Monday, May 30, 2016

Environmental Laws Ban Pig Farms in China

Officials in China are pushing ahead with a nationwide campaign to shut down pig farms in populated and environmentally-sensitive areas. The shut-down plan appears to be cutting pig numbers at a time when a short supply of pork is causing prices to soar.
"arrest warrant" for a pig satirizes the campaign to close or move pig farms. source:

A series of laws and regulations issued by Chinese officials over the last two years appear to signal a new era in which pigs will be physically segregated from the human population, a major undertaking in a society where the species have lived together for thousands of years.
  • Local bans on pig farms began in 2013 following the embarrassment caused by thousands of swine carcasses that floated down the river into Shanghai. 
  • In January 2014, regulations were issued to prevent pollution from waste emissions of "scale" livestock and poultry farms; the regulations called for designating areas where livestock and poultry farms are banned and assessing penalties on violators. 
  • In January 2015, a new PRC environmental protection law called for "circular use of resources," coordination between environmental protection and economic development, and closing or moving livestock and poultry farms that pollute the environment.
  • An April 2015 water pollution prevention action plan specifically requires local officials to "scientifically" designate regions where livestock and poultry farms are banned. Farms in the ban districts must close or move by 2017. The plans must be completed within a year in Beijing, Tianjin, Hebei, Yangzi River Delta, Pearl River Delta.
  • On May 18, 2016, China's Ministry of Environmental Protection issued technical guidance giving local authorities criteria for designating the livestock-ban districts.
China's regulations are intended to address problems with water pollution and odor caused by dumping animal waste into streams, canals, rivers, and lakes. Dumping dead animals is another concern.
Drainage pipe from a Chinese pig farm.
Livestock and poultry farms are to be banned in places that are:
  • near sources of drinking water
  • scenic areas
  • natural resource conservation areas
  • near concentrated human population like residential areas of cities and towns, schools and hospitals
(Local regulations usually ban pig farms near markets and highways, as well.) The bans apply to pigs, chickens, cattle, sheep, ducks, geese, deer, foxes, mink, ostrich, and camels, but most of the emphasis is on pig farms.

The campaign against livestock farms reflects new attention to environmental improvements and balancing economic development with quality of life. These objectives have been given lip service for years but are getting a personal push from President Xi Jinping. The campaign also reflects the "supply-side" reform initiative and a new European-type approach to rural development--in place of a trash-strewn dilapidated countryside, they hope to create a place of bucolic scenery populated by happy farmers.

Local officials have been ordered to formulate plans for designating three types of zones:
  • areas where livestock and poultry farms are banned;
  • areas where such farms are limited;
  • areas that are appropriate for livestock and poultry farming.
The bans apply to "scale" farms and livestock-raising communities. The threshold for swine farms is typically 500-head sold annually (but Chongqing set a lower threshold of 300 head) or 10,000 laying chickens. It does not appear to apply to "backyard" animal-raising.

Some localities give compensation to owners of destroyed farms. There are also penalties for farmers who continue operating in areas where they are banned. One article posted on a pig industry site warns farmers, "This is a real government thing!" and listed six cases of people who have been arrested and jailed 5 to 10 days for operating pig farms illegally.

Livestock farms allowed to continue operating are expected to acquire equipment and facilities to collect and treat waste from their animals. The slurry from the treatment is to be used as fertilizer on crops. Authorities are also setting goals for raising the percentage of waste treated and the proportion utilized.
Tearing down a pig farm. source: weixin rejiao.

Localities throughout China are various stages in formulating these plans. Some 10 provinces have formulated timetables for implementing the bans with varying degrees of specificity. As of May 2016, 150 counties had formulated livestock-ban districts, and some have already destroyed farms. Several regions are targeted for special attention: the Yangzi and Pearl River watersheds and the Beijing-Tianjin-Hebei corridor in northern China.

Map shows localities that have made plans to close or move livestock farms by 2016 or 2017.

Zhejiang Province--the source of the dead pigs that floated into Shanghai in 2013--has been the most aggressive in setting up pig-ban zones. In 2014 they launched plans to close or move 69,597 pig farms that reportedly produced 4.9 million head annually. Anhui Province ordered cities and counties to submit plans for livestock-ban zones by June 2016 and complete closure or moving of farms by the end of 2017. Fujian Province reportedly closed 13,000 pig farms in the second half of 2015. Beijing municipality will ban new construction or expansion of pig farms in its ban-zones, except for breeding and research farms.

A Peoples Daily reporter said netizens alerted him to filthy conditions on pig farms along the Yellow River outside Henan's provincial capital of Zhengzhou earlier this month. Neighbors complained about the smell and flies from one farm set up four or five years ago. The boss of the farm said the 6000 pigs are fed exclusively on restaurant waste because it's cheaper than grain and other feed (using restaurant waste is illegal unless it has been properly treated at high temperature). Plastic garbage bags, plastic bottles, and cans floated in black water outside the farm. The town government told the reporter they were aware of the farm and had issued a verbal order to close or move with a threat to destroy it if the operator fails to comply.

