Saturday, November 29, 2014

China's Corn Price Support Problem

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. That's the theory, anyway. But the wheels came off this policy when supply increased more than officials thought possible and "rigid" growth in demand flat-lined after Xi Jinping's anti-corruption drive shut down official banqueting that pumped up Chinese meat and liquor consumption.

This year's reserve prices are:

metric ton
Inner Mongolia

Authorities began the 2014/15 temporary reserve purchase program November 25, and it will continue through April 30, 2015. The program operates only in the four northeastern provinces listed above. Grain can be purchased by depots operated by Sinograin, the government's grain reserve management corporation, or by depots commissioned by Sinograin. Purchases by two other state-owned enterprises were limited to 5 mmt for COFCO, and 1 mmt by Chinatex (less than previously rumored).

Desperate to maintain production incentives and rural income growth in a period of rapidly rising wages and costs, officials raised the corn support price each year from 2011 to 2013. The price in Jilin Province was raised from 1500 yuan/mt to 2240 yuan/mt from 2009 to 2013 and remains at that level this year. During 2011 and 2012 the market price exceeded the support price, and little corn was purchased by authorities. However, when market prices stopped rising government corn purchases ballooned to nearly 30 mmt during 2012/13 and 69 mmt during 2013/14. Some analysts predict that another 40-to-50-mmt will be purchased this year.

The practice of raising support prices every year was introduced in 2008 and repeated as received dogma in official meetings and speeches until 2013. At first it was applied to rice and wheat "minimum prices," but the practice was adopted for lower-priority commodities like corn too.

Chinese authorities were shaken up by the global grain price spike during 2007-08 and became convinced that commodity prices would rise forever. A book on food security published by the State Council's Development Research Center (DRC) think tank in November 2013 pronounced "we are in an era of high food prices," and chanted the mantra of raising prices annually. Officials became especially concerned about tight supplies of corn, an assessment reflected prominently in the "new" food security strategy put forward last year.

Chinese officials don't seem to have anticipated the possibility that corn prices might drop. In July 2013, the National Development and Reform Commission announced a 5-percent increase in the corn reserve price--four months earlier than usual. There was also some discussion of raising the priority of the corn price support from "temporary reserve" to "minimum price" so it would be equal in priority to rice and wheat.

The increase in the 2013 Chinese support price was announced when it was already obvious that corn prices would be under strong downward pressure. It was already clear that the U.S. and China would both have record harvests, and U.S. futures prices were already dropping. Indeed, the surge of output last fall put downward pressure on prices in both countries. Chinese authorities stockpiled corn in their "temporary reserve" to prevent Chinese prices from falling.

Chinese and U.S. prices diverged in 2013 and the gap widened after another big  harvest in 2014, creating one of the biggest price distortions ever. While this year's temporary reserve prices are unchanged from 2013/14, they are more than double the current U.S. gulf fob price of about $4.56 per bushel. Chinese authorities began rejecting the first of 1.25-mmt of U.S. corn shipments the same week the 2013/14 temporary reserve purchase program was begun.

By June of 2014, authorities in Beijing were worried that grain reserves were at a record-high level--they said 100 million tons--and there was no space to store the 2014 harvest--another big one. That month, the director of the Jilin Province Grain Bureau said 70 percent of the province's reserves were stored in temporary bins or sheds, and he expected that more makeshift bins would be needed to hold the 2014 harvest. The situation was probably worse in Heilongjiang. In May, authorities began frantically holding weekly auctions of corn to clear out space for this fall's harvest. Much of the corn offered failed to sell, however.

Much of China's "temporary reserve" of corn is stored in temporary bins made of thatched straw on a circular base of stones. Thatched mats are wound around to make the sides of a cylinder. The grain is poured in, and a thatched roof is added. The Jilin grain bureau director estimated that his province would need 70,000 temporary storage structures.

A fire at a granary in Heilongjiang in June 2013 destroyed nearly 20,000 tons of corn and got a lot of public attention. This comic skewers the explanation for the fire given by the managers of the grain depot. The man in a traditional mandarin's costume tells the "inspection team's" camera that the granary fire was caused by "high temperatures and wind."
This corn in a Heilongjiang farmer's courtyard in January 2014 was covered by snow and was too moldy to sell to the government reserve. Nevertheless, large volumes of corn in the reserve granaries was also moldy. Large volumes of corn from Heilongjiang offered for auction this summer failed to sell. This year's government document on the temporary reserve emphasizes that grain must be dried and meet standards before it can be sold to the reserve.

