Monday, July 31, 2017

Good News Only Until the 19th Party Congress. That's an Order!

A meeting exhorting agricultural cadres to toe the line and "sing the main theme" last week shows that Communist Party Secretary Xi Jinping is taking no chances ahead of the 19th Party Congress where he is expected to consolidate his power as China's maximum leader.

A July 28 communist organization theory meeting was held by Minister of Agriculture and Party Secretary Han Changfu to "study the spirit of Xi Jinping's important speech facing the Communist Party's 19th Congress." Ministry of Agriculture party leaders were warned of the great importance of a "victorious" 19th Party Congress, and urged to implement all decisions of the central leadership with full strength, keeping the agricultural and rural situation good as the Congress approaches.

Communist party cadres were ordered to highlight the "great achievements" and "historic reforms" made in agricultural development and rural income growth under the "core leadership" of Comrade Xi Jinping since the 18th Communist Party Congress to ensure a successful 19th Congress this fall. Communist party officials were exhorted to strictly exercise "news discipline" and political consciousness, "singing the main theme" and "carrying forward energy" to publicize the great achievements and positive environment for agriculture and rural development.

What are the "great achievements" and reforms?

Cadres were told to emphasize the great improvements in communist party "work style," advancement of "clean government," and anticorruption work under Xi's leadership. Workers must "strengthen inspections" and "eliminate hidden dangers" to preserve rural harmony and stability.

Each agricultural office and unit must circle tightly around agricultural supply side structural reform as the main line, place "green" agricultural  development in a more prominent position, tackle difficulties, blaze new trails, highlight agricultural science and technology innovation, and promote precise industry-driven poverty alleviation. Agricultural leaders must actively work for abundant agricultural harvests and income growth. During the typhoon season they must work hard on disaster prevention and mitigation.

Don't expect any bad news from China over the next few months.

Saturday, July 29, 2017

China Imported Food Safety Regulation Strengthened

Chinese consumers often buy imported food because they have more confidence in its quality and safety, yet China's regulators are raising more hurdles to food imports in the guise of food safety.

A White Paper on the Safety and Quality of Imported Food During 2016 released by China's inspection and quarantine administration (known as AQSIQ) reports on the country's growing and diversifying imports of food, summarizes problems found in rejected shipments, and outlines the agency's initiatives to certify exporters in other countries, track shipments from their source to their final destination in China, keep tabs on both importers and exporters, and shame bad actors.

According to the White Paper, China became the world's largest market for imported food and agricultural products in 2011. The value of imports has stabilized at US$46-$48 billion between 2013 and 2016, but the number of shipments arriving rose from 965,000 to 1.32 million during those years. (Note: the AQSIQ white paper does not appear to include bulk commodities like grains or oilseeds. China's soybean imports alone were valued at $34 billion last year.)

AQSIQ reports that the source and type of food imports is diversifying, yet a few regions still account for most of the imports. While China imported food from 187 countries in 2016, 10 countries accounted for 81.6%. The European Union was by far the largest source, accounting for US$ 11.1 billion of China's food imports and 43 percent of shipments. Southeast Asia was the second-leading source of imports ($7.4 billion and 12.5%), and United States was third ($5.1 billion and 8.6% of shipments. Most of these imports arrive in China at a handful of coastal provinces.

Meats are the largest and fastest-growing food import category. Meat imports totaled 4.6 million metric tons last year and were up 63%. Overall dairy imports peaked in 2014, but imports of infant formula continue to grow rapidly--up 25.6% last year. For some commodities, imports account for a large proportion of domestic supplies. Dairy imports accounted for 17% of the domestic dairy product supply last year, the import share of supply was 29% for edible oils, and 5.5% for aquatic products, according to the paper.

To ensure the safety of the growing stream of food imports, AQSIQ explains that it has set up a system that emphasizes control over the entire supply chain for imported foods: before, during, and after import. This includes approvals of manufacturers in foreign countries to ensure they comply with China's regulations and standards, inspections and testing at points of entry, and tracking products after they enter China.

Implementation of the import food safety system involves extensive testing and inspections at the border plus onerous approvals for exporters. This means there are many hurdles to clear in order to export to China. A country must have its food safety system reviewed by AQSIQ, foreign manufacturers must be certified and registered, and governmental authorities in exporting countries must inspect shipments and issue certificates verifying that shipments comply with China's food safety standards. Last year AQSIQ reviewed food safety management systems in 40 countries, and 16,033 enterprises in 89 countries were registered as exporters. AQSIQ also has authority to inspect and quarantine 291 kinds of imported animal- and plant-based foods to prevent diseases and pests from entering China.

