Wednesday, December 27, 2017

China's "Rural Revitalization" Set for 2018

An ambitious rural revitalization initiative was one of 8 priorities set for Chinese officials at the 2018 "economic work conference" held in Beijing December 18-20. The strategy was one of the directives issued in Xi Jinping's October speech to the 19th communist party congress where he proclaimed that agricultural and rural problems are foundational issues that must receive the utmost attention from communist party leaders.

Over the past decade, China's statisticians consistently reported numbers showing that the gap between countryside and city was improving, but now the official Xinhua news service reports a dismal situation to explain why rural revitalization is so critical: development in the countryside still lags far behind cities, inadequate development in the countryside is a glaring weakness, and the rural-urban imbalance is the most prominent imbalance in China's development.
The rural strategy was described only briefly in Xi's speech (434 characters of the 32,000-character speech) and in reports on the economic work conference, but the Minister of Agriculture instructed rural cadres to study Xi's speech and implement the strategy to achieve a transformational upgrade. The strategy is mainly a comprehensive restatement of various initiatives that have already been underway for several years.

Ambitious institutional reform is at the heart of the rural strategy: officials are measuring plots of rural land and verifying who has the rights, nurturing a new core of "appropriate scale" agricultural businesses, rectifying ownership of other collective property and profit-distribution mechanisms, and they hope to improve support policies for farmers. Family farms, cooperatives, and agribusinesses are expected to pull small agricultural households into "the orbit of modern agriculture" by sharing profits, imparting technical knowledge and linking small farmers with processing and service businesses. National food security will be maintained by investing in farmland that no one really owns, making scientific achievements that are brought to fields by an army of new service providers, and further mechanizing agriculture. All this will be accomplished while fully embracing the concepts of an open economy and "green" development.

The centerpiece of rural reforms is a giant project to clarify rural land rights which has been underway since 2014 and is expected to be complete next year, except for a few minority and border areas, according to a news conference held by Ministry of Agriculture officials last month. Officials have verified plots and issued certificates for 74 million hectares so far, 82% of collective cropland on the books (officials have discovered that there is actually more contracted land than previously thought). Xi Jinping also declared that villagers' contracting rights to rural collective land would be extended to 30 years. Defining boundaries and verifying contracting rights to land will give villagers confidence in their rights that will put them at ease when transferring the use rights of their land to others, facilitate distribution of land-based farm subsidies, and it will be the foundation for giving migrants compensation for giving up land rights, making mortgage loans, and promoting investment in land, officials say.

Another 3-year program is clarifying rights to a broader scope of collective assets in 129 pilot counties. Nationally, village collective assets are estimated to be worth 2.86 trillion yuan ($435 million, excluding Tibet), an average of nearly 5 million yuan ($762,000) per village. Officials say some of the pilot villages have set up dividend payment schemes for villagers, but the size of the payments is relatively small. The collective asset pilots will be expanded in 2018.

With greater assurance of land rights--where the boundaries are and with certificates that give them better prospects of getting the land back--it will be easier to transfer land use rights to "new farmers." One farmer in Heilongjiang Province reportedly took six months to assemble a farm of 800 mu (53 hectares) six years ago, but it only took him two weeks to acquire another 700 mu this year, according to state media. Officials are setting up provincial mortgage guarantee companies to facilitate agricultural lending, and they plan to set up similar companies at the municipal and county levels. Other plans are to mortgage farm equipment and other assets, and to promote leasing of farm machinery to speed up mechanization.

Officials see the traditional small-scale rural household as an inherent feature of rural China, and they hope new farm businesses will help the masses of rural households by linking them with processing and service businesses, giving out loans and training, and establishing profit-sharing mechanisms with small farmers.

More structural adjustment is on the horizon for Chinese agriculture. Corn was the focus of structural adjustment over the past year, but hogs are also in structural adjustment and state media say ruminant animals are next on the agenda. The focus is to protect resources (reduce soil erosion in the case of corn, reduce water pollution by pigs, and reduce over-grazing by ruminants), to increase quality and raise net income.

Rural and agricultural tourism, e-commerce, and other new industries will be promoted. The economic work report mentioned an initiative to align purchase prices for grain reserves more closely with market prices. Officials promise to explore establishment of "functional areas" for grain production and "protected areas" for other key crops.

The strategy is perplexing to outsiders because it is both capitalist and socialist, both forward-looking and conservative. The strategy aims to use capitalist tools like markets and entrepreneurship to enliven moribund socialist institutions governing the countryside: collective land ownership, state farms, and bureaucracies. These institutions were jury-rigged in the 1950s by officials trying to balance their utopian vision of collective farming with the realities of giving peasants incentives to produce efficiently. Xi envisions a 21st century "new era" for China of affluence, efficiency, and interconnectedness. Yet his vision also calls for preserving the past: promoting pride in rural "civilization" and maintaining a countryside laid out to accommodate medieval subsistence agriculture.

Wednesday, December 20, 2017

China's New Ag Census: Statistical Fog Remains

Initial results of China's 2016 agricultural census confirm that the country's farming sector remains shrouded in a statistical fog where numbers reveal only gray indistinct shapes whose details cannot be discerned with any precision. The skimpy initial release of statistics reveals nothing about what is produced, but they suggest China still has lots of people in the countryside squatting on plots of land they are not allowed to sell. Livestock and aquaculture farming--where land is less of a constraint--have proceeded much faster in commercialization and specialization than crop production. Scaled-up farms are increasing in number, but they have a long way to go to transform farming in China.

