Saturday, May 13, 2017

China's Agricultural New World Order

China has announced ambitious plans for international cooperation in agriculture that aims to create a new world order in agricultural production, technology, and international trade.

"Vision and Action for Building 'One Belt One Road' Agricultural Cooperation," appeared in its Farmers Daily newspaper with authorship attributed to the Ministry of Agriculture, National Development and Reform Commission, and China's State Council. It was posted May 12, 2017, just in time for the "One Belt, One Road" to be held in Beijing May 14-15 with dozens of world leaders in attendance. "One Belt One Road" is China's initiative to revive ancient trade routes between Asia and Europe, and which also run through poor countries in Asia and Africa. In addition to building railways and other logistic infrastructure and investing in factories, China hopes to take the lead in sharing its successful experience in agriculture with the "belt road" countries, lower barriers to trade, share information and technology, and work together on plans, financing, and rewriting the rules of international trade.

The vision for agricultural cooperation is described as an exploration of new models for global governance. The lengthy essay lays out China's motivation, principles and actions for solving world hunger, fostering a new era of rising agricultural trade and investment, promoting sustainable development, and cross-border sharing of technology and information. The document says the complicated global economy and China's increasing interconnections with international agricultural markets create a great opportunity for China's "Belt Road" initiative.

According to the document,
"China wants to do whatever it can to bear much greater responsibility, contributing Chinese wisdom in building up the international food and agricultural governance system, and sharing China’s experience with countries along the belt-road path to make a much greater contribution to agricultural development and economic growth." 
The document says “One Belt One Road” runs through the Asian, European and African continents. It connects the "active East Asian economic sphere with an ancient history of agricultural development" on one end with the "European economic sphere where modern agriculture has a clear advantage" on the other end. In the middle is "a vast hinterland of abundant agricultural resources with huge development potential, each region with its own advantage in agricultural resources, technology, production capacity, and markets with strong complementarity."

One Belt One Road focuses on six major economic corridors:

  • Asia-Europe land bridge 
  • China-Mongolia-Russia 
  • China-Central Asia-West Asia 
  • China-Southeast Asian Peninsula 
  • China-Pakistan 
  • Bangladesh-China-India-Myanmar.

It does not include the American continent, but the magnanimous document insists that no countries are excluded. The document invites companies from all countries to invest in One Belt One Road.

China's concept of agricultural cooperation encompasses government-government exchanges, research institutes and companies. The document recommends a "3-in-1" platform in which all three types of entities collaborate. It also calls for exchanges of technical and management personnel, germplasm, and agricultural policy dialogues. Exchanges of farmers and private organizations are also encouraged.

The document calls for streamlining inspection and quarantine procedures, working together on prevention and control of animal and plant diseases, promoting cross-border e-commerce. China also proposes to rewrite trade rules, mandate traceability systems and "jointly regulate market behavior."

China's international agricultural cooperation strategy offers few specifics. It calls for "strengthening" existing multilateral organizations such as the World Bank, FAO, WTO, and various regional organizations in Asia, the Middle East, and Africa, as well as new institutions like the Asia Infrastructure Investment Bank created by China. The strategy also aims to use existing meetings and forums on international development and food security while also developing new platforms such as a “One Belt One Road” agricultural cooperation partnership mechanism, an "agricultural planning research exchange platform," and commissioning a “one belt one road” web site with agricultural resources as "platforms for mutual sharing."

The most concrete (no pun intended) proposals are to set up agricultural technology parks, demonstration centers, and training bases overseas. It also mentions a pilot program to build domestic agricultural foreign-opening cooperation districts in China.

The ambitious document is packed with idealistic rhetoric about addressing global nutrition and food security, "sharing", respect, equality, and mutual interests. It contains some I'd-like-to-teach-the-world-to-sing verbiage about "moving forward hand-in-hand" toward a future of agricultural abundance and sustainable, and green development. Rhetoric about "south-south cooperation" evokes Mao's abortive attempts to become a leader of the nonaligned countries which was the genesis of China's original round of foreign aid projects during the last century.

Breaking the global dominance of the United States is an unspoken theme of the "Belt Road" project and the agricultural cooperation initiative. The document identifies the global financial crisis in 2008-09 and market fluctuations due to financial speculation as responsible for the complex global economic situation, without blaming the United States by name. While the United States is never mentioned, the "multipolar world" subtext suggests that the world needs a magnanimous, sharing, wise China to create an alternative to the U.S.-dominated agricultural trade and multilateral organizations.