In addition to all these problems, China's practice of raising price supports every year was bound to  violate its WTO commitment to limit domestic support to 8.5 percent of the value of production. WTO practice is to measure the value of price-support by calculating the difference between the support price and a fixed historical reference price--in China's case the reference is the average from 1996-98. So, if you raise the price support every year, the difference between the support and reference prices will automatically grow. The price support is now more than double the WTO reference price, or about 1200 yuan per metric ton (see first chart above). This works out to about 17 percent of the value of production using a conservative assumption that the 69-mmt purchased for the temporary reserve during 2013/14 is considered "eligible" for the program. That's double the 8.5-percent ceiling on domestic support.

Like many of China's policies, this one works well when all prices are going in the same direction. But the wheels come off when prices start falling. The decline in corn prices seems to have caught the Beijing policy makers off guard. The Development Research Center was alarmed to find that China had fallen below 90 percent self-sufficiency in 2012 and that corn imports had surged. They began to fret about an inevitable increase in corn imports. A new 400-page book by DRC policy wonks (China: Food Security and Agricultural Going Out Strategy Research) spends most of its 400 pages talking about China's need to import corn. It was released in September--two months ago, when it was clear that China had what is probably the biggest corn glut in history.

Officials in China recognize that the price support has hit a ceiling. In October 2013, a National Development and Reform official again chanted the mantra, "Agricultural commodity prices must keep rising to compensate farmers for rising costs and to increase their income," but he went on to note that "...the domestic grain price is now higher than the international market price, so there is little room for prices to rise further." Since then, the soybean, cotton, rapeseed, wheat, and corn prices have all been held at their previous year's level and this year they are experimenting with target price subsidies for soybeans and cotton.

Authorities would like to transition to a target price subsidy for corn, but it looks like the temporary reserve policy for corn will be in place for at least a year and probably two. How long can the corn price remain stuck between the floor and the ceiling?

Monday, November 24, 2014

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 shortages.

The Chinese cotton price is 14,821 yuan/mt. The New York cotton price for December is 63 cents/lb, translating to 11,912 yuan/mt at Chinese ports, 2909 yuan/mt lower than the domestic market price.
Chinese textile factory bosses complain that orders have been down since the 2008 financial crisis. With high costs and insufficient innovation, they can't compete with southeast Asian producers on an equal footing. Some are going bankrupt or going on the lam to escape unpaid debts.

In a market where supply and demand determine prices, a decline in price sends a signal to producers that they should produce less cotton. China introduced a support price in 2011 to prevent cotton prices from falling. Chinese farmers kept turning out cotton and the government bought it up.

This year the support price--known as a "temporary reserve" policy--has been canceled. Farmers are to sell their cotton on the open market. The market will set a price. The government will calculate the difference between the market price and a "target price", then pay farmers the difference as a cash subsidy. That's the theory.

In practice, the market is not actually having the "decisive" role promised. The government's Agricultural Development Bank is flooding the countryside with cash to ensure farmers aren't turned away or paid with IOUs. The bank has allocated 60 billion yuan (nearly US$ 10 billion) to fund cotton purchases. A single cotton company in Xinjiang autonomous Region said it got a 1-billion-yuan line of credit. It is said that commercial banks have pulled out of the cotton-financing business due to the high risk (of prices falling?). Once again the Agricultural Development Bank is lending money to purchase commodities that are falling in value.

Peoples Daily introduces a Xinjiang farmer who says his seed cotton is selling for 6.3 yuan per kg this year, down from 9.8 yuan in 2013. He says farmers can't make any money at this price--they have to depend on the subsidy for their profit this year.

The target price is set at 19,800 yuan/mt for cotton that has been ginned. A 6-yuan/kg seed-cotton price translates to a lint cotton price of 14,000 yuan. thus, the subsidy is 5800 yuan/mt--over 40 percent of the purchase price.

According to Peoples Daily, the new policy will improve quality. The temporary reserve policy encouraged farmers to grow the maximum volume of cotton without regard for quality. This year, farmers have incentive to plant good quality cotton varieties (everyone gets the same subsidy per kilogram--that gives farmers incentive to sell at a higher price). The poorly calibrated mechanized equipment in Xinjiang also degrades quality by damaging fibers and introducing impurities. Foreign fibers are also mixed in [intentionally?] with hand-picked cotton. A Xinjiang cotton enterprise manager thinks the quality improvement will be the most important impact of the new subsidy.