AQSIQ also intends to compile mountains of information about exporters, importers, and every stop imported food shipments make between foreign farms and Chinese consumers. China has a record system to keep tabs on 126,998 foreign food exporters and 30,625 importers in a publicly available "record system for importers and exporters of imported food and cosmetic products." There is also a food recall system for imports and an "importer discussion system" to talk about problems that arise.

AQSIQ posts lists of rejected food shipments and lists of bad actors among foreign producers, foreign exporters, and domestic importers on an AQSIQ web page. As of today (July 29, 2017), the latest rejections for May had been posted July 5, and black lists had been updated June 12. All lists are in Chinese. The importer black list included 217 companies cited for violations from 2014 to this year. The May rejections listed 451 food shipments (some multiple instances of the same item) and 35 cosmetics shipments.
The white paper reports that China's inspection and quarantine authorities rejected 3,042 imported food shipments during 2016. Imports can be rejected for labeling problems (products must be labeled in Chinese with place of production and contact information for importing company), incomplete documentation, detection of dozens of additives and contaminants, presence of microorganisms and bacteria, and being past the sell-by date.

The number of rejected shipments in 2016 was relatively steady over the last five years--the largest number of rejections was 3,503 in 2014 and the lowest was 2,164 in 2013. These rejections constitute a tiny proportion of food imported. The 3042 rejected shipments equaled just 0.23 percent of the 1.3 million total number of food shipments reported by AQSIQ for 2016. Calculations show the same percentage was rejected in 2015 and it was essentially the same (0.22 percent) in 2013. The highest percentage was 0.34% in 2014, still tiny.

China food import rejections
Year All food import shipments Rejected shipments Percent rejected
2012 834,000 2499 0.30
2013 965,000 2164 0.22
2014 1,042,000 3503 0.34
2015 1,199,000 2805 0.23
2016 1,324,000 3042 0.23

Beverages (596 rejections) were the most commonly rejected food item, followed by cakes and cookies (578). These categories also had the highest percentages of shipments rejected: 0.53% for beverages and 0.41% for cakes and cookies. The percentage of shipments rejected was under 0.1% for meat, seafood, and wine and spirits.

Estimated China food import rejections, by type of food, 2016
Type of food Rejections Share of shipments rejected

Number Percent
Meat 134 0.05
Seafood 94 0.09
Dairy 155 0.24
Grain/milling products 271 0.30
Wine and spirits 213 0.09
Sugar and confections 246 0.30
Beverages 596 0.53
Nuts and fruits 128 0.16
Cakes and cookies 578 0.41
Other food 627 0.31

A large number of food shipments China rejects come from countries known for having higher food safety standards than China, including the European Union (678), United States (198), Japan (183), and Australia (94). In fact, the large numbers may reflect the propensity for Chinese consumers to import from those countries because the products are safer than those in China. Another large group of rejections are for foods from nearby countries. Shipments from Taiwan accounted for the largest number of rejections (721). It's unclear why Taiwan had so many rejections--they included a variety of products and reasons. Other top sources were Southeast Asia (399 rejections) and South Korea (161), and Russia (91). The rate of rejection was below the average for the EU (0.16% of shipments), Australia (0.11%), South Korea (.13%) and Brazil (0.17%), while the U.S. rejection rate of 0.23% was equal to the overall average. Russia (0.54%) and Southeast Asia (0.32%) rejection rates were above the average but still very low. Rejection rates could not be calculated for Taiwan and Japan because AQSIQ did not report their total food shipments.

Estimated China food import rejections, by country-supplier, 2016
Country/region Rejections Share of shipments rejected (%)
Taiwan 721 NA
EU 678 0.16
Southeast Asia 399 0.32
U.S. 198 0.23
Japan 183 NA
South Korea 161 0.13
Australia 94 0.11
Russia  91 0.54
Brazil 64 0.17
Turkey 40 NA
Other countries 414 NA

Chinese regulations will now influence how food is regulated in exporting countries. Exporters must conform to China's requirements if they want to sell to China--and the incentive to adopt China's requirements are strong since China is a large export market. Countries more reliant on selling to China will be more inclined to shift their regulatory system to harmonize with China's.

Moreover, China intends to actively participate in international bodies that set food regulatory standards and practices. The White Paper says China is gaining a voice in the formation of international rules for food safety by participating in multilateral bodies that set such rules. China signed bilateral food safety agreements with 24 countries during 2016. AQSIQ anticipates that China's "going out" program of encouraging Chinese companies to invest overseas to supply food to China will resolve safety problems for food imports.

