Subsidies = Profit in China's Largest Grain Province

This month, a Grain and Oils News journalist reported dramatic changes in cropping patterns in parts of China's Heilongjiang Province following the removal of the support price for corn. While the article emphasizes the greater market orientation of planting decisions this year, the journalist's investigations also suggest that fat subsidies account for most of the profits earned by farmers in China's largest grain-producing province.

Some traditional soybean-producing areas of Heilongjiang Province where corn was dominant last year have now reverted to soybeans, according to the journalist's survey this month in Heilongjiang, China's northernmost region bordering Russia's Far East and its largest grain producing province. In the northern third to fifth temperature belts--around cities such as Bayan and Heihe--corn production has been cut as much as 70-80 percent this year. Officials have ordered farmers to switch land to soybeans, minor grains, and other beans. Corn remains the predominant crop in the first and second temperature belts in southern parts of Heilongjiang around the provincial capital Harbin--officials have decreed that corn is suited to this region, so it remains king there.

In Hailun City, a major soybean-producing region, soybean plantings last year were 113,300 ha and corn plantings were 80,000 ha. This year, soybean area is reportedly up 59 percent--estimated at 180,000 ha--and corn area has fallen 33 percent--to 53,300 ha. One farmer in Suihua City told the reporter that 50 percent of the 200 hectares around his village had been switched from corn to soybeans.

In the Jiusan (no. 93) state farm area, 113,30 ha of corn and 108,600 ha of soybeans were grown last year, but this year soybeans became the dominant crop. Corn area plunged to 39,300 ha, and soybean plantings reportedly jumped to 153,300 ha in the Jiusan state farm area.

A seed dealer in northern Heilongjiang said his sales of soybean seeds are up 35 percent from last year and corn seed sales are down 65 pecent, reflecting the shift from corn to soybeans. This year, soybeans account for half of his seed sales, up from 20 percent last year.

The Grain and Oils News article reiterates all the government talking points about "marketization" of corn and targeting crops to their advantaged areas, but the journalist also reveals that farmers in China's top grain province continue to rely on subsidies and a rice price support in making their planting decisions. The journalist estimates that farmers would not earn any profits on corn at this year's price without a subsidy. Profits are better for soybeans, he said, but they rely on even bigger subsidies.

In Beilun City's Sanhe Village--a "farmer cooperative pilot village"--farmers have shifted their 800 hectares of land into soybeans but still plant 10 percent of their land in corn. For soybeans, farmers get a 150 yuan per mu subsidy for growing them in contiguous fields (monocropping) plus a "target price subsidy" payment  of 120 yuan per mu--a total subsidy of 270 yuan per mu (about $240 per acre; other reports suggest the target price subsidy will be replaced this year by a direct payment that does not depend on the price). For corn, farmers in this village get a subsidy of 190 yuan per mu (about $170 per acre, which includes a "cooperative subsidy" specific to this model village). According to the reporter, fields of corn in Sanhe Village would incur a net loss of 90 yuan per mu without the subsidy, but farmers get a 100-yuan profit when the subsidy is taken into account. Fields of soybeans would lose 60 yuan per mu without subsidies, but they earn a profit of 220 yuan per mu with their subsidies.

In Haibei Town, the journalist reports that a 150-yuan-per-mu subsidy plus the target price subsidy has induced farmers to plant more soybeans.

Rice is the only crop in Heilongjiang that still has a support price. A farmer named Yang in Suihua City has 30 mu of his own family's land and rents 38 mu of land from others. The subsidy for rice is only 67 yuan per mu (this is probably the "support and protection payment"). The production cost is estimated at 500 yuan per mu, while land rent is 667 yuan per mu. With a yield of 515 kg per mu and a price of 2.6 to 2.8 yuan per kg, plus the subsidy, farmer Yang reportedly earns a profit of 900 yuan per mu on his own and 220 yuan per mu on rented land for growing rice. Other reports say the minimum price for japonica rice was cut for the first time this year to 3 yuan/kg to prevent a massive shift of land from corn into rice production in this region.

Another impact of the lower corn price this year is a reduction in land rents, while costs of chemical inputs and labor has been relatively steady.

The reporter says that corn processing enterprises are benefiting from the combination of lower corn prices this year and government subsidies for processing corn. One company that processes 1.2 million metric tons of corn annually is operating at full capacity and has 60,000 metric tons of corn in inventory. The company has bought corn from reserves at two auctions at a price of 1380 yuan/mt and expects to buy 40,000 mt monthly at the auctions. They are expanding production to build market share as well as to bring down unit costs. The company sells corn starch products to pharmaceutical and beer manufacturers in Harbin. They hope to expand production by 1 million metric tons to sell to the thriving paper-making and food businesses in southern China.

Prospects are mixed for soybean processors in Heilongjiang. Many small and medium soybean processors remain idle due to shortages of cash and outmoded technology. They say they are caught between the expansion of state-owned and foreign-invested processors. Those with stable sales channels are benefiting from the expansion of domestic soybean output.