Dim Sums: Agricultural Markets in China

China has been experimenting with agricultural price index insurance, a new approach to mitigating the risk of price fluctuations. A recent description in Economic Reference News highlights a pilot for vegetable producers initiated in Zhangjiagang, a prefecture in northern Jiangsu Province. The price index insurance product is offered by Peoples Insurance Company of China (PICC) with 90 percent of the premiums paid by prefecture and township governments. A basis price is set--apparently the commodity's wholesale price during the same period in the previous year. If the current period's price falls below the basis price, the producers receive a compensation payment from the insurance company based on the price shortfall. The Zhangjiagang pilot is for leafy cabbage-type vegetables grown in the summer when they are in short supply. The basis price is set using average price data provided by local price bureau surveys every 10 days. Last year the insurance company paid out 80,...

A news item from Tibet notes that 80 percent of the pork in the capital city's market is imported from the United States. The reporter visited the Chokpori (Yaowangshan) market near the Potala Palace in Lhasa and found that 80 percent of the 40,000 kg of pork sold there is frozen pork imported from the United States. He said the pork had become popular with consumers because it is much cheaper than Chinese pork. It sells for 11 yuan per jin (about $1.75/lb) in Lhasa, and its price at the port is just 7 yuan. According to the reporter, the pork maintains its quality over the vast distance and has good quality and taste. The reporter emphasized the safety of the pork, noting the freezers filled with neatly-stacked boxes clearly labeled with production date and lot numbers. Every morning inspectors from the local animal quarantine bureau come to inspect samples. A local quarantine official credited the American production system for the low price. In contrast to the large numbe...

Some of China's top agricultural policy advisors acknowledged that China has massive reserves of grain that are "hard to digest" given low international prices. In light of these problems, they say the "temporary reserve" price-control policies will have to be changed. The comments were made at a May 16 forum on food security held in Beijing. Cheng Guoqiang, a senior agricultural policy advisor and advocate of "target price" subsidies, said reserves of corn and rice are at a historical high, and other commodities are at 60-70% of their record levels. Overall, he said, China has a half-year's grain consumption in inventories--that would be about 300 million metric tons. Nie Zhenbang, former head of the Grain Bureau, said grain imports have been flowing into the country despite big domestic inventories of grain. This is because international prices are much lower than China's prices. Nie said granaries in the northeast were filled to capacit...

In mid-April, news began spreading that Chinese importers were backing out of soybean purchases. Some defaulted on their contracts because the penalties and lost deposits were less than they would lose by accepting the soybeans. As usual, the situation is murky, Chinese industry leaders are blaming the foreigners and calling for more subsidies and protection from the government. But the root of the crisis lies in the immaturity of the Chinese economy: Everyone makes money as long as prices go in the same direction, but everything freezes up when prices go in the opposite direction. Rigidities and interest rate controls create black market arbitrage opportunities that distort markets for real commodities.  Chinese Commerce Ministry officials have been in Shandong Province --ground zero for the crisis--talking to soybean importing companies to find out the extent of contract defaults and whether importers are being denied letters of credit. According to the news media report,...

A decree by China's State Council expanded a tax waiver for state-owned grain marketing enterprises to include sales of soybeans held in government reserves beginning in May 2014. Chinese authorities use the 13-percent value added tax (VAT) to encourage or discourage various behavior and to create price wedges between domestic and international commodity prices. The VAT is a 13-percent tax (for ag commodities) on the difference between the purchase value and the sale value, but there are all kinds of exemptions and rebates. Exported commodities get a rebate on VAT, except when authorities want to discourage exports. Commodities sold by farmers and farmer cooperatives are exempt from VAT. The VAT raises the cost of imported commodities by 13 percent since the VAT is assessed on the gross value of imported shipments, including tariff, when they reach China. The new tax waiver for soybeans extends coverage of a 1999 Tax Bureau decree ( 财税字[1999]198号 ) that waived VAT on sales of g...

China's National Bureau of Statistics (NBS) reported its annual statistical profile of rural workers employed in nonfarm work . It shows a gradually growing class of rootless untrained workers who man factories and construction sites. Their wages are rising rapidly, but are still low at $1.90 an hour. Living expenses are rising even faster. About half receive free or subsidized housing from employers, but that proportion is gradually falling. NBS estimates that the country had 268.9 million rural nonagricultural workers in 2013. The number of rural workers increased 6 million from 2012 and is up 45 million from 2008 when NBS first started reporting annual numbers. (In English translations, NBS calls these people "rural migrants" but many work near home and live at home.) China's rural nonagricultural labor force of 268.9 million equaled 34.5 percent of China's employed workers in 2013. It was roughly twice the entire U.S. nonagricultural labo...