Nasty farm near the Yellow River got a verbal notice of closure.

Trash in water outside the farm.

This doesn't mean that China has given up on raising livestock. The vision of officials is to move animals away from human population and environmentally-sensitive areas and concentrate them in large enclosed farms in the hinterland. The recent five-year plan for the hog industry acknowledged the growing environmental pressure, called for coordination between development and environment, and envisioned stable or modest growth in production capacity by 2020. According to the plan, hog production will become more concentrated in regions with a comparative advantage, but only to the extent that the environmental carrying capacity allows.

Jimo City in eastern Shandong just announced the opening of a 76-million-yuan ($12 million) "smart" automated chicken farm with 300,000 hens and broilers that will be managed by a single worker and will emit no pollution. The poultry litter is collected by automated equipment and used to generate heat. The reporter remarked that he saw no poultry waste and there was no smell around the farm. Local officials said other farms in the area will also automate, creating a new-type non-polluting industry chain. Local officials have designated areas where livestock will be banned, limited, or allowed as suitable. There was been 450 million yuan in investment in poultry farm waste treatment. This, however, is a "model district" which probably means the investment is highly subsidized.

Pig Progress magazine recently described a huge Danish pig farm in Jiangsu Province that has taken measures to insulate its pigs as much as possible from the surrounding country. The farm's sows are imported with purely Danish genetics. The farm is located on a strip of land that juts out into the ocean with no other livestock and few other people nearby. Workers have to stay on the farm for three weeks at a time; they are served good food and given extended time off to prevent them from being tempted to come and go while at work on the farm.

It is hard to tell how much this campaign has contributed to the shrinking numbers of pigs over the last two years. It almost certainly is constraining expansion during a period of record-high pork prices. The Chinese government rolled out pig farm subsidies during similar spikes in pork prices during 2007-08 and 2011. This time subsidies are limited to "model" farms and government propaganda is focused on shutting down pig farms instead of expanding them.

Comments on an article about pig bans posted on an industry web site reveal the complexity of the issue. A few comments supported the program but other reactions reveal the cynicism that has taken root in the Chinese population:

"Get ready for high pork prices."
"Environment is just an excuse, monpoly is the real [objective]."
"Building a hog farm is not easy; if someone came to tear down my farm, I would die miserably."
"Water pollution is because of industry, not farms; air pollution is because so many people drive cars."
"Pig manure is really a problem created by the feed industry."
"Pig farms destroyed, land rented out, what are the common people supposed to do?"
"These departments just like to boss people around! There are so many big polluters that aren't checked! You live off the public, but we farmers have a hard time making money! You build so many houses, but can't turn equipment into money! You can bankrupt us with a single piece of paper!"
"There are two sides to every issue; it's hard to say what's right and wrong."
"Before the country is a hundred years old, people will be eating each other."

Wednesday, May 25, 2016

China Wheat Output Mismatched With Demand

China's 2016 wheat harvest is getting under way. With a near-record output estimated at 130 million metric tons and with demand sluggish, the government is expected to step in and buy up even more wheat than it did last year. However, innovative bakers can't get enough of the high-gluten wheat they need for their flour.

One assessment of the prospects for the 2016 wheat market sees a big surplus of low-quality wheat that farmers in some areas may have trouble selling. Wheat is being harvested in the southern end of the wheat belt in central China, and it will move north through Jiangsu, Anhui, Henan, Shandong and Hebei Provinces over the next month. Weather conditions have varied widely across wheat-growing areas, and the quality of the crop is expected to be uneven. There is not much good quality old grain available, and the price is high.

The 2016 minimum price for wheat is set at 2360 yuan/ton. Big flour mills are buying small volumes of good quality new wheat at 2300-2340 yuan/ton. Corn prices are 620-to-900 yuan lower than wheat prices in various parts of the wheat-producing region, so use of wheat to feed livestock is expected to be low this year. Wheat bran prices are down too.

Low-quality wheat will have weak demand, and the government is likely to become the buyer of last resort. In some southern regions granaries already have a lot of wheat in storage from last year, but there is less wheat in storage in northern provinces. Most of the grain in storage is poor quality.

With scale of production increasing, the marketing of wheat is gradually changing. Many traditional wheat traders have been stung by financial losses in the last couple years and are cautious about purchasing wheat this year. The article anticipates that government purchases of wheat this year will exceed last year's total. In Anhui, government purchases are expected to reach 5.5 mmt, accounting for more than half of this year's wheat sales. In Henan, government purchases are expected to grow 30% from last year to 12 mmt.