Saturday, November 15, 2014

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 the first tangible result of an agricultural investment strategy targeting Bulgaria. Several years ago commercial officers at China's Bulgarian embassy recommended Bulgaria as a potential site for Chinese companies to launch agricultural investments on the European continent as part of the Chinese "go global" strategy to grow crops overseas for the Chinese markets. A number of companies have been exploring possibilities, but the Tianjin company's investment in grain and oilseed production is the flagship project.

The investor in Bulgarian farming is a company created by the State farm system in China's Tianjin municipality ("Nongken" is an abbreviation of "agricultural reclamation", part of a national network of state-owned farms that operate swathes of land converted to farms on the forest or desert frontier, reclaimed coastal lands--like Tianjin--or tropical plantations.)

Tianjin Nongken has political support. In May 2014, a member of China's Politburo and Party Secretary of Tianjin Municipality visited Bulgaria at the invitation of the head of Bulgaria's Socialist Party. The Chinese official conveyed greetings from the Chinese premier and was briefed on the agricultural investment project. The agreement allowing Bulgarian corn to be imported to China was signed 3 months later. Diplomats said an earlier agreement to establish import protocol for Bulgarian corn was signed to facilitate the Tianjin Nongken project.

Also in May--perhaps by coincidence, perhaps not--Minister of Agriculture Han Changfu urged State farms to form shareholding companies and conglomerates and endorsed them as main players in China's agricultural "go global" strategy.

In 2011, Tianjin Nongken set up a company in Bulgaria with investment of 30 million Euros, renting 30,000 mu (2000 hectares) of land in northwestern Bulgaria to grow corn and other crops using local labor.

According to the Politburo official's briefing during May, Tianjin Nongken planted crops on 127,000 mu in Bulgaria during 2014. They expect to produce 25,000 metric tons of corn, 10,000 tons of wheat, 4,500 tons of sunflower seeds and rapeseeds, and 3,500 tons of other oilseeds. An online posting by Tianjin Nongken's trading company offers corn, alfalfa, wood products, sunflower oil, Bulgarian wine, distillers dried grains, and other grain products. The company has warehouses near the Varna port and has acquired a Bulgarian flour mill and a sunflower seed processor.

Chinese overseas agricultural investors encounter a lot of problems. Tianjin Nongken planted their first Bulgarian crop in 2012 but production was disappointing (they were hoodwinked by Bulgarian partners?). The land was fragmented into numerous parcels and much of the land was not usable for farming. Transportation was poor and the level of economic development was low. The Tianjin Nongken company packed up and moved their operation to another part of Bulgaria. They signed another agreement to buy and rent 130,000 mu (8,700 ha) with investment of 270 million Chinese yuan (about US$ 44 million).

According to the diplomats' report, a Beijing company has rented 500 hectares of land in Bulgaria to grow vegetables in greenhouses. They are just getting started but expressed frustrations over lack of labor and poor English skills of workers. They plan to bring in more Chinese companies to help them.
Chinese investors complain that buying land in Bulgaria is risky due to frequent disputes over ownership "for historical reasons." The legal environment is poor, efficiency is low, it's hard to consolidate land parcels (sound familiar?) and organized crime and "interest groups" are a problem.
The diplomats say the China-Bulgaria agricultural relationship is constrained by differences in language, customs, culture, and ideas. Bulgarian workers have poor English, communication is difficult, and misunderstandings are common.

Returning to the 36,700-ton Bulgarian shipment--this single shipment exceeds the Tianjin Nongken's entire production in Bulgaria this year. The trading company's plan to bring in 175,000 tons means that the company is getting corn mainly through traditional purchasing channels. This illustrates the impossibility of completely controlling grain supplies from production to port.

Friday, November 14, 2014

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.

ProvinceSupport priceCurrent prices
Inner Mongolia (Tongliao) 22602160-2180

The information is reportedly confirmed but is awaiting final approval by certain government departments. An official announcement is expected by November 20, 2014.

This year, corn can be purchased for the temporary reserve by Sinograin--the Government's reserve management corporation--as well as two other state-owned companies: COFCO and Chinatex.

