Dim Sums: Agricultural Markets in China

A flagship grain-trading company and a seed company will be among six state-owned companies to be created by consolidating hundreds of enterprises under the supervision of government bureaus and research institutes in China's Shandong Province . The Shandong plan appears to be part of China's initiative to strengthen its sprawling system of state-owned enterprises. The plan also dovetails with other initiatives to create competitive grain-trading companies, promote "indigenous innovation" in seeds and animal breeding, and to overhaul the grain reserve system. Luliang Grain Group ( 鲁粮集团 ) will be created by merging 19 enterprises now under the administration of the Shandong Province Grain Bureau. The company's business will encompass the whole supply chain, holding reserves, processing, and distribution. The seed group will be created by merging 78 enterprises under the provincial academy of agricultural sciences. The other four companies will consolidate enter...

Chinese agricultural officials said they destroyed 1100 mu (181 acres) of genetically modified corn fields during 2015. The announcement by the Ministry of Agriculture was intended to assure consumers that officials are strictly regulating production of genetically modified crops. The announcement follows release of a 2016-2020 plan for science and technology that promises R&D and commercialization of corn and other genetically modified crops . The destroyed transgenic corn fields were discovered in three provinces that are centers for seed breeding and propagation: Xinjiang, Gansu, and Hainan. Presumably, the corn was being grown to be sold as seed. No genetically modified corn seeds have been approved for commercial production in China. Certain varieties of genetically modified corn produced in other countries have been approved by Chinese officials for import (but not for planting in China). Attention was drawn to the widespread illegal planting of genetically modified corn...

China's Premier Li Keqiang stopped the car and jumped out to inspect rice fields during an inspection tour of Jiangxi Province on August 22. Wading into the knee-high rice fields, Premier Li admired the uniform rice plants and surmised that the field must belong to a large-scale farmer. He peppered a farmer with detailed questions about his yield and the price he expects to get. Premier Li interviews Farmer Mao, showing his concern about farmers who are likely to face plunging prices this fall.   The stylized "leader-meets-peasants" theatrical play was pulled out of the communist party propaganda playbook to assure farmers that the party still cares about them, and will do something about plunging prices. Perhaps it also gave Premier Li something to do, since General Secretary Xi has taken control of nearly every responsibility in Beijing. Farmer Mao Laohan explained that the nice-looking rice field belongs to his little brother's family. In response to Prem...

China's soybean subsidy has been partly based on fictitious prices reported by idle factories, according to investigations by a Chinese journalist.  Since 2014, China has been piloting a "target price" subsidy for soybeans which makes a payment to producers based on the difference between the average market price and a target price high enough to give farmers a reasonable return. The lower the market price, the bigger the subsidy payment. To determine the market price for calculating the subsidy, a sample of soybean processors were selected by authorities to report the prices they pay for soybeans twice a week during the six-month marketing season after the harvest.  According to "Economy Half Hour" on China's Central Television network , a journalist called companies in Heilongjiang who reported soybean prices to authorities, and found that many of them did not actually purchase any soybeans because they were idle or out of business. For example, one...

China's State Council endorsed R&D and commercialization of genetically modified crops as one of the priorities in its 13th Five-year Plan on Science and Technology. The document emphasized dual objectives of putting China on the forefront of scientific research while maintaining the strictest approval process for genetically modified organisms (GMOs). The GMO endorsement was a small part of a lengthy  Five-year Plan for Science and Technology  (2016-2020) which projects a broad vision of transforming China's economy from one that cranks out products using imported technology to an economy that runs on innovation. The plan emphasizes dual priorities of using science and technology to maintain national security and to move up to a higher rung in global value chains. Research and development on genetically modified crops is the eighth of 13 priority projects identified in the plan. Other priorities include space exploration, super computing, and new-generation broadband wi...