Last week, the National Bureau of Statistics released a series of five communiques, a graphical summary of changes over the last 10 years and two essays by communist party go-to academics which amount to cheerleading about how much life in the countryside has improved because of the wise policies of socialism with Chinese characteristics under Xi Jinping's leadership since the 18th communist party congress. The monumental effort reportedly engaged 4 million enumerators, drones, and satellite imagery to canvas the countryside's 230 million households, 600,000 villages, 40,000 towns, and 2 million agricultural business units to produce an inventory of rural China as of December 31, 2016. Statisticians claim to have covered all but 0.19 percent of China's farms.

While the census is hailed as "scientific," the initial reporting of results is highly political in nature. A theme of the reports is, "Look how much things have changed in the countryside," by emphasizing statistics on rural infrastructure, farm equipment, greenhouses, and scaled-up farms. There is nothing in these initial reports about what is produced, planted or sold--although the census did collect these numbers--and there is no effort shown to determine whether statistics have deviated from reality with so much change occurring in China's countryside. Detailed statistical volumes will be released later, which hopefully will reveal more about land use, sales value, and animal numbers.

When compared with the previous agricultural censuses conducted in 1996 and 2006, the 2016 census reveals a major outflow of people and consolidation of villages and townships. There has been massive migration to cities--agricultural employment reported by the censuses fell from 433.5 million to 314.2 million during 1996-2016. The number of administrative villages fell from 748,320 to 596,450, and the number of townships declined from 43,112 to 31,925 during 1996-2016.

Basic agricultural statistics in China's three censuses
Farming households
Other farming businesses
Cultivated land
Agricultural employment
Million hectares

Yet a comparison across censuses reveals that the number of agricultural households has actually increased gradually from 193 million in 1996 to 207.4 million in 2016. This reflects the continued formation of new households through population growth. As some family members move to cities, most families hold on to their allocation of village land since they can't sell it under China's collective land ownership system. Elderly parents are often left behind to tend the plots, watch grandchildren, and play mah jong. While many young people have no interest in farming, enough have stayed behind to take over land-holdings as elderly patriarchs pass on in order to keep the number of farming families steady or increasing slightly. The amount of land available is static or shrinking, so the allocation of land per household is also small and getting smaller.

Not all farms are operated by rural families, and the new census shows a big increase in the number of non-family farming units. In the 1996 and 2006 censuses, these other farming businesses included mainly collectives, state farms, government research farms, and probably prison camps and military farms. The increase in nonfamily farming units from 395,000 to over 2 million between 2006 and 2016 reflects a big jump in formation of farmer cooperatives after the 2007 cooperative law and formation of private agricultural enterprises (most of the cooperatives are aggregations of farmers who cultivate their own land). In fact, one of the few interesting results of the census is its tacit admission that only half of the 1.8 million farmers cooperatives officials brag about actually exist. The census notes that 1.78 million farmer cooperatives are registered with commercial bureaus, but census enumerators counted only 910,000 cooperatives. This confirms reports from the field that many cooperatives were set up as bogus shells to collect subsidies or to pad statistics, and many others just failed.

The most disappointing aspect of the census is its failure to update China's estimate of cropland area. The new census endorses a Ministry of Land Resources survey from 2008 that reported 135 million hectares of cultivated land, nine years ago. Uncertainty about the area of land under cultivation dates back centuries--landlords have always under-reported land holdings to evade taxes, a practice that continued under communist authorities until land-based taxes were eliminated 10 years ago.

Gyrations in estimates of China's farmland since the 1990s are an indicator that no one really knows exactly how much land China cultivates. Statistics reported a steadily declining stock of cultivated land starting in the early 1960s that reached 95 million hectares in 1995. At the time, everyone knew this was an understatement, which was confirmed by the 130 million hectares reported by the first agricultural census for 1996 (it took several years to report this number, probably because of bickering behind the scenes). The second agricultural census found a seemingly plausible shrinkage in farmland to 122 million hectares in 2006. However, the Ministry of Land Resources survey in 2008 reported an even larger 135 million-hectare estimate of farmland which has been reported as the cultivated land area in each statistical yearbook since then.

Uncertainty about the size of China's cropland base means that no one really knows how much is produced in the country. Crop output is based on the annual estimate of area planted in crops which exceeds the area of cultivated land, due to double-cropping, and perhaps planting of crops on grassland, hillsides, riverbeds, etc. that are not classified as "cultivated land." Statistics on the area planted in crops have been unchanged during the wild gyrations in cultivated land statistics. Between 1995 and 2016, crop area planted increased from 150 million hectares to 165.65 million hectares. The area planted in crops has increased 9.5 percent over the most recent 10 years--an implausible trend in view of the amount of land gobbled up by real estate, roads, and ecological projects. No estimate of area planted in crops was reported in this initial set of communiques on the 2016 census.

(In comparison, the area of cropland reported by U.S. agricultural censuses declined from 180 million hectares in 1997 to 158 million in 2012--the most recent U.S. census).

China's census suggests that there are more people engaged in farming than other statistics report. The 2016 census reported that 314 million people were employed in agriculture, which equals 40 percent of total national employment (776 million) reported for that year in other publications. The estimate of employment in the "primary" sector published in Statistical Yearbooks is much lower, at 215 million (28 percent of all employment). Agriculture's share of GDP is much smaller than its share of employment--less than 9 percent of GDP in 2016, according to macroeconomic statistics.

As noted above, the census agricultural employment totals have fallen over time, but the rate of decline differs from that shown by annual employment statistics. The censuses report a decline in agricultural employment of over 100 million between 1996 and 2006, but only a 28-million decline between 2006 and 2016. Annual estimates of employment in "primary industry" reported by the statistics bureau show a much steeper decline in ag employment of 104 million during 2006-16--four times faster than the decline reported by the censuses.