In much the same way that China is building out its physical infrastructure of roads and airports from scratch, it is also building a food safety system from scratch using blueprints supplied by foreign experts. Thus, a country known for abysmal food safety problems now has--on paper--some of the highest standards and a logically designed system. China's regulatory approach may clash with those of some counterparts who have developed their own approaches to ensuring food safety through many years of practical experience. The systems China is installing look great on paper, but frequent flyer miles for Chinese inspectors, scanners, microscopes, and mountains of data cannot protect food without the human elements of expertise, experience, logic, and integrity.

Sunday, July 23, 2017

China Wheat Supplies Plentiful

China has plentiful supplies of wheat after a good harvest this summer with minimal pest and disease damage, and authorities are adding to wheat reserves in order to prop up prices. Wheat imports are expected to decline during the 2017/18 market year as importers buy mainly to fill deficits of certain varieties still not produced in adequate volumes in China.

China's National Bureau of Statistics estimated the 2017 winter wheat output (harvested during the summer) at 127.35 million metric tons, up 1.07 mmt (0.84%) from last year. The National Grain and Oils Information Center estimates total wheat output at 129.85 mmt for 2017/18, also up 1 mmt from last year. NGOIC estimates wheat consumption at 103.7 mmt, down 4 mmt from last year.

Reports from provinces indicate that this year's incidence of wheat scab and pest damage is down sharply. There have been few problems with lodging, mold and sprouting that were widespread during the last several years when heavy rain storms occurred at wheat harvest time.

Chinese authorities are buying up wheat to resist downward pressure on prices due to plentiful supplies. Shandong Province launched its minimum price procurement program in three prefectures on July 6. Hebei Province launched its program in all its major wheat-producing areas the same day. Jiangsu, Anhui, Henan, and Hubei Provinces had already started their minimum price purchase programs in June. Procurement at minimum prices will continue through September 30.

The Agricultural Development Bank has allocated 135 billion yuan ($19.6 billion) to finance summer grain procurement (wheat, early rice, and rapeseed), 20 billion yuan more than last year. As of June, purchases financed by the government's Agricultural Development Bank constituted 54% of all wheat purchases.

Wheat procurement is finishing its peak period. As of July 15, 2017 the Grain Bureau reported that 46.7 mmt of wheat had been procured so far, 12.1 mmt more than the same period last year.

Average procurement prices for wheat reported by the Grain Bureau covered a wide range, from 2100 to 2710 yuan/metric ton ($8.28-$10.69 per bushel). The lowest prices reported in each province are under the minimum of 2360 yuan/mt ($9.30 per bushel).

As of early July, the Chinese government's temporary reserve of wheat was reported to be 56-to-57 mmt. That is 17-to-18 mmt higher than last year at the same time.

The rally in international wheat prices last month due to drought concerns in the U.S. narrowed the gap between Chinese and global wheat prices. The estimated C&F price of US Soft Red Wheat arriving in China is 2120 yuan/mt, up 303 yuan from last month. That price is still 460 yuan less than the price of domestic Chinese wheat, but the gap narrowed from 767 yuan/mt last month.

NGOIC lowered its estimate of China's 2017/18 wheat imports to 3 mmt this month, down 300,000 metric tons from last month's estimate. NGOIC's estimate is 1.25 mmt less than 2016/17 imports.

Saturday, July 22, 2017

Distrust Breeds Food Adulteration in China

Widespread fraud and adulteration has caused a breakdown in China's food marketing system, according to a July 4 report from Xinhua News Service posted on numerous Chinese news sites.

The Xinhua report describes a fundamentally failed market in which Chinese consumers are willing to pay high prices for quality food, and producers are willing to produce such items, but distrust raises an "integrity barrier" between consumers and producers that undermines the market process.

Consumers have come to expect products to be adulterated or fake as the default. They have learned not to trust brands, packaging, or logos. Xinhua authors point out that consumers have to rely on friends, acquaintances or expensive verification methods to authenticate the food they buy. Consumers in Beijing and Shanghai wishing to buy a type of rice from an area in Heilongjiang Province known for its quality ask friends living there, "Where can I buy authentic Wuchang rice?" Consumers meeting an official visiting from an agricultural province ask him, "Can you tell me how can I buy real ginseng?"

On the supply side, producers must expend considerable energy and expense to prove "I am who I am," the Xinhua writers say. Even if a company spends a lot on advertising, the prevalence of fraud makes consumers distrust the authenticity of the product when it reaches the shelf in the supermarket.