Another article highlights the difficulty wheat mills have in finding adequate volumes of high-quality wheat. China's wheat production has not kept pace with changes in consumer preferences which have shifted from steamed bread and noodles to fancy breads, buns, and processed foods that need special types of flour. The food service and baking industries have responded by offering new products, but they can't get enough strong-gluten flour to make them. Wheat grown in China is predominantly medium-gluten. A couple of companies have begun contracting with farmers to procure strong-gluten wheat. One company has begun operating its own farm.

A start-up company that sells bread products online to Beijing customers is an example of how the baking industry is decoupling from farming. This company was started by five young IT and marketing professionals who saw a niche to be filled as consumers seek out new high-end products and alternatives to traditional shops. The company offers various bread products that can be delivered anywhere inside Beijing's 5th ring road and claims to get 10,000 orders daily.

Bread product offered by a Beijing Internet start-up
Traditional steamed bread

With a big surplus of low-quality wheat and a shortage of high-quality wheat, the price premium for high-quality wheat is expected to be high. Analysts anticipate that farmers in some regions with poor quality wheat may have trouble selling their wheat if granaries fill up.

This year's wheat market is another example of how China's leadership is out of step with their country's development. The "food security" strategy of paying a minimum price for grain to ensure a big supply is based on an outdated concept of generic grain produced and consumed by peasants who eat noodles and steamed bread. The Chinese diet is rapidly diversifying, and the population no longer wants to eat the same bland food day in and day out. Grain is no longer a generic commodity in which one ton is the same as any other.

Chinese officials have been trying to upgrade the quality of wheat for decades with little to show for their efforts. As long as officials offer a floor price to buy whatever farmers produce, their warehouses will be filled with unwanted and unneeded grain. Meanwhile, they ration a tiny import quota that the few lucky recipients can use to import high quality wheat from overseas and sell at sky-high prices.

Thursday, May 19, 2016

China's USDA Conspiracy Theory

The following story actually happened. I have statistics to prove it.   
A Martian Interplanetary Task Force on agricultural commodity markets recently landed on the Earth. A team member assigned to China set out for the city of Dalian, where that country's most active futures market is located.  

As our Martian friend approached the Dalian Commodity Exchange, he came upon two Chinese men in animated conversation, each holding a sheaf of papers in his hand. The Martian stopped to listen.

“They’re up to their tricks again!” One man exclaimed.

“USDA and ABCD—different letters, but the same game! They won’t stop until they own our entire country!” The second replied.

“What can be done to stop them?” The first man waved the paper held in his sweaty hand.

The curious Martian sidled up the two men.

“May I ask what you’re discussing?” The Martian ventured.

“Haven’t you read the U.S. Department of Agriculture’s monthly agricultural commodity supply and demand report? I can't believe they reduced their estimate of soybean production so much. How could their forecast change that much in one month? It has to be part of a plot to bankrupt our Chinese companies!” The first man was furious.

The Martian queried, knitting his brow, “I’ve noticed that USDA sometimes makes big adjustments in its crop estimates from month to month, but how is that a plot against Chinese companies?”

The second Chinese man got in the Martian’s face, “Where have you been? Everybody knows the USDA regularly manipulates its data to drive up prices. They do it all the time.”

The first man continued his friend’s thought, “When prices shoot up, that sets off panic-buying by Chinese importers. After Chinese buyers have sewn up expensive contracts for American soybeans, USDA reverses its estimates a few months later.”

Like a partner in a vaudeville act, the second Chinese man jumped in: ”Then prices fall, and our countrymen are caught with commitments to buy at sky-high prices and they’re bankrupted.”

“Why would USDA do that?” the Martian asked innocently.

“They have pulled this trick many times over the years. There has to be a sinister motive,” the second man explained in exasperation.

“Obviously, USDA is working hand-in-glove with the ABCDs!” the first man interjected.

“What are ABCDs?” the Martian asked.

“Hello?!” The first man was losing patience, “The multinational grain companies—ADM, Bunge, Cargill, Louis Dreyfuss.”

“The ABCDs swoop in to buy up Chinese companies as soon as the USDA’s trickery bankrupts them,” man number two explained, having a slightly higher tolerance for the Martian’s naiveté.

“Why would USDA want to help those companies?” the Martian asked, at the risk of further enraging the men.

“The companies must be paying them!” the first man shouted, crumpling the sheaf of papers and throwing them on the ground.

The Martian looked down and saw that the man had been holding a copy of the USDA report. Throwing down the papers seemed to have a calming effect on the Chinese man.

Nevertheless, the Martian was determined to get to the bottom of this fascinating issue. If USDA can’t be trusted, who can?

The Martian took a step back and questioned the man’s conspiracy theory: “But I heard people who work at USDA wear shabby clothes, drive old cars, and have bad haircuts. There’s barely a single Rolex in the place.”

“I can’t help it if they have no sense of style,” Man number 1 said.

