China Pushes Reform, Puzzles Over Grain Glut

China's top leadership plans to push ahead with deep structural reforms of agriculture and the countryside next year, but the most pressing matter is how to deal with its huge stockpile of surplus grain.

At their annual conference for rural work China's top leaders held December 24-25, 2015, President Xi Jinping and Premier Li Keqiang sent a signal to the rest of the communist party that they intend to push forward with their ambitious overhaul of the countryside. Xi celebrated the progress made during the 12th five year plan (2011-15), but he warned that agriculture and the countryside still face great difficulties. Xi exhorted officials to make rural work a key priority during the 13th five year plan, firmly pursuing concepts of "innovative, coordinated, green, open, and mutual" development while pushing forward agricultural modernization and rural reforms of all kinds.

Officials hope to move more rural people into cities, consolidate farmland into modern farms, link up farmers with processing and service industries, cut back on excessive use of fertilizer and pesticide use, foster innovation, more egalitarian economic growth, greater openness to the world economy, and much more. This "new idea" about rural development is expected to be the theme of the communist party's "Number one document" for 2016.

The urgency of the reforms is illustrated by some perverse phenomena observed by a China Agricultural University official this week. He notes that China has produced more grain than it needs, and has record inventories, yet it imported 100 million metric tons during 2014. He points out that the world is worried about a shortage of grain, yet China has a problem with surplus. The official marvels that prices in China were low ten years ago, yet now the price of corn in China is about double the FOB price of U.S. corn. He said some people are importing grain at the 65-percent over-quota tariff and still finding it profitable. The official observes the irony that rural migrants now earn about the same wages as recent college graduates--a nanny and a recent college graduate both earn about 4000 yuan per month. Yet a mu of corn brings in only 1000 yuan, rice 700 yuan, and wheat 800 yuan, so who would want to grow crops? Yet China is now cutting prices to achieve parity with imports. The only way forward for China's agriculture, the official argues, is to expand the scale of farms and mechanize.

The structural reforms are necessary, but they will take years to accomplish and produce real change in the countryside. Meanwhile, the rural work meeting puzzled over urgent problems of record-high grain inventories, pressure from imports, and neglect of farming as migrants and capital pile into cities.

The rural work meeting emphasized the urgency of drawing down excessive grain stocks at a more rapid pace, but no specific measures were discussed. The accumulation of surplus grain at high prices over the last three years is in the background as leaders advocate liberalization of farm prices and creating "internationally competitive" farms and agribusinesses that are more productive and have lower unit costs.

According to a Number 1 Business News article on the meeting, Premier Li noted that the amount of corn that needs to be released from reserves is estimated at "several tens of million tons to 100 million tons." While preventing further accumulation, Premier Li estimated that it would take two to three years to draw down excess corn inventories.

Meanwhile, the corn stockpile is still growing. A Grain and Oils News analyst reported that the government is purchasing 5 million tons of corn every week to support prices and had procured 46.2 million metric tons of the 2015 corn harvest as of December 20. The commentator said discussions at the rural work meeting and the Ministry of Agriculture's annual meeting suggested that the "temporary reserve" price for corn will be cut to 1600 yuan/metric ton for the 2016 crop, down from 2000 yuan for 2015. However, the government also has a priority of maintaining "steady growth" in rural incomes in 2016, so unspecified "government departments" are expected to give subsidies to make up the 400-yuan decline in the corn price.

Similarly, Number 1 Business News surmised that the government will likely give subsidies of 400 to 500 yuan ($61-$77) per metric ton to grain processors to use up the surplus corn. Boosting the grain processing industry incidentally is also one of the many priorities in the 13th five-year plan.

A Caixin Net commentary on the rural work meeting highlighted the recurrence of a grain surplus problem similar to that of the late 1990s and the risk of grain deteriorating in quality. Noting the failure to sell off grain reserves of the last three years, the journalist recounted having visited a region in Henan Province where rice purchased by the government in 2013 was still in warehouses.

The Caixin journalist observes that reforms of agricultural subsidies and procurement policies have been brewing over the last two years. Chinese officials have laid out a principle of detaching subsidy support from prices, but they have no clear policy to replace market-distorting price supports. The Caixin journalist observes that the government has put its hope in target price subsidy policies they have been testing for cotton in Xinjiang and soybeans in northeastern provinces since 2014, but many industry experts are pessimistic that these policies can be expanded to other commodities due to the extremely high administrative costs and other problems.

An "Economy and People" column in Beijing's Xin Jing Bao argued that the grain stock problem can only be resolved with flexible grain prices. The author of the column gave two examples to illustrate the flexibility of farmers in responding to economic incentives. He observed that terraced rice fields had mostly disappeared about 10 years ago in his home town in Fujian Province. Most rice paddies in his hometown have been converted to duck ponds, planted in bamboo, or abandoned, yet people there have plenty to eat. Now that they earn more money from off-farm work and high-value crops they are able to buy rice instead of growing it themselves.

The column's author gives another example to illustrate the responsiveness of farmers to incentives. The writer has a friend from eastern Hubei Province which is a highly productive rice-growing region. However, in that region farmers have also been abandoning rice because it is so labor-intensive. Instead, wheat-growing has become widespread because it requires little labor. The writer observes that Chinese farmers switch crops in response to changing market conditions with a surprising degree of flexibility.

As Chinese officials pursue multiple conflicting and nonnegotiable objectives they are running out of ideas on how to proceed on agricultural policy. Caixin Net's commentary noted that the rural work meeting offered many principles but few specifics on what policies to pursue. While the discussion at the meeting reflected a view that liberalization of farm prices that aligns Chinese and world prices is "unavoidable," there are also non-negotiable objectives of maintaining rice and wheat self-sufficiency, preserving a minimum amount of farmland, maintaining rural income growth, and preventing declines in output in the main grain-producing regions. Moreover, officials need to comply with WTO commitments to keep market-distorting subsidies under 8.5 percent of production value and give up export subsidies.

With so many conflicting objectives, China is really out of feasible choices in agricultural policy...something will have to give.

China Cotton Production Falls 9.3% in 2015

China's National Bureau of Statistics reported that 2015 cotton production declined 9.3 percent from last year, reflecting mainly a 10-percent drop in area planted in that crop.

• 2015 Cotton output was 5.605 million metric tons, down 574,000 tons from the previous year, a decline of 9.3 percent. 
• Cotton area was estimated at 3.799 million hectares, down 423,400 ha from last year, a decline of 10 percent. 
• Cotton yield was 1475.3 kg/ha, an increase of 12.1 kg or 0.8 percent from 2014.

China's cotton production continues to decline while concentrating in its far west Xinjiang region which accounted for 62.5 percent of national cotton output in 2015. The Statistics Bureau explained that the decline in cotton area was especially steep in eastern regions. Production fell more than 17 percent in the Yellow River and Yangtze River regions. Production and area also fell in Xinjiang but not as fast. According to the Statistics Bureau, Xinjiang's cotton area declined 2.5 percent in 2015 but its output declined 4.7 percent. 

Xinjiang's cotton output appears to have peaked while production in traditional cotton-growing regions of eastern and central China is in free-fall. Xinjiang's cotton output was insignificant until the early 1990s. Since then it has expanded to become the predominant producer. Production in the rest of the country has fallen by half since reaching a peak in 2006. 

While Xinjiang's production fell at a slower percentage rate than that of other provinces, its absolute decline in production during 2015 of -174,000 metric tons was the largest of any province. A media report last month estimated a much steeper 20-percent decline in Xinjiang's cotton production this year due to extremely high temperatures during July and reduced plantings. A government survey found a 15-percent decline in cotton prices received by Xinjiang farmers this year while production costs were steady. 

China cotton production (10,000 metric tons)
	2014	2015	change
Total	617.8	560.5	-57.3
Xinjiang	367.7	350.3	-17.4
Shandong	66.5	53.7	-12.8
Hebei	43.1	37.3	-5.8
Hubei	36.0	29.8	-6.2
Anhui	26.3	23.4	-2.9
Henan	14.7	12.6	-2.1
Jiangsu	16.0	11.7	-4.3

Wired Agriculture Alliance in China

Press "ctrl-alt-del" to reboot agriculture in China. The country's leaders have ambitions to vault the industry from medieval peasant-style farming into 21st century "Agricultre 4.0" of wired-up fields, warehouses, trucks, and retail platforms.

On December 15, a ceremony was held in Beijing to launch an alliance to promote wired-up agricultural business in China. The association has the clunky name of "China Agricultural Product Internet of Things Innovation Alliance" (中国农产品物联商务创新联盟) and it consists of government offices, companies, educational and financial institutions engaged in "smart" agriculture and e-commerce.

The "Internet of Things" involves the use of sensors, GPS, gauges, thermometers, and other gadgets in fields, tractors, drones, greenhouses, trucks, and warehouses to collect information on environmental conditions, plants, animals, and produce. The data can be transmitted, stored, compiled and analyzed to apply water and chemicals in precise quantities, adjust temperature, and track products through the whole supply chain. The European term "Agriculture 4.0" is being used in China. The Chinese alliance is marrying "Internet of Things" to rapidly growing e-commerce in food products, envisioning the wiring up of the whole supply chain from farm to consumer.

The alliance's vision statement hits on nearly all of the latest official economic strategies and buzzwords for China's new 13th five-year plan: innovation, agricultural modernization, integration, services, food safety, environment, and poverty alleviation. The alliance focuses on the whole supply chain: farming, processing, storage, transport, commerce, and distribution. The alliance's vision is to "test the environment, control production, and trace quality" through the six stages of the supply chain.

The alliance has a "great dream" for a rural makeover:

• "New agriculture" that links up the six industries for producing, processing and delivering food
• "New farmers" represented by "professional farmers" [it's implied that these professional farmers will replace small-scale, part-time, peasant farmers]
• "New countryside" of fields and orchards integrated with cities.

The "great dream" hits on most of the new official strategies enshrined in the 13th five-year plan. It links up and integrates farming, processing, and service sectors. It replaces uneducated, small-scale, part-time, peasant farmers with large-scale, full-time, educated "professionals." It breaks down barriers between countryside and city and aims to transform the countryside from a poor, dumpy place into a place of scenic beauty. 

The alliance also emphasizes two other priorities: ecology and food safety. 

