMO corn has been approved for planting inside China, but there are indications that production of unapproved GMO corn has quietly spread despite crackdowns over the past four years. If Chinese officials were really serious about keeping unapproved GMOs out of their food system, they would test domestic corn as well. Chinese corn prices are more than double the price in the United States, but the GMO issue is a barrier to imports from all the leading exporters--the United States, Brazil and Argentina. Consequently, Chinese traders are scouring the globe for other cheap feed ingredients. On November 18, 2014 AQSIQ, China's agency for inspection and quarantine, posted an online Q&A where Chinese trading companies peppered an AQSIQ official with dozens of questions about importing corn, sorghum, ...

China's Corn Price Support Problem

Image
On November 25 Chinese authorities announced the beginning of "temporary reserve" purchases from the 2014 corn crop. As expected, the temporary reserve prices were held at the same level as last year. With China experiencing a corn glut for the third year in a row, the government is expected to purchase a large volume of corn again this year. With grain bins already full, the temporary reserve announcement included an exhortation to prevent "hidden threats" of mold and fire from destroying millions of tons of corn stored in thousands of rudimentary bins scattered across northeastern China. China began the "temporary reserve" policy in 2008 to place a floor under market prices. Since then, authorities announced minimum prices for each of four northeastern provinces each year and promised to buy grain for government stockpiles when the market price falls below the minimum. The grain is stored until the price rebounds. Then it is sold back into the market. ...

China Cotton Still in Excess Supply

The good news is that China's elimination of price supports has reduced the incentive for its farmers to produce large volumes of poor quality cotton. The bad news is that the world still has too much cotton. According to China Cotton Association data reported by a textile industry analysis , the country has 12 million metric tons (mmt) of cotton in storage. This year, Chinese production is expected to add another 6.6 mmt to the supply. Its import quota has been chopped to 890,000 metric tons (imports have been running over 4 mmt in recent  years). Adding up inventories, production and imports, China will have 19.7 mmt of cotton available. That's nearly three times estimated annual consumption of 6.8 mmt. The Chinese textile business is not what it once was. Factory bosses complain that they pay 3,000 yuan more than the international price for every ton of cotton they use. They are also paying higher wages and sometimes encountering labor shor...

China's Bulgarian Corn Connection

On November 11, China received its first cargo of imported Bulgarian corn . This corn represents China's new approach to agricultural trade in which Chinese entities control the commodity from its source. This corn was grown by a Chinese company on soil that happens to be in Bulgaria. The 36,700-ton cargo--identified prominently in news media as "non-GMO"--was received at the Shenzhen port, where it was promptly inspected and testing with expedited "green channel" procedures for agricultural cargoes. This treatment stands in contrast to other cargoes which are turned away or languish in their berths for weeks waiting for port officials to approve the shipment. A representatitve of the importer--Tianjin Nongken Longchen Jiayi International Company--notes that the corn was grown in Bulgaria to be sold back to China. The company plans to import 175,000 metric tons of corn in 2014 and hopes to import 300,000-500,000 tons next year. The corn shipment is t...

China Corn Support Price Unchanged

According to information learned by Futures Daily , China's support price purchase program for 2014/15 is expected to begin by November 20 with the support price level unchanged from 2013/14. The support level is higher than current purchase prices and is expected to boost Chinese prices and add to the nation's corn stockpile. Temporary reserve purchases are expected to take place from November 20, 2014 through April 30, 2015. Futures Daily learned from sources that the support price for corn will be the same as last year. This is a break from the practice of raising the support price annually over the last six years. Current prices are 100-200 yuan below the support levels. Traders will be inclined to sell the corn they buy to the state reserves, thus boosting market prices. Province Support price Current prices yuan/mt yuan/mt Heilongjiang 2220 1960-2080 Jilin 2240 2070-2130 Inner Mongolia (Tongliao) 2260 2160-2180 Liaoning 2260 2140-2150 The inform...