“If I worked at USDA, that’s what I would do,” continued Man number 2.

The Martian delved deeper: “Well, if the USDA is so dishonest, why do you read their reports?”

“Everyone reads them,” responded the first Man, "They're on all the web sites as soon as they come out in the middle of the night, our time."

“Why don’t you just rely on Chinese government reports instead?” the Martian asked.

Man number 2 looked at the Martian as if he was from another planet. “Well, the Chinese government doesn’t have any supply and demand reports like this.”

"If they do, they don't publish them," explained Man number 1, suddenly helpful.

The Martian saw that the second Man was holding a copy of the Chinese Ministry of Agriculture’s monthly Agricultural Outlook magazine.

“May I see your magazine?” the Martian asked.

The man handed him the Agricultural Outlook (which was named after a now-defunct USDA magazine) and the Martian flipped through it. He stopped momentarily, excited to find a table labeled “Chinese grain stocks,” a number he thought was a State Secret. His face fell as he looked closely and saw that the data were compiled from USDA reports. He flipped to the back of the publication and, sure enough, there were no supply and demand tables.

The Martian commodities buff couldn’t resist taking the issue a little further: “If USDA is so clever at tricking Chinese businessmen, why doesn’t the Chinese government publish fake data to trick the Americans?”

Man number 1 looked quizzically at his chum.

Man number 2 shot back, “We’re masters of fake numbers. Our government has an entire statistics bureau to do that.”

The Martian responded, “So why hasn’t China’s statistics bureau been able to bankrupt the ABCDs?”

“Well, nobody believes them,” The man replied.
It is unclear whether the Martian will spread this conspiracy theory about USDA reports back to his home planet. However, the conspiracy theory lives on in the Chinese news media in articles like "USDA Data Conspiracy Overtly Dangerous 'Foreign Report'" which appeared this week here and here and here and here and here and here and here and...

Sunday, May 15, 2016

China Corn Procurement Numbers Bloated by Subterfuge?

China's grain officials say that 125 million metric tons of corn was purchased from the country's 2015 crop and stored in the national "temporary reserve." Analysts summing up the purchases and subtracting the sales from the reserve over the past four years estimate that the stockpile has grown to 270 million metric tons at the end of the November-April period.

There is little doubt that China has a huge surplus of corn, but the plausibility of these numbers is questionable.

The temporary reserve purchases exceeded the amount of corn produced in the four provinces where the program operated. Estimates of corn output for Heilongjiang, Jilin, Inner Mongolia, and Liaoning Provinces by China's National Grain and Oils Information Center (the Statistics Bureau reports official provincial production estimates a year after the harvest), totaled less than 100 mmt, more than 25 percent less than the amount of corn purchased for the temporary reserve in the region.

Jilin Province officials report that 45.3 mmt of corn was procured for the temporary reserve in that province, but the province only produced 28 mmt of corn. The article explains that Jilin has been on a granary-building binge--the province reportedly constructed 1,135 warehouses--so that nearly every township has one or two granaries. Because there is so much space to store grain there, unnamed people in the industry say traders from neighboring provinces of Heilongjiang and Liaoning have shipped grain to Jilin to sell to the temporary reserve. While Jilin's procurement exceeds its production by an outrageous 62 percent, procurement also was equal to or exceeded production in each of the other northeastern provinces (see chart nearby).
Shipping in corn from provinces outside the region is another possible reason for bloated procurement numbers in these provinces. Some analysts estimate that 15 mmt of corn has been shipped from Hebei and other provinces to take advantage of the temporary reserve support price in the northeastern provinces. However, this does not account for how these four provinces managed to purchase so much more corn than they produced.

The volume of procurement reported this year is also implausible because in advance of last year's harvest authorities were warning that there was no space to store the new grain. While there was indeed a campaign to build new granaries, there is no way they built enough to store 125 mmt of new corn, an amount that would have doubled the volume of corn held in inventory last summer.

According to China's Grain Bureau, a total of 130 mmt of corn was purchased by all types of enterprises. That's just 5 mmt more than temporary reserve procurement, which implies that the nation's feed mills, starch makers, and ethanol processors had to share the paltry 5 mmt of corn that did not get purchased by the temporary reserve. Feed mills and factories are still operating. While they have been using imported corn substitutes, they are surely using more than 5 mmt of domestic corn.

Other analysts are concluding that corn production must be more than official statistics say. However, just four years ago when China's corn reserves were running low, some analysts were saying the opposite: that statistics overstated actual production.

Another possibility is that the procurement statistics are inflated by selling and purchasing the same grain multiple times through phenomena known as "declaring old grain as new" or "round-tripping grain." This practice came to public attention in Henan Province about five years ago when granaries "sold" old wheat to flour mills and reported purchasing "new" wheat for the price support program. In fact, the bookkeeping entries were false, and the same grain was purchased twice without ever leaving the warehouse. Grain officials have strong incentive to report phantom grain purchases because they get a subsidy to purchase it, another to hold it, plus subsidized interest on loans. Grain officials and their cronies can also make money by building new storage facilities.