In typical Chinese style, it aims to engineer ecological balance. To westerners, "organic" and "ecological" convey a vision of nature without human interference. The alliance describes its carefully engineered network of big, capital-intensive farms, computers, and drones as "ecological," "organic," and a "circular economy." The leader of the alliance is the communist party secretary of Daxiangshan Group, a company in Henan's Baofeng county that sells food products from areas purportedly free of pollutants. 

The alliance appears to be designed to benefit a particular locality in Henan Province. Daxiangshan Group--the featured company--is an amalgamation of companies in Baofeng County, Henan Province. Others at the founding ceremony included the head of "Old Liberated Areas Development" at the National Poverty Alleviation office (many of the areas that were the first to come under communist control in the 1940s are chronically poor). The leader of the "Old Liberated Areas" office from Pingdingshan City in Henan, the director of a high-tech development zone in Baofeng County, the secretary of the Henan Provincial communist party committee, and a professor from Henan University are also featured participants in the alliance. All other participants identified were from official organizations and companies in Beijing. There are model programs to develop Internet of Things for agriculture in Shanghai and Anhui Province but there is no mention of companies or organizations from those localities in this alliance. It's probably entirely coincidental that this association is focused on Henan and Premier Li Keqiang previously served as governor of that province. 

A smart agriculture demonstration center in Anhui--apparently it was

not invited to join the agricultural internet of things alliance.

The Internet of Things intends to guarantee food safety by enabling traceability. By giving every box of vegetables a number and digital code, they can be traced through the whole system. Consumers can find out where their food came from, and problems can potentially be traced back to their source. The government's agency for plant and animal inspection and testing is a participant in the alliance.

"Alliances" (联盟) are a new fad being pushed by Chinese officialdom for the 13th five-year plan. Other alliances of food testing labs and family farms have also been announced this year. These are not organizations spontaneously arising from grass roots collaboration; they are carefully crafted and controlled associations of big companies, government organizations, and research institutes whose creation is orchestrated by the communist party. The alliances reflect the strategy of tying together companies and publicly-supported research institutions to promote innovation. The alliance's founding ceremony was hosted by the China Agricultural University's College of Information and Electrical Engineering. Guanghua Foundation, a government vehicle for supporting high-tech, is another participant. A Ministry of Science and Technology official described the agricultural Internet of Things alliance as a community of shared interests for wisdom and innovation. The strategy is intended to address a chronic problem of missing innovation: Chinese companies devote minimal effort to R&D while research institutes and universities pursue theoretical laboratory research with scant concern about practical application. 

Information technology has great appeal for China's mandarins. It appears to offer the means to organize a chaotic economy. Supply chains are much neater and easier to control than the messy webs of small-scale farmers, traders, workshops, and retail vendors that have come to dominate China's food markets. 

The wired-agriculture alliance is called a "convoy," an interesting shift from the popular naval metaphor of an "aircraft carrier." The metaphor implies neatness and organization that contrasts with the chaotic image of Chinese harbors littered with small fishing boats. However, convoys are expensive, inflexible, and require great effort to make a change in course. For this reason, commercial vessels never travel in convoys (unless they're worried about pirates or enemy attacks). The chaotic flexibility of China's microenterprises that popped up as soon as control was loosened during the 1980s may have been the secret of the country's economic success. 

China's mandarins are subconsciously designing an economy that looks a lot like central planning dressed up with technology. A spider web is harder to break than a long chain. Can one-dimensional "chains" produce as strong an economy as multidimensional "webs"? Can synthetically created "associations" function like the grass roots industry associations in other countries they are desgined to mimic? Can information technology overcome the cronyism and organizational dysfunction that are the real problems undermining China's economic growth?

State Farms as World-Beating Companies?

To Chinese leaders, a "market economy" does not mean a privatized economy. Rather, they view dysfunctional state-owned institutions as the core of their market economy. Relics of central planning will somehow coexist and intermingle with private firms and act as models of reform that will pull along the rest of the economy. Understanding their obsession with state ownership and bigness explains why China's leaders are plowing billions of dollars into these capital-eaters.

This mindset is evident in the State Council's directive to reform the network of state farms set up during the 1950s. An outsider might expect these anachronistic dinosaurs to be broken up and privatized, but Chinese officials have no intention of abandoning the state farm system. They envision this sprawling system on China's remote frontiers as "models" for its initiatives to "modernize" agriculture, maintain food security, increase external "openness," and create world-beating agribusinesses.

The State Council's document describes the state farm system as "the backbone and representative of the agricultural economy." The document explains that state farms are an "indispensible" component of a distinctively Chinese rural system that also includes rural collectives, household family farms, farming cooperatives. The objective is an amalgam of state, collective, and private ownership with state ownership as the main component. Officials plan to establish a "multi-channel investment mechanism with government investment at the core."

The support for state farms also reflects a mindset among Chinese leaders that equates size with power. The state farms are located in remote areas where land is relatively abundant, so they are larger and more mechanized than most Chinese farms. Leaders think the larger size of state farms gives them a leg up in modernizing agriculture that will pull along the rest of the country's farms.

The State Farm system itself is a confusing amalgam of huge Soviet-style farms, family farms operated by former employees or their descendants who lease land from the state farm, agribusiness companies, and residential communities. To make it more confusing, some are run by the central government, others by provincial and local governments. The plan for reform is far-reaching and bewildering in its scope, but the core ideas are to be the vanguard in modernizing agriculture by mechanizing farms, improving infrastructure, and adopting new technology; creating conglomerates of farming, processing, trading businesses; and reforming the division of responsibilities between the state farms and local governments regarding housing and welfare of their employees.

A core strategy of the reform is to form groups or conglomerates of "large, internationally competitive agricultural businesses." Various state farms, processing companies, and auxiliaries like seed and breeding operations are expected to band together in conglomerates as joint ventures or through merger and acquisition. Officials call for new approaches to raising capital and shareholding. The conglomerates will get help listing on stock markets. State ownership of companies is supposed to form a strong core for the company that will attract private investment, ultimately creating companies with dual public and private ownership.

State farms have geopolitical importance because they are concentrated in remote border areas. In explaining why the state farm system is so important the State Council document points to the "increasingly complex" challenge of "maintaining harmony and stability on the frontier." They were set up during the 1950s to supply army units protecting outposts of Chinese colonialism w in contested regions of Manchuria, Central Asia, and Southeast Asia. Their formal name is "reclamation farms" because they were established in remote, barren parts of the country with harsh climates that would remain uncultivated in other countries. The state farms began as military outposts and later became islands of ethnic Han Chinese settlement in regions that were historically populated by other nationalities.

With land gobbled up by development in the core regions of China, these colonial outposts are now viewed as key suppliers of grain, cotton, sugar, natural rubber, and dairy. They are also the main recipients of China's giant farm subsidies. The lion's share of massive corn and rice stockpiles procured to support prices are held in Heilongjiang Province--the main bastion of the state farm system on the Russian border. On the troubled Central Asian border, the Xinjiang Production corps is the main producer of cotton. Xinjiang holds most of the massive cotton stockpile and is the only region where the generous "target price" subsidy for cotton operates. Similarly, the sugar industry associated with state farms on the border with Southeast Asia has accumulated stockpiles and subsidies.

The government subsidizes or otherwise orchestrates the shipment of commodities out of these border regions to the core regions of China, but there is campaign to create grain processing and livestock industries to utilize the grain glut in Heilongjiang and a textile industry to use up Xinjiang's cotton--subsidized industries to process subsidized commodities. Developing agricultural processing is another thrust of the state farm reform program.

The state farms are now expected to take the lead in moving outside China's borders. The reform document explains that state farms will take leadership in China's new strategy of greater external openness. Their proximity to the border makes the state farms key players in the "going out" and "one belt, one road" strategies. Farmers from Heilongjiang Province's state farms have been growing crops across the border in Russia for a number of years. Beidahuang, a company associated with the province's state farms, has invested in Latin America. The Tianjin state farm company is engaged in investment in Bulgarian corn and oilseeds. Several years ago, a deal was announced for the Xinjiang Production Corps to install high-tech water-saving irrigation technology in Ukraine. State farm entities have been operating rubber plantations in Indonesia for years.

With intensive cultivation on China's side and mostly barren land 

on the Russian side, state farms are taking the initiative to grow crops in Russia.

Like all large organizations in China, the state farm system is riddled with inefficiency and dysfunction. In an interview, China's Minister of Agriculture acknowledged that reform of the state farm system is a complex systemic project and a heavy task with great challenges. In view of the "great difficulties," said the Minister, the state farm system cannot carry out the reform on their own. The Minister exhorted all levels of communist party organization and government to put a priority on state farm reforms. There will be a blizzard of plans formulated, and the Minister calls for more organization, coordination and implementation.  Notably, the Minister calls for Financial departments at each level of government to spend more money to meet the needs of state farms.

China Ag Officials Call for Fewer Pigs Near Polluted Waterways

Agricultural officials in China issued instructions to cut back on the number of hogs in the parts of the heavily industrialized Pearl River delta where the number of pigs is beyond the land's carrying capacity. Local officials are urged to designate districts where pigs are banned, induce farms to properly treat waste, and utilize the waste for fertilizing crops.

The pronouncement was part of a guiding opinion on adjusting the regional layout of hog farms in five major watersheds where there are concerns that pig manure and urine are causing water pollution problems. Besides the Pearl River delta in eastern Guangdong Province, the other regions included the Yangtze River delta (Shanghai, southern Jiangsu, Zhejiang), middle Yangtze River (Hubei, Hunan, Jiangxi), the Huai River region in 29 counties of Shandong and Jiangsu, and the Danjiangkou Reservoir in northern Hubei and Henan (the starting point for the south-north water transfer which has been plagued by pollution). The document was issued November 26, 2015.

Farmers Daily explains that the five regions include 133 counties that produced 97 million hogs in 2014, 13 percent of the national total. These are key hog-producing regions, but they are also important watersheds with extensive networks of rivers and lakes. Many of the hog farms fail to properly treat the waste produced by the pigs--estimated at seven times the daily waste produced by humans. Only 40 percent of the waste is utilized (for biogas, to fertilize crops and feed fish), 10 percentage points less than the national average. The waste is frequently dumped into waterways, contributing to China's serious water pollution.

