Sunday, October 30, 2016

Officials Cushion Corn Price Decline

Chinese officials are taking numerous measures to cushion farmers against declining corn prices as they begin the first marketing season in a decade without a formal price floor for the crop.
As of October 23, 85% of corn had been harvested in Jilin and Heilongjiang Provinces, but only 5% had been sold. Rain and snow has slowed harvest and drying of the grain.

An October 26 Jilin Province meeting on grain procurement raised concerns about uncertainties surrounding the corn harvest and laid out five priorities:
  • make sure there are people to harvest grain
  • make sure there is money to buy grain
  • make sure there is space to store grain
  • make sure there are people to buy grain
  • make sure there are people to sell grain
Officials worry that farmers may not bother harvesting their grain in a timely manner, leaving it in the field where it will turn bad.

An October 28 circular on corn procurement and sales issued by Heilongjiang Province's grain bureau exhorted each level of government officials to ensure that farmers are able to sell their grain at a reasonable price. Officials were told that the smooth marketization of grain procurement is a test of their ability to carry out a major responsibility and political task. The directive said officials should give farmers guidance on the new market-determination of prices, cutting loose from reliance on maintaining a minimum price, not "waiting to see what happens," nor "clinging to fantasies," instead giving farmers information on prices and imports. Officials were encouraged to form teams to go to villages to instruct farmers about maintain quality of grain, drying it, and preventing mold. They are also expected to form long-term marketing relationships between large-scale farmers, family farms, and cooperatives with processors, grain depots, and guide "diverse types of buyers" to enter the market.

The Heilongjiang document offers a number of suggestions for encouraging increases in corn-buying through one-time purchases of grain for government reserves, expanding processor capacity, and ramping up livestock production. State-owned enterprises, specifically provincial branches of China Grain Reserves Corporation (Sinograin), COFCO, and the National Aeronautics Corporation are expected to play a key role in buying up farmers' corn.

Banks--including the Peoples Bank of China, the China Bank Regulatory Commission, and Agricultural Development Bank of China--are expected to step up to the plate with funds to buy corn. Commercial banks and private investors are expected to provide credit support. The provincial grain bureau says a credit guarantee fund is being set up to finance corn purchases by state-owned companies.

Earlier in October, a notice announced that Sinograin branches in Inner Mongolia would purchase corn in four districts at prices varying from 1300 yuan to 1410 yuan per metric ton. Heilongjiang's Sinograin branch announced an initiative to purchase 440,000 metric tons of corn at 1400 yuan/mt. Jilin Province's Sinograin branch and the provincial grain reserve corporation have a plan to "rotate" 4.2 million metric tons of corn at 33 warehouses and transfer 1.35 mmt out of the province. The corn price in Jilin is reported to be 1400-1500 yuan/mt.

Hebei--a province outside the northeast--also has a plan to encourage its Sinograin warehouses to buy corn and earmark 6 billion yuan for loans to finance corn purchases by "dragon head" processing enterprises.

A number of subsidies for buyers are described by one widely-posted article as a "red envelope" for the northeastern region's corn processing industry.  Liaoning Province led off by announcing a subsidy for manufacturers of corn-based starch, amino acids, sweeteners and alcohol for each ton of corn they use. Heilongjiang Province announced a continuation of subsidies for corn processors, rumored to be 300 yuan/mt. Jilin Province is expected to announce a 200-yuan/mt subsidy that will be "icing on the cake."

A 13% value added tax rebate for exports of corn starch and alcohol products took effect September 1. A subsidy for corn transported out of the northeastern region to the other 27 provinces is rumored.

Measures promoting corn purchases in the northeast are described as "a defense of 1400" to prevent the price from falling below 1400 yuan per metric ton, 30% less than last year's "temporary reserve" floor price.

Tuesday, October 18, 2016

China Corn Price Rebound Temporary?

As China's corn marketing season is about to enter its peak period, there is some optimism about a recent rebound in prices, but others say declines in prices will resume.

As of October 2, the corn harvest was 90-percent complete in Shandong Province and 70-percent complete in Henan. However, it was just 10-percent complete in Jilin Province in the northeastern region. The corn harvest will not be complete in the northeast until November.