China's agricultural labor force is aging. The 2016 census reported that 33.6 percent of agricultural workers were age 55 or older and 19.2 percent were under age 35. The 1996 census reported a much younger rural labor force with only 11.8 percent of rural workers 55 and older and 53.5 percent under age 35 (the 1996 census did not tabulate agricultural employment separately, but most rural people were employed in farming at that time). The youthful labor force in the 1990s reflected a bulge of young people born in the early 1970s--a cohort that fueled China's labor-intensive manufacturing boom during the 2000s as they migrated to factories. (The 2006 census used a different set of age-groupings, reporting that 30 percent of ag workers were over age 50.) The percentage of farmers 55-and-older translates to over 100 million people who will probably never switch to another profession or move to a city.

(An aging farmer population is not unique to China. The average age of farmers reported by U.S. ag censuses has been over 50 since the 1970s. The average age of U.S. farmers rose from 54 in 1997 to 58.3 years old in 2012.)

Education-level tabulations indicate that China's agriculture sector is not attracting the best and the brightest. Education levels have gradually improved. The share of unschooled farmers has fallen from 14 percent in 1996 to just 6.4 percent in 2016, and farmers with just a primary school education have fallen from 42 to 37 percent of all farmers. Lower middle school (9 years of schooling) is now the predominant education level of farmers, comprising 48.4 percent of farmers. The share of farmers with a secondary school or higher education level is increasing, but highly educated farmers are still rare in China. In cities, secondary school is the most common education level, and a much higher proportion have higher education.

China's agricultural laborers by education level (percent)
Primary school
Lower middle
Secondary, vocational
Technical school or higher
*1996 data are for all rural workers.

The 2016 census is the first to profile scaled-up farms. The census found 3.98 million scaled-up farms, just under 2 percent of all farms. The census found that 28.6 percent of cultivated land was in scaled-up operations (the definition varied: 6.7 ha or more of land in areas where a single crop is grown; 3.35 ha in areas where two crops are grown; 1.67 ha for farms where crops are grown in plastic-covered sheds or greenhouses). There were 12.9 million people working on scaled-up farms, but this was just 4.1 percent of all agricultural employment.

The scaled-up farms had a smaller proportion of older workers, but only a slightly higher proportion of young workers under age 35, compared with the overall agricultural labor force. Thus, scaled-up farms had a higher proportion of workers at peak working ages of 35-54 than the general farm labor force. The scaled-up farmers were more likely to have a junior-middle school education and less likely to be unschooled or have a primary school education compared with the overall agricultural labor force.

The most striking feature of scaled-up farms is that they are much more likely to be engaged in livestock and aquaculture production than other farmers. Over 28 percent of scaled-up farmers are engaged in either livestock or fishing, compared with 4.3 percent of the overall agricultural labor force. The census also reported that 62 percent of the swine inventory was on scaled-up farms (slaughter 200 head or more--smaller than the 500-head definition used by the Ministry of Ag) and 73 percent of chickens (slaughter 10,000 birds or more) were on scaled-up farms. Again, the preponderance of tiny crop farms reflects the incentives and barriers imposed by the land tenure system. Land is collectively owned, but animals and fish are private property.

Characteristics of scaled up agricultural businesses
Scale farms All farms
People engaged (million) 12.9 314.2
Male 52.8 52.5
Age 35-less 21.1 19.2
Age 55-older 20.7 33.6
None 3.6 6.4
Primary school 30.6 37.0
Lower middle 55.5 48.4
Secondary, vocational 8.9 7.1
Technical or higher 1.5 1.2
Employment by sector:
Crops 67.7 92.9
Forestry 2.7 2.2
Livestock 21.3 3.5
Fishing 6.4 0.8
Services 1.9 0.6

Irrigation is used on 61.89 million hectares of China's farmland, 46 percent of the total. 30.5 percent of farms pump water from underground for irrigation and 69.5 percent use surface water from reservoirs, rivers, and canals.

Permanent greenhouses constructed of steel and glass cover 334,000 ha (up from 81,000 ha in 2006), and structures covered with plastic sheeting occupy 981,000 ha (up from 465,000 ha in 2006).

The census also conducted a more extensive inventory of farm equipment than in previous censuses. The number of tractors increased by 1.4 million between 2006 and 2016, but the composition of tractors was not reported--it likely shifted from small to bigger machines. The total of 26,900 tractors is one for every 7.7 farms or one tractor for every 5 hectares of land. The number of combine harvesters doubled between 2006 and 2016, to reach 1.14 million.

China's inventory of farm equipment
Type of equipment 2016 2006 1996
Tractors 26,900 25,500 11,790
Tillage equipment 5,130
Rotary cultivators 8,250
Planters 6,520
Rice transplanters 680
Combine harvesters 1,140 550 113
Mechanical threshers 10,310 7,519
Automated irrigation machinery 14,310
Hay processing machinery 4,090
Milking machines 100
Wool shearing machines 50
Aerators 1,940
Fruit tree pruners 490
Inland motorized fishing boats 280 467
Sea-going fishing boats 250

Monday, December 18, 2017

Officials Ponder China's Ag Policy Direction

Chinese officials and scholars have recently been discussing rural policy for the "new era" proclaimed in Xi Jinping's October speech to the 19th communist party congress. Agriculture faces a number of conflicts in fulfilling Comrade Xi's various pledges to be an open economy, maintain secure control over the food supply, be a leader in environmental governance, and bring all segments of society into relatively well-off status by 2020.

With shrinking land and water resources, rising rural labor costs, the need to maintain food security, and a new pledge to produce high quality products,  Ke Bingsheng, president of China Agricultural University and an agricultural economist, commented that it would take a "miracle" for China to produce enough food for its growing consumption. Since communists are atheists, they have to put their faith in technology and government planning, so Professor Ke proclaims "modern agriculture" is the needed "miracle."