The five regions generated varying degrees of concern:

• The Pearl River region has the most serious problems. The number of pigs in the region was declared to be beyond the carrying capacity of the land. 
• The Yangtze Delta has "not a lot of room" for further development.
• The regions around the middle reaches of the Yangtze River are near their carrying capacity.
• In the Danjiangkou Reservoir region, hogs are "overall in balance with the land's carrying capacity."
• The Huai River watershed has some room for further development.

The Pearl River region is known as China's leading manufacturing hub, but it is also a major pork-producing area. The troublesome districts include 16 counties in territory that radiates out from Guangzhou and Foshan down to the coastal areas of Jiangmen and Zhuhai and the Huangpu, Dongguan, Conghua, and Zengcheng districts east of the Pearl River.

According to a report from Shenzhen's Yangcheng Daily, an investigation team from the China Livestock Industry Association visited Jiangmen and Foshan during August and found that most pollution caused by livestock came from pigs. On average, a pig generates 2.2 kg of manure and 2.9 kg of urine daily. The team found that environmental controls were generally weak. News media in the region often carried reports of dead pigs floating in waterways. It was estimated that 40-50,000 pigs die of disease in Foshan each year. Most carcasses are buried, polluting the soil, and "some" farms dump them directly in water ways. The investigation found that some farms aren't interested in paying for waste treatment facilities; the penalties cost less than the investment in equipment.

The new rectification campaign has several measures. Local authorities are urged to designate districts where hog farms will be banned, limited, or permitted. Farms should be closed or moved out of districts where they are banned. Farms will be pressured or incentivized to treat manure and use it to make methane gas and utilize the residual as organic fertilizer. It was recommended that a fund be set up to give awards or subsidies to farms that fully treat and utilize pig waste. Another proposal is to lure private investors to start businesses that will collect dried manure and distribute it as fertilizer. Officials are encouraged to formulate plans to integrate livestock and crop production. The scale of farms will be increased--presumably on the assumption that small farms are less likely to invest in manure collection and treatment.

This new push to clean up hog pollution is driven by the embarrassment of the incident of thousands of dead pigs floating in Shanghai's Huangpu River in 2013. However, the idea has been around for at least a decade. For about ten years, news media have cited Guangdong's Dongguan as a locality that banned pigs, yet it is one of the districts targeted in the latest campaign. Jiaxing in Zhejiang Province--in the Yangtze River delta--was the source of Shanghai's dead pigs, but Jiaxing had a plan exactly like the new MOA recommendation to designate districts where pig farms were banned or limited near roads, canals, rivers, and in tourist areas. Jiaxing's plan was drawn up in 2011 for the 12th five-year plan and it listed a series of previous regulations and initiatives to clean up pig pollution going back to 2002.

Environmental clean-up seems to be an iterative process in China. Officials issue orders and plans that are mostly for show and are roundly ignored by everyone until the next embarrassing incident. Then they get a little more serious until the next crisis. Eventually there are improvements but they are incremental. China does seem to be getting serious about cleaning up the pig industry. Numerous localities say they have designated pig-ban areas and shut down farms this year.

The new decree implies higher regulatory compliance costs for farms. It also implies moving hog farming further into the hinterland, thus geographically decoupling hog production from where it is consumed. Shipping pork from Sichuan to Shenzhen is probably more expensive than shipping it from North America or Europe.

Uprooting China's Traditional Farms in the 13th Five-year Plan

China's 13th five-year plan (2016-2020) calls for an ambitious makeover of the countryside which involves moving more small-scale peasant farmers into cities, fostering new types of scaled-up farmers to replace them, and modernizing agriculture by consolidating small plots of land, mechanization, improving advisory services, and upgrading unproductive fields.

Sounding like a millenarian cult, Xi Jinping and his acolytes promise that the long-awaited "relatively well-off society" is in sight and the 13th five-year plan period will be a "decisive" period for attaining it. The plan contains a number of objectives to ensure that everyone is wealthy, healthy and happy by 2020. Addressing rural poverty is one of the core objectives.

An essay in Peoples Daily last month by Minister of Agriculture Han Changfu emphasized the need to accelerate the transformation of agriculture from traditional to modern modes of production. This entails moving to larger-scale operations, treating agriculture like a business rather than a lifestyle, transitioning from relying on inputs to produce output to relying on technology, and paying more attention to environmental impacts of production.

Minister Han's essay alternates between optimism about progress in "agricultural modernization" and gloom about atrophy of Chinese farming, environmental degradation, and massive disequilibrium in agricultural markets. Minister Han cites three prominent problems: environmental and resource constraints; serious imbalances in agriculture, and the low quality of agricultural output. Han says environmental resources have "flashed the red light" in the form of serious pollution of soil and water, shrinking aquifers, and declining soil fertility. Water is being moved from the south to produce crops in the north which are used to supply food and feed demand in the south. Chinese prices are out of alignment with world prices, prompting big domestic surpluses while imports flood in. Manure produced by livestock is unutilized. Farms, processing, and distribution are out of sync. Farming has become a stagnant part-time activity and the farming population is aging. While the overall rate for compliance with food safety standards is 96%, Han worries there are "hidden dangers" in some areas.

Han estimates that China will a grain deficit of 100 mmt by 2020--so it is urgent to raise production capacity. Achieving food security is another objective attributed personally to Xi Jinping--"Chinese bowls must remain firmly in their own hands at all times and bowls must be filled mainly with Chinese food."

Officials plan a sort of enclosure movement with capitalist Chinese characteristics. The vision is to move villagers into cities and give them shares in village farmland, houses, and collective businesses that will pay them dividends in perpetuity. That will free up village land to be consolidated into farms that are commercially-viable. Those who stay behind in the village will become specialized farmers, and their income will go up as they farm on a commercially-viable scale. Calculations typically assume that farmers can net about 200 yuan per mu which would give them a decent income of 40,000 yuan on a holding of 200 mu.

Minister Han reports that 30% of contracted land had been transferred to new-type farm operators nationwide (at the end of 2014). There are 870,000 "family farms" and 1.28 million farmer cooperatives.

An anecdote in the Ministry of Agriculture's October 2015 situation and outlook report reveals that the large farms are not faring well because they are paying big rents while farm prices are falling. In Handan, Hebei Province, it was reported that common farmers earned a net profit of 300 yuan per mu from growing corn in 2015. However, large-scale farmers lost money after deducting the expense of renting land. In Henan, the return from corn is 133 yuan per mu, but it flips to a net loss of 500-yuan-per-mu after deducting rental expense. The MOA analysts recommend that the government give out subsidies in combination with initiatives to transfer land to large farmers. In one area, farmers have been selling their corn to traders at 1460 yuan per metric ton, 640 yuan less than last year. Concerned that land rents are set without consideration of grain prices, the MOA analysts also suggested that the government announce its support price for corn in the fall (a year ahead of the harvest?), when rental agreements are made for the following year.

Minister Han calls new-type farm operators the "leading force" in agricultural modernization and he calls for establishing a support system for them that includes advisory services, stable land-transfer relations, expanding methods of cooperation, exploring contract production, and management services.

Authorities are working on overhauling the grain subsidy system to consolidate the blizzard of subsidy into fewer payments. The direct payment for grain producers, seed subsidy, and general input subsidy will be combined into a single payment. Twenty percent of the general input subsidy funds will be designated for subsidies for scaled-up farms.

The low rate of fixed asset investment is an obstacle to agricultural growth in China. The plan calls for continued increases in investment but offers only the same tired solutions of government-financed irrigation ditch construction and "model" high-yielding farms. These programs only reach a fraction of all farms. They are expected to inspire other farmers to make similar investments but the investments aren't viable for farmers who don't get subsidies given to the "model" farms. Farmers are not inclined to invest in land they don't own and bankers won't make loans to farmers with no land to use as collateral.

The plan calls for more external openness in agriculture, but this means foreign trade that is controlled by Chinese entities. It calls for strengthening control of imports and exports and getting a grip on the scale and rhythm of imports and exports of agricultural commodities. The plan advocates "seizing the opportunity" of the one belt, one road strategy and fostering development of large, internationally competitive agricultural business conglomerates.

China Struggles to Support Grain Prices

China's corn glut is getting worse after its farmers produced another record crop. With demand still tepid, the government is buying up the surplus to make sure farmers are able to sell their grain.

China's National Bureau of Statistics announced that the 2015 corn crop totaled 224.58 million metric tons, 4 percent more than last year. As corn production moved skyward, it widened its lead over rice as the nation's leading crop.

In some areas, farmers have had difficulty selling their grain, but Chinese propaganda organs have been trumpeting the government's efforts to buy up corn.

According to the Jilin Province grain bureau, the government moved up its "temporary reserve" purchases a month earlier to November 1 in order to buy corn before it turned moldy.

The Heilongjiang Province grain bureau said it bought 23.5 mmt of corn for the temporary reserve and 11.5 mmt of rice at minimum prices during November. These "policy-type" grain purchases accounted for 77 percent of the grain procured in the province.

During October and November 2015, the government's Agricultural Development Bank issued loans totaling 122 billion yuan ($19 billion) to purchase 45.3 mmt of fall-harvested grain (corn, rice)--up 16.3 mmt from the same period last year. According to the article, the Bank's large loans reflect the dominance of government purchases in the market. Loans for policy-type purchases are twice as high this year, while loans for market-type purchases dropped 60 percent.

Farmers Daily was pleased to announce that farmers in Shandong Province were having no problem selling their grain. They attributed it to the large number of processors and feed mills in the province and to the temporary reserve policy in northeastern provinces that is sucking corn into government granaries. In Shandong the government has started taking measures to help farmers store grain on-farm. In Zhucheng, 11,000 model farmers got subsidies to pay for three-fourths of the cost of steel storage bins. Large-scale farmers got approval to put drying and storage units on land designated for crop production.

Farmers Daily said there was little business at grain depots during November because Shandong farmers sold their grain immediately after harvest in October so they could get back to their jobs in factories and construction sites.

After plummeting during September and October, corn prices bounced back in early November as the temporary reserve purchase program began. However, prices were still below their September level and below the 2000-yuan "temporary reserve" price floor. This past week the market appears to have become confused with prices dropping sharply in some places and rising in others.