Purchases for the temporary reserve will no longer be open-ended. This year there is expected to be a 40-mmt limit on the total volume of corn purchased. The limit is due to the large inventories already on hand from last year. Reportedly, COFCO will be allowed to purchase up to 12 mmt and Chinatex up to 2 mmt. Presumably, Sinograin will be limited to the remaining 26 mmt.

Purchasers will get a subsidy for their operational costs of 50 yuan/mt, down from last year.

According to other calculations, following auctions and transfers since April, authorities may have over 60 mmt of the last two years' temporary reserve-purchased corn in storage, most of it from 2013/14.

With market prices below the support prices, it looks like more corn will be added to the stockpile over the next few months. Another round of auctions to dispose of the stockpile will likely be held again next April.

It is also rumored that the subsidy for transporting corn from northeastern provinces to other parts of China will not be offered this year. Last year, it led to a perverse pattern in which prices in northeastern provinces were higher than in north China provinces like Shandong and Hebei.

Thursday, November 13, 2014

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 Produced, the More Backward the Economy," raised concern that "the rice bag can't compare with the money bag," and "central government supports agriculture, local government has little regard."

A recent article in the Government-run magazine Liaowang (Outlook) with a similar theme highlighted the problem of poor finances in grain-producing counties. It illustrated the problem with Jilin's Lishu County, the fifth-largest grain-producing county in China. The local government there collects essentially no tax revenue from grain production. Farmers were exempted from the "agricultural tax" about ten years ago. Sales and initial processing of grain and most other farm products is exempt from value-added tax. In 2013, Lishu County's tax revenue totaled 556 million yuan, but its financial expenditures were 2.94 billion yuan--more than five times tax collections.

In contrast, city governments raise vast sums of money by converting agricultural land to other uses, conjuring instant wealth out of thin air. Rural grain counties are pressured to protect cropland from development, thus denying local officials the road to riches traveled by their city-based comrades. Rural county officials say potential investors are scared off by rhetoric about "seizing grain" since it implies few development opportunities.

The financial shortfalls of rural counties prompted China's central government to start up a transfer payment "award" program for hundreds of major grain-producing counties in 2005. The counties are ranked based on a formula that weights grain production, area planted in grain, and the amount sold outside the county. Initially, the transfer awards were just to fill holes in rural county budgets and there were no strings attached to the funds. A "super grain county" gives additional cash to the best-performing counties. Oilseed counties and pork counties now get similar payments. These newer transfers must be used to support subisides, loans, and services to farmers.

The plan for raising production capacity 50 mmt during 2009-2020 identified 800 core grain-production counties (about a third of all counties in China).

Authorities have been distributing 2014 award funds in October and November.

Jiangxi Province received 1.1 billion yuan in award funds for 46 grain counties (about 25 million yuan each), plus the province got 200 million yuan for being a commercial grain-supplying province.

Jiangsu Province got 1.66 billion yuan for grain county awards. This included 1.18 billion yuan for regular grain county awards, 153 million yuan for "super grain county" awards, 78 million yuan for oilseed county awards, and 252 million yuan for being a grain-supplying province. The "super grain," oilseed, and grain-supply province funds are earmarked for activities to support production, especially a campaign to refurbish or build grain storage facilities.

Guangxi Province has installed an evaluation system for counties receiving grain county awards. The funds fill holes in county budgets and should be used for improving fields, building storage and processing facilities. The funds should not be used for buying cars, office buildings, "training centers," or "image projects."

Sihong County in northern Jiangsu Province got 34.6 million yuan in grain county award funds, plus 15.3 million yuan for being a super grain county. Sihong has protected farmland, introduced new varieties, improved fields, built water projects, and supported new-style large farms and cooperatives.

Minquan County in Henan Province got 39 million yuan for its grain county award in 2013, over ten times the amount received in 2005. Officials there say they have paid a lot of attention to grain production in recent years and have made progress in implementing the award fund assessment.

Jilin's Lishu county used to collect about 58 million yuan from farmers for the agricultural tax before it was eliminated in 2004. Its "award" for being a major grain county now is 124 million yuan. It also got 350 million yuan (about $130 per acre) to distribute to farmers as grain subsidies. The county spends about 20 million yuan on roads, 8 milloin yuan on agricultural insurance, and nearly 100 million yuan on water and irrigation projects.