The countryside has become a warehouse for the elderly, infirm, and others marginalized by China's economic transformation. Ke Bingsheng observed that agriculture still employs 28 percent of the labor force, but it produces less than 9 percent of GDP. That means labor productivity--and therefore farm income--is still very low for those engaged in agriculture. The economy needs to grow faster to absorb even more rural laborers, and farm productivity must rise in order to boost rural incomes.

Nurturing new-type farm operators who have higher productivity and are more internationally competitive is a core component of the ideas for revitalizing the countryside offered in Xi Jinping's October speech. This month, a meeting of the State Council's standing committee chaired by Li Keqiang emphasized programs to nurture new-type operator as well as other measures to promote agricultural "modernization" and link farming with industry and service sectors. The meeting endorsed training for new-type farmers, support for various mortgage loans and provincial loan-guarantee companies for farmers, subsidies and new leasing arrangements for farm equipment, and improved services for farmers, Prof. Ke said.

The Ministry of Agriculture's Zhang Hongyu assured small-scale farmers that they will not be left behind as China modernizes agriculture. The capacity to "pull along" small farmers is one of the criteria for evaluating the new-type farm operators. The large-scale farms and agribusinesses are expected to provide training, financing, technical advice, and other services to bring the general population of rural households into agricultural modernization. Small farmers need to be organized into cooperatives and collective organizations need to be mobilized.

Keeping farm prices high would boost incomes for small farmers, but there seems to be consensus now that China's high agricultural prices must be allowed to fall in line with prices in global markets to make China's products more internationally competitive. Professor Ke Bingsheng surmised that the international market is having an unprecedented influence on Chinese markets, and he warned policymakers that they must consider effects of international markets when designing farm policies.  He cited China's experience with the grain market as a "warning."

In a similar vein, Economy Daily warned officials not to let up on agricultural price reforms, despite another big grain harvest this year. The commentary reviewed the problems with price support programs and their elimination for soybeans, rapeseed, cotton, and corn, and said reform of price-setting mechanisms for rice and wheat should be next on the agenda. Economy Daily said wheat reserves are now 70 percent of annual consumption and rice reserves are 60 percent of consumption--"far higher than international standards"--and a perverse phenomenon of "domestic grain going into reserves; foreign grain going into the market" needs to be corrected by letting the market determine the grain price.

Development Research Center economist Cheng Guoqiang offered several suggestions for reforming the rice minimum price program: set a single minimum price for all kinds of rice (there are now separate prices for three kinds of rice); or cut the minimum price to 2400 yuan/metric ton (this year it ranged from 2600 to 3000 yuan) and give farmers a subsidy similar to the corn producer subsidy; or start purchasing rice at minimum price a month later than usual to let the market set a price before the government begins purchasing.

The mantra for supporting farmers is now to "separate price from subsidies" by allowing crop prices to be set by the market while giving farmers subsidy payments. Heilongjiang Province--China's largest corn and soybean-producing region--announced that its subsidy payments to producers of corn were 133.46 yuan/mu (about $123 per acre) and payments to soybean producers were 173.46 yuan/mu ($160 per acre). The corn subsidy equals close to 20 percent of gross revenue and the soybean subsidy looks like it is over 30 percent of gross revenue for farmers in the northeast.

With China becoming more reliant on imported food, the Development Research Center's Ye Xingqing has set forth a strategy in "Diversification of China’s Global Agricultural Supply System is Inseparable from “Belt-Road,” which calls for China to nurture new suppliers of agricultural imports from "Belt and Road" countries. Dr. Ye worries that China is exposed to risk by (1) relying on a few countries in the Americas and Oceania for most of its agricultural imports, (2) relying on a few maritime shipping lanes, and (3) relying on a handful of multinational grain-trading companies, which exposes China to potential risks. With dependence on agricultural imports persisting--and perhaps increasing--in the future, Dr. Ye recommends following the advice of the 2014 and 2016 No. 1 documents by planning and guiding agricultural imports and diversifying suppliers, as Chinese investors abroad develop new supply chains.

The most prominent example of China's import diversification strategy is its $3.65 billion loans-for-grain deal with the Ukraine initiated in 2012. This clever move to reduce risk diversified corn imports away from the United States--which supplied over 90 percent of China's corn imports at the time--to buy almost exclusively from a country with turbulent internal politics and riddled with corruption which was about to go to war with Russia. China reportedly sued Ukraine in 2014 for failing to pay back the loan. To explain why Chinese investors are now approaching Ukraine cautiously, said, "The most damaging [Chinese] investment was the failed loans-for-grain deal financed by Export-Import Bank of China in 2012." 

Xi Jinping's pledge to make China a leader in "green" development is hitting the country's livestock industry by forcing thousands of pig farms to close or move, imposing requirements for collecting, treating, and utilizing manure, and imposing a tax on polluters due to come into effect in January 2018. A researcher with China's Academy of Agricultural Science (CAAS) worries that the new environmental tax will increase costs for Chinese livestock producers--among China's biggest water polluters--and further reduce their international competitiveness, leading to larger imports. Wang Minji of CAAS recommends increasing subsidies for construction of manure handling and treatment facilities and other assistance for livestock and poultry producers in China to offset the impacts of the tax.

Sunday, December 10, 2017

Donkey Poverty Alleviation Led by Inspection Bureau

A donkey development project illustrates one of the Chinese communist party's strategies for rural poverty alleviation. Inspection and quarantine bureaus--responsible for inspecting imports and exports--have been instructed to take on side projects to help poor farmers as a political task. Communist party organizations are using their connections to mobilize resources in order to accomplish a task that would be conducted by NGOs or specialized aid agencies in most countries.

According to the Yunnan Province inspection and quarantine bureau, the unit's communist party organization led a program to bring economic development to Xinle Village, a small community of 1546 people with an average of just 0.61 mu (one-tenth of an acre) of land per person. The effort was described as the bureau's "political responsibility for poverty alleviation."