A rice cooperative manager in Heilongjiang's Jiamusi Prefecture explains that their efforts to convince consumers their rice is authentic raise the cost of the rice far above the actual cost of growing it. Grain Bureau officials from Heilongjiang Province holding promotions in southern cities are frequently confronted with questions like, "How do we really know this rice is from Heilongjiang?" and "How do we know government-sponsored sales promotions are for real?"

A production manager at a rice mill in Wuchang acknowledges that integrity issues are the biggest problem in the production, processing and sale of rice. This has been a long-term headache for Wuchang's rice industry since it markets itself as a premium-quality product, but imitators and fakes abound.

A rice producer in Heilongjiang Province's Wuchang City prints on packages of rice: "I am a demobilized soldier; quality food is getting more and more scarce; please believe in farmers' quality; integrity is better than a brand."

The Xinhua authors report on an expensive verification method prompted by the "integrity barrier." A researcher purportedly from a company-sponsored research institute in Zhejiang Province has been sent to Heilongjiang to live in a village and observe, photograph and report on the entire rice production process. The Zhejiang researcher says he came to search for "food with integrity, grain with virtue."

Farmers in Inner Mongolia explained to the Xinhua reporters that 500g of millet sells for only about 2 yuan, but old, stale grain is commonly mixed with the fresh millet so they can make a profit at that price. Farmers told the Xinhua reporters that many organic and grain products are adulterated because otherwise they could not make any money. The farmers say the mindset of most people in the business is that cheating can yield immediate benefits and there is little to be gained from honesty. The Xinhua authors compare the prevalence of adulterated foods to "Gresham's Law," in which bad money drives out good.

The Xinhua reporters explain that mutual distrust has created a vicious circle of adulteration. Farmers feel their weak position in society gives them a right to cheat customers. Their products are frequently downgraded or refused by unscrupulous companies when prices fall. The legal system rarely gives them any protections and companies know the farmers have no recourse. Farmers see a wide gap between living standards in the countryside and city.

In this environment of distrust, Chinese farmers and traders feel no compunction about reneging on contracts or adulterating products. The manager of a major company's rice mill says his company's 60-percent compliance rate for production contracts with farmers is actually quite high for China.

The remainder of the Xinhua article morphs into a promotion of Heilongjiang Province's rice industry and an obligatory nod to "supply side reform." The authors claim that Wuchang rice could meet Chinese consumers' demands for quality and safety at a price just a fraction of the cost of imported Japanese or Thai rice, and they calculate the income that could flow to producers in Heilongjiang. However, the authors offer no practical suggestions for filling the trust deficit other than posting motivational slogans on the wall.

Ironically, the Xinhua article itself breeds the cynicism and distrust that it purports to uncover. The article is presented as investigative journalism, yet it appears to be a veiled promotion of rice produced in Wuchang City, Heilongjiang Province. The references to "supply side reform" and the large number of sites posting the article suggests that propaganda authorities have ordered this to be disseminated. Journalists who pose as purveyors of information but are actually shills for companies and government policies are themselves dishonest in the way they present their work--another source of information that cannot be trusted.

Tuesday, July 18, 2017

Wanted: Premium Rice Prices

The upcoming harvest of another summer rice crop is a reminder of the growing contradictions in China's agricultural policy. Officials entice farmers to keep growing poor quality rice they don't want to grow and that is no longer demanded by the market, but officials are afraid they won't meet their food security targets without this rice that no one wants to eat.

In a handful of hot, humid provinces of southern China, officials encourage farmers to grow two crops of rice--an early crop planted in the spring and harvested in mid-July followed by a late crop harvested in late fall. Two crops increases the physical amount of rice produced, but the early crop doesn't taste good, is shunned by the market and mostly ends up in government warehouses.

A Grain and Oil News article on prospects for the early rice harvest this month notes that production of the early rice crop has been gradually sliding downward because market demand is less than the supply. Now that farmers have full bellies and money in the bank, they are not inclined to invest the extra time and money to grow two crops; many have instead switched to growing a single rice crop that requires fewer trips to the field. The 30-million-ton early season crop is about 15 percent of China's rice output, but it is mostly shunned by the market because of its poor taste as consumers become more discerning about the rice they consume. The article says the early rice crop is mainly used in food processing or stored in government reserves.

In view of the excess supply of early rice, authorities have cut the minimum price two years in a row. The recent summer grain purchase work meeting anticipated that market prices for this year's crop will be less than the minimum price of 2600 yuan per metric ton, triggering more government rice-buying this summer.