To the extent that local governments devote personnel and material resources to grain production, the cost of producing grain exceeds costs reported by farmers. Thus, local officials complain that the price of grain sold to urban areas doesn't reflect the full cost of the grain.

The Liaowang article calls for setting up a system for transferring funds from wealthy grain-consuming localities to rural counties that supply grain. This idea has been pushed for a number of years but doesn't seem to have progressesd.

Tuesday, November 11, 2014

Regulating Dog Meat Trade in China

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 corners.

A man inside a dog cage protests eating of dog meat
outside a slaughter point in Guiyang.

Consumers of dog meat respond that it's no one else's business what they eat and the government has no right to interfere. A weibo post argued that the customs of ethnic groups that consume dog meat should be respected. A 2010 article noted that legal experts were formulating a proposal for an animal protection law that would assess large fines to enforce a ban on eating dog and cat meat, but noted that such a law would affect the "dog meat economy" in certain parts of Jiangxi Province.

Buddhist protestor at Yulin dog meat festival

A more practical and immediate concern is the regulation and supervision of the production and distribution of dog meat to ensure sanitation and safety. During the 2014 Yulin dog meat festival there were accusations that dogs were kidnapped from owners to be butchered, that rabies is spread by sick dogs, and that the supply chain is mostly unregulated.
Dogs are delivered packed into small cages.

Regulating meat supplies poses a challenge on several fronts. The supply chain involves activities that are regulated by a variety of different authorities. Agricultural authorities are responsible for production of animals and feeds. Slaughter is an industrial process under technical supervision bureaus, marketing is under industrial-commercial bureaus, and restaurants are supervised by health departments. None of these officials have authority to make arrests, so police are often involved. A second problem is that production occurs in rural areas far from the cities where the meat is consumed.

News media investigations indicate that there is a dog meat supply chain much like those for other types of meat industries. Many of the dogs are raised on a small scale by farmers. Dealers come to villages to buy dogs, load them on to trucks, and transport them to wholesale markets or restaurants in various cities like Yulin. Sometimes they are butchered in slaughterhouses but many are killed by vendors at the point of sale.

There are no national standards for dog meat since this is a relatively small niche industry, but in 2013 the Ministry of Agriculture introduced a rule governing marketing of dog and cat meat. The rule requires that each dog be accompanied by three certificates--a health inspection, vaccination, and a lab test report. Producers are supposed to keep health and vaccination records for each animal. Dogs are supposed to be slaughtered in a facility designated by the government. The facility should file a report with authorities on the animals 6 hours before slaughter and again at the time of slaughter.

Dog farm

According to one estimate, the cost of transporting and acquiring all the required certificates would be 200-300 yuan per animal. The farm-level purchase price is about 9 yuan per 500g (about $1.50/lb). With such high costs, producers are not inclined to comply with the rules.
Certificates for dogs leaving a county
and disinfection of truck

China Youth Daily raised concerns that vendors at the Yulin dog meat festival either failed to display the required certificates or had a single certificate for hundreds of dogs. Many are butchered on the spot by vendors.
dog slaughtered on the street. 
A Beijing Evening News journalist investigating the Yulin dog meat industry found an extensive supplier network. Some dogs came from villages in Yunnan, Shaanxi and Hubei Provinces where dealers go door to door buying them. Truckloads of dogs are inspected by animal health officials in the municipality where they are procured, certificates are issued, the truck is photographed and disinfected and sent on its way.

The three certificates required by MOA are issued by authorities in production areas. When a truck loaded with dogs arrives in Yulin, officials there check it again and release the dogs for sale in markets or to restaurants if no problems are found. Authorities in Yulin wait by the highway (probably at the toll booth) to check trucks as they arrive. They claimed to have turned away two trucks that were not compliant. In the Yulin wholesale market, the reporter saw certificates issued by animal health bureaus in Mengzi City, Yunnan and Weinan City in Shaanxi on display.

Officials also have to supervise the marketing of dogs from the area surrounding Yulin where an estimated 400,000 dogs are raised for meat. Officials say some people steal dogs, but most are raised by villagers. In one village house, he saw 3 or 4 rooms filled with dogs. Local officials acknowledge that the Yulin area has a high incidence of rabies, and there are about 100 deaths from dog bites each year. Animal health officials say rural people don't know they should get treated after a dog bite. They say rabies is not transmitted by eating meat of infected animals.