This is rich, coming from a country that keeps grain reserves a "state secret," hides soil contamination problems, arrests people for reporting facts published in newspapers, routinely responds to questions about its policies at the WTO with one-word answers, and has a decades-old policy of turning agricultural imports and exports on and off like a faucet to "balance" domestic supply and demand.

Thursday, May 11, 2017

MOA S&D Estimates May 2017

China's Ministry of Agriculture issued its May 2017 China agricultural supply and demand (CASDE) report which included the first estimates for the 2017/18 market year. The report shows a 2.9-percent decrease in corn production estimated for the 2017/18 crop to 213.19 million metric tons. The decline is mostly due to a 2.5-percent decrease in corn area planted.

China corn supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 36,026 36,760 35,840
Harvested area 1000 ha 36,021 36,760 35,840
Yield Kg/ha 5,978 5,973 5,948
Production MMT 215.33 219.55 213.19
Imports MMT 1 1 1
Consumption MMT 210.72 210.72 215.07
--Food MMT 7.82 7.82 7.89
--Feed MMT 133.03 133.03 135.03
--Industrial use MMT 58.25 58.25 59.75
--Seed MMT 1.61 1.61 1.57
--Loss and other MMT 10.01 10.01 9.83
Exports MMT 0.5 0.3 0.3
Surplus MMT 5.11 9.53 -1.19

However, the report failed to mention that it also raised its estimate of 2016/17 corn output to 219.5 mmt--2 percent higher than the estimate of 215.33 mmt it had reported for the last four months. Thus, the May estimate of the 2017/18 corn crop (213.19 mmt) is only 1 percent lower than last month's estimate of the 2016/17 corn crop (215.33 mmt).

With a higher production estimate for 2016/17, MOA's balance sheet now shows a 9.5-mmt increase in corn inventory for the current market year. MOA expects a small 1.2-mmt reduction in corn inventory during 2017/18--reflecting a 7-mmt decline in output and a 4-mmt increase in consumption.

The mysterious increase in the 2016/17 corn production estimate appears to reflect the CASDE authors' belated decision to adopt the National Bureau of Statistics estimate of 2016 corn output and sown area. The Ministry of Agriculture's estimate of corn output was 4-to-7 million tons less than the NBS estimate each month since last July. The lowest estimate was 212.45 mmt in October. The MOA estimate was 215.33 mmt each month from January to April. The MOA estimates remained lower than the NBS estimate after it was released in December--until this month. No other changes in the 2016/17 corn balance sheet were made this month.

MOA estimates that Chinese soybean area increased 10.4 percent this year, but the increase in soybean output anticipated for 2017/18 is only 1.5 mmt. Soybean imports are expected to rise by 3.7-mmt to 93.16 mmt in 2017/18. The 2016/17 import estimate was boosted nearly 3-mmt this month. They attribute the increase in soybean use during 2017/18 to recovery of swine production and the substitution of soybean meal for other oilseed meals. Food use of soybeans is estimated to grow 7.7 percent. MOA anticipates a decline in prices for both imported and domestic soybeans during 2017/18--spurred by falling international prices--while prices for other commodities are expected to be steady.
China soybean supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 7,156 7,156 7,899
Harvested area 1000 ha 7,150 7,150 7,899
Yield Kg/ha 1758 1758 1785
Production MMT 12.57 12.57 14.1
Imports MMT 86.55 89.45 93.16
Consumption MMT 100.81 103.69 108.59
--Crushing MMT 86.12 89.01 92.50
--Food MMT 11.18 11.18 12.04
--Seed MMT 0.61 0.6 0.6
Loss and other MMT 2.9 2.9 3.45
Exports MMT 0.2 0.14 0.22
Surplus MMT -1.89 -1.81 -1.55

The cotton balance sheet had only minor changes. MOA expects a small rebound in cotton output to 4.88 mmt in 2017/18. According to MOA, cotton producers in Xinjiang are more eager to produce after high net returns last year and stable expectations due to the announcement of the subsidy policy for the next three years. Imports will remain modest, at 1.1 mmt and consumption flat, at 7.59 mmt. MOA notes an acceleration of cotton imports during the first months of 2017 due to a shortage of good quality cotton. Cotton stocks will continue their decline from 9.23 mmt to 7.61 mmt during 2017/18.