According to China's Grain Bureau , "policy-type purchases" accounted for more than half of the grain purchased in Heilongjiang Province for the 2013-14 market year. Authorities have been saying for decades that they want market forces to play a greater role in allocating grain, but China seems to be once again retreating from marketization as authorities obsess over "food security". The National Bureau of Statistics says Heilongjiang is now China's biggest grain producer, with output at 60 million metric tons (mmt) in 2013, just under 10 percent of the national total. The Grain Bureau statistics say that a total of 60 mmt of Heilongjiang's grain had been purchased by April 2014 (that's the entire harvest--surely an overstatement since farmers still retain significant quantities for their own use). The Bureau also reports that "policy-style" purchases accounted for 33.85 mmt of grain procured, or 56 percent of Heilongjiang's total....

Since 2013, officials have been demolishing pig farms all over the country. An article asks, " Pig Farm Demolition: Industry's Rebirth or Destruction ?" The demolitions are motivated by concerns about poor environmental controls and the prevalence of "problem pork" which has consumers "trembling with fear" over food safety. The embarrassment of the dead pigs floating in Shanghai's Huangpu River in March 2013 spurred the demolition campaign. The government had been encouraging pig-farming in recent years. There are many new large-scale farms, yet many small, scattered, dirty farms are popping up, especially in rural areas. Farmers complain that they will have nothing to do after their farm is demolished. But the article suggests that the demolitions may help save the industry by removing polluters to upgrade quality and confidence in the industry.  China seems to have started to turn the corner from its growth at all costs strategy.

China's Shuanghui Company acquired Smithfield Foods last year and became the world's largest pork company. Now Shuanghui is launching a plan to market Smithfield pork throughout China this year. On April 26, the first Smithfield sales counter was opened in Luohe City, a small city in Henan Province that is the home base of Shuanghui. This was said to be a new "homecoming" for Shuanghui's "foreign brother." Another "Smith" brand counter was opened at a Lianhua supermarket in Zhengzhou. Shuanghui has a plan to roll out pork from Smithfield throughout China over the course of 2014. In May they plan to open 10-to-15 special "Smith" meat counters, boost it to 20-to-30 in June, and sell nationwide in the second half of the year. The plan is to import 5000 metric tons of Smithfield pork into China in 2014. The author points out that would be equal to about 1 pound for each person in Zhengzhou.China has been a net importer of pork sinc...

Beware the "win-win" campaign that promises to make money for companies while eliminating poverty. China's State Council is preparing a big plan to plant oilseed-bearing trees on sloped land, salinized land, and wetlands they plan to remove from grain production. The plan calls for planting oil-bearing trees like tea oil, walnuts, a type of almond, oil peony, maple and sumac on 200 million mu (about 33 million acres) of land by 2020, with a planned output of 5 million metric tons of edible oils. This will utilize land not suitable for grain production and reduce imports of edible oils, says the draft document. In a common pattern, China is again basically rehashing similar plans formulated in the last decade. In the mid-2000s, a cabal of Chinese authorities, multinational companies and State-owned Chinese companies formulated big plans to produce biofuels by growing starch, sugar or oil-bearing crops to be used as raw material. The most prominent were sweet sorghum, ...

China's engagement in agriculture in Africa is depicted to the rest of the world as a magnaninmous "south-south" aid program. For domestic audiences, Africa is a source of food for a Chinese population that has ravaged its own resource base. The dual messages are evident in two articles posted on Chinese websites this week. In one article, " China-Africa Cooperation in Agriculture Mutually Beneficial ," cooperation between Chinese and African governments in agriculture is described as part of a growing collaboration that many Chinese companies view as a profitable investment opportunity. The investment is described as "south-south" cooperation that addresses the lack of infrastructure and low-tech nature of Africa's agriculture, and creates jobs for Africans. The article describes a strategy emphasizing use of fertilizer and pesticides, seed breeding, and pest-prevention in a four-way collaboration between universities in Uganda and Guangzhou, ...