The inspection and quarantine bureau (known as "CIQ") arrived to help in 2015. A cooperative designed to produce milk from water buffaloes started by village leaders the previous year had failed. Some in the village wanted to ask the CIQ officials to help jump-start their water buffalo coop, but others thought it best to move on to some other venture that could make money as fast as possible.

CIQ officials recommended that the village try raising donkeys. They observed that 60 percent of the families in the village raised donkeys, and they knew that China has a shortage of donkey skins needed to make a traditional Chinese medicine called e'jiao (阿胶).

The Yunnan CIQ linked up with the most prominent e'jiao manufacturer--Dong'e E'jiao in Shandong Province, thousands of miles away. The company has been active in promoting donkey production, breeding, and marketing to alleviate its shortage of donkey skins. The company routinely raises prices by 20-50 percent each  year, citing the soaring prices for donkey skins. Several months ago, the dimsums blog profiled an international donkey symposium hosted by the company.

In March 2016, the Yunnan CIQ took the head of the village committee and a donkey farmer to visit the "National Black Donkey Breeding Center" established in Shandong by the Dong'e E'jiao company. When they returned from the trip, the village's communist party branch and members of each production team responsible for poverty programs agreed to set up a "poverty alleviation" donkey farming cooperative in Xinle Village with 56 households as members.

Using a “party branch + antipovery farmer + specialized farm household” model, the cooperative was designed to transform the scattered courtyard-style of families raising donkeys individually to a scaled-up commercial model. The Yunnan CIQ spent 430,000 yuan (about $65,000) to buy 86 mares and 3 male donkeys as breeding stock.

The bureau called on provincial government experts to advise farmers on how to raise donkeys, feed formulas, and disease control. The Tengchong municipal government organized training and gave the Xinle Village farmers subsidies to build donkey barns. The cooperative now reportedly has 160 donkeys.

The Yunnan CIQ got advice on donkey breeding from its counterpart CIQ in Shandong Province. Yunnan donkeys are smaller, grow more slowly, and are less-favored by buyers compared with the improved "Dezhou" breed developed in Shandong. Using the Dezhou breed would increase efficiency, but officials realized that the different climate and altitude in Yunnan could kill off the Shandong breeds. With help from the Shandong CIQ, the Yunnan CIQ sent four Xinle Villagers to the Dong'e E'jiao company's breeding base for training in breeding and artificial insemination with the objective of developing their own local breed within 5 years.

The donkey program is an example of a broader strategy motivated by the Chinese leadership's goal of achieving a "relatively well-off society" by 2020.

The Yunnan CIQ says it has similar antipoverty projects to raise capers, grapes, and a specialty breed of chickens, as well as a program to offer free medical exams to "offer love and warmth in its poverty alleviation."

Other provincial CIQs have similar antipoverty programs. Last year, the Guangdong CIQ set up a vegetable cooperative in a poor, mountainous area of northern Guangdong Province, saying its program was inspired by Xi Jinping's "Two Centuries" objective. The Guangdong CIQ explains that it is striving to improve food and agricultural product quality by providing guidance on inspection, cooperating with local governments, and using agribusiness companies to lift people out of poverty.

The Xinjiang CIQ also attributes inspiration for its antipoverty efforts to Xi Jinping's admonishment to bring wealth to the countryside in order to achieve the goal of becoming a relatively well-off country with a theme of "party leadership, administrative guidance, and participation by the entire society."

Saturday, December 9, 2017

China Grain Output Up 0.3% in 2017

China produced 617.9 million metric tons of grain in 2017, according to a communique issued by the country's National Bureau of Statistics yesterday. An accompanying analysis noted that this was China's second-largest grain crop ever and explained that production growth of 0.3 percent reflected a nationwide structural adjustment campaign ordered by the communist party this year to shift crop area from corn--which has "relatively large inventories"--to minor grains and bean crops, and to expand production of other nongrain crops like peanuts and medicinal herbs. Weather was favorable--a rapid increase in temperatures came after spring planting, rainfall and sunshine were adequate, and weather remained warm near the harvest--and government officials followed orders from the communist party leadership to avert losses from floods.

Overall, grain production was up 1.5 mmt, which reflects a 3.6-mmt decline in corn output offset by minor gains in rice, wheat, minor grains and beans. The overall yield rose 1 percent as the high-yielding corn crop (6,091 kg/ha) was replaced by lower-yielding beans (1,085 kg/ha) and minor grains on land concentrated in the "sickle" region of marginal production areas running from the Russian border through the arid northwest down to mountainous regions in the southwest.

Corn production is estimated at 215.9 mmt, down 3.6 mmt from last year. The NBS report did not include an estimate of soybean output, but the accompanying analysis revealed that soybean area planted increased 8.1 percent to reach 7.8 million hectares in 2017. In contrast, the Ministry of Agriculture's CASDE report reflects a larger shift from corn to soybeans: CASDE estimated 2017 corn output at 210 mmt and includes a more aggressive 13-percent increase in soybean area. NBS thinks production of the main food grain crops, rice and wheat, remained relatively steady, with production of each rising 0.7 percent.

China grain production, 2017
Planted area
1000 ha
1000 mt
All "grain" crops
By season:
 Summer grain
 Early rice
 Fall crops
By crop:
Source: China National Bureau of Statistics, preliminary estimates, 8 Dec., 2017.

China change in grain output, 2016-17
million metric tons
All grains
Other grains
Source: China National Bureau of Statistics preliminary estimates, 8 December 2017

Thursday, November 23, 2017

China: 10,000 Pesticide Standards by 2020

China's agriculture ministry aims to have 10,000 standards for pesticide and veterinary drug residues on the books by 2020, according to an official's speech at an annual government food safety meeting held last week.