China cotton supply and demand (Ministry of Ag, May 2017)
Item Unit 2016/17 Apr 2016/17 May 2017/18 May
Begin inventory MMT 11.11 11.11 9.23
Planted area 1000 ha 3,100 3,100 3,200
Yield Kg/ha 1,523 1,523 1,523
Production MMT 4.72 4.72 4.88
Imports MMT 0.90 1.00 1.10
Consumption MMT 7.59 7.59 7.59
Exports MMT 0.01 0.01 0.01
End Inventory MMT 9.13 9.23 7.61

The edible oils balance sheet includes modest increases in production for soybean, rapeseed, and peanut oils for 2017/18. MOA says vegetable oil supplies are tight despite the end of auctions of rapeseed oil from domestic reserves. Overall edible oil consumption will rise 0.5 percent during 2017/18 due to rising population and urbanization. The end of rapeseed oil de-stocking will prompt an increase in rapeseed oil imports. Domestic peanut oil production will rise due to high returns attracting an increase in domestic peanut output.

China edible oils supply and demand (Min Agriculture, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Production MMT 25.3 26.11 26.3 26.85
--Soy oil MMT 14.74 15.37 15.62 15.92
--Rapeseed oil MMT 5.6 5.6 5.53 5.71
--Peanut oil MMT 3.01 3.18 3.18 3.24
Imports MMT 5.81 5.6 5.6 6.2
--Palm oil MMT 3.39 3.25 3.25 3.75
--Rapeseed oil MMT 0.77 0.75 0.75 0.85
--Soy oil MMT 0.59 0.58 0.58 0.58
Consumption MMT 31.17 31.43 31.46 31.63
--Urban MMT 20.95 21.4 21.5 21.65
--Rural MMT 10.22 10.03 9.96 9.98
Exports MMT 0.12 0.13 0.13 0.13
Surplus MMT -0.18 0.15 0.31 1.3

The 2016/17 sugar production season is coming to a close. According to the text of the CASDE report statistics show a 5.1-percent increase in sugar cane production to 8.1 mmt (the table shows 8.2 mmt), and a 27.7-percent increase in sugar beet output to 1.05 mmt for 2016/17. MOA expects a further 13.5-percent increase in overall sugar output for 2017/18 due to strong plantings prompted by higher sugar prices. With the decline in corn prices this year, MOA sees a substitution toward corn sweeteners that will keep sugar consumption steady at 15 mmt. Imports for 2017/18 are also projected at 3.5 mmt, about the same as this year.

China sugar supply and demand (Ministry of Ag, May 2017)
Item Unit 2015/16 2016/17 Apr 2016/17 May 2017/18 May
Planted area 1000 ha 1423 1349 1349 1472
--sugar cane 1000 ha 1295 1181 1181 1277
--sugar beets 1000 ha 128 168 168 195
--sugar cane MT/ha 60.3 60 60 60
--sugar beets MT/ha 53.85 52.5 52.5 52.5
Sugar output MMT 8.7 9.25 9.25 10.47
--sugar cane MMT 7.85 8.22 8.2 9.23
--sugar beets MMT 0.85 1.03 1.05 1.24
Imports MMT 3.73 3.5 3.5 3.5
Consumption MMT 15.2 15 15 15
Exports MMT 0.15 0.07 0.07 0.07
Surplus MMT -2.92 -2.32 -2.32 -1.1

Tuesday, May 9, 2017

Foreign Aid Boosts Rice Seed Exports

China's new "Aid + Market" initiative blurs the lines between foreign aid and commerce by using technical assistance projects as a platform to export hybrid rice seed.

The program was announced in conjunction with a 500-billion yuan (?!) agreement signed last month between Longping High Tech Agriculture Co. and the Sanya Municipal research institute to set up a foreign market research and development center in Hainan Province. Longping is a seed company formed by two Hunan Province rice research institutes in 1999. It is named after its figurehead, Yuan Longping, known as "father of China's hybrid rice." The company has carried out Chinese rice demonstration projects in Southeast Asia, South Asia, and Africa for many years.

According to 21st Century Business Herald, the new strategy is part of the One Belt One Road initiative which aims to build new trade routes from western China to Europe through Central and South Asia. Many of the Belt-Road countries grow rice, and Chinese companies like Longping High Tech plan to set up demonstration farms and agricultural parks to disseminate their rice varieties and provide training. Chinese foreign aid projects are implemented by companies like Longping High Tech.

Longping High Tech's foreign aid will serve the public interest by disseminating high-yielding hybrid rice while also creating market opportunities. A spokesman for the company said technical training has already helped many Southeast Asian countries become self sufficient in food. Longping brand rice seed has become popular in some countries. The company says it has trade relations with 40 countries and exported 4100 metric tons of rice seed during 2015.

