Dim Sums: Agricultural Markets in China

After a decade of spectacular growth, China's feed industry is stuck in the doldrums. China is now the world's largest feed-milling country, but the industry has been shrinking as it deals with an overall slowdown in animal production, high Chinese prices for raw materials, and sheds excess capacity. A Chinese market analysis group, Nongbo net, estimated that China's output of manufactured feed fell 5 percent to 183.6 mmt during 2014. This would be the second straight year of declining output in the industry following a period of extremely rapid growth that outpaced growth in production of meat and eggs. Source: Dimsums blog, using data from China feed industry association, Nongbo net, China National Bureau of Statistics. A global survey of feed mills by a company called Alltech estimated China's manufactured feed output at 182.7 mmt, the world's largest. The United States was number 2, with 172.5 mmt, and Brazil was a distant third, with 66 mmt. Like No...

A recent Chinese wheat market commentary is the latest to call attention to the shortage of high quality wheat in China. China had a big wheat harvest during 2014, but the country is still short of certain types of wheat not widely produced in China. China's wheat predominantly has moderate levels of gluten, but western-style breads need wheat with high gluten, and crackers and cookies need low-gluten wheat. Both are in short supply in China. Millers have reportedly been paying 2800 to 2900 yuan per metric ton for strains of Chinese wheat that are considered high quality. The cost of imported U.S. wheat for March arrival is estimated at about 1917 yuan/mt. Flour mills are eager to get access to imported wheat, but only 10 percent of the import quota is made available to private-sector users. During January 6-8, the government auctioned off wheat from its reserves and linked the distribution of quota to purchases made at these auctions. Millers are so eager to gain access to ...

China's State Council has issued a directive establishing a new provincial governors' food security responsibility system which demands that local leaders shoulder more of the responsibility for boosting local food supplies, storing the food and ensuring that the food is distributed to consumers who need it. A number of articles in Peoples Daily and other outlets tied to the government have emphasized that this new system reflects the government's top priority on food security. The articles indicate that top leaders are frustrated with provincial leaders for slacking off and expecting the central government to be responsible for national food security. Chinese officials portray a sense of urgency about the food security situation despite the fact that China has a serious glut of most major commodities. The provincial food security system charges both the communist party secretaries and the governors of each province with ensuring local food supplies. They will be held ...

Since 2014, Chinese police have broken up networks of diseased pig-traders and butchers in eleven provinces, arrested 110 people, and seized 1 million kg of pork and 48,000 kg of "gutter oil." Among the miscreants are insurance agents who tip off traders on where to find dead pigs they sell at a discount to butchers who then sell the meat to consumers. Dead pigs on the back of a truck   Jiangxi Province's Gao'an Prefecture, one of the top 100 pig-selling counties, a CCTV reporter claimed to have discovered that trade in dead pigs was an "open secret" and many of them were infected with type-A foot and mouth disease (often called "disease number 5" in China). The meat from the pigs was reportedly sold to seven provinces, including Guangdong, Hunan, Chongqing, Henan, Anhui, Jiangsu, and Shandong. According to the report, a taxi driver named Mr. Chen has a secret identity as a dead pig trader. He allegedly got phone calls from a friend wh...

At a recent meeting of China's livestock industry association, a Ministry of Agriculture official proclaimed that the industry faces seven challenges as it enters a critical period of upgrading. Vice Director Wang Zongli of the Ministry's livestock industry office offers a candid assessment of the livestock industry that mostly echoes the party line of upgrading and modernizing agriculture. His first challenge is the "tight supply-demand balance" for Chinese livestock products. He says improvements in living standards, urbanization, and population growth are boosting demand for livestock products. Production of livestock is outstripping the country's water, land and feed resources. Wang highlights an insufficient supply of high-protein feeds, reflected by soybean imports which surged to 63 mmt during 2013 and accounted for 80% of the Chinese soybean supply. He says the growth rate of livestock has accelerated, putting more and more pressure on supply. Challen...

Chinese leaders are calling for urgent attention to the transformation of the country's agriculture. In a January 7 speech on developing agriculture under a "new normal" , Minister Han Changfu said the demand to speed up agricultural modernization has become much more urgent as the economy enters the "deep waters" of reform, China enters a new stage of socioeconomic development, and agriculture undergoes profound changes.  Writing in the Communist Party journal Qiushi , Minister Han reveals that General Secretary Xi Jinping himself stressed the importance of accelerating the transformation of agriculture at last December's economic work conference. Han says that China has made a lot of progress in modernizing agriculture, but it is stuck in a state where "modern" and "traditional" agriculture coexist. With rapid economic development, large numbers of laborers have moved out of agriculture, leaving empty villages and an aging agricult...