Corn prices, select locations in China, 2015
	Heilongjiang	Jilin	Henan	Shandong	Hebei
Date	Zhaodong	Gongzhuling	Zhoukou	Zaozhuang	Shijiazhuang
	Yuan per metric ton
1-Sep	2080-2110	2190-2200	1920-1930	2100-2110	2090-2110
21-Sep	2020-2050	2070-2080	1880-1890	2020-2040	2040-2060
21-Oct	1700-1740	1800-1820	1560-1580	1710-1730	1720-1740
29-Oct	1680-1720	1800-1840	1580-1600	1670-1690	1720-1740
3-Nov	1710-1750	1800-1840	1580-1600	1750-1770	1720-1740
6-Nov	1720-1760	1800-1840	1600-1640	1810-1830	1720-1740
10-Nov	1740-1780	1830-1870	1600-1640	1850-1870	1720-1740
25-Nov	1810-1850	1890-1930	1860-1900	1890-1900	1840-1860
4-Dec	1810-1850	1940-1960	1800-1840	1890-1900	1840-1860
10-Dec	1800-1840	1960-1980	1740-1780	1790-1800	1760-1780

Corn prices are much higher in corn-deficit regions of southern China: 2200-2240 yuan in Zhejiang Province and Shanghai; 2240-2260 yuan in Hubei and Hunan, 2260 yuan in Jiangxi; 2100-2150 in Sichuan; 2160 yuan in Chongqing; and 2320 yuan in Kunming.

While authorities have pledged to let prices reflect market forces, they can't let corn prices fall enough to equilibrate supply and demand. First, they worry that farmers might abandon corn planting in huge numbers, leaving China with a big deficit in the future. Officials quote Xi Jinping's assertion that Chinese bowls must be filled mainly with Chinese food and officials warn that there must be no relaxation on food security concerns. Second, narrowing the urban-rural income gap is a key objective of the 13th five-year plan. Officials say the cherished "well-off society" maybe achieved by 2020 and brag about the miniscule narrowing of the urban-rural gap. Thus, they can't afford to allow grain prices to fall to lose ground on this objective either.

Cadres Chastised for Farm Subsidy Fraud

A posting on a Hubei Province web site chastises local officials for fraudulently claiming grain subsidies. According to the posting, exaggeration and falsification of subsidy claims are common despite strict regulations governing the distribution of subsidies for grain farmers.

According to the post, cadres faked records to collect extra subsidies. About $1 million in "grain" subsidies were claimed for fields of watermelons. In ten townships, officials padded the land area reported up to the province to collect about $2 million in extra subsidies (the payments are based on area planted in grain in Hubei). Local cadres falsely reported 1150 mu of fish ponds as rice paddies and fabricated 320 mu of rapeseed plantings. Administrators, fish pond attendants, and government office workers all applied for grain subsidies.

The post complains that the subsidies were meant to benefit farmers but instead became "free food coveted by many" as cadres discovered "loopholes" in the subsidy system. The faking of reports and padded numbers arise from a "mistaken understanding" and this "shocks" the general public, said the author of the posting.

The perpetrators are local officials in agricultural and financial departments who file false reports and supervise the reporting and distribution of subsidies. The author of the post says that disciplinary departments are tracking down the falsified subsidies and calls for a system to uncover such problems.

An illustration from an investigation of subsidy reforms: 

"The State" offers a money bag labeled "subsidy".

Subsidy fraud is not unique to Hubei, nor to grain (nor to China). The Internet has numerous complaints about subsidies. One recent commentary questions who really benefits from the subsidies. Machinery and seed subsidies benefit merchants and officials who get bribes to include products of favored companies on the subsidy-eligibility list. Farmer cooperatives are started by local officials to reap the subsidies and tax breaks. Subsidies are routinely collected for idle fields. Last year, the agricultural bureau chiefs of half the counties in Hainan Province were accused of illegally collecting 100 million yuan intended for vegetable greenhouse subsidies. In another case in Hubei Province five years ago, eight communist party officials from a county supervision office and several townships were prosecuted for using subsidy funds to pay for roads and other facilities. In other places, officials threaten to reduce the amount of land they report to the county for collecting subsidies if the villagers fail to pay fees for water and health insurance.

The widespread corruption among local officials grabbing subsidies undermines one of the chief original aims of the subsidy program. The Ministry of Finance conducted a survey during the first year of the subsidy program in 2004 concluded that subsidies improved the communist party's image among the rural populace. Although the amount of the subsidies was not large, the survey team said the subsidy program showed that "...the party and the government had not forgotten the common people who plant grain...[and] implementing the program had actually broadened the sincere support for the party among the peasants."

Writing ten years later, the Hubei Province post says the behavior of local officials "shocks to general public." The writer accuses some local officials of lacking a sense of "law and order" and frets about lack of supervision in the subsidy process.

Chinese Crops From Russia--Volume Grows

As Chinese enterprises growing crops in Russia bring commodities back into the country at an accelerated pace, inspection and quarantine capacity is being upgraded to handle the increased flow of oilseeds and grain. The trade is still relatively small but it provides a window on how China is gradually ramping up its "going out" strategy to grow crops abroad.

China customs statistics show that imports of corn, soybeans, and rapeseed crossing into the two districts bordering the Russia Far East totaled 570,000 metric tons for January through October 2015. The volume dwarfs the 100,000-mt total for all of 2014. Soybeans grown in Russia and entering at the Heihe and Suifenhe crossings account for over 280,000 metric tons. About 70,000 metric tons of corn grown in Russia has been imported so far. Corn from Ukraine entering at the Manzhouli border crossing accounts for another 200,000 metric tons.

The Manzhouli border crossing reported that 49 rail cars containing rapeseed grown by Chinese enterprises in Russia entered China during the second half of October 2015. These shipments were described as a "prelude" to larger volumes expected this year. According to border officials, the rapeseed comes from production bases established by Chinese enterprises in the Siberian regions of Krasnoyarsk and Kemerovo during 2014. While most soybeans and corn coming from Russia are grown just over the border and shipped into China by truck, the new rapeseed production bases are deeper in Russia--northwest of Mongolia--and strategically located on the old Trans-Siberian rail line that enters China at Manzhouli. 

The Heihe border crossing from Russia...looks like a light load.

Several articles from border officials describing the Russian border trade highlight recent measures to upgrade inspection and quarantine capabilities at these relatively minor entry points. The measures are meant to address problems with shipments and increase the efficiency of the inspections to expedite the trade flow. 

The Heihe entry point in northern Heilongjiang Province was upgraded to become a "harmonious entry point" in order to accommodate the increased shipments of soybeans and corn from Russia as part of the national "going out" strategy. Shipments re-started in 2011 after a "ten-year interruption" and were expected to reach record volumes in 2015. The Suifenhe entry point in eastern Heilongjiang was approved in October 2014 to accept oilseed and grain shipments after upgrading inspection capabilities. The approval led to a surge of shipments since last year. 

According a Heihe official, the inspections were strengthened after friction with Russian authorities arose over smuggling and illegal use of pesticides by some enterprises with "low quality" (presumably Chinese farmers growing crops in Russia). A local entrepreneur who has been shipping commodities back from Russia since 2009 claims that the advantage of the Russia-grown soybeans is their higher quality and lower cost. He explained that Russia follows a European standard that prohibits pesticide and chemical fertilizer use, so the beans are free of toxic pesticides and have lower input costs than those grown in China. 

Inspection and quarantine authorities check the imported commodities for the presence of plant disease, fungus, weed seeds, pesticide and heavy metal residues, and genetically modified material. Laboratory testing facilities have been upgraded at the border crossings. Advance inspections and testing before entering China are reportedly conducted to expedite issuance of import certificates and reduce time at the entry point. Transportation equipment and storage facilities are checked to ensure material does not leak out on the road. Authorities say that the imported commodities must be transported directly to a designated processing facility and cannot be sold to anyone else after entering China. The rapeseed shipments reportedly are processed in a plant at the Manzhouli border crossing. 

The flow of commodities from Russia is still tiny in comparison with bulk shipments arriving at coastal ports. The "going out" strategy is just getting underway, and industry reports say the flow of Russian soybeans is keeping a lid on prices in Heilongjiang. But it is unclear whether this can ever become a major source of soybeans for a country whose annual imports are approaching 80 million metric tons. The plummeting value of the Russian currency has been a major driver of the increased flow of crops back to China since last year. Nor is it clear whether the shipments would be viable if the Russian currency makes a rebound some day. 

China May Revise GMO Labeling Regulations

China may revise its regulations on labeling genetically-modified food, according to remarks by a Ministry of Agriculture official earlier this month. This appears to be part of the groundwork for a more pro-GMO approach in coming years.

The remarks were made at the fourth in a series of meetings held by the Ministry November 7, 2015 to educate news media about genetically modified organisms. The meeting gathered agricultural scientists who commented on the importance of keeping up with this technology and dispelled myths about genetically modified foods that have spread among the Chinese public. The meeting was reported by Beijing Youth News, a media organ of the communist party youth league. It appears to be a thrust to reshape public opinion as China pursues a more pro-GMO course for agriculture.

He Yibing, the head of the Ministry's scientific education office, said China's nearly 15-year-old regulations for labeling genetically modified foods are being considered for revision. One specific element is China's qualitative approach which demands that the presence of any genetically modified material whatsoever must be revealed on the label. He noted that other countries have quantitative thresholds--the European Union demands labeling if GM content exceeds 0.9 percent, for example. Mr. He speculated that China's approach may be the strictest in the world. Based on China's current approach, shipments or foods can be rejected if even a tiny trace of unapproved genetically modified material is detected, even if it entered the shipment or batch unintentionally.

The China party line is a balancing act of actively pursuing GMO research while maintaining a rigorous approval process that takes many years to navigate. He Yibing subtly pointed out that China has fallen from fourth in the world to sixth in production of GMO crops. He noted that the United States is the world leader and China is behind Brazil and Argentina. The only GMO crops produced commercially in China are cotton and papayas. Describing China's food security outlook as "grim," Mr. He insisted that China's development of genetic modification is "an objective necessity." He pointed to increasing imports of grain and cited statistics showing that China's consumption of grain far exceeds its production. He did not explicitly mention that China's deficit is filled by over 70 million metric tons of genetically modified soybeans from the United States and Latin America.