A graphical explanation of the wheat subterfuge reports that Henan officials reported procuring 31 mmt of wheat for government reserves in 2007, but only had 8 mmt on hand a year later. Some inspectors found granaries filled with 13 tons of sand. Other officials exaggerated the weight of trucks hauling grain away from warehouses. The chicanery dates back to the 1990s when Premier Zhu Rongji reported finding empty granaries that were reported to be filled with reserves.

Official receives "old grain" in one sleeve and drops it into "national granary" 
from his other sleeve while collecting money to buy "new grain." Source:

Reports this month warn that the purchase of old grain for the temporary reserve has been widely practiced by officials in northeastern provinces this year. An article in the news weekly Liaowang (Outlook) says 249 instances of grain "round-tripping" were uncovered in Heilongjiang Province during 2014. That year, a mysterious fire burned down a granary in Heilongjiang supposedly containing thousands of tons of reserve grain just as disciplinary inspectors were closing in.

The Liaowang article argues that the grain subterfuge problem is common because there is no local supervision of the granaries. Regulations specify that only the central State Council can oversee the government's national grain reserves--local and provincial governments have no authority in this matter. That leaves Sinograin--the government's state-owned grain reserve management company--as "both player and referee"--it regulates itself. Experts quoted by Liaowang worry that the abuse may worsen grain quality problems and destroy the credibility of the government's grain reserve system.
"Can the country feel at ease with grain stored by Sinograin?"

There is no way to verify these numbers since virtually all of China's agricultural statistics have now gone off the rails. There's little chance China's statisticians have kept up with the vast increase in corn production, including the plowing up of grasslands, riverbeds, and hillsides to plant the yellow stuff over the past decade. It has been 10 years since an agricultural census was conducted, and that one was probably slipshod and inaccurate. Neither are pigs and chickens counted with precision as the structure of these industries changes dramatically and numbers rose and fell over the last five years. Feed industry officials have become reticent about reporting numbers as production flagged and thousands of mills were closed. There has been a major retreat in feed use of wheat, and 30-40 million tons of imported corn substitutes have replaced domestic corn. The rulers keep grain reserve numbers secret, thinking that this gains them some advantage.

Keenly aware that grain management is a centuries-old measuring stick for Chinese dynasties, the current regime has cranked up grain subsidies and price supports to satisfy its immutable "food security" objectives. The grain "round-tripping" may end up blowing up in the faces of the leaders as it becomes one more example of a policy intended to serve the masses that instead becomes a piggy bank abused by the country's ruling officials.

Monday, May 9, 2016

Mycotoxin Threat to China's "Golden Pigs"

A Chinese news site warns swine producers to be on the alert for mycotoxins in corn that could kill off their "golden pigs" during this time of soaring profits. has a web page warning that corn released from the government's temporary reserve could be contaminated with a number of toxins due to excessive levels of mold in the corn. The warning explains that corn reserves ballooned from 10 million metric tons in 2012 to 58 mmt in 2013, 80 mmt in 2014, and are now up to 260 mmt. Although the reserve standards require mold content to be less than 2% and moisture less than 14%, the reserve nevertheless contains large volumes of corn with aflatoxin, zearalenone, deoxynivalenol, and ochratoxin. warns that 70 million metric tons of corn produced in 2012 and 2013 could soon be released to the market. This corn is beyond the usual maximum 2-to-3 years to be held in storage in northern China. 

Swine consuming feed that contains mytoxins are subject to all kinds of ailments, including loss of appetite, fever, skin discoloration, lesions, diarrhea, vomiting, constipation, and other conditions making them susceptible to disease. Soozhu says that sow productivity has already been reduced by delay of estrus, miscarriages, stillbirths, and postpartum problems due to toxins in moldy corn. warns that farmers can see various diseases such as bacterial infections, classical swine fever, "blue ear disease," and circovirus related to mycotoxins. warns that farmers often try one medication after another and increase vaccinations without seeing results. estimates that sows can yield profits of 12,000 yuan annually at current prices for feeder pigs, but mycotoxins could take away your "golden pig" if you're not careful. 

Sunday, May 8, 2016

Farm Subsidies to Undo Damage Done by Subsidies

The area planted in corn by Chinese farmers rose by 11.7 million hectares--45 percent--over the past decade. Officials in China have bragged for years that their subsidies and guaranteed minimum prices played the key role in boosting grain production. Now officials have discovered that the country is producing far more corn than it can consume.