According to a company official, working in Belt-Road countries is challenging due to poor irrigation, weak infrastructure, lack of inputs, lagging breeding technology, lack of extension and few agricultural technicians. China's seeds are approved only for planting in designated regions, may not be suitable for conditions in other countries, and some nations strictly limit import of rice seeds.

In 2015, Longping set up an international company to research localization of seed, processing and sales. The company already has R&D centers and breeding stations in Pakistan, Philippines, India, Bangladesh, East Timor, Indonesia, Liberia, Angola, Nigeria, and Ethiopia. The company has 19 varieties of rice approved or registered for use in Pakistan, Philippines and other countries.

CITIC Group, China's state-owned finance corporation, became Longping High-Tech's largest shareholder in 2016, giving the company financial resources for aggressive international expansion.

Saturday, May 6, 2017

Pig Farm Demolition Conflicts

In 2007, when pork prices were soaring to record highs Chinese officials rolled out a half-dozen pig subsidies and sent rural bankers to knock on doors offering villagers loans to build pig farms. Now--exactly ten years later--the manure from these farms has become a severe pollution problem. The same officials are paying farmers to demolish their farms and either move them out of sight in the hinterland or find another way to make a living.

The Masses Daily reported a story from Shandong Province's Liangshan County last month that shows not everyone is happy with the farm-closure campaign at the local level, and not everyone is getting compensated for destruction of their property.

In Han'gai, a town in Liangshan County, there are about 200 small-scale hog farms. All of them are about 500 meters from villages, but local people still complain about the smell and large numbers of flies. The main concern, however, is the large volumes of untreated manure that washes into rivers and streams during heavy rains. Concern about water pollution is especially acute here because the eastern south-north water diversion channel passes through this county, so officials worry that manure from farms pollutes the water being channeled to the parched north.

Last year the farmers in Han'gai Town were given notice that they would have to close. Officials advised them to switch to growing vegetables, mushrooms or something else. Farmers inquired with local officials about compensation for demolition of their farms and were dismayed to find they would receive none. The Han'gai farmers asked why hog farms have been banned in the entire town while surrounding towns had banned farms only in certain areas. "What are we farmers supposed to do?" asked the frustrated Han'gai farmers.

A local official said the compensation is only given to farms that are scaled-up and had gone through proper procedures. Since there were no such farms in Han'gai Town, no compensation would be paid.

State Council regulations outlining the livestock farm environmental makeover issued in 2013 stipulate that the county or higher level of government should compensate farms demolished or moved due to changes in industry plans, land rezoning or rectification programs. The Masses Daily reporter remarked that the local official's explanation shows that the regulations are fictitious.

A separate article says that compensation in most places falls far short of generous compensation standards in Tianjin Municipality that have been widely circulated on the internet. In another county in Shandong, farmers receiving no compensation have not paid off loans for farms that are now being demolished.

The Masses Daily article then explains that the farm-closure campaign is aimed at weeding out small-scale farms that do not adequately treat and utilize manure from their pigs. The environmental remediation favors large scale farms because they have the capital to build manure treatment, storage and processing facilities to utilize manure as raw material for bioenergy and fertilizer.

A new round of subsidies is targeted at large-scale hog farms. The 2013 State Council regulations endorsed support for scaled-up, standardized farms and encouraged backyard farms to shift toward concentrated modes of production. This year Ministry of Agriculture plans to build 500 model hog farms of 5,000 to 50,000 head which can get subsidies of 500,000 to 1 million yuan. Gansu Province announced aid of 100,000 to 250,000 yuan for farms of 1000 head or more. Big companies like Wens Group, Da Bei Nong, Zhengbang, and COFCO have planned projects to produce millions of hogs in northeastern and southwestern provinces that have been designated as suitable for expansion.

The Masses Daily reporter judges that denying compensation to small-scale farmers is unreasonable. A lawyer quoted in the article suggests farms ought to receive compensation just as homeowners should be compensated for demolition of their property.

The Masses Daily surmises that the conflicts between farmers and government over demolition procedures and compensation have grown to a point where they cannot be resolved. The reporter opines that "Farmers are facing a life-or-death game," where they face the loss of their means of livelihood.

Monday, May 1, 2017

"Garbage Pigs" Regulatory Challenge

A campaign to curb garbage-feeding of pigs illustrates efforts of China's current regime to cope with the country's transformation to an urbanized economy by cleaning up the environment and repurposing "waste" as resources.