This is the first time in nine years that corn will be marketed without a "temporary reserve" price floor to act as a safety net. Chinese leaders appear committed to the free market approach to determining corn prices, but officials are leaning on companies, officials, and grain depots to make sure prices don't fall too fast, too far.

Corn prices rebounded about 50-100 yuan per metric ton during late September and early October. While this rebound doesn't make up for the roughly 300-yuan decline in September, Futures Daily reports that this is a sign that Chinese corn price have bottomed out. However, this article may be part of a propaganda blitz designed to fortify the confidence of farmers disheartened by the declining trend in prices.

A Donghai Futures analyst thinks the rebound may be only temporary. The price rebound was in the North China region where there are a lot of industrial processors and mills who have been holding minimal commercial inventories and buying cautiously. Farmers had not sold that much corn. There is reason to be less optimistic about prices as corn comes on the market in the northeast--which accounts for 40 percent of national corn output and has less robust downstream demand. Hog prices have fallen from their peak in June, and poultry and egg industries are still in the doldrums.

On October 14, the grain bureau launched a northeastern "guidance survey" that will canvas grain depots, enterprises, and processors in Heilongjiang, Jilin, and Inner Mongolia. The "survey" will be part fact-finding mission and part arm-twisting exercise to remind officials and enterprises of their "responsibility" to assure national food security by buying up farmers' corn, making sure there is enough space to store the corn and enough cash to buy it. Futures Daily acknowledges that "policy propaganda" (like the Futures Daily article?) is a component of the "survey".

On the same day, Inner Mongolia's branch of Sinograin issued instructions to its depots in four districts to buy corn from the new crop in order to "serve the needs of farmers selling grain." The directive set prices for each district ranging from 1300 yuan to 1420 yuan per metric ton. These are not technically floor prices, but announcement of specific prices is probably intended to set a psychological floor for prices to reassure farmers.

A Feedonline author agrees that the recent rebound in corn prices may not reflect the true state of excess supply. He thinks the next few weeks will see a lot of volatility as the corn marketing season kicks into gear. He points out that the October launch of Sinograin purchases is unusual because in many past years authorities often watched the early progress in the market before launching "temporary reserve" procurement (by Sinograin depots) in late November or December.

Another analyst reports that Jilin province's government held a meeting where attendees were urged to "win the defense of 1400-yuan" for the national corn market. in October where participants were reminded to send "positive market signals." Central government state-owned enterprises were reminded of their social responsibility, and there were directives to speed up construction of new warehouses and balance storage among different granaries.

Wednesday, October 12, 2016

China's Protected Farming Regions and Modern Ag Funds

China is trying out "new" approaches to supporting farmers that funnel money into "protected" traditional farming regions and establish government-bank partnership funds to support agribusinesses.

The conceptual framework is laid out in an article, "Reasons for Our Country's Increase in Grain Imports and Countermeasures," by a China Ministry of Agriculture task force published last year (and posted on the Ministry's web site this month). The article frets about the explosion of "grain" imports (which includes soybeans) and calls for a big boost in subsidies that are shoehorned into the rules on support imposed by World Trade Organization (WTO) rules. The authors call for ramping up "green box" spending on agriculture which is not limited by WTO rules.

China's Ministry of Agriculture is establishing "protection regions" for selected crops based on the "geographic indicators" approach used in the European Union. The Ministry identifies "functional" areas that are important grain production regions and targets them for spending on farming infrastructure, mechanization, "green" and "organic" certifications, processing industry development and brand-building based on special features of the local commodity.

Keshan County--a soybean-producing area in Heilongjiang Province's Qiqihar region--was designated as the first pilot "soybean production protection region" in May 2016. It was already a national rural reform experimental region and a national modern agriculture model county. The county was chosen based on its long history of producing high-protein soybeans, large-scale production, high level of mechanization, the role of science and technology, and its certification by the Ministry's Green Food Development Center as an "A-grade" "green food" producer. Keshan County soybeans are designated as a national "geographic indicator product." Keshan was also designated this year as one of the first twenty-eight "model counties for mechanizing the entire production process."

Government money will pour into the county for investment in "high standard fields" with irrigation canals and roads, "green" production, soil fertility testing and improvement, machinery purchase subsidies, and "various types of grain and oilseed subsidies and aid." The project is also supporting a county soybean processing and e-commerce company. "Internet of things" apparatus will be installed in the "high standard fields".