One official in Yulin estimates that 200 dogs are consumed per day in the area, but it goes up to 2000 per day during the peak summer months when the festival is held. It's estimated that 400,000 dogs are raised for meat in the area around Yulin. With three certificates per dog--as required by MOA's rule--that would be 1.2 million certificates to keep track of.

Dogs from outside Yulin are supposed to be slaughtered in one of eight local slaughter facilities. These are said to be overseen by three groups of inspectors who go out to check them daily.

Many people in China are now revolted by the dog meat industry, but there are many parts of China where dog meat is part of daily life and a source of income. There is no law banning dog meat. If such a law were to be introduced in China, how would it be accomplished? There is no mechanism for voting on a referendum. Nor is there a mechanism of voting in or out candidates that support or oppose dog meat consumption.

Regulating the dog meat trade is a challenge. Authorities have been struggling to regulate the major meat--pork. Establishing supervision for a relatively small industry like dog meat and closing all the loop holes is daunting.

These are some of the issues China is dealing with as it tries to transition from a collection of semi-autonomous city-states to a nation ruled by law.

Monday, November 3, 2014

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 companies or cooperatives, and 11 percent to "others." They seldom rent to a person or company from outside their village.

The Shaanxi study claims that villagers are supportive of land transfer but they are afraid to let go of their land since they are worried they might lose their rights to the land and/or the subsidies attached to the land. Villagers working off-farm want to have their land as a fall-back in case they lose their job and have to take up farming again. In some places on the outskirts of cities, villagers are holding on to their land hoping for a big payday from developers.

The report gives the example of a farmer who has 20 mu (3+ acres) of his own land plus 200 mu he rents to grow wheat. All the land is on a flood plain (so it's probably classified as "waste"land that is not a core part of the village's land contracted to collective members). The farmer would like to rent 1000 mu (165 acres) to grow grain, horticultural crops, and raise livestock, but coordinating with collective members to consolidate a large parcel of land is difficult.

With villagers reluctant to let go of their land, rents have gone up to over 1000 yuan per mu (about US$ 1000 per acre). With such high rents, producers are inclined to use rented land to grow high-value crops instead of grain.

In Shaanxi direct subsidies for grain range from 56 yuan per mu to 81 yuan per mu, depending on the region. This is equal to 25-35 kg of grain or less than a day's wages and you get the subsidy whether you grow anything or not. Large-scale farmers say the subsidies don't have much impact now. They would prefer to get help with financing.

The inclination to rent land has always been relatively low in Shaanxi. In 2007, Shaanxi reported only 2 percent of its land had been transferred, compared with a national average of 6-to-7 percent that year. Since then it has risen fast. Shaanxi's land transfer was up to 5.7 percent in 2009, 10 percent in 2012, and 11.8 percent in 2013.

Shaanxi officials have been trying hard to promote land transfer. In an article earlier this year, Shaanxi officials said land transfer was very important to releasing surplus rural labor and promoting coordinated rural and urban development. Officials attributed Shaanxi's low rate of land transfer to the province's low level of development, few large-scale farmers, and villagers' lack of understanding of the land policy. Officials said villagers were afraid the policy might change after they entered a land transfer agreement and they would then lose their land. So they would rather leave their land idle than rent it out to someone they don't trust.

Shaanxi has been setting up township and county offices to coordinate land transfer, settle disputes, etc, but this has been disrupted by a  consolidation of townships. Some 17 percent of townships have been eliminated as administrative units and have no funds to support the land transfer services. In 2011, the province issued a document offering financial support for land transfer but little of the promised money has been allocated.

Many of the verbal agreements are vague, and disputes often arise over the deals. Multi-year rental agreements often set a one-time rental fee that doesn't change. When rents and prices go up in later years, lessors want to renegotiate the rent. Some rental contracts extend beyond the period of the lessor's contract on the land, posing possible disputes in the future. Some renters change the use of the land to a nonagricultural use after getting control of the land.

Shaanxi officials want to bring their land transfer rate up to the national average. In May, another policy document was issued to promote land transfer. They will educate villagers about the importance of land transfer and their rights. Within 3 years they plan to issue certificates of land rights to all villagers.

A provincial fund to support land transfer will be initiated. In developed regions, villagers will get a subsidy of 100 yuan per mu if they rent out their land. In poorer areas, the large-scale farmers, companies or cooperatives renting-in land will get the subsidy.