Mr. He was careful to emphasize that GMO research must be accompanied by strict oversight, but he also asserted that investigations of GMO safety are not cut-and-dried and must be regulated by officials with professional scientific qualifications.

Mr. He further explained that the labeling of GMOs is a matter of letting consumers exercise their "right to choose" and their "right to know." [It is unclear who determines which "rights" consumers are entitled to in China. Could these "rights" be revoked if the "food security" situation becomes dire enough to become a major concern for the State?]

The genetically-modified food labels are not related to the safety of the products, Mr. He insisted. By this, he seems to mean that labeling GMOs does not imply that they are unsafe to consume. The label alerts consumers to their presence so they can choose not to buy the product if they wish to avoid GMOs. China's lengthy five-step approval process evaluates the potential health effects, impacts on production and the environment through laboratory testing and multiple field trials.

Mr. He observed that the public debate in China on GMOs has become increasingly "rational" in recent years. However, the remainder of the meeting was devoted largely to agricultural scientists dispelling irrational objections to genetically modified foods.

Scientists debunked the widespread belief in China that Americans produce GMOs but don't eat them. One scientist noted that GMOs are in nearly all animal feed in the United States, so it's hard to avoid consuming genetically modified material indirectly if one eats meat. It was explained that the United States grows GMO products mainly for domestic consumption--not just to export--and about two-thirds of products in an American grocery store contain GMOs. A micro-blog posting from the U.S. embassy last summer was cited in support.

A Chinese-American professor explained that genetic modification occurs in nature all the time. He noted that genes of a bacteria naturally entered the genome of the sweet potato thousands of years ago. So if you eat sweet potatoes, he explained, you are eating GMOs.

Another professor said he would choose rice that is genetically-modified to resist pests if given the choice, because conventional rice is drenched in pesticides that are much more hazardous to consume. He explained further that research had shown that the drift of genetically modified rice genes into the environment was confined to a much smaller area than previously thought. The environmental impact is not serious because the bacterial gene is already in the soil, the scientist said.

Another research team reported reviewing over 9000 academic articles that evaluate the food and environmental safety of genetically modified organisms. They found that 88% of articles found no food safety concerns and 93% found GMOs are environmentally safe. The leader of the project speculated that chicken eggs would not be permitted in the Chinese market if they had to undergo the same rigorous testing as genetically modified crops because some people are allergic to eggs.

Storing Grain in Land and Technology: China's Latest Strategy

China has announced a new strategy for food security that emphasizes potential production instead of actual production. The new strategy for the 13th five-year plan has a slogan that translates roughly as "land as a storehouse, technology as a storehouse." The strategy calls for idling stressed land to restore its fertility and for relying on technology to produce more from the land.

The strategy was announced in a document entitled "Xi Jinping's Fourteen Strategies for the 13th Five-year Plan." The propaganda article for cadres to study mentions Xi's name ten times -- mostly quotations from him -- and includes four photos of him visiting agricultural areas.

Xi explains that feeding 1.3 billion people is a huge task that China has to do mainly by itself: "China's food bowl must remain firmly in its own hands." Feeding the population is a crucial test of good governance, Xi further explained.

Xi Jinping seems quite pleased with this "high-yielding" wheat field he inspected in 2014.

The strategy has two prongs: land and technology.

The land strategy is typically schizophrenic. On one hand, China must have the strictest land-protection system, preventing its cropland base from declining below the "red line" of 1.8 billion mu (120 million hectares). The newer feature of the strategy is the acknowledgement that land and water resources have been over-exploited. The strategy allows for cropland to be idled or rotated with legumes that restore nitrogen to the soil during periods when there are plentiful supplies of grain -- like right now.

The strategy cites China's excessively large grain inventories and the huge financial cost of storing excess grain as a justification for idling land contaminated with heavy metals, erodible land, and land in areas with shrinking groundwater supplies. The strategy says that farmers can get subsidies -- either in-kind transfers of grain or cash payments -- as compensation for idling land.

The strategy views the idled land as being given a chance to "recuperate." Thus the idled land is a storehouse or reserve for production when it is needed in the future.

The second prong of the strategy is to rely on technological innovation to raise crop yields as the "most basic road." The strategy cites Israel as a country that has used technology to feed its population with few resources while also supplying Europe with vegetables in the winter. The article also cites the United States as gaining a leading position through technology, but Chinese officialdom's obsession with giant agribusinesses pokes through by specifically pointing to ADM, Bunge, Cargill and Louis Dreyfuss as being responsible for this advantage. No mention of Monsanto, Dupont, or the land grant university system.

"See that? That's the road to agricultural modernization."

"Agricultural modernization" and "innovation" are centerpieces of the 13th five-year plan. According to Xi Jinping, "The road for agriculture is modernization, and progress in science and technology is the key to agricultural modernization." This entails massive construction of "three networks" of consolidated fields, irrigation canals, and roads. It promotes the scaling-up of farms, mechanization, new-type professional farmers, and services.

The strategy sees "technology" as a panacea that will address problems of low net returns and over-exploitation of resources. Although "technology" purportedly accounts for 56% of the increase in China's grain production, it needs to account for an even greater share. Developed countries purportedly obtain two-thirds of their output growth from technology.

"Technology as a storehouse" is the unavoidable choice for producing grain, the strategy asserts.

African Sesame Seeds Pressure China's Market

China's imports of sesame seed from Africa have exploded this year. By September China had already imported 700,000 metric tons of sesame seeds during 2015, easily surpassing last year's record purchases. Nearly all of the imports come from Africa (other suppliers include Myanmar, Bangladesh, and India). Ethiopia, Sudan, and Tanzania have been the leading suppliers for a number of years

China's Grain and Oils News reports that the flood of sesame was triggered by big harvests in Ethiopia and India that caused prices to plummet. However, customs statistics show that this year's surge of imports comes from relatively new suppliers Togo, Niger, and Mali. The volume of imports from Ethiopia--the leading supplier for the last 10 years--has been relatively stable.

Last year, Nikkei Asian Review attributed a spike in global sesame prices to China's growing demand for imported sesame seed, although it also mentioned a poor harvest in India. This year, prices are falling despite even larger purchases by China. The average price of China's sesame imports has plummeted back to its 2012 level, popping last year's price bubble. A report from China's national radio in June attributed this year's price decline to a strong harvest in Africa in 2014, and said the lower prices had prompted a surge in demand for cheaper African sesame seed. Falling prices had already prompted Chinese farmers in parts of Hubei province to abandon sesame production this year.

Grain and Oil News reports that the flood of imports is putting pressure on Chinese sesame prices. The imported sesame is cheaper than domestic seeds. Chinese sesame seeds are about $1600-1650 per metric ton in Hubei and Shanxi provinces, but Africa sesame seeds are around $1530 per metric ton at ports in Tianjin and Shandong province. Chinese processors have high inventories and are not eager to buy more sesame. Inventories at ports have grown to a record-high 90,000 metric tons.

The volume of imports so far this year exceeds the amount of Chinese sesame seed production -- about 650,000 metric tons in recent years according to China's official data. The relatively stagnant output numbers however, appear inconsistent with a 50-percent decline in area planted in sesame since 2000. Both numbers are reported by China's National Bureau of Statistics.

The flood of sesame imports is partly a geo-political phenomenon. China has been fostering stronger relations with Africa for a number of years. In 2009, a bright-red headline in the Peoples Daily announced that Chinese private businessmen were streaming into Africa to invest, and featured one individual called "the sesame king" who was growing sesame seed in Senegal (a relatively minor supplier of this year's imports). After a 2008 summit, Chinese entrepreneurs immediately bustled off to Africa to invest, according to Peoples Daily. In 2014, Premier Li Keqiang visited Africa to bolster economic ties, citing African sesame seeds as one of the most promising trade items.

A more important driving factor is China's elimination of tariffs on sesame seed imports from Africa.  A 2013 Chinese government report on China-Africa trade cooperation highlighted sesame imports as a bright spot and cited the tariff reduction as a beneficial factor. The China broadcasting report also noted the tariff-cut as a factor.

Making sesame oil and paste in a market in Henan Province.

Sesame appears to be another traditional crop grown by poor farmers that is migrating off-shore as China upgrades its economy. Sesame is now planted on about 400,000 hectares in China, down from over 1 million hectares in the 1950s.

Pork Imports Pour into China

China produces half of the world's pigs yet it has now become a leading importer of the meat. The Chinese pork industry complains that imported pork is putting downward pressure on prices, but this pressure may be what the industry needs to force it to reach world standards.

According to one domestic industry analysis this month, the soaring imports are causing "resentment and panic" among hog producers in China. The article reports that imports of frozen pork for January through September 2015 totaled 512,000 metric tons, close to last year's total for the whole year. But that total only counts muscle meats.

Another analysis this month reports that imports of all pork products totaled 870,000 metric tons and was up 45% from last year.

The first analysis estimates that pork imports may equal 5% of the country's pork market if imports of variety meats (organs, snouts, tails, ears, etc) and smuggling are added together.

The opening of two inland ports to handle imported meat in Henan Province is viewed as an "historic step" to facilitate imports of pork. The facilities are located in Zhengzhou and Luohe cities. The latter city happens to be the headquarters of Shuanghui Group, the company that now owns the U.S. pork giant Smithfield Foods. The industry views the opening of these inland ports as a measure to streamline Shuanghui's shipments of imported pork for use at its processing plants.

Analysts agree that the lower price of foreign pork is driving the imports. The first analysis reports that Chinese pork price is $1.54 while the price of U.S. pork is $.52 and European pork is $.54 (no units were given, but appears to be per-pound). Chinese prices have been falling since peaking in August.

Chinese hog prices historically were comparable to U.S. hog prices until 2006, and China was a net exporter of pork. However, in 2007 Chinese prices rose sharply during a "blue ear" disease epidemic that reduced Chinese supplies. A surge of imported U.S. pork followed in 2008. Ever since then, Chinese hog and pork prices have been gyrating and rising ever-higher.

During 2015, Chinese and U.S. hog prices moved in opposite directions, opening a huge gap. U.S. prices plummeted as the industry recovered from its piglet diarrhea epidemic and Chinese prices bounced back from their depressed level. Europe's exports to Russia have been displaced by that country's ban on imports, depressing prices there. Some of that European pork has found a home in China--European countries are the leading suppliers of China's pork import surge.