A Science News article last month gave more details on the protection region pilot, explaining that the county features an "indigenously bred" "Guangshi No. 1 Red" soybean variety with a distinctive red color and high protein bred by the county branch of the provincial agricultural research academy. The variety has been labeled as non-GMO, and careful measures will be taken to "prevent a single GMO seed from entering the county." County officials explained that Keshan has a unique climate and natural advantage, a balanced ecology, fertile soil, and underground spring water that yield "good" soybeans with healthy, balanced nutrient content.

Local officials interviewed by Science News were disdainful of the target price subsidy pilot implemented for soybean producers in the northeastern provinces. Criticizing the subsidy's late arrival, one local official said the target price subsidies "really suck." While local farmers refer to soybeans as the "iron crop," they have fallen from a peak of 86% of the county's farmland in 2008-09 to an estimated 40% this year. Most farmers have shifted land into corn, a more profitable crop.

A second measure, "Modern Agriculture Development Funds," aims to support local agribusinesses that are starved of credit. The MOA article recommended that financial institutions should be given a quota of loans to make for agriculture to address the shortfall of investment. The first pilot "Modern Agriculture Development Fund" was announced in Henan Province where 14 enterprises signed investment agreements. The Henan fund's initial amount of 420 million yuan is financed by 140 million yuan from the provincial finance department and 280 million yuan from the Henan-based "Central Plains Bank" (中原银行). The government's funds will be managed by the Henan Province Comprehensive Development Company through a purportedly "marketized" process. The 14 companies are "dragon head enterprises" that do not have stock market listings. They will receive 400 million yuan from the fund to support participation in 378 projects selected by the province's finance and animal husbandry departments.

This month, Jiangsu Province announced its 400-million-yuan Modern Agriculture Development Fund and is accepting applications. Other provinces and cities appear to be announcing such funds as well.

Monday, October 10, 2016

China MOA S&D Estimates (Oct 2016)

China's corn supply will exceed its consumption by 4 mmt during 2016/17, according to the October China Agricultural Supply and Demand Estimates (CASDE) published by the Ministry of Agriculture. The estimated surplus is down from last month's estimate of 8 mmt. The CASDE report estimates that the corn surplus was a whopping 33.7 mmt during the just-completed 2015/16 and 37.8 mmt during 2014/15.

CASDE cut its estimate of China's 2016/17 corn crop by 3 mmt due to poor yields and lodging in some parts of China's northeastern provinces. The estimate of 212.45 mmt for 2016/17 is down from 224.58 mmt for 2015/16. Imports were revised down to 3.2 mmt for 2015/16 and 1.8 mmt for 2016.17. CASDE has revised 2015/16 imports downward each month, from 4.6 mmt in July to 3.2 mmt in October, as de-stocking of corn from government stockpiles this summer displaced imports. The estimate of imports for 2016/17 has been adjusted down from 2.4 mmt during July-August to 2 mmt in September, and 1.8 mmt this month. The estimate of corn consumption was raised by 600,000 metric tons this month.

China corn supply and demand (Ministry of Agriculture, October 2016)
Item Unit 2015/16 2016/17
Planted area 1000 ha 38,117 36,026
Harvested area 1000 ha 38,117 35,990
Yield Kg/ha 5892 5903
Production MMT 224.58 212.45
Imports MMT 3.2 1.8
Consumption MMT 194.05 209.57
--Food MMT 7.65 7.72
--Feed MMT 121.01 133.48
--Industrial use MMT 54.17 56.95
--Seed MMT 1.66 1.61
Loss and other MMT 9.56 9.81
Exports MMT 0.01 0.50
Surplus MMT 33.72 4.18

Soybean supply and demand estimates changed only slightly this month. The yield was revised downward 0.5% due to effects of drought in the northeast. The estimated production of 12.5 mmt for 2016/17 is still 890,000 metric tons more than last year. Crushing consumption is estimated to rise to 84 mmt, and imports are estimated at 83.5 mmt.

