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

China Grain Smuggling Routes Shift Inland

After Chinese customs authorities began their crackdown on smuggling of agricultural products last year, smugglers have shifted their routes to remote mountain areas where they are harder to catch. The trade is apparently so profitable that smugglers are using excavating equipment to build new roads.

According to Grain and Oils News, the "green wind" campaign to crack down on smuggling of rice and other agricultural products into China has led to arrest of ten smuggling rings since the campaign was launched last year. While the program has "effectively curbed smuggling," the situation is still "grim." Smugglers are still in business and have increased the scale and professionalism of their operations.

The director of the Guangxi Province Grain Industry Association explained that farmers in neighboring countries like Vietnam, Thailand, Laos, Cambodia can grow up to three crops of rice annually at much lower cost than Chinese producers. The price of rice in neighboring countries is 15 to 30 percent less than the Chinese price, so the incentive to smuggle rice into China is strong.

Smuggling business focuses mainly rice, corn, sugar, and frozen meat. When customs officials began their crackdown in 2012, the main routes included waterways and roads in the eastern part of Guangxi Province near the Vietnam border. Now smuggling has shifted to Chongzuo and Baise, mountainous, heavily-forested areas further inland that also border Vietnam.

An official from Pingxiang City explained that last year smugglers began using excavation equipment to build roads that link into a network of roads built for military patrols along the border. Authorities have destroyed some of them but smugglers supposedly rebuild them.

There is no mention of whether smugglers pay off the officials nor whether the military is involved in the smuggling.

Counterfeit Rice Spells Trouble for China's Economic Transformation

For years, authorities in an obscure corner of northeastern China have been trying to crack down on counterfeits of their region's premium rice. Selling expensive food is a popular strategy for promoting prosperity for farmers, but the failure of local authorities to protect their rice trademark--and the proposed solutions--is a sign of trouble for China's economic transformation.

China's Xinhua News Service estimated earlier this year that 90 percent of rice sold in China under the high-quality "Wuchang" geographic trademark was fake. On November 3, a crackdown on fraudulent rice commerce was announced by authorities in Heilongjiang Province, the region where authentic Wuchang rice and most of the fakes originate. 

Wuchang rice is a prized type of short-grain rice grown in a fertile region of northeastern China. The soils, weather conditions and the particular varieties grown in the Wuchang region of Heilongjiang Province are believed to give the rice unique taste, fragrance, and health benefits. In 2003, Chinese authorities awarded Wuchang rice a "geographic indication protected product" recognition as a special product unique to that region. 

According to the Wuchang agricultural bureau, the region produces only 1 million metric tons of rice, but nationwide 10 million tons of rice labeled as "Wuchang" are sold each year. Thus, nearly 90 percent of "Wuchang" rice must be counterfeit.

In a supermarket in Harbin City, the Xinhua reporter found dozens of bags of rice labeled as "high-quality rice produced in Heilongjiang's Wuchang City." The bags also had text indicating the rice was manufactured by a local mill and the bags were priced at 3.5 yuan per 500g, much lower than the 5-6 yuan price of authentic rice in Wuchang. 

According to the Wuchang Technical Supervision Bureau, each of the 40 varieties of rice grown in 24 townships of Wuchang are eligible for the "Wuchang rice" geographic indicator designation. The local agricultural bureau estimates that 1.5 million metric tons of paddy rice are grown in the region, which leaves 1 million tons of rice after removing husks and milling. The total production capacity of 292 rice mills in Wuchang is 4 million tons.

The reporter found that entrepreneurs from Wuchang buy rice from outside the region to mix with local rice. It is estimated that a steady stream of trucks bring 10 tons of outside rice to Wuchang mills each day. Another technique is to add chemical fragrances, wax, and other substances to simulate local rice. The practices were summarized in a report from the local technical supervision bureau last year. Some neighboring regions in Mudanjiang City and nearby Jilin Province that produce similar quality rice sell under the "Wuchang" name to take advantage of its widespread recognition. 

The crackdown will check for fake Wuchang rice in supermarkets, wholesale markets, and production areas, and false advertising on web sites. The campaign will focus on the Wuchang and Harbin areas, surrounding areas, as well as far-flung locations like Beijing, Shanghai, Guangdong, Jiangsu and Zhejiang Provinces. 

Cracking down on counterfeit rice is not that simple. In fact, there have been multiple crackdowns over the years. In 2010, China's Central Television made a similar revelation that factories added chemicals to give rice the fragrance of Wuchang rice, and reported nearly identical statistics on the huge discrepancy between sales and production of Wuchang rice.  

The Xinhua reporter recounted the difficulties in enforcing regulations. Managers of some rice mills the reporter visited argued that they offer different products for different consumer segments. Most consumers are unwilling to pay the high price needed to recover the high costs of producing and marketing pure Wuchang rice, so they offer "mixed rice" products that are more affordable. One rice mill boss said, "You tell me what price you want to pay, and I will give you a product at that price."

Wuchang City authorities have encountered difficulty in previous crackdowns. Last year they sent investigative teams to Shenyang, Beijing, Tianjin, and Shanghai. They brought a lawsuit against a company and two private merchants in a court in Beijing, but the court's findings were inconclusive. The practice of mixing Wuchang rice with other rice is widespread--even mills in southern provinces like Jiangxi and Fujian are engaged in it. Wuchang's vice mayor, who led last year's enforcement action, said the cost of enforcing their local trademark nationwide is prohibitive, and they lack jurisdiction in other localities. 

The Xinhua reporter learned that a company in Shenzhen is developing a testing technology to verify the authenticity of Wuchang rice. However, some people question the practicality of testing rice in view of the cost and potential disputes over the samples tested. Industry insiders told the Xinhua reporter that the government needs to set up a strict oversight system and enforce strict traceability throughout the supply chain. 

This case is representative of the bottlenecks to China's new economic growth model. The Chinese system of anonymous small-scale factories and individual traders has been extraordinarily efficient at making generic foods and products and getting them to consumers. The system quickly breaks down when there are quality differences among products. A price premium for high-end products quickly attracts counterfeits. Consumers lose confidence in the authenticity of any premium product, especially when attributes like organic methods or production at a particular location are not easily verifiable. This leaves consumers in a fog of uncertainty and undermines the incentives for producers to supply quality products. 

The solutions--strict government oversight, hermetically-sealed chains of suppliers, and endless testing--are costly. To achieve traceability and regulation, China is trying to shut down small producers and traders. This essentially is a retreat from the fierce competition and flexibility that was China's competitive advantage over the past four decades. In place of chaotic workshops and traders, China plans to construct big, monopolistic companies and rigid chains of suppliers that will be coddled by officials and handed bank loans and investment. 

Most observers expect China to continue its breathtaking growth just because it's China. But why would you expect spectacular growth from an economy that is abandoning its core competitive advantage and replacing it with something that looks a lot like the bad old days of socialism?