Dim Sums: Agricultural Markets in China

Now, here's a business plan: lend billions of dollars to buy items at higher prices than competitors pay and store the merchandise in warehouses. Then watch the market price of the items you financed drop. Sell the merchandise four or five years later after it has deteriorated to the point that no one wants to buy it. This is basically the business plan of the Agricultural Development Bank of China, a "policy bank" that finances purchases of grains and cotton at support prices on behalf of the government. The ADBC has announced that it has allocated 300 billion yuan (US$ 49 billion) to finance the purchase of fall-harvested grains--mainly rice, corn and soybeans. The prices of both commodities are far above the prices in global markets, and there is downward pressure on Chinese prices. Chinese farmers are said to be eager to sell their grain as fast as possible because they expect prices to fall as the season goes on. Soybeans kept in storage sin...

The Chinese public's angst about genetically modified foods has been evident in the country's news media over the past couple of weeks. Two stars of China's national badminton team have been accused by lawyers of misleading consumers by their endorsements of a cooking oil brand that is made from genetically modified oilseeds. An attorney in Kunming is leading a series of legal actions brought against five major vegetable oil brands, accusing them of failing to comply with China's regulations that require labeling food products containing genetically modified organisms (GMOs). The main complaint is that labels are too small, illegible, or missing entirely. This purportedly deprives consumers of their "right to know" and prevents them from making informed choices. The badminton stars--a husband and wife team--are accused of giving consumers misleading information. The Kunming attorney complains that the athletes endorsed a well-known brand of cooking oil...

China's chief rural policy advisor asserted that major reforms are necessary for agricultural development  but reforms will be gradual. At a recent speech given at China Agricultural University, Chen Xiwen--vice director of the "central rural policy leadership group"--signaled that major reforms are needed to address fundamental changes in the country's agricultural supply and demand and rural economic structure. While there is progress in rising grain production and closing the gap between rural and urban incomes, Chen raised concerns about a rising reliance on agricultural imports. Chen worried that China has become a net importer of the three major cereal grains--rice, wheat and corn--since 2010. He attributes this to steadily rising demand for ag products and a gap between Chinese prices and lower international prices. Chen claims that Chinese farmers, processors, traders, "the state", and consumers all face a dilemma of no profit. He attributes this...

Chinese officialdom appears to be at an impasse on its approach to genetically modified foods. The GMO impasse may have deeper roots than most observers realize. It may be emblematic of a broader collision between officialdom's "modernization" strategy and a creeping distrust of authority that is undermining the communist party's reliance on "science" as a palliative that hides the fundamental flaws in the system. The flashpoint is the Ministry of Agriculture's failure to renew "safety certificates" for three GMO crop strains in August 2014. These GMO varieties were in the advanced stages of testing, and loss of safety certificates prevents moving toward commercial release. There was no explanation for the non-action and no indication of whether approvals might be granted in the future. A Chinese scientist involved in developing the crops told a journalist it was "inconvenient" to comment on the failure to extend the certificates ...

"A tiny kernel of corn has become our great burden," said Mr. Yuan, the manager of a dairy farm near northeastern China's Dalian City. He purchases 60,000 kg of corn monthly at 1.35 yuan/500g (over US$ 11 per bushel). Corn prices have been rising but milk prices haven't, forcing farms to absorb the higher cost. Ms. Liu raises 3000 hogs near Dalian and needs to purchase 200,000 kg of corn each month. She says corn accounts for 75% of production costs. The hog price is 7.4 yuan/500g, 5.5 times the corn price. Chinese farmers estimate that they need a hog price of 8 yuan to break even. At a 20,000-hen egg farm, corn is said to account for 60% of production cost. A manager says the high price of corn has induced many egg farmers to substitute other feeds for corn. The egg price is rising, partly due to high corn prices but mainly due to tight supplies as laying hen inventories are still relatively low (presumably the fallout from avian influenza outbreaks earlier thi...

The Chinese government is giving domestic seed companies tax breaks, engineering consolidations, and setting up a jerry-rigged system of supplying publicly-funded seed research to private companies to prop up its seed industry. The aim is to stem the dominance of multinational companies in China's seed market and preserve "seed sovereignty." The official China News Network reported on the seed industry strategy discussed by Ministry of Agriculture officials at a seed industry trade fair in Changsha, Hunan on September 16. In a series of documents issued since 2011, China's State Council has identified the seed industry as a "strategic foundational industry" essential to agricultural development and food security. The Government has issued supportive policies and is preparing a revision of the "seed law" which purportedly promises a "golden age" welcomed by the (Chinese) seed companies. While China has the second-largest number of see...

During September 4-12, Chinese authorities released a series of six online documents ( one , two , three , four , five , six ) explaining the concept behind pilot "target price" subsidy programs for cotton and soybeans and providing a few additional details. According to the explanations, the programs are not just a change for these two commodities--they represent a blueprint for a new approach to agricultural support that will reduce government meddling with prices and let the market mechanism have a "decisive role." The target price will be set by the government once a year. The price is to be announced before crops are planted to give a "clear signal" to guide farmers and the market. The target price is set with reference to production costs to ensure farmers can earn a reasonable return. With costs rising each year, the target price can be expected to rise as well. This year, the target price of 19,800 yuan/metric ton for cotton was announced April...

Suddenly, China is awash in grain. There was so much grain in government reserves this spring, authorities worried that there wouldn't be room to store this fall's harvest. China's grain reserve corporation--Sinograin--set a goal of clearing out 32 million tons of grain by the end of October and began auctioning off grain at a furious pace in mid-May. They sold 30 mmt by the end of August. This 1970s poster says, "Reap an abundant harvest; store grain everywhere."    China's grain production continued to soar over the past two years but demand slowed. With supply greater than demand, the market prices fell below the government's price floor. Authorities had to purchase large volumes of surplus grain to prevent prices from falling. From November 2013 to April 2014, authorities purchased 70 million metric tons (mmt) of corn in northeastern provinces for its "temporary reserve." This was added to 35 mmt purchased in 2012/13 plus normal ...