China soybean supply and demand (Ministry of Agriculture, October 2016)
Item Unit 2015/16 2016/17
Planted area 1000 ha 6,590 7,156
Harvested area 1000 ha 6,590 7,150
Yield Kg/ha 1,762 1,748
Production MMT 11.61 12.50
Imports MMT 81.42 83.50
Consumption MMT 94.76 98.20
--Crushing MMT 81.00 84.00
--Food MMT 10.35 11.18
--Seed MMT 0.54 0.56
Loss and other MMT 2.87 2.46
Exports MMT 0.11 0.20
Surplus MMT -1.84 -2.40

The gradual de-stocking of cotton continues in 2016/17. Cotton stocks peaked at 12.8 mmt at the end of 2014/15 and are estimated to fall from 11.13 mmt to 9.35 mmt during 2016/17. Production is estimated at 4.78 mmt for 2016/17, but consumption is estimated at 7.5 mmt. Imports will make up less than 1 mmt of the gap between production and consumption. Thus, CASDE says de-stocking of government reserves will be a major part of the cotton supply. 
China cotton supply and demand (Ministry of Ag, October 2016)
Item Unit 2015/16 2016/17
Begin inventory MMT 12.8 11.13
Planted area 1000 ha 33 31
Yield Kg/ha 1,510 1,544
Production MMT 4.93 4.78
Imports MMT 0.96 0.97
Consumption MMT 7.54 7.52
Exports MMT 0.02 0.02
End Inventory MMT 11.13 9.35

CASDE sees edible oils supply and demand relatively stable. 

China edible oils supply and demand (Ministry of Agriculture, October 2016)
Item Unit 2015/16 2016/17
Production MMT 25.03 25.33
--Soy oil MMT 14.44 14.88
--Rapeseed oil MMT 5.63 5.37
--Peanut oil MMT 3.01 3.16
Imports MMT 5.58 5.4
--Palm oil MMT 3.42 3.2
--Rapeseed oil MMT 0.74 0.75
--Soy oil MMT 0.65 0.58
Consumption MMT 31.17 31.38
--Urban MMT 20.41 20.55
--Rural MMT 10.76 10.83
Exports MMT 0.11 0.13
Surplus MMT -0.66 -0.77

Sugar reserves were drawn down by 3.16 mmt during 2015/16 and will decline a further 1.7 mmt during 2016/17. The slower decline in reserves reflects an increase in production. Consumption is forecast to decline slightly while imports remain stable. 

China sugar supply and demand (Ministry of Ag, October 2016)
Item Unit 2015/16 2016/17
Planted area 1000 ha 1435 1433
--sugar cane 1000 ha 1301 1270
--sugar beets 1000 ha 134 163
--sugar cane MT/ha 60.75 60.00
--sugar beets MT/ha 48.00 48.75
Sugar output MMT 8.7 9.9
--sugar cane MMT 7.85 8.85
--sugar beets MMT 0.85 1.05
Imports MMT 3.5 3.5
Consumption MMT 15.2 15.1
Exports MMT 0.16 0.07
Surplus MMT -3.16 -1.77

The Ministry of Agriculture anticipates a decrease in domestic corn prices to 1500-1600 yuan/metric ton, a 14-20-percent decline from the 2015/16 average. They expect international prices to rise slightly, so that domestic corn prices in production areas will be less than the price of imported corn. The Ministry expects lower prices for imported soybeans in 2016/17. A huge gap between domestic and imported soybean prices will widen to about 1300 yuan/mt. 

China prices
(Yuan/metric ton)
2014/15 2015/16 2016/17
Production region wholesale 2266 1870 1500-1600
Imported corn + duties 1643 1598 1600-1700
Domestic soybeans, consumption regions 4675 4300 4350-4550
Imported soybeans + duties 3265 3215 3050-3250

China Ethanol Bounces Back

Falling corn prices and a modest rebound in oil prices have brought China's fuel ethanol industry back from the brink of collapse. The industry has never lived up to its hype in China, but now some are calling for a big expansion as Chinese officials look for ways to use up "problem grain" stuffed in government warehouses.

The Chinese ethanol industry's recovery is symbolized by COFCO Biochemical (Anhui)'s reported 12-million yuan profit for the first half of 2016, a huge reversal from its 323 million yuan loss last year.