Analysts say that pressure from low prices of imported pork is restraining growth in Chinese pork prices, causing a pessimistic outlook for Chinese producers considering expansion plans for next year.

Why are China's prices so high? One reason is the high feed prices. Chinese corn prices are about double those in the U.S. Another is low productivity in China. A critical weak link in China is the sow-nursery segment which is most vulnerable to poor health and disease. The first analyst cited above reports a commonly-recited statistic that each Chinese sow produces 16-to-18 finished hogs, much lower than 25-plus in the United States and Europe. The low ratio reflects high mortality rates, fewer pregnancies per sow annually, and shorter productive lives of sows.

Another pork industry analyst explains that the large number of exits by small-scale producers and disease created a deficit in China this year that imports are filling.

An analysis of the hog feed industry in China by a Chinese feed industry executive observes that officials are now trying to cut back on pig farms whereas in the past they sought to promote as much pork production as possible. For example, he heard that the city of Jiaxing--the source of the dead pigs floating in Shanghai's river last year--has launched a plan to cut back hog production from 7 million head to 1.4 million. In the past, you could build a pig farm without concern for regulations, but now the "threshold is much higher," the writer reports.

The feed executive complains that Chinese hog producers pursue quantity without giving attention to efficiency. In particular, there is little attention to nutrition of sows. He observes that Chinese feed is not good quality "because we are not professional enough." Mycotoxins in grain are a serious problem. The executive reported that he bought some corn in Guangxi Province that appeared to be good quality but had aflatoxins dozens of times the official tolerance level. He criticizes the poor technical level of the feed industry and reports that the quality of feed and even the amount per bag is highly variable.

The feed executive asserts that pig-production facilities are poor, lacking temperature control. He reports that mortality of piglets is high, at 3 per litter or 6-7 if abortions and stillbirths are counted. The analyst thinks that Chinese sows could easily produce 20 finished hogs per year if farms had proper facilities and gave attention to nutrition.

While the pressure from imported pork prices is painful and causes consternation among Chinese hog producers, it ultimately will force the Chinese industry to shape up. The pressure will squeeze out low-performing producers and force those who remain to improve management to boost productivity.

"Permanent Farmland" Program Moves Slowly in China

Chinese authorities are preparing to designate land on the outskirts of cities as "permanent farmland" that will be off-limits to nonfarm development. Local officials have been dragging their heels on implementing the program, and this month a steering committee was set up to force them to literally "get with the program."

Irrigation pipes installed on "permanent farmland" in Jiaxing, Zhejiang Province.

The "permanent farmland" designation program was launched jointly by the Ministries of Agriculture and Land Resources in January 2015. Each province will be required to designate areas surrounding 106 key cities as permanent farmland. According to Farmers Daily, a steering committee was formed in November to push along work on the program. Progress on delineating permanent farmland is uneven and has moved slowly in many regions where local officials have not given it a high priority. "The results are not ideal" so far, according to the statement in Farmers Daily.

The idea of permanent farmland goes back to the third plenum of the 17th communist party congress in 2008. That plenum took the first tentative steps toward encouraging farmland transfer to consolidate farms, but it also decreed that the designated use of "basic farmland" must not be changed. The current leadership is pushing "new-style" urbanization as a top priority in the 13th five-year plan. This year they are formalizing the protection of land designated for grain production to prevent massive loss of land with the new urbanization drive.

Officials explain that the designation of "permanent farmland" and "ecological" land 

is intended to draw boundaries around cities. From Peoples Daily, Nov 2014.

Last week, a vice minister of the Ministry of Land Resources led a steering committee survey team to check up on the work in Hubei Province. The description of the survey in Hubei reveals that "permanent farmland" is considered "multifunctional." The survey team visited a wetland park on the outskirts of Wuhan city and an "permanent farmland demonstration district" in Huangshi City. The program appears to have dual objectives of preserving productive farmland to maintain food security as well as maintaining ecological balance and open space.

The vice minister emphasized that the program is part of three national strategies: food security, new-style urbanization, and ecological protection. The idea, the vice minister explained, is to minimize the development of high-quality cultivated land as cities expand. He said the land designated as "permanent farmland" should be concentrated in large contiguous fields, rivers, lakes, mountains, and forests.

Putting rural land off-limits for development removes one of the major drivers of China's GDP growth. Farmland is valued based on the amount of wheat or rice it can produce. Urban authorities reclassified big swathes of rural land as industrial parks, housing estates, golf courses, and college campuses, thus raising its book-value by a hundred-fold or more. Presto! Huge investment in "fixed assets" appears on the books. Fixed asset investment accounted for roughly half of GDP growth during the years of breakneck growth. Now China needs to figure out how to grow by producing goods and services that people want instead of producing "growth" by administrative measures.

Of course, placing land off-limits for growth also produces tension and conflict as local officials are denied the income and tax revenue from developing land. This is likely a chief reason for the slow progress on "permanent farmland" work.

China Plans to Cut Corn Production by 2020

China's Ministry of Agriculture has introduced a plan to convert farmland planted in corn to other crops in order to alleviate a massive surplus and mitigate the environmental damage caused by planting corn in environmentally-fragile regions. The targeted area for conversion to other crops is equal to approximately 9 percent of current corn area.

On November 2, the Ministry issued a document that prescribes an elaborate "corn structural adjustment" program to reduce corn production in environmentally fragile cold, arid, mountainous, and eroded areas on the fringes of the country's corn cultivation region. This "sickle region" encompasses the northeastern provinces, parts of northern China with falling water tables, mountainous areas of north central China, the deserts and grasslands of northwestern China, and mountainous and rocky areas of the southwestern provinces. This region is described as having low yields vulnerable to drought. It lacks irrigation facilities and has a "fragile agricultural ecology." According to the Ministry's document, the "sickle" region does not have a comparative advantage in corn.

The plan calls for cutting back on corn area planted in the "sickle" region by 50 million mu or more (3.33 million hectares) to reach a stable area of 100 million mu (6.67 million hectares) in the region by 2020. The reduction in corn area is equal to about 9 percent of China's current area planted in corn nationwide. The area taken out of production has relatively low yields, so the impact on corn output would be less. Assuming the yield is about 4 to 5 metric tons per hectare on 3.33 million hectares of land removed from production, the decline in production would be about 6-7 percent of current production. The plan indicates that this loss of corn will be partially offset by increased yields in the "core" corn production regions where production capacity will be increased to maintain "food security."

The new plan calls for a legion of local officials to scurry out to the countryside to undo an economic and ecological disaster created by short-sighted self-sufficiency policies. A 70-percent increase in corn prices from 2003 to 2012 prompted an increase in corn-planting of 13-million-hectares--a 60-percent increase--that made corn the leading crop produced in China. This was helped along by cash subsidies for grain producers that began in 2004. In documents describing campaigns to boost alfalfa production, officials casually observe that farmers in arid northwestern provinces abandoned alfalfa when the government began giving out subsidies to grain producers. In fact, one of the objectives of the current campaign is to induce farmers to switch from corn to alfalfa.

Much like the U.S. dust bowl phenomenon in the 1930s, Chinese farmers responded to unusually high prices by plowing up grasslands, deserts, mountainsides, and marshes to plant corn in every nook and cranny they could find. Now, according to the Ministry of Agriculture document, China has a massive surplus of corn--the latest forecast is that the government will have to sop up about a fourth of the 2015 harvest--and severe erosion, desertification, degraded grassland, and saline farmland.

Sad-looking corn stalks planted in sand in northeastern China.

Like nearly all Chinese plans, the corn structural adjustment plan has multiple objectives, is unwieldy and filled with contradictions. The Ministry of Agriculture appeals to local officials to adopt a sense of "responsibility" and "urgency" to carry out the structural adjustment program, but it also insists that the corn surplus is only a temporary phenomenon. The Ministry insists that there is no need to reduce corn production in the "core" production regions where corn has a "comparative advantage." The corn adjustment plan calls for strengthening production capacity in these core regions (the core regions are not identified in this plan) in order "to maintain basic self-sufficiency in cereal grains." The document warns officials to have a long-term perspective, recognizing that growth of the livestock industry will continue to increase demand for corn as a feed grain.

The structural adjustment plan has a nuanced view of corn imports that reflects recent communist party dogma. The Ministry invokes the murky slogan of "two kinds of resources, two markets" which seems to imply that Chinese demand can be partially met by imports when necessary, but Chinese companies should have control over the supply chain and pricing of such imports. The corn structural adjustment document recommends "guiding" companies in their use of international resources and fostering the development of large multinational agribusiness companies. It calls for "making the best use of international trade rules," and building "a complete trade system that protects the interests of domestic producers and sustainable corn industry development." The plan suggests implementing a mechanism to regulate the flow of imports based on domestic and foreign supply and demand, and it calls for getting a grip on the pace and scale of imports.

The corn adjustment plan sets broad strategies for five sub-regions within the "sickle" region. Most call for shifting land from growing corn for grain to feed and fodder crops, other coarse grains, and bean crops. Emphasis on alfalfa, corn for silage, rape fodder, and yellow nut sedge reflects a related priority of finding feed sources for dairy cattle and other ruminants and another Ministry strategy of forming stronger links between cropping and livestock. The plan calls for reviving rotation of corn with bean crops that can fix nitrogen in the soil and rotating corn with alfalfa. Tree nuts and fruits, medicinal crops, and crops tolerant of drought, sand and short growing seasons are also advocated.

The plan is logical and potentially addresses serious problems. However, China's recent agricultural history is littered with failed clever-sounding "win-win" programs to launch crops like jatropha for biodiesel, sweet sorghum for ethanol, and "straw for beef" that failed and were quietly forgotten (until they were revived). While the Ministry's document insists that the program be market-driven, its emphasis on reviving traditional crops in fringe regions is moving against inertia and the market. For example, sorghum and millet were once widespread staple foods but they have become niche products in the 21st century Chinese food system. A big expansion of production of niche crops will result in depressed prices.

The downward adjustment in corn area is more likely to be induced by market forces than by government strategies. Corn prices have dropped 20 percent or more during the last two months in many of the regions targeted by the adjustment plan. Considering that the 70-percent increase in corn price over the past decade prompted a 60-percent increase in corn-planting, will a 20-percent decrease in corn price prompt a 15-percent decrease in corn-planting?