Adding to the list of silly things that result from farm subsidies, Chinese agricultural officials have announced that they will now spend 3.5 billion yuan (US$ 540 million) to reduce corn production. The funds are for the so-called corn structural adjustment program, which they expect to cut corn planting by 20 million mu (1.3 million hectares) this year. 

It's unclear exactly how the money will be spent. The program will fund 100 pilot counties where farmers will be encouraged to switch from mono-cropping corn to rotation with soybeans or minor grains, fodder crops, crops that are in high demand (reportedly peanuts), rice, and spring wheat. The Ministry of Agriculture expects soybean planting to increase by 6 million mu this year. 

It is not clear whether these funds will support new subsidies promised to corn growers this year. 

China's Rural Migration Stream Slows to a Trickle

The eighth annual survey of rural migrant workers released by China's National Bureau of Statistics last week shows that the geyser of cheap labor flowing out of the country's vast hinterland slowed to a trickle during 2015. The number of nonfarm workers from rural areas grew just 3.5 million during 2015, the slowest rate since the recession year of 2009. The growth in rural workers peaked during the stimulus-fueled growth year of 2010 when the rural migrant workforce swelled by nearly 12.5 million. Since then, growth in the rural migrant labor force has tailed off.
Source: Calculated from China National Bureau of Statistics rural migrant surveys.

The NBS survey estimated that 277 million people from rural households were employed in nonfarm jobs during 2015. That represents 36 percent of total employment in China (774.5 million) last year. Of the 277 million rural employees, 168.8 million were employed outside the district where they reside and 108.6 million were employed near home. The number of rural migrants working away from their home district barely grew last year. That was a big change from the peak growth years of 2009-2012 when migrants working away from home constituted most of the growth.

The countryside is no longer the major source of new laborers. The 3.5-million growth in rural nonfarm employees was only a fraction of the 13.1-million increase in urban employment reported in NBS's economic communique for 2015.

The growth rates of rural migrant employment and wages have fallen from the peak growth years of 2009-11. Wage growth has slowed from a peak of 21 percent during 2011 to 7.2 percent during 2015. Employment growth has fallen from 5.4 percent during 2010 to 1.3 percent in 2015.
Source: Calculated from China National Bureau of Statistics rural migrant surveys.

While rural Chinese workers' wages grew at about three times the rate of growth in U.S. wages, they were still low. Monthly earnings of rural workers converted to U.S. dollars reached $489 in 2015, more than double average earnings in 2009. Workers toiled an average of 8.7 hours a day, 25.2 days a month to earn their wages.
Converted to U.S. dollars, Chinese rural workers' earnings were $2.46 per hour. While they are earning twice as much as they did six years ago, wages still fall short of those in developed countries. China now has commodity and real estate prices that are among the highest in the world and it has companies that can splash out billions of dollars to buy other companies, yet wages are still a fraction of those in other countries.
Source: Calculated from China National Bureau of Statistics rural migrant surveys.

Rural migrants shuttle back and forth between city jobs and their home villages. They were employed an average of 10.1 months in 2015. Their total earnings from nonfarm jobs of 31,000 yuan was nearly equal to the average urban per capita income in China in 2015. Thus, rural migrant worker wages are near parity with overall average earnings in China. (In fact, there are complaints in China that many university graduates earn less than migrant workers.) However, rural migrant wages were nearly three times the average rural per capita income, an indication of the very low earnings from agriculture that brings down the rural average.

Rural migrant laborers haven't gotten the memo about the consumption-driven economy. They are working and saving machines who live on a shoestring. 70 percent of their earnings are either saved or sent home to support elders and cover big expenses like school fees, medical expenses, new houses, weddings, and funerals. Average monthly living expenses of rural migrants working away from home averaged 1012 yuan ($162) per month, just 30 percent of their monthly earnings of 3359 yuan ($489). Their housing expenses were just 475 yuan ($76).

We can deduce that rural migrants inject a lot of cash into China's rural economy. The 2,347-yuan surplus of their wages over expenses multiplied by 168.8 million migrant workers living away from home equals 369 billion yuan per month, or 3.7 trillion yuan annually if migrants work ten months. Most of that is sent back to villages. By comparison, GDP from "primary industry"--which is mainly agriculture--totaled 6 trillion yuan.

The move to a services-based economy is not favorable to rural migrants since wages in service industries are low. Transportation and construction trades brought the highest wages for China's rural migrants. Manufacturing jobs brought wages about 16% less than transportation jobs. Services--wholesale, retail, hotel, restaurant, and household services--brought wages about 23% less than transportation jobs.

The gradual aging of the rural migrant labor force is a sign that the supply of rural workers is maxing out. In 2011, roughly equal shares of rural non-farm laborers were ages 16-30 and over age 40, but in 2015 the over-40 workers outnumbered the young workers. In 2015, a third of rural non-farm employees were aged 30 or less, 22 percent were 31-40 years old, and 44 percent were over age 40. Employers now have to lure more old-timers in order to get more workers.