2015 was a dark period for the Chinese ethanol industry. It faced a perfect storm of declining prices, rising raw material costs, and vanishing subsidies. The price of ethanol in China is fixed at 91.1% of the price of gasoline, so declining oil prices in 2014-15 drove down the price of ethanol. In other countries, the price of corn--the main raw material for ethanol in China--fell along with fuel prices. But the Chinese industry had rigidly-high raw material costs due to the Chinese government's floor price for corn. The Chinese government started phasing out subsidies for ethanol producers several years ago--during a period of high fuel prices--and subsidies were eliminated entirely this year.

During 2016, the ethanol industry got some relief. Petroleum prices rebounded somewhat. Raw material prices fell as the Chinese government cut the support price for corn last fall and announced that there will be no support price for the 2016/17 harvest. Corn prices peaked at over 2300 yuan per metric ton in 2015.  According to a recent survey of northeastern corn markets, the Jilin ethanol plant is now paying 1450 yuan/metric ton for corn, and many observers expect the price to fall further as the marketing season progresses.

China is the third-largest ethanol producer in the world, but is far behind the leaders--the United States and Brazil. China produced 2.16 million metric tons (mmt) of fuel ethanol and 1.25 mmt of biodiesel during 2014, according to a "white paper on industrial biotechnology" prepared by China's Academy of Science last year.

Eleven Chinese provinces have pilot programs either for the entire province or for regions within the provinces. With automotive emissions contributing to serious air pollution, and China's commitment to greatly increase renewable fuels consumption at last year's Paris Accords, there is even greater impetus to expand ethanol production.

An article in China Energy News a year ago said that China's target for fuel ethanol production in a five-year plan for renewable energy is 10 million metric tons for 2020. This article said current production is 2.3 million metric tons. According to the chairman of Henan Tianguan Group--another fuel ethanol producer--China has invested 20 billion yuan in the industry since 2002. However, the industry has "faced a lot of problems" since it started, according to a COFCO engineer.

China's ethanol production has a history of falling short of targets. The 2.3 mmt output is less than half the 5-mmt target for 2015 in the 12th five-year plan. In 2010, ethanol output was 1.72 mmt, which fell short of the 11th five-year plan target of 2 mmt by a smaller margin.

According to the white paper, the Chinese ethanol industry has "gradually moved in the direction of non-grain crops and cellulosic materials for raw materials and actively promotes demonstration and pilot projects." Sweet sorghum grown on saline land seemed like a panacea, but vast quantities of stalks have to be gathered and processed in a short time window before the sugar breaks down. Large amounts of seed are needed, and it takes 1-2 years for the plants to grow. The next great hope was cassava-based ethanol, but the Chinese processors had to import 80% of the cassava they used. Thailand clamped down on cassava exports which raised the cost and burst the bubble for another "win-win" industry. Cellulosic projects in Shandong and Heilongjiang are said to be on the cusp of commercial viability but they are relatively small. Bio-energy is viewed as one of the uses for the huge volume of crop straw and stalks that farmers customarily burn in the fields. Farmers are being threatened with penalties and arrest if they burn straw this year, but the cost of gathering it up (with big machines) and trucking it away (more fuel consumed) exceeds its economic value.

The white paper said biodiesel capacity is 3-3.5 mmt, but biodiesel "cannot meet the huge demand, due to limited supply of raw materials and insufficient utilization of facilities."

China's ethanol is still produced mainly from grain. It takes 3.1 tons of corn to produce a ton of fuel ethanol, so the current ethanol output of 2.3 mmt implies that about 7 mmt of grain is used for ethanol. The 10-mmt target for 2020 implies 31 mmt of grain would be used, if it were met using grain as raw material.

Biofuel advocates estimate that China has 20 million metric tons of grain that cannot be safely consumed by humans or livestock. This "problem grain" includes moldy corn, fungus-infected wheat, and rice tainted by poisonous cadmium. The COFCO engineer insists that the only use for this grain is to make ethanol.

Ethanol production expands during grain gluts. China's first ethanol plants were built in 2000 when China previously had a massive grain stockpile. U.S. ethanol production ramped up during that period of low grain prices. By 2007, Chinese authorities were spooked by spiking grain prices, called a halt to grain-based ethanol expansion, and announced a plan to phase out subsidies for ethanol by 2015. When explaining their new food security plan, officials in China have often cited the use of grain for ethanol production in the United States as a reason why China cannot rely on imports for its food security.