Complete translation of the document:

Ministry of agriculture guidance on corn structural adjustment in the “sickle” region

To departments concerned with agriculture, agricultural machinery, livestock, and state farm bureaus in Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Guangxi, Guizhou, Yunnan, Shaanxi, Gansu, Ningxia, Xinjiang, and the Xinjiang production corps:

In recent years, the central communist party committee gave a lot of attention to grain production by issuing a series of strong support policies and promoting increases in grain production each year to form a base for economic and social development. Currently, our country’s grain supply and demand are in balance, but structural contradictions have become evident. With the slowing of domestic consumption growth, pressure from imported substitute commodities and other influences, corn supply is much greater than demand, the corn inventory has greatly increased, and net returns to farmers have fallen. Based on this corn supply and demand situation and the actualities of production growth, it is necessary to improve the structure of crops and the regional layout to raise returns to farmers and develop production capacity in a sustainable manner.

The “sickle” region includes the cold areas of the northeast, the northern crop-livestock region, the northwestern arid sandstorm region, the Taihang Mountain range and southwestern rocky karst region, forming a curved belt running from the northeast to north China, southwest and northwest. This is the key region for adjusting the structure of corn production. This region is typically a dry land agricultural area with advantaged livestock production, fragile ecological environment, where corn production [yield?] is low and unstable. The recommendations for adjusting corn production structure in the “sickle” belt are offered to implement the central committee’s call for change in the mode of agricultural development and demand to improve the structure of agriculture, utilizing comparative advantage, advancing the integration of crops and livestock, promoting industrial upgrading, achieving steady increases in grain production, improving the quality and sustainability of development:
[note: below the document explains that corn area will be reduced only in marginal fringe regions; there will be no change in core production regions.]

First, effectively enhance recognition of the importance and urgency of adjusting corn production structure in the “sickle” belt.

Improving the corn production structure in the “sickle” belt is both appropriate and a strategic active adjustment.
1. Advancing “sickle” region corn structural adjustment is an important approach to raising the overall benefits of agriculture. In recent years, corn production increased rapidly in the “sickle” belt, the planting structure [consists largely of] a single crop, cropping and livestock are not linked, the integration of industry is relatively low, which influenced returns to crop producers and farmers’ income. We need to speed up adjustment of corn structure, build a reasonable crop rotation system, and achieve land use for crops that sustains the land. Push forward the integration of cropping and livestock, implement “grain to fodder”, increase value added from land, and maximize returns. Advance the integration of primary, secondary, and tertiary industries, extend industry chains, create supply chains to market products, form complete industry chains, promote agricultural value added and farmer income growth.

2. Push forward “sickle” region corn structural adjustment as a practical choice for raising the production capacity in a sustainable way. Northern water scarcity [problems are] concentrated in the “sickle” region, and it is a key region in the “grain for green” program to retire cropland and return it to forest and grassland. In recent years, there have been soil erosion and desertification among other serious problems due to corn production’s rapid expansion. Resource constraints and production conflicts are prominent. It is necessary to change the mode of development, adjust cropping structure, appropriately reduce corn planting in a few areas lacking an advantage, and follow the road of resource-conserving, ecologically-friendly and sustainable agricultural development.

3. Advancing “sickle” region corn structural adjustment is a measure that strengthens agricultural competitiveness. With the global economy slow, petroleum prices falling, deep processing weak and other factors, the international market for corn is characterized by loose supply and falling prices. Our country is affected by rising production cost and other factors. Our corn price has risen steadily and domestic and foreign corn prices have become decoupled from each other. With these influences, imports of corn and corn substitutes increased rapidly, putting relatively great pressure on domestic corn production. In response to this trend, it is necessary to adjust the corn planting structure, ease the current pressure from domestic corn inventories, and raise agriculture’s international competitiveness.

Scientific analysis of corn issues and rational judgments must fully acknowledge that corn makes an important contribution to the annual growth in grain production and maintaining national food security. At the same time, we must also make a correct judgment of the long-term trend in corn supply, especially that the current increase in inventories is temporary, corn is a major energy feed, and demand is on a long-term increasing trend. Currently, advancing the “sickle” region corn structural adjustment mainly is to reduce production in regions that don’t have a (comparative) advantage. There is no (need for) adjustment in core advantaged regions, and in fact we need to further strengthen production capacity in the core regions with a comparative advantage in corn in order to maintain basic self-sufficiency in cereals. Each region certainly should pay attention to the overall pattern and strategy, strengthening their sense of responsibility and urgency, correctly grasping the focus and direction of structural adjustment, adjusting the pattern of industrial use of corn, promoting corn production sustainable steady development.

Second, conceptual targets and key tasks for “sickle” region corn structural adjustment
1. Guiding thoughts
Deepen implementation of the third, fourth, and fifth plenums of the 18th party congress and the spirit of important speeches by General Secretary Xi Jinping, seriously deploying the national food security strategy under new trends, guided by market demand, with quality and efficiency as objectives, adhering to ecological protection as a priority, strengthening policy support, relying on innovation in science and technology, strengthening information guidance, respecting the wishes of farmers, speeding up the joint development of grain, economic crops, and feed/livestock, integrated crops and livestock, industry integration, modern agricultural industry system, focusing on raising the market competitiveness of agricultural commodities, following a sustainable development road that is characterized by efficiency, product safety, resource conservation, and is environmentally friendly.

2. Basic principles
Adhere to consideration of local conditions; where there is pressure, give protection. Consider the overall resource endowments of the “sickle” region, regional advantages, market environment, industry base and other factors, protect advantaged industry areas, reduce planting in non-advantaged areas, develop comparative advantaged commodities and industries, tighten the integration between corn planting structure and breeding/propagation regions, eliminate duplicative industry development that compete with each other, shift resources toward advantaged industries, advantaged products and competitive advantage.
Adhere to guidance by the market, respect farmers’ wishes. Fully bring into play the market’s decisive role in resource allocation with guidance by market demand for diversified and quality products through regulatory guidance, information guidance, policy support, rational allocation of commodity structure. Respect farmers wishes and rights as primary business operators, raising services and demonstration guidance, do not use force to make everybody go along, fully mobilize the enthusiasm of each producer.

Adhere to simultaneous development of multiple industries, advancing integration of industries. According to the commodity self-sufficiency level and production priority, with marketing determining production, livestock determining crops, creating a whole industry chain. Reduce corn for grain, [instead] developing corn silage where appropriate, corn for fresh [human] consumption, integrate other ecologically suitable crops and quality fodder crops, scientifically advance integration of crops and livestock, production and processing. Actively develop pre-production and post-production services, extend industry chains, increase value-added.

Adhere to innovation as a driver, promote quality growth. Increase investment in scientific research, links between research institutes and industry, coordination, breakthrough technologies for structural adjustment, propagate major scientific achievements, promote water-saving, fertilizer-saving, pesticide-saving and other high-production, efficient technologies and disseminate them, strengthening industry’s capacity to develop its own technology. Innovate in modes of production operations, foster new-type operators as the core, develop agricultural socialized services, use demonstration [model farming districts] to pull along structural adjustment and guide industry upgrading.

Adhere to a global vision, ensure industry security. Fully utilize international and domestic resources, two markets [foreign and domestic markets], establish industry alert mechanisms. Make best use of international agricultural trade rules, establish a complete trade management system that protects farmers’ returns and sustainable development of corn production. Guide domestic enterprises in allocation of resources in the international market, industry layout, foster internationally competitive large agribusiness conglomerates.

3. Key tasks
Strive to stabilize corn area in the “sickle” region at 100 million mu (6.67 million hectares) by 2020, a decrease of 50 million mu (3.3 million hectares) or more from current area, focusing on developing corn for silage, soybeans, high-quality forages [e.g. alfalfa], other coarse grains [e.g. sorghum, millet, barley] and beans [mung beans, etc], spring wheat, fruit orchards and tree crops and ecological functional plants, pushing forward closer integration of crops and livestock, deeper integration of industries, promoting increases in agricultural returns and upgrading of industry. First, form an integrated layout with spatial and temporal matching. Utilize each region’s climate, production level, and industrial foundation, scientifically guide agricultural structural adjustments in each region. Second, form a structure that integrates crops and livestock. Improve the cropping structure, push forward grain and bean rotation and ecologically friendly cultivation systems, establish land use models that integrate the use of land and maintenance of its fertility, promote regional sustainable agricultural development in regions. Third, form an integrated crop and livestock structure. Realize the full potential of fodder production, greatly develop grazing livestock industry, form grain and grass integration, integration of crops and livestock, circular development new-style crop-livestock structure, promote a three-pronged integrated structure with coordinated production of grain crops, economic crops, and fodder crops. Fourth, form an integrated production-processing-marketing industry structure. Establish corn production bases for fresh consumption, feed-use and other specialized uses, focusing on developing processing, logistics, and service business, lengthening industry chains and adding value.

Technology path

A focus of the structural adjustment objectives in the “sickle” region is to advance “six adjustments.” One is appropriateness of adjustments. The focus is on reducing corn in regions with high elevation and arid/drought areas, switching to drought-resistant coarse grains, beans, and short-season corn for silage. Second, adjustments that integrate development of crops and livestock. The focus is on balancing grain and forage, reducing seed corn, developing corn for silage and alfalfa, crops that maintain the soil, changing “granary” to “granary” + “meat storehouse” + “milk cans”. Third is ecological protection-type adjustment. The key is to reduce corn area in rocky-soil (? In SW China) regions, switch to ecologically-sustainable fruit, mulberries, tea, and medicinal crops, forages, and yellow nutsedge for feed and oil use, while protecting the ecological environment, promoting growth in farmers’ income. Fourth, is integrated adjustment that plants crops that maintain the soil. The focus is reviving rotation of soybeans and corn in the northeastern region,  while developing rotation of corn and alfalfa, winter wheat and summer peanuts (bean-type) cropping in north China, letting beans play their role of fixing nitrogen in the soil. Fifth, is adjustments that protect where there is pressure. The focus is on stabilizingcorn in core regions, reducing northern crop-livestock area, northwestern arid loess region, southwest rocky region where corn does not have a comparative advantage, especially reduce corn in the fifth temperature zones and part of the fourth temperature zones in Heilongjiang and Inner Mongolia. Sixth, adjustment around the market. The focus is on the leadership role of dragon head enterprises and new-type farm operators, implementing contracting for crops that maintain soil quality and integrating production with processing and marketing.