Transfers Keep Rural Counties Afloat in China

When Chinese officials describe their grain subsidy programs, they say the policies motivate local (officials) and farmers, in that order. This rhetoric reflects the importance of transfer payments sent to rural counties to encourage local officials to support grain production, an activity that generates minimal GDP and virtually no tax revenue. With private financing and services for farmers mostly nonexistent, China relies on local officials to provide needed investment and services for farm production. Yet officials are not inclined to give attention to farm production since it yields little GDP and virtually no tax revenue. China's major grain-producing counties have a very narrow tax base, with local tax revenues often just 15%-to-20% of financial expenditures. Thus, rural governments are financed with massive transfers from higher levels of government. An October 2013 article in Economic Reference News , " Vicious Circle: The More Grain Prod...

Regulating Dog Meat Trade in China

Image
Consuming dog meat is a deeply embedded part of food culture in certain regions and ethnic groups of China. However, the growing number of dog lovers has generated fierce opposition to the practice of killing dogs and eating them. Dog meat trade is legal, but regulating the production and marketing of dogs for human consumption presents a challenge for authorities. [ warning: images in this article will be disturbing to animal lovers ] The focal point of attention is a dog meat festival held each June in the city of Yulin, Guangxi Province. During 2014, the festival prompted protests and an appeal from an animal protection group to ban the festival. With so much public opposition, the Yulin municipal government issued a statement stating that the festival is put on by private operators, and Yulin authorities disavowed any role in organizing the festival. Another dog meat festival in Zhejiang Province has been canceled due to public opposition to the killing of dogs on street co...

Shaanxi Farmers Reluctant to Rent Land

The results of a new survey show that "farmers view land like gold, and they're reluctant to give it up." Villagers' uncertainty about their rights to their land makes them reluctant to let go of it, posing a problem for the new class of large farms looking to consolidate farmland. On October 13, the Shaanxi branch of the National Bureau of Statistics rural survey team announced the results of a survey of rural land transfer conducted in 2013 . The survey found that 11.8 percent of the province's contracted land had been transferred from its original "owner" or contractor to someone else. That rate was lower than the national average of 21.7 percent, and much lower than the 40 percent share of land transferred in some eastern provinces, according to the survey report. Of the 11.8 percent of land transferred, 64 percent of it is rented to neighbors and relatives they know, often just on a verbal agreement. About 13 percent each is transferred to compa...

Chinese Agriculture: Don't Panic, We're Planning

Image
On October 24, Vice Premier Wang Yang finished out a speech on building irrigation facilities with some comments that reveal China's rural policy challenges. While there is a sense of urgency in his remarks, Wang exhorted everyone to calmly consider the future and--like a good socialist--make a new plan. English language news media picked up Wang's admonition to increase control of grain imports and crack down on smuggling to deal with record-high grain inventories, but other comments in the speech are interesting. The comments came at the end of  a speech on building irrigation facilities where he warned that rural reforms and development tasks are extremely arduou s. He exhorted every level of government and locality to do a good job on agricultural and rural work as they carried out irrigation and water management construction. Until now, China seemed to be address rural problems by spending more and raising prices, but that seems to have come to an end. Wa...

China Plans Massive Honesty Database

Chinese leaders have apparently deduced that dishonesty and lying are not conducive to a healthy society or economy. Authorities are moving forward with a plan to create a massive database that will enable authorities at all levels and locations to monitor, track down, and punish miscreants in government, companies, and courts of law. For example, it's hard to produce accurate statistics when everyone lies to the statisticians. To fix this, China's National Bureau of Statistics has published draft regulations designed to punish dishonest companies that report inaccurate information on statistical surveys. Companies that deliberately fabricate false data, make false reports, conceal data or otherwise violate the statistical law will be subject to criminal penalties. The Bureau will publicize the names, addresses and owners of dishonest companies on a web site. The information will be entered in a file that will be available t...