In 2016, with corn again in excess supply, some "experts" are calling for more corn to be used for ethanol production to use up China's "lake of corn." This dovetails nicely with the Paris Accord to use more renewable energy and pressure to clean up the skies over China's smog-choked cities.

Perhaps it's no coincidence that China's antidumping investigation on imported U.S. distillers dried grains--the by-product of ethanol production--began last year when the Chinese ethanol industry was struggling with huge losses. Ethanol manufacturers filed the complaint with China's commerce ministry and are the main beneficiaries of antidumping duties. Limiting imports will relieve downward pressure on the price of domestic DDGS, boosting their bottom line.

Tuesday, October 4, 2016

China Accommodates Meat Imports

On September 13, an entry point for imported pork was approved in Heilongjiang Province, allowing meat to be shipped directly from coastal ports hundreds of miles into China's interior regions. This is one of a flurry of entry points approved this month as Chinese authorities create infrastructure to support its new status as a meat importer.

Heilongjiang's designated entry point is a 6000 square-meter facility 10 km west of Zhaodong City, a food processing hub about an hour's drive northwest of Harbin, the provincial capital. Meat can be shipped to Dalian or Tianjin ports and then transported directly to the Heilongjiang entry point in its original container for inspection and quarantine procedures. The facility reportedly has 1480 square meters of cold storage space integrated with refrigerated transport and warehouse capacity to store 3000 metric tons.

This is one of four designated entry points for meat approved in September. Others are at Taicang and Suzhou in Jiangsu Province and Weihai in Shandong Province. The September 2016 listing posted on the web site of the Adminstration for Quality Safety Inspection and Quarantine (AQSIQ) shows a total of 56 designated entry points for meat.

The new entry points reflect a strategic decision to open China's market to meat imports. An AQSIQ bulletin published in October 2015 announced a plan to standardize regulation of entry points for meat imports and create more facilities equipped to receive, inspect, and quarantine shipments of meat from abroad. According the bulletin, the plan reflects a decision by the State Council to implement "rule of law." Specific objectives are to prevent food safety and disease risks from imported meat, facilitate foreign trade, and promote the country's "one road, one belt" strategy. The designated entry points are primarily at coastal ports. Guangdong and Shenzhen have 20 entry points between them, by far the highest concentration.

The AQSIQ bulletin also called for setting up inland entry points like the one in Heilongjiang. The inland entry points are described as "expanding the capacity to import meat to inland areas, save on costs, and make trade more convenient." Some inland entry points for meat are cities on rivers like Nanjing in Jiangsu Province, Yueyang in Hunan, and Chongqing. Other inland entry points are at the Beijing and Shanghai airports, a facility in Beijing's Pingguo, Erlenhot in Inner Mongolia, Zhengzhou and Luohe in Henan, and on a rail line in Chengdu.

The Ministry of Agriculture's 2016-2020 five-year plan for the pork industry includes a passing aspiration for "basic self-sufficiency," but it also calls for "developing international cooperation and exchange" as one of six strategies. The strategy encourages companies to both "bring in" new breeds and advanced technology as well as to "go out" to utilize foreign resources. The rationale is to raise the competitiveness and productivity of China's hog industry by encouraging companies to engage in international competition.

Monday, October 3, 2016

China's GMO Fraud Problem

"The safety of transgenic foods is not determined by an auntie next door; the determination is made by professional organizations through experimental trials," intoned the deputy head of Hainan Province's agricultural department on September 9, 2016.

The official's remarks were made at the latest in a series of publicity events put on by Chinese agricultural officials to assure the public of the safety of transgenic agricultural products. The events are intended to ease consumer concerns about approval and wider dissemination of more transgenic crops in coming years.

The assurances of scientific rigor were undermined ten days later when a former Chinese Academy of Agricultural Sciences graduate student posted allegations that an elite testing center for transgenic crops falsified years of records to pass an audit to renew the center's accreditation (Chinese version here; Chinglish version here; Wall Street Journal version).
A lab for testing feed and animal materials in Chongqing, 2011.