China will produce more corn than it consumes again during 2016/17, according to the latest supply and demand estimates from China's Ministry of Agriculture (MOA). Estimates of Chinese corn prices have been revised downward, and MOA expects drawdowns of Chinese soybean and cotton stockpiles to cut into imports of those commodities. This week, MOA released its second monthly "CASDE" (China Agricultural Supply and Demand Estimates) which includes balance sheets for corn, soybeans, cotton, vegetable oils, and sugar. The report excludes rice and wheat. The August report increased the estimate of the 2016 Chinese corn crop to 216.5 million metric tons, up 2 mmt from the July estimate based on good weather that is expected to bump up the yield. Estimates of feed and industrial consumption of corn for 2016/17 were also increased, stimulated by falling prices in China. The estimates of corn prices for both 2015/16 and 2016/17 were revised downward from last month, as well. C...

China's Finance Ministry has allocated 30 billion yuan ($4.5 billion) for the new "corn producer subsidy" that will be paid to farmers in the four northeastern provinces this year. This signals China's entry into a brave new world of giant farm subsidies. The funds will be issued to the four provinces (apparently on the basis of the amount of land planted in corn in each): Heilongjiang 11.6 billion yuan, Jilin 7.3 billion yuan, Inner Mongolia 6.6 billion yuan, and Liaoning 4.6 billion yuan. The provinces are responsible for setting up their subsidy programs. Last week, Heilongjiang released its subsidy implementation program which said the payment would be based on the amount of land farmers planted in corn this year, but it did not specify the amount of the payment. This subsidy is for the 2016/17 crop that was planted last spring, will be harvested in September-October, and sold from October through April. Calculations based on last year's data suggest the ...

China's target price subsidy pilot for soybeans is an improvement on the temporary reserve policy it replaced, but investigations in northeastern provinces also revealed high administrative costs, plunging soybean production, "diluted" payments, and a perverse incentive to maintain production on marginal land. Chinese authorities launched the target price subsidy pilot in four northeastern provinces in 2014. It replaced a "temporary reserve" that set a floor price for soybeans from 2007 to 2013. The target price program lets the market determine the price, then pays a subsidy to farmers based on the difference between a target price and the market price. The lower the market price, the bigger the subsidy. Authorities have hopes that the target price method can be used more widely to replace floor prices as a less-market-distorting approach to supporting farmers and stabilizing their incomes. Two reports on the soybean target price pilot have appeared recentl...

A meeting on de-stocking Heilongjiang Province's record-high grain inventory was chaired by Governor Lu Hao on July 29. The governor stressed that the welfare of the province's farmers and stability in rural areas depends on success in purchasing this fall's grain crop. With Heilongjiang's grain inventory at a record high, it is urgent to make room to procure the new grain harvest coming up in a few months. Officials worry that dissatisfaction will spread if farmers are unable to sell their grain. The meeting had four main recommendations. Make great efforts to construct integrated grain processing and storage projects to absorb grain. Push forward policies to develop dairy, beef, hog, and poultry production in Heilongjiang to boost the demand for feed grain. Take advantage of the upcoming annual meeting where leaders from various provinces negotiate on grain purchases and sales to move as much grain as possible to other provinces. Lobby central government de...

Auditors uncovered RMB 1.79 billion ($267 million) in misappropriation of funds and false reporting by managers of 34 enterprises that manage the grain reserves in China's Hainan Province. According to the news report from Hainan , the grain officials came up with all sorts of accounting chicanery to steal money meant for purchasing and maintaining grain reserves. Several tricks were used to inflate subsidies for rotating grain reserves. Six granaries conspired to sell old grain as new grain, thus collecting subsidies for acquiring new grain. Other grain rotation schemes referred to as "air for air" and "bring in a little, add a lot" suggest trading nonexistent grain and inflating reports of grain procurement.  The cheating on grain transactions cost the government 13.25 million yuan (about $2 million) in fraudulent subsidies involving 130,700 metric tons of grain. The big money came from siphoning money into personal bank cards and cash via "serio...