Livestock products, vegetables, and fish and shellfish tested for harmful substances had a compliance rate of 97.7 percent during the first three quarters of 2017, according to Huang Xiuzhu, Chief Inspector with the Ministry of Agriculture's Agricultural Product Quality and Safety Supervision Bureau. Huang also cited China's 110,000 farm products certified as "non-harmful," "green food," and organic as indicators of food safety.

Inspector Huang warned that potential safety problems persist in China's agricultural products. The next steps will be to tighten regulation of chemicals by farmers, complete a five-year action plan to overhaul standards for chemical residue tolerances, and ensure implementation of the standards on farms.

In their five-year crash program, agricultural officials are revising 1000 pesticide residue standards and 100 veterinary drug standards annually. They aim to have over 10,000 chemical residue standards for farm products by 2020, according to Huang.

Huang said one goal is to eliminate highly toxic pesticides from the market [even though they are already outlawed]. Another is to achieve 40-percent utilization of pesticides [i.e. reduce the proportion of pesticides that drift into the air or leach into soil and water without killing pests on crops], and develop pest and disease prevention teams. Officials are also striving to build standardized model livestock and poultry farms and vegetable farms where the standards are fully implemented.

Huang did not say whether the blizzard of new standards would ever be enforceable. Surely, the demand for chemical testing will outstrip the capacity to perform tests. China's laboratories will not be able to conduct more than spot-checks for dozens of chemicals produced by tens of millions of Chinese farms. Who will fund the labs and who will pay for the tests? Where will the technicians come from and who will train them? Who will certify the labs and supervise them?

Exporters to China will also need to conform to these tolerances for numerous substances that may or may not correspond to standards used in their own country. You never know when border inspectors might decide to check for various substances. New labs staffed with inexperienced technicians using questionable procedures may produce anomalous results.

Monday, November 20, 2017

China GMO Testing Lab Consolidation, Privatization is Mulled

Chinese authorities are thinking about consolidating GMO testing labs and turning them into genuine third-party testing organizations, according to a report in China Business Journal yesterday.

One of the motivations for the consolidation is last year's exposure of a GMO testing lab's falsification of testing records and employee qualifications to pass a 3-year audit.

There are currently 42 testing centers for GMO plants and animals on the Ministry of Agriculture's list. However, the qualifications of several have already lapsed, and a dozen more are up for renewal in 2017 and 2018. No preparations have been made to audit several testing centers whose qualifications will soon be up for renewal.

One researcher told China Business Journal that there are plans to weed out weak labs, and he speculated that the number of testing centers could be whittled down to as few as 10.

There are also plans to make the GMO testing centers independent third party organizations. Currently, all the accredited testing centers are laboratories affiliated with the agricultural system--institutes in central or provincial academies of agricultural science, seed management labs, and environmental monitoring organizations. While they are not directly under the Ministry of Agriculture, these entities receive funds from the Ministry's budget to pay for offices, labs and equipment. As they are not truly independent of the Agriculture Ministry, the Chinese public may not fully trust their evaluations of experimental trials for GMO crops and animals sponsored by research institutes with government funds.

Many of the testing centers fear they could not survive as truly independent third party organizations responsible for their own profits and losses. Centers would have to raise their fees substantially to cover the costs of labs and equipment if they were not funded by government budget allocations. Current fees of 1000 yuan for a new variety test could rise to 7000-8000 yuan, one researcher surmised. Moreover, highly qualified professionals needed for effective testing prefer working in a government unit due to social welfare benefits and other superior conditions. As private enterprises, third party labs would have a hard time attracting such professionals.

Sunday, November 19, 2017

Soybean Excess Capacity; Russia Big Potential Supplier?

A Chinese soybean industry executive complained about the sector's chronic excess capacity and predicted that Russia would be the main supplier of China's future soybean demand growth.

The comments were made by Shi Yongge, the vice-chairman on China's Jiusan Grain and Oils Industry Group at a global oilseed conference hosted in Guangzhou by the Dalian Commodity Exchange last week. Mr. Shi praised the role of China's supply side reform initiative in reviving domestic soybean production this year, but he worried about the sustainability of the shift in planted area away from corn to soybeans. Mr. Shi expects China's soybean imports to reach 93 mmt this year, over 90% of soybeans used in the country.

Mr. Shi raised concerns about excess crushing capacity in China. Much of the capacity has been built along the northern coast, and he thinks the northeast region is about to follow suit. China's domestic soybeans are increasingly oriented toward food protein products like tofu and soy sauce, Shi said.

Mr. Shi also worried about domination of the soybean market by ten companies that have 70% of the crushing capacity. They include state-owned, foreign-invested, and private companies, including COFCO, Wilmar, Jiusan, Sinograin, and Bohi. He thinks competition will heat up and financial losses will return next year when new capacity comes online.

Mr. Shi pointed out that China is the largest soybean-consuming country, and whoever meets China's demand will win the market. He surmised that Russia would be the top supplier of China's soybean demand in coming years because of its geographic location and "secure transportation." He cited greater investment opportunities in China-Russia trade in view of the "One Road One Belt" initiative (which promotes trade with countries between China and Western Europe, including Russia).

Chinese farmers have been growing soybeans and other crops in Russia for 15 years or more. The flow of soybeans from Russia into China did pick up in the last few years, but is still relatively tiny, at 300,000-to-400,000 metric tons annually over the past three years. Russia was the Number-six soybean supplier to China during the 12 months that ended in September 2017. In comparison, customs statistics say China received over 45 million metric tons of soybeans from Brazil and 36 mmt from the United States. Imported soybeans from Canada more than doubled over the last three years, but imports from Russia did not increase significantly.