Wei Jingliang, a doctoral student in animal genetics, had been assigned to maintain records at the "National Transgenic Testing Center" under the Academy's Institute for Livestock and Veterinary Research Center." He was ordered to fabricate records in 2015 when the center's leaders realized they had no records to show inspectors from the Ministries of Agriculture and Science and Technology for a triennial audit to maintain their accreditation as a national center for testing transgenic material. The center was supposed to retain samples of materials tested, records of reagents used in tests, records of instrument calibration, and staff qualifications. At a meeting in June 2015, the center's professor-supervisors told the staff there were no records because the lab was too busy with its daily work to keep records. All the records were fabricated during the month preceding the audit. Exams to establish the qualifications of staff were faked, and testing was routinely farmed out to other labs, Wei alleged.

Wei says he was handed a testing report by one professor last year and told to sign and stamp it, which he did. Several days later, he was reprimanded by another professor who is in charge of quality control in the lab for improperly using the official stamp. Wei also said he observed his professor presenting gifts to people who were auditors of the lab.

Mr. Wei said he pointed out privately to his professor that the falsification was wrong. The professor replied that it was necessary for the national strategy to maintain the lab as a "technology reserve." Wei's request to resign was refused last year, but he quit the program in April of 2016. He posted his allegations and a series of documents to verify their validity on a Chinese social media site in three tranches this month. Wei said he quit the program over frustration that fraud is rampant in research.

A terse investigation report by the Ministry of Agriculture on September 22 acknowledged illegal behavior by the testing center in preparing testing materials, record keeping, and employment, and the lab had violated personnel policies by substituting graduate students for skilled testing staff. The lab will be closed for six months for remediation work, and responsible staff have been strictly dealt with.

The allegations undermine the Hainan official's assurance that consumers can trust the scientific process to ensure the safety of transgenic crops. While the argument is sound--rigorous scientific testing should assure consumers--Mr. Wei's allegations reveal that Chinese laboratories do not in fact follow scientific procedures. Science is based on accurate, precise and truthful record-keeping and standardized procedures that facilitate replication of results. Without records there is no way to verify that equipment is well-calibrated, that technicians are properly trained, and that proper procedures were used. While there are no allegations that particular tests were falsified, the shoddy procedures described by Mr. Wei could lead to incorrect conclusions. The contracting-out of testing and substituting of unqualified staff alleged by Wei means that "an auntie next door" could very well be determining the safety of transgenic materials in China.

Authorities are also struggling with fraud down on the farm. On September 21, officials in Shaanxi Province revealed that they discovered genetically modified corn illegally growing in fields covering 3630.9 mu (598 acres) in two townships of Qingbian County. The GMO corn was detected by testing samples gathered in a spot check by local officials in August. Officials said they destroyed the corn.

In May, authorities discovered 2000 mu (330 acres) of illegal genetically modified corn seed had been discovered in an experimental plot in Xinjiang Autonomous Region. Officials said the corn had been brought into the country illegally from the United States, and traders had illegally sold the seeds. These are the latest in a series of such revelations in recent years.

An article in Legal Daily reveals that officials are debating criminalization of illegally growing GMOs.  a fine of 10,000 yuan ($1500) assessed in the Xinjiang case is not considered to be a strong deterrent. In the Shaanxi case, a local seed dealer was arrested and another suspect is being sought. However, the Shaanxi farmers were paid compensation of 1400 yuan per mu to offset their losses from destruction of the illegal grain. Legal Daily asserts that these are not isolated incidents.

The Ministry of Agriculture has a strict five-stage approval system that has only allowed six transgenic crops to be approved for commercial production. However, a Ministry official admitted to Legal Daily that there are hundreds of private and underground units engaged in seed research underway and the Ministry of Agriculture does not really know what R&D activities are underway and what organizations are doing it. There could be hundreds of organizations growing illegally imported genetically modified seed, according to the unnamed official.

One academic has criticized the government for lax regulation, pointing out that only administrative measures and guidance documents have been issued to govern transgenic agricultural products. The debate is weighing prospects for criminal sanctions for illegal GMO producers based on contamination of the environment, harm to public health, or harm to ecological resources.

China's GMO problem cuts to the heart of the China social-economic model. Can a prosperous economy be built on shoddy and fraudulent record-keeping? Are strict procedures, precise and accurate record-keeping, and qualified staff as important as shiny apparatus in making a laboratory "scientific"? Can Chinese consumers have confidence in any kind of testing or certification? What would it take to build such confidence?