With farming incomes possibly headed downward this year and migrant wages slowing, China's countryside could be in for some tough times.

Thursday, May 5, 2016

China's Incredible Shrinking Hog Herd

Hog supplies have shrunk and pork prices are soaring in China.

China's National Bureau of Statistics estimated that pork production during the first quarter of 2016 was down 5.9 percent from the same period a year ago. That shrinkage follows a 5.1-percent decline during the first half of 2015. If the numbers are accurate, they portray an unprecedented decline in pork supplies. During the "blue ear" disease epidemic in 2007, China's pork production fell 7.8 percent, but production nearly recovered the following year. This time the shortage is due to a years-long downward slide in swine inventories due to exits of small-scale producers who may not return.

Chinese pork prices have soared as the supply tightened over the past year. The National average retail pork price reported in April 2016 by the National Bureau of Statistics is up 35 percent from a year earlier. The Ministry of Agriculture says wholesale hog carcass prices are up 40 percent, and live hog prices are up 51.5 percent. 
Data from China Ministry of Agriculture and National Bureau of Statistics.

Meanwhile, feed prices have dropped. China's average corn price is down 19 percent, and soybean meal is down 15.6 percent from a year ago. The combination of high hog prices and lower feed prices means sky-high profits. Swine producers are in expansion mode, a major turnaround from the doldrums during the first half of 2015. A doubling of feeder pig prices since last year is evidence that the industry is in expansion mode. 
Data from China National Bureau of Statistics food prices in 50 large cities.

The March-May period is usually when pork prices hit a seasonal slump after the peak at Chinese New Year in January-February. But prices have been rising during March and April 2016. Last year, pork prices surged to near the record levels hit in 2015. In the early months of 2016, pork prices are shattering seasonal records. 

Beijing's municipal government has launched sales of frozen pork to ease pressure on local prices which have risen about 50 percent since last year. The program is part of the price-stabilization program which municipal governments subsidize designated processing plants to hold frozen pork in reserve to sell during periods of high prices or short supplies. Starting May 5, suppliers holding reserves will sell subsidized frozen pork to Beijing supermarket chains who will sell the meat at a discount in 121 stores until July 4. Retailers will also be prohibited from excessive price hikes.

A brief commentary from another Chinese pork news site is pessimistic that plans by Beijing and other local governments to inject frozen pork reserves into the market will have a significant impact on prices. The purpose of the program is mainly psychological, and doesn't adequately address the short supply. Another commentary attributes the tight hog supply to closure of many farms by local authorities, and asserts that local pork reserves are not adequate to tamp down prices.

A surge of pork imports into China is doing more to alleviate tight supplies than the release of pork reserves. According to the Ministry of Agriculture, imports of pork during the first quarter of 2016 totaled 286,000 metric tons, up 90.3 percent from a year earlier. Imports of swine offal during the quarter totaled 287,000 metric tons, up 48.8 percent.from a year earlier. By comparison, the plan 3,050 metric tons of frozen pork of pork reserves in the Beijing market over two months is modest.

The Ministry of Agriculture's recently released five-year plan for the swine industry that pins its hopes on expanding the production of cleaner, more technically proficient and more rational larger-scale farms. An interview with an MOA official explains that the theme of the plan is the necessity of transforming the structure of the industry to address mounting problems:

  • Increasing environmental pressure to control pollution from hog waste.
  • Binding resource constraints, including the shortage of land for hog farms and excessive reliance on external supplies of protein-rich feeds.
  • Import pressure: low productivity and high production costs make Chinese producers uncompetitive versus European and U.S. swine producers.
  • Looming threats from complex spread of disease 
  • Market fluctuations, including the current cycle that resulted in a reduction of production capacity.
The plan includes an obligatory objective of maintaining self-sufficiency in pork, but it places more emphasis on stability and structural change than growth in output. The two main objectives are to increase the "above scale" (farms producing 500 or more hogs per year) share of hog production to 52 percent and utilizing 75 percent of manure to produce biogas and organic fertilizer by 2020. The above-scale share was 41.8 percent in 2014, a 7-percentage point increase from the beginning of the 2011-15 plan.

The new hog industry plan has eight separate objectives that are not new. The main thrust is to push hog production further into the hinterland as farms are closed in the urbanized Beijing-Tianjin and Shanghai regions and in broad swathes of southern China where rivers and streams are vulnerable to water pollution. The plan calls for developing cold chain and marketing to facilitate the regional concentration of the industry. There will be more support to develop a strong domestic breeding industry, veterinary drug conglomerates, and environmentally-friendly feed additives.

Ministry of Agriculture officials hope that their planned restructuring of the industry will tamp down market instability. By reducing "blind" expansion by small-scale farmers, utilizing "early warning systems", and strengthening links between farmers and processors, officials expect hog supplies to become more stable.

