Dim Sums: Agricultural Markets in China

The communist party's December 2013 economic work conference set "food security" as the top priority. Officials are gradually dribbling out details on a more market-oriented and flexible approach to food security. An essay by a researcher from the State Council's Development Research Center explains China's new approach to food security. The researcher, Ye Xingqing, explains that a new strategic approach to food security strategy has evolved in response to environmental pressures and resource constraints. Mr. Ye says this adjustment of strategy in response to changing circumstances is consistent with the Deng Xiaoping principle of "seeking truth from facts." Mr. Ye emphasizes that the food security strategy is formulated with a long-term view of maintaining balanced supply and demand of staple foods in China's transition to a new stage of development with a higher degree of urbanization and higher living standards. The new strategy emphasizes th...

In Jiangxi Province, Chinese officials are giving a cash bonus to encourage large-scale farmers who exceed average rice yields. A propaganda article describes a farmer with 1.5 million yuan in cash stacked in neat piles on a table in his courtyard as he counts his year-end bonus. In Poyang County, large-scale farmers who cultivate 6000 to 10,000 mu (1000 to 1650 acres) of rice get a bonus "award" if their yields exceed the average. The payment is 0.5 yuan per jin (about US$0.16/kg) for every jin over the 1,000 jin-per-mu (7500 kg/ha) average yield (from two crops of rice). The per-jin subsidy rises with the yield. If a farmer achieves a yield of 1051 to 1100 jin, the subsidy goes up to 1 yuan/jin. The subsidy is bumped up to 1.5 yuan/jin if the yield is 1100 jin or more. The award is paid out at the end of the year. Farmers are getting awards of 50,000 to 100,000 yuan ($8250-$16,500). The article doesn't explain how authorities verify the yield obtained by the farmer...

China's leadership has adopted a cautious approach toward genetically modified foods. They want to keep one food on the accelerator by pushing more research, while keeping the other foot on the brake by slowing down commercial approvals. Any research results remain bottled up in laboratories as wariness of GMOS among consumers builds. This approach raises the question, "Who will persevere in research on things that may never be used?" China's contentious GMO debate popped up at a January 22 press conference where the top agricultural policy advisor, Chen Xiwen, expounded on various topics in the central communist party leadership's "Number 1 Document" on rural policy released earlier this week. The document contained no direct mention of genetic modification, but the section encouraging innovation in agricultural science and technology included a call to "strengthen molecular breeding" as a foundation for research and biotechnology. Chen e...

China's "Number 1 Document" on rural policy released this week is schizophrenic and filled with contradictions. The leadership vacillates between capitalism and central planning. The document calls for market-guided resource allocation but it reels off ten pages of recommendations for government intervention in almost every aspect of the rural economy.  It calls for establishing stable agricultural-trading relations with other countries but also calls for "plans" and "guidance" for imports, protecting "industry security," and keeping the country's rice bowl firmly in its own hands.  It calls for adventurous reform, "exploration," and "liberated thinking," but it also cautions readers that reform must be incremental and based on Chinese distinctive features. It revives numerous relics from past decades like the supply and marketing cooperatives that were formed to serve communes, the "governor's grain bag...

China's "Number 1 document" promises more subsidies: target prices, revenue insurance, marketing loans, etc. Few people realize the difficulty of implementing and evaluating subsidy programs. Whenever subsidies are made available, people become eager to report subsidized things to the government. Statistics become meaningless and any subsidy program has enormous overhead costs to collect and verify information to catch cheaters and to determine whether programs are working. In 1995, China reported that it had 95 million hectares of cropland, the basis for the oft-cited statistics that China feeds 22 percent of the world's population on 7 percent of its farmland. In December 2013, the Ministry of Land Resources announced that its new and improved survey in 2008 (but not announced until five years later) found that China had 135 million hectares of cropland, 42-percent more than the 1995 total.  Wang Shiyuan, an official of the National Bureau of Statistics, ex...

The Agricultural Development Bank of China (ADBC) is injecting loans into China's countryside to make sure farmers can sell their commodities despite sinking prices. This looks like a financial crisis waiting to happen. In the first week of January ADBC issued a notice to its staff urging them to do a good job on issuing credit for grain and cotton purchases as the new year starts.  Staff were ordered to increase their "political awareness" and sense of responsibility to ensure that farmers get good profits, keep grain and cotton markets stable, make that farmers can sell their grain and cotton and that farmers don't get paid with IOUs.  The ADBC was spun off from the Agricultural Bank of China (ABC) in 1994 to fund government commodity procurement (allowing ABC to focus on commercial lending). ADBC slurps up funds from deposits from commercial banks placed with ADBC and by selling bonds, then lends out the money to state-owned grain and cotton procurement ope...