Key regions for “sickle” regional corn structural adjustment

Grasp the focus and direction of structural adjustment in five regions with overall consideration of the natural environment, the agricultural structure, level of production development, returns from substitute crops from structural adjustment potential and feasibility.

Northeastern cold zone

Regional characteristics: this region has high altitude, cold climate, including the fourth and fifth temperature zones in northern Heilongjiang and Inner Mongolia and mountainous areas of eastern Jilin Province, with cumulative temperature above 10C of 1900-2300 degrees C, long winters, short summers, just 90 or more frost-free days, large diurnal temperature variation, agricultural products vulnerable to freezing, early frost. Soil is compacted due to many years of continuous corn production, residues from herbicides are a serious problem, affecting yield growth and improvement of quality.

Direction: through market guidance and policy support, let corn area decline while expanding grain-bean rotation and “grain to forage”. In Inner Mongolia, Heilongjiang, and Jilin integrated region greatly develop corn silage production based on the needs of livestock industry development, expand rapeseed planting, develop alfalfa and other forages, meeting the needs of the livestock for quality feed. Revive grain and bean rotation models to restore the traditional role of soybeans in the northeast region. Develop quality strong-gluten wheat, establish hard red spring wheat production bases. Strive to reduce corn for grain area by 10 million mu or more by 2020.

Northern crop-livestock region

Regional features: this region is a transition zone between the cropping region and the ecological grassland region, encompassing Heilongjiang, Jilin, Liaoning, Inner Mongolia, Shanxi, Hebei, Shaanxi and Gansu Provinces. It has a semi-arid, semi-humid climate, abundant soil resources, plenty of sunshine, but water resources are short, there is soil desertification, frequent serious natural disasters, including mainly droughts with wide impact.

Direction: the four northeastern provinces traditional advantage is combining livestock development with soybeans, peanuts, coarse grains and beans developing corn silage and grain-bean rotation, peanut, other coarse grain production as the main crops, while also actively developing fodder crops and rape for forage; in northern Hebei and northern Shanxi and central Inner Mongolia develop drought-tolerant coarse grains and beans, potatoes, forestry and fruit orchards. In Shaanxi and Gansu crop-livestock region develop mainly coarse grains and beans, and forage rape where conditions are suitable; in ecologically weak regions, actively develop salt- and drought-tolerant crops that grow in sand. Strive to reduce corn for grain to 30 million mu or more by 2020.

Northwestern arid region

Regional features: this region is the inland northwest, the broad region north of the Kunlun mountains, Altyn mountain range, Qilian mountains, Baiyu mountains, and Daqing mountains, including Xinjiang, Gansu, Ningxia, Inner Mongolia. It has an arid desert climate with little rain, abundant sunshine, large-night-day temperature differences, cumulative temperature above 10 degrees C 2800-4400 degrees C, 115-210 frost-free days, but water resources are scarce, oasis desertification, salinization is severe, grazing lands are degraded, the agricultural ecological system is fragile.

Direction: fully utilize abundant sunlight resource, focus on expanding water-fertilizer integration and other efficient water-saving measures. In the Hexi corridor where the irrigation system is relatively good, develop corn and other crop industries; in Ningxia, Inner Mongolia river irrigation region, gradually reduce planting of high water-consuming corn, develop flax, sunflower, forage rape and other crops with low water requirements. In ecologically fragile regions, actively develop salt- and drought-resistant yellow nutsedge for fodder and oil and other sand-tolerant plants. In Xinjiang develop corn for silage and alfalfa production, meeting the demand for quality livestock feed. Strive to reduce corn for grain production to 5 million mu by 2020.

Along the Taihang Mountain range

Regional features: this region is south of Wutai Mountains, north of Funiu mountains, including eastern Shanxi. The climate is cool, from north to south it ranges from semi-arid to sub-humid, cumulative rainfall is 500-650 mm, elevation is high in the north and low in the south, with an elevation of 800-1000 meters. Mainly dryland agriculture, accounting for 80% or more of land, shallow soil, severe soil erosion. Agricultural infrastructure is poor, irrigation facilities are inadequate, droughts occur frequently, corn production is low and unstable.

Direction: Greatly develop drought-resistant coarse grains and beans and short-season corn for silage. Develop valley economy, promote chestnut, walnut, hawthorn, vegetables, medicinal crops, and integrated agricultural processing industry and leisure services, raise the efficiency of agricultural production. Strive to reduce corn for grain production to 2 million mu by 2020.

Southwestern rocky soil region

Regional features: East of the Hengduan mountains, west of Dayao mountains, mainly including the Yunnan and Guizhou plateau, including Guangxi, Yunnan, and Guizhou Provinces. Climate is temperate and sub-tropical, semi-humid, hydrothermal conditions are relatively good, 80% or more of land is hilly and mountainous or plateaus at elevations from 500 to 2500 meters, terrain is rugged. Sunshine is relatively poor, droughts occur commonly in the spring, summer and fall. The terrain is complex, not well-suited to large-scale farming or mechanization. Karst rocky formations are widespread and severe rocky soil desertification, the agricultural ecological system is fragile.

Direction: combine implementation of the national land retirement to forest and grassland policy, reduce corn planting on mountainsides and areas that lack irrigation, actively develop other coarse grains and beans, tea, walnuts, Camellia oleifera, medicinal crops, improve grass on moutainsides, develop hemp and mulberry for feed use, yellow nutsedge for oil and feed, and support development of grass for livestock. By 2020 strive to reduce corn for grain to 5 million mu.

Measures to advance corn structural adjustment in the “sickle” region

Corn structural adjustment in the “sickle” region is a kind of systemic project, needing coordination, strong guidance, great effort, advancing practice, mobilizing enthusiasm from diverse players, forming a long-term mechanism for agricultural production development.

First, strengthen top-level design. “Sickle” region corn structural adjustment is a long-term task that needs coordinated planning and good guidance with strong but orderly advancement. Provincial agriculture departments must establish structural adjustment leadership organizations, clarify tasks and duties, strengthen coordinated guidance, implement policy measures, particularly combining local actualities, setting feasible structural adjustment programs, clarifying adjustment direction and focus, scientific layout, rational planning, pushing forward structural adjustment based on local conditions. Establish a complete coordination mechanism, set a schedule for work flow, coordinate and address problems encountered.

Second, strengthen policy support. “Sickle” region corn structural adjustment involves the interests of government, rural people, and companies, and needs greater policy support effort, with support from local government being the main force in pushing structural adjustment, encouraging large farmers, cooperatives, dragon head enterprises to participate. Improve price policies. Strengthen communication and coordination among departments, improve corn reserve purchase and soybean target price policies, stabilize returns to crops, mobilize farmers production enthusiasm. Improve subsidy policies. Research establishment of rational aid policies for crop rotation systems, implement the combination of planting and maintenance of soil. Improve financial policies. Strengthen coordination between all types of financial institutions, actively innovate agricultural financial products and services, guide and encourage financial capital to participate in agricultural structural adjustment. Through establishing a credit guarantee system, support new-style agricultural operations in “grain changed to fodder”, develop modern grazing industry, promote combination of crops and livestock. At the same time, must strengthen production area infrastructure construction, protecting core production capacity.

Third, advance scientific innovation. “Sickle” region corn structural adjustment needs scientific innovation, strengthen technological support. Greatly expand cropping science and technology innovation, based on the needs of corn structural adjustment, accelerating breeding of corn varieties for silage, high-protein soybean varieties, breeding potential high-yielding, high-quality coarse grains and fodder crops. Greatly expand integration of technological innovation, improve cropping system, cultivation methods and related equipment, integrate support for changing corn for grain to corn for silage, corn changed to forage crops, corn changed to other coarse grains, corn changed to soybeans and other planting models, suitably screened herbicides for use in grain and soybean rotation.

Fourth, strengthen demonstration guidance. “Sickle” belt has a broad geographic span and many commodities, needs stronger services and information to guide and make sure corn structural adjustment tasks are accomplished. Each region must set a technology program based on local conditions, recommend marketable high value varieties, guide corn structural improvement, actively adjust special features, make efforts for deep adjustment. Combine development of green high-yield models, concentrate a set of corn structural adjustment technology models, focus on creating a set of yield-increasing, efficient, quality, and sustainable demonstration districts. Greatly advance combination of agriculture and livestock, increase “grain changed to fodder” aid, expand scope of pilots, with combination of crops and livestock, pulling along the region’s crop structure adjustment.

Fifth, promote industry operations. “Sickle” region corn structural adjustment not only is reduction of area but even more is upgrading of industry. Greatly foster new-type business operators, focusing on fostering large farmers, family farms, farmer cooperatives, playing a demonstration role in expanding scale, standardization, and mechanization. Greatly support dragon head enterprises, focusing on fostering a set of agricultural industrialized enterprises with strength, credibility, and tight contacts, speeding up the leadership of large companies, medium and small companies, new-type business operators business mechanisms, pushing forward contract production, integrated production and marketing, processing, aiding structural adjustment and industry upgrades. Especially, we must support development of large livestock farming, processing industry and fodder enterprises, pulling along “grain to fodder” and combination of crops and livestock.

Strengthen market adjustment. Establish statistical monitoring system, strengthen monitoring of key links in corn production, consumption, import-export, storage and transportation, setting up a complete long-term corn supply and demand volume balancing mechanism, market monitoring and alert mechanism and association-commercial information mechanism, correctly grasping dynamics of the corn market in a timely manner. Strengthen market adjustment, improve corn reserve adjustment system, improve the layout of reserves, establish a mechanism for injecting grain into the market and rotating reserves. Strengthen adjustment of imports and exports based on the domestic and foreign market supply and demand situation, get a grip on the pace and scale of corn imports. Increase enforcement of grain smuggling, protect domestic corn producers’ profits. Strengthen propaganda, guide the general public to adjust their dietary structure, increase guidance of scientific use of grain, conserve the use of grain.

Ministry of Agriculture, November 2, 2015