Sunday, November 12, 2017

China MOA S&D November 2017

China Ministry of Agriculture's monthly S&D report sees supply pressure from domestic corn reserve sales and surging soybean imports putting downward pressure on markets. Cotton supplies are "tight" as government reserves shrink below a year's supply.

The China Agricultural Supply and Demand Estimates (CASDE) for November 2017 was released Nov. 9, with few changes from the previous month. The 2016/17 corn market year is now complete, and CASDE estimates that demand exceeded supply by 11.2 million metric tons (mmt). The only change in the corn balance sheet from last month was a slight increase in imports to 2.46 mmt. In fact, over the course of the year CASDE made few changes in its corn S&D for 2016/17.

A year ago, in its November 2016 report, CASDE estimated that corn supply would exceed demand by 3.8 mmt during 2016/17. The main change since that report is the raising of its initial low-ball estimate of production (213.6 mmt) to the official output statistic of 219.55 mmt. In November 2016 CASDE forecast 2016/17 corn imports at just 1 mmt, as they thought domestic corn prices had fallen low enough to choke off import demand. Over the course of the year, CASDE ratcheted its corn import estimate upward to the current 2.46 mmt.

China corn supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 36,760 36,768 35,100 35,100
Harvested area 1000 ha 36,760 36,768 35,100 35,100
Yield Kg/ha 5,973 5,971 5,986 5,986
Production MMT 219.75 219.55 210.11 210.11
Imports MMT 2.30 2.46 1.50 1.50
Consumption MMT 210.72 210.72 215.62 215.62
--Food MMT 7.82 7.82 7.89 7.89
--Feed MMT 133.03 133.03 135.03 135.03
--Industrial use MMT 58.25 58.25 61.3 61.3
--Seed MMT 1.61 1.61 1.57 1.5
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.15 0.08 0.3 0.3
Surplus MMT 11.00 11.21 -4.31 -4.31

In the coming market year 2017/18, CASDE estimates that China's corn demand will exceed its supply by 4.3 mmt. Corn production is estimated at 210.1 mmt, down 8.4 mmt from last year. Consumption for 2017/18 increases by less than 5 mmt over the previous year, driven by modest growth in both industrial and feed use. Again, CASDE has a low import number of 1.5 mmt for 2017/18. The CASDE authors anticipate that the corn market will be characterized by excess supply due to pressure from large government corn reserves and the "normalization" of auction sales. (In fact, auctions of corn from government reserves were halted in November so as not to depress corn prices as sales of the new crop move into their peak season.) CASDE left its estimate of average wholesale corn prices in production regions unchanged, at 1550-1650 yuan per metric ton. CASDE estimates the price of imported corn arriving in southern China at 1650-1750 yuan per metric ton.

CASDE has also had to ratchet its estimate of soybean imports upward over the course of the year. This month CASDE reports that 2016/17 soybean imports totaled 93.5 mmt. A year ago, CASDE had forecast 2016/17 soybean imports at 86 mmt. (USDA's WASDE similarly ratcheted its China soybean import estimate up from 86 mmt a year ago to 93.5 mmt this month, but USDA's 3-mmt forecast of China's corn imports a year ago was very close to the actual number.)  CASDE had to also raise its estimate of soybean crush over the course of the year as imports boomed. The final 2016/17 soybean import volume is up 12 percent from the year before.

China soybean supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 7,208 7,208 8,194 8,194
Harvested area 1000 ha 7,202 7,202 8,194 8,194
Yield Kg/ha 1796 1796 1823 1817
Production MMT 12.94 12.94 1494 1489
Imports MMT 92.87 93.49 94.50 95.97
Consumption MMT 106.83 108.11 109.21 110.56
--Crushing MMT 91.76 92.90 93.08 94.38
--Food MMT 11.18 11.18 12.04 12.04
--Seed MMT 0.64 0.64 0.64 0.64
Loss and other MMT 3.25 3.39 3.45 3.5
Exports MMT 0.12 0.12 0.22 0.22
Surplus MMT -1.14 0.01 -0.25 0.08

CASDE raised its estimate of 2017/18 soybean imports to 96 mmt this month, up from 94.5 mmt in October. Although CASDE reported some problems with the domestic crop due to heavy rains in Anhui and Henan Province (where beans are produced mainly for food use), CASDE authors said  downward price pressure on soybean markets is evident. CASDE reduced its estimate of domestic soybean prices about 4-5 percent (the only price estimate they cut) to 4175-4375 yuan per metric ton. CASDE estimates the C&F price of imported soybeans at 3050-3250 yuan per metric ton, unchanged from last month. The large gap between domestic and import prices reflects a premium for domestic beans that are presumed to be non-GMO and mainly for food processing use. The fat premium also provides strong incentive to surreptitiously divert imported (GMO) soybeans to food manufacturing use.

CASDE expects imports of vegetable oils to increase in 2017/18 to reach 6.3 mmt, up from 5.8 mmt during 2016/17. 

China edible oils supply and demand (Min Agriculture, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Production MMT 27.28 27.36 27.53 27.76
--Soy oil MMT 16.17 16.27 16.28 16.51
--Rapeseed oil MMT 5.76 5.74 5.71 5.71
--Peanut oil MMT 3.18 3.18 3.24 3.24
Imports MMT 5.8 5.78 6.20 6.28
--Palm oil MMT 3.2 3.34 3.75 3.75
--Rapeseed oil MMT 0.80 0.80 0.85 0.85
--Soy oil MMT 0.74 0.71 0.58 0.65
Consumption MMT 31.68 31.68 31.86 31.90
--Urban MMT 22.92 22.97 23.12 23.4
--Rural MMT 8.76 8.71 8.74 8.50
Exports MMT 0.17 0.17 0.13 0.17
Surplus MMT 1.24 1.29 1.70 1.96

CASDE made a slight reduction in 2017/18 cotton output due to heavy rain in central provinces that caused some cotton bolls to rot in the fields. Production was reduced by 30,000 metric tons. Imports are forecast at 1 mmt for 2017/18. CASDE estimates that China's cotton inventory was depleted by over 2.1 mmt during 2016/17 and will drop another 1.9 mmt during 2017/18. CASDE described China's cotton market as "tight" while the world supply is "loose."