China's swine and poultry industries are shedding capacity as cash resources get tight and peak season for disease hits. After 13 months of decline, productive sow numbers in November 2014 were reported by China's Ministry of Agriculture to be 43.68 million, down 13 percent from their peak. The current hog price is reported to be 13.07 yuan/kg. The price is depressed despite the approach of the spring festival, China's customary peak-demand period. After the extended period of losses, cash has been getting tight for farmers, so they have been culling sows. Disease is contributing to the drop in animal inventories. In December, China Central TV reported that a large outbreak of foot and mouth disease occurred in Jiangxi Province. It was also reported that pork from the diseased pigs was sold in at least seven provinces. The Ministry of Agriculture announced that a district of Ma'anshan in Anhui Province had the first detected type-A foot and mouth disease....

On January  7, 2015 China's Ministry of Agriculture issued an emergency notice urging local authorities to adopt measures to ensure that farmers are able to sell their milk. Local officials are ordering dairy companies to keep buying milk from farmers to prevent them from quitting the industry or killing off cows. During 2013, China had a severe shortage of milk. Now, global market conditions of excess supply and falling prices are spilling over into China.  China's farm price for milk fell from 3.92 yuan/kg last September to 3.75 yuan/kg in December. A reporter for New Capital News went to several dairy-farming communities in Hebei Province's Xingtang County. A farmer at one community said local farmers have a contract with the Hebei subsidiary of a food company to sell them milk. However, in November 2014 the company told farmers they would only buy 80 percent of their milk. The farmers would have to figure out what to do with the other 20 percent. The compa...

After buying Smithfield Foods in 2013, the new Chinese owners wasted no time in introducing pork from their new American acquisition into the Chinese market. In May 2013, Shuanghui Group--China's largest pork processor--announced its acquisition of Smithfield Foods--the largest U.S. hog and pork producer--and the acquisition was complete by September of that year. Smithfield sales counter at a supermarket in Zhengzhou. In March 2014, the first 325-ton shipment of Smithfield pork arrived at a new temperature-controlled bonded warehouse at the Ningbo port in China . The pork was sold in special pilot promotions at "Smith" brand sales counters placed in supermarkets in Zhengzhou, Henan Province. Shuanghui is test-marketing the Smithfield pork in its home province and plans to expand to all key cities in Henan by next year.  The advertising emphasized taste, nutrition and food safety. Consumers were told that pigs are fed nutritious grain and the mea...

In a new rule Chinese companies will only be able to import grain this year if they agree to buy an equal amount of old Chinese grain from government reserves. The new rule dated December 29, 2014 was posted on a number of industry web sites and identified as originating from the National Development and Reform Commission (but this blogger can't find an official copy of the rule online). According to the new rule, the share of tariff rate quota (TRQ) for non-state-trading entities (10% of wheat quota, 40% of corn quota, 50% of rice quota) will be distributed to applicants based on the volume of grain they purchase in auctions of grain from state reserves to be held January 6-8, 2015. Quota for state-trading entities and processing trade (companies that import grain, process it and re-export the products) is exempt from the new rule. Companies located in seven grain-deficit regions (Beijing, Shanghai, Tianjin, Zhejiang, Fujian, Guangdong, and Hainan) and four fuel-e...

Suddenly, this "BRIC" is looking soft. China has surpluses and excess capacity not just in industrial sectors like steel and ship-building but in nearly every segment of its food industry. China produces half of the world's pork and apples, two-thirds of the vegetables, 30 percent of the world's rice, 22 percent of the world's corn, and 40 percent of the world's peanuts for 22 percent of the world's population. Its grain reserves are at a record-high level. China has too much pork. Breathless stories (like this one from the December edition of The Economist ) about its supposedly insatiable demand for pork are still coming out, yet the Chinese swine industry has been shedding excess capacity for the last two years. The number of sows--essentially the machines that turn out pigs that become pork--has declined nearly every month for the past two years (if we are to believe the dodgy numbers) as negative margins between pig prices and feed costs induce far...