During April, Chinese news media in a number of cities ran articles calling attention to the hazards of feeding restaurant waste to pigs. The most prominent is an investigation of "garbage pigs" or "swill pigs" on the outskirts of Tianjin by China's national Xinhua News Service. The journalist reported finding a location outside Tianjin's ring road where about a dozen farmers raised 100-200 pigs each on waste gathered from restaurants. The operations consisted of a semi-enclosed area where waste cooked, crude brick sheds where pigs are kept, and crude brick structures that serve as living quarters for employees. Small vans loaded with blue barrels and plastic bags used to collect waste from restaurants were parked outside. The operation is conducted on land rented from a village for 8000 yuan per year (about 10 times the common rent for cropland).

According to the Xinhua article, the pigs raised on garbage have a higher proportion of fat than those raised on conventional grain-based feed. Their market weight is as much as 200 kg--nearly double the customary weight. The larger weight could reflect the lower cost of restaurant waste compared with conventional feed. Farmers say they sell the pigs to buyers from other places. (Other reports note that fatty pork from such pigs is preferred in regions further south in China.)

The Xinhua report warns that restaurant waste can contain germs and parasites that are spread to the pigs, raising their mortality rate and posing a risk of transmission to consumers of the pork from these pigs. These farms are also a main source of "gutter oil" produced by skimming oil from the waste as it cooks in giant vats and then recycling it for sale.

The anti-garbage-feeding campaign is part of a broad effort to clean up the country and boost recycling. It parallels a State Council program to upgrade household garbage disposal and recycling launched March 30, 2017. The impetus for the crackdown on garbage-feeding likely comes from a State Council directive to crack down on gutter oil issued April 15, 2017. Most of the news articles on garbage feeding mention the problem of "gutter oil" but they do not cite the State Council document. The document explains that "gutter oil" refers to fats and oils derived from food waste, wastes from meat processing, and uninspected byproducts from meat and poultry slaughter. The new document follows an earlier State Council document ordering a crackdown on gutter oil seven years ago.

Taiyuan City in Shanxi Province has drawn up new regulations that will prohibit unlicensed individuals from collecting restaurant garbage. The regulation will take effect May 1.

An article publicizing the regulations asks readers, "At night, if you see a small truck outside a restaurant collecting smelly waste, did you ever think about where this waste is being taken? How it will be used? Will it be taken to feed pigs or through processing return to the dining table?"

Taiyuan officials estimate the city has 9000 restaurants that generate 380 metric tons of waste daily. Sounding a theme common to these articles, the reporter frets that disposal of the waste is "chaotic" and "unsupervised."

City officials in Hohhot, capital of Inner Mongolia, have had regulations governing restaurant garbage collection for some years. But last month Hohhot organized a 15-day crackdown on illegal transportation of restaurant waste into the city's suburbs to preserve the safety of pork and other foods. The focus of the campaign is on small restaurants that violate the local garbage law. One restaurant raided had an agreement with the city to have waste collected but ignored the contract, instead supplying it to illegal pig farms. The penalty for violations is 500 yuan.

Xiamen, an island city across the strait from Taiwan, is in the midst of adopting a citywide system to collect and treat restaurant waste. Xiamen was chosen in 2015 as one of five national pilot cities for transportation and treatment of food waste. The city appears to be ahead of others, but officials are facing some challenges getting the food waste collection system up and running.

Xiamen used to have an active network of merchants who collected food waste and transported it to pig farms. Big hotels used to collect as much as 70-80,000 yuan annually for their waste, but last month they stopped coming to collect the waste. Hotel and restaurant owners are in a quandary over how to dispose of the waste now. They are now having to pay to have it hauled away.

Xiamen's hog farms have been closed now. The city has opened a waste treatment plant, but its initial capacity of 150 metric tons per day is already fully utilized. The capacity is planned for expansion to 500 metric tons. There are 58 trucks to collect the waste, but each one has a route of up to 35 km to pick up waste, haul it to the plant on the outskirts of the city and unload it. The city only allows these trucks to operate in the city about 5-6 hours per day. District environmental offices are responsible for registering restaurants for food waste pick-up, but it will take a while to get full coverage. Xiamen is estimated to have 30,000 food enterprises and dining halls.

The question is whether the crackdown on garbage-feeding is indeed a new phase in China's development. Or is it another two-week campaign that will soon be forgotten by officials when it is over?