China cotton supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Begin inventory MMT 11.11 11.11 8.94 8.94
Planted area 1000 ha 3,100 3,100 3,293 3,293
Yield Kg/ha 1,555 1,555 1,602 1,616
Production MMT 4.82 4.82 5.35 5.32
Imports MMT 1.11 1.11 1.00 1.00
Consumption MMT 8.09 8.09 8.22 8.22
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 8.94 8.94 7.06 7.03

China sugar supply and demand (Ministry of Agriculture, Nov. 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 1351 1396 1472 1456
--sugar cane 1000 ha 1183 1225 1277 1267
--sugar beets 1000 ha 168 171 195 189

--sugar cane MT/ha 60 61.8 60 60
--sugar beets MT/ha 52.5 55.2 52.5 52.5
Sugar output MMT 9.29 9.29 10.47 10.35
--sugar cane MMT 8.24 8.24 9.23 9.15
--sugar beets MMT 1.05 1.05 1.24 1.2
Imports MMT 2.35 2.29 3.2 3.2
Consumption MMT 15 14.9 15 15
Exports MMT 0.12 0.12 0.07 0.07
Surplus MMT -3.48 -3.44 -1.4 -1.52

Friday, November 10, 2017

China Ag Imports Up 13% Through September

China imported $93.9 billion worth of agricultural products during January-September 2017, according to statistics released by China's Agriculture Ministry. The import value was up 13.4 percent from the same period a year ago. Agricultural exports totaled $53.3 billion, up 1.5 percent from last year. The agricultural trade deficit was $40.6 billion.

China's agricultural imports,
January-September 2017
Import value Growth from previous year
Ag total 93.9 13.4
Cereals 5.0 7.6
Oilseeds 32.3 19.6
Livestock products 18.8 6.5
Edible oils 4.1 15.9
Fruit 5.0 7.5
Cotton and yarn 2.5 44.1
Sugar 0.9 6.8
Vegetables 0.4 0.2
Fish and seafood 8.5 23.3

China is generating plenty of cash to pay for agricultural imports. Agricultural imports during Jan-Sep constituted just 6.8% of China's total import bill for the first three quarters of 2017. The $ 40.6 billion agricultural trade deficit made a small dent in the overall $ 307 billion trade surplus through September of this year.

As usual, oilseeds--$32.3 billion--were the dominant component of agricultural imports--accounting for about a third of the dollar value. Oilseed imports are up nearly 20 percent this year, so far. Livestock products were the second-largest chunk, with $18.8 billion. Every category of agricultural imports was up this year, and many were up in double-digit percentage growth.

Imports of each category of oilseeds and vegetable oils are up sharply this year. While officials struggle to engineer rebounds in domestic soybean and rapeseed production, imports continue to meet China's seemingly insatiable demand for grease.
China imports of oilseeds and edible oils, Jan-Sept 2017
Growth from last year

Palm oil
Rapeseed oil
Sunflower and safflower
Soybean oil

China imported 20.3 million tonnes of cereal grains in the first three quarters of 2017, up 12.2 percent from last year. Imports of wheat are up 25 percent this year. The demand for imported wheat reflects the poor quality of the 2016 crop and tight supplies of good quality wheat. Rice imports are up 16 percent, due to the persistent gap between Chinese and world prices. China has been aggressively exporting rice as well this year: its rice exports are up nearly 3-fold from last year to 888,000 tonnes.

China's imports of corn are down 23.6 percent this year to 2.28 mmt for Jan-Sep, as the Chinese government tries to force-feed the market with its bulging reserves. Distillers grains imports were down 86 percent, due to antidumping and countervailing duties slapped on this feed ingredient a year ago. Imports of sorghum--used mainly as a feed ingredient--are down 25 percent, but barley and cassava imports remain strong.

China imports of grains and other major agricultural commodities, Jan.-Sept. 2017
Imports, Jan-Sep
Change from a year ago

Million tonnes
*Yarn is a substitute for cotton.

China has been trying to force-feed its cotton reserves to its domestic market for several years to unwind a price support program that went awry--much as it is doing now for corn. According to the Ag Ministry China's cotton imports are up 16.8 percent so far this year, as cotton supplies are reportedly tightening in China. Cotton imports of 1 million tonnes are slightly above the tariff rate quota of 890,000 tonnes. Yarn imports--which have no quota restriction--are 1.4 million tonnes so far this year.

Sugar imports, also the target of new Chinese antidumping duties, are down 30 percent from last year. The sugar duties apply to imports outside of the 1.9-million tonne tariff rate quota. This year's imports of 1.8 million tonnes through September are close to the quota amount.

China's pork imports are down in 2017 as domestic prices have fallen from record levels reached in the first half of 2016. Imports of pork and pork offal were each 921,000 tonnes during the first three quarters of 2017, still historically high. Beef imports were up 14.7 percent, to 503,000 tonnes. China's opening of its market to U.S. beef had a minimal role--customs statistics say imports of U.S. beef totaled about 520 tonnes--0.1 percent of the total for this year through September. Imports of milk powder surged 23 percent to 820,000 tonnes.
China meat imports, Jan-Sep 2017
Imports, Jan-Sep
Change from a year ago

1000 tonnes
Pork offal
Milk powder

China's top agricultural export items were fish and seafood ($15.4 bil), vegetables ($11.1 bil.), fruits ($4.5 bil), and livestock products ($4.6 bil).