Those with a long memory may recall that the 2006-10 five year plan also had a similar push for "modernization" of the hog industry which was launched in similar conditions. That five-year plan also began during a down-point in the hog cycle, a severe disease-related shortage of pork and soaring pork prices during 2007. That time, the government released a blizzard of subsidies that led to overexpansion and exacerbation of the cycle. It looks like the government backed off from the subsidy mentality of earlier price surges in 2007 and 2011.

The government also adopted a so-called early-warning initiative in 2009, promising to report regular statistics on the hog market. Some of that information is still reported but it is hard to find and provides little real guidance for producers or market analysts. The Ministry of Agriculture's statistics on swine inventories and slaughter appear to have drifted away from reality, and the National Bureau of Statistics reports almost nothing from its extensive monthly survey of hog producers.

The best thing the State Council could do is to give the Statistics Bureau support to conduct a once-and-for-all accurate and transparent count of pigs and farms in the agricultural census next January, acknowledge the true number of hogs, and overhaul the nation's pork industry statistics.

Sunday, May 1, 2016

Ease Corn Glut, Worsen Rice-Wheat Glut?

At an April 26 press conference, the head of China's Grain Bureau acknowledged that the country's grain reserves are at a record high. Normally, plentiful grain supplies is a good thing, but not when there's no place to store it. The Grain Bureau chief warned that one-sixth of the grain is stored in rudimentary facilities where it is vulnerable to safety hazards. 

According to statistics quoted by the Grain Bureau chief, "policy grain" procured by the government accounted for 64 percent of the grain produced last fall (155 million metric tons out of the total 239 mmt procured). Most of that "policy grain" is corn. Other sources report that 123.4 mmt of corn had been procured for the "temporary reserve" as of April 25--more than half the corn harvest reported by the National Bureau of Statistics.

In March, the exploding corn reserve prompted the government to announce the cancellation of the "temporary reserve" program for corn this year. A principle of "separating price from subsidy" will allow the corn price to fall this year. Instead of supporting prices, provinces are supposed to give corn producers subsidy payments.

The intent of the new policy is to alleviate the corn surplus by letting lower market prices discourage excess production and stimulate increased consumption of corn. The lower price may restore profitability for livestock producers and starch manufacturers, prompting them to consume more corn. Officials also hope the lower price of domestic corn will choke off imports of corn substitutes, including sorghum, barley, DDGS, and cassava. 

Officials have now eliminated support prices for all major crops except wheat and rice. They have already announced minimum support prices for wheat and rice this year which farmers will find much more attractive than prices of other crops. 

The National Bureau of Statistics report on the economic situation for the first quarter of 2016 included results of a planting intentions survey of 110,000 Chinese farmers. According to the survey, land will be shifted into the crops that still have support prices. Rice plantings are expected to rise 0.3% and wheat plantings are up 0.4%. Corn plantings are expected to fall 0.9%. Planting of cotton--which is in its third year of "separating subsidies from price"--is expected to fall 18.8% in 2016.

The Statistics Bureau report also said pork production in the first quarter was down 5.1% from its year-earlier volume. The number of pigs is still limited after an extended contraction. The shrunken hog inventory is unfavorable for corn consumption in the near term. It will take a number of months to rebuild swine inventories.

Meanwhile, a report from Heilongjiang by Xinhua News Service suggests a bigger shift in crop acreage is underway in the biggest grain-producing province. The Xinhua report suggests that farmers are shifting their acreage from corn to rice paddies. The statistics reported in the article indicate that about half of Heilongjiang's cropland was planted in corn in 2015, and this year the province's corn plantings are expected to fall about 10%. Area planted in corn is expected to decline 10 million mu while area in rice paddies is expected to rise by 3 million mu. 

However, there is also a surplus of rice. Heilongjiang accounted for the largest share of government purchases of both corn and rice this year. Alleviating the corn glut may make the province's rice glut bigger in the 2016/17 marketing year.

Cheaper corn could also reduce China's feed use of wheat, wheat bran, and rice this year, a demand-side factor exacerbating the glut of wheat and rice.

The Ministry of Agriculture has released a plan for structural adjustment of crops by 2020 that acknowledges great difficulties and "hard constraints" of natural resource limits, yet the plan aims to keep area devoted to nearly all crops stable. Reciting the food security mantra, the plan puts a priority on keeping grain area stable. It plans to revive production of spring wheat and wheat grown in the Yangtze River valley--area that was cut during the last grain glut about 15 years ago. It calls for keeping rice area stable while raising yields. The Ministry's "sickle plan" aims to cut corn production in a sickle-shaped belt running from the northeast to southwest, but the plan calls for expanding corn grown for silage and for fresh consumption. 

The crop restructuring plan includes no mention of prices or economics (except a mention of reducing rice production costs).