China's Ministry of Finance has allocated funds for this year's grain subsidies and urged local officials to link subsidies to production of grain. In doing so, they have ended the "decoupled" nature of the grain subsidy. The Ministry of Finance allocated 122.2 billion yuan (US$ 20 billion) for grain subsidies--15.1 billion yuan for the direct payment to grain producers and 107.1 billion yuan for the "general input subsidy."  These totals are unchanged from the last two years. The Ministry urged provincial and local officials to distribute the funds as soon as possible, striving to ensure farmers get the money before spring planting. The Ministry also instructed local officials to explore mechanisms that couple (挂钩) subsidy payments to production by ensuring that farmers who plant more grain get more subsidies. The objective, said the Ministry, is to motivate farmers to plant grain. The direct payment was first implemented in 13 major grain-producing ...

Does it make sense for Internet companies to raise pigs? Can innovative "Internet thinking" contribute to solving China's agricultural and food safety problems? While many presume that IT tycoons can easily find solutions in a seemingly simple business like pig-farming, the reality is that raising pigs is more complex than creating a web site. In 2009, the CEO of Netease, one of China's top Internet companies, announced a plan to launch an innovative pig farm which would allow customers to track the complete production process of the pork they buy. Nearly 5 years later, the project hasn't produced any pork. Netease pigs are making slow progress. A Southern Metropolitan News reporter visited the farm and interviewed the current director of Netease's agriculture project as well as former executives of the company. At the 2009 meeting of the Guangdong Peoples Congress where he was a delegate, Netease CEO Ding Lei announced his plan to apply science and t...

China's latest plan for agriculture is to substitute big data and artificial control for traditional farming methods. On January 10, Vice Minister of Agriculture Yu Xinrong announced the launch of regional pilot "Internet of things agriculture projects."  The "Internet of things" (物联网) is the network of gadgets and sensors that are connected through the Internet, collect and compile vast amounts of data and can be controlled remotely from computers or mobile phones. Applications are mainly for remote-controlled greenhouses, animal traceability systems, and monitoring of transportation and storage facilities. System design for Internet of Things in agriculture and logistics. The pilot projects are in Tianjin, Shanghai, and Anhui. Mr. Yu made the announcement during a trip to Shanghai where he visited the Bio-tag Ltd. Co. which makes electronic tags for animals, the Shanghai Infrastructure Agriculture Internet of Things Base, a vegetable company, the Shan...

Chinese officials pretend that acquiring hardware--laboratories and fancy equipment--assures food safety, but it doesn't. The equipment is worthless without skilled technicians to operate it. The long-entrenched Chinese strategy is to hold splashy opening ceremonies to impress visitors followed by neglect after the visitors have gone home. A reporter from a Nanjing newspaper visited the city's biggest vegetable-supply area to check on the system for ensuring that vegetables have no toxic pesticide residues. Local farmers pointed out a building which bore a sign that identified it as the "Nanjing City vegetable base testing lab" sponsored by the Nanjing municipal agricultural commission. The building was locked up and passersby told the reporter that no one had been to the building for a long time. The reporter peeked in the windows and saw a few pieces of equipment that appeared to be unused. Demonstrating testing for visiting officials at a vegetable company...

China’s food industry barely existed as recently as the 1990s, and it is still a slapdash collection of thousands of small, low-tech, under-capitalized companies that produce little value added and mostly serve local markets. In China, everything has to happen overnight, but the process of sifting and consolidating companies to build a strong industry that interfaces effectively between farms and consumers takes time. Will Chinese officials and consumers have the patience to wait for a strong food industry to take shape? An August 2013 survey of Heilongjiang Province’s food industry provides an interesting snapshot of the difficult process of creating a food industry in an urbanizing society. Heilongjiang is in China’s far northeast, bordering Russia. It is more lightly populated than most of China, has large expanses of forest and grassland and is China’s leading producer of grain and second-largest dairy producer. Because of its relatively clean environment, it is a leading produc...

China's Ministry of Land Resources has announced that their latest land survey (which is actually four years old) discovered that the country has 11-percent more cropland than they have been reporting since 2008. They were really lucky to find this land, because agricultural officials are about to declare large swathes of cropland off-limits to production due to pollution with toxic heavy metals or vulnerability to erosion. And, by golly, when this poor-quality land is removed from the new total, China will still be above the minimum amount of land needed to maintain "food security." How about that? The "new" land survey reports that China had 135.4 million hectares of cultivated land as of December 31, 2009. That exceeds the total reported for 2008 by 13.7 million hectares, or 11 percent. (The 2008 data were described as results of a Ministry of Land Resources survey.) It's also bigger than the total of 130 million hectares found in the country's 199...