Grain and Oils News observes that authorities are under growing pressure to dispose of rice stocks. Authorities have had a hard time selling their stockpiled rice; 25 auctions have sold only 1.87 million metric tons of early rice this year. No auction has sold more than 5.6 percent of the rice offered. 

A Farmers Daily article by Ministry of Agriculture economists in March also raised concerns about bulging rice inventories. The economists cited a 2016 survey that showed a 10-percent increase in rice stocks held by farmers that they interpreted as a sign that the bulging inventory phenomenon has spread to farmers who presumably are unable to sell all their rice. This article also observed the dichotomy between excess supplies of low-end rice and shortages of high-quality rice demanded by consumers.

Medium grain rice produced in northeast China--generally considered to be high-quality--is also in surplus, according to an analysis by a local Price Bureau in Anhui Province from last October. There is considerable pressure to de-stock medium grain rice, but doing so would push prices downward. This analysis also notes that farmers who produce high-quality varieties or have low moisture can get better prices, but they face little risk of a decline in price due to the minimum price program. In Anhui, farmers harvested and sold their rice as quickly as possible to get the guaranteed price (presumably so they can return to their off-farm jobs or mah jong games).

In Hubei Province rice inventories are generally low-quality due to hot weather and flooding last year. Analysts say supplies of quality rice are tight. The difference between China's rice prices and Asian export prices has narrowed; the price of Thai Grade B rice is above the price of Chinese early indica rice for the first time in nearly four years. Nevertheless, China's rice imports were 1.3 million metric tons during the first four months of 2017, less than 1-percent less than the pace set last year.On June 12, customs inspectors and police held a joint crackdown that nabbed 39 rice smugglers and destroyed 2000 tons of smuggled rice; preliminary estimates of rice smuggling were put at 300,000 metric tons.

The core problem identified by the economists writing in Farmers Daily is a rising cost structure that prompts officials to put a floor under prices. The Farmers Daily writers pointed out that China's production costs are higher than those of producers in Vietnam, Cambodia, and Pakistan. Imports from these countries tend to put downward pressure on prices for low-grade rice in China. However, officials don't want to let Chinese rice prices fall low enough to compete with international prices because they fear farmers would stop growing rice or protest over falling incomes. While they did cut the minimum price for early rice two years in a row, the cuts were small and cautious.

Chinese officialdom's strategy is to urge farmers to produce high-quality rice that will justify the high prices needed to cover rising production costs. Strategic plans and guidance documents are filled with exhortations to build brands, grow organic, and obtain certifications to get premium prices.

The Farmers Daily authors describe the minimum price policy as inappropriate for the growing market segmentation in the rice market. Higher quality rice sold to government warehouses at the minimum price doesn't get a premium to encourage improvements in quality. Instead, the authors suggest promoting vertical linkages between growers and rice companies, creating brands of rice, and using e-commerce to market high-quality rice.

Now China is attempting what might be called a "Great Leap Sideways." Just a few years ago, the "China Price" was the absolute lowest price for knock-offs and generic commodities. Now China is trying to re-position its products as high-end designer goods to justify high prices needed to cover rising production costs. That's quite ambitious for a country that was synonymous with food safety calamities a decade ago and whose rice, in particular, is still under a cadmium-tinted cloud.

Monday, July 17, 2017

2016 China Feed Industry Statistics

China's animal feed industry output rose 5.7 percent during 2016 to reach 209 million metric tons, according to statistics reported by China's feed industry office. More feed was produced last year despite a 1-percent decline in production of meat and eggs reported by the National Bureau of Statistics last year. Last year's growth continues a string of moderate growth rates in feed output that followed a burst of extremely rapid growth from 2007 to 2012.

Broiler and duck feed led the growth in 2016, as the sector recovered from an avian influenza-driven dip in production during 2013-14. Swine feed output recovered slightly after declining during 2015. Feeds for laying hens, aquaculture, ruminants and other livestock grew modestly.

Production of complete compound feed grew 5.4 million metric tons (3.1%) and output of additives and premixes grew 185,000 metric tons (2.8%). Output of feed concentrates fell 1.26 mmt (-6.4%). Meat poultry and hogs accounted for most of the growth in compound feed, probably reflecting growing popularity of the "company + farmer" vertical linkage model in which companies supply farmers with piglets/chicks, specially formulated feed, and veterinary medicines.

The statistics reported 191.5 million metric tons of raw materials were used by feed manufacturers during 2016. (Note that this is not an exhaustive measure of all feeds used in China--many farms use their own feed materials or mix them on their farm.)  Corn accounted for more than half of raw materials used by China's feed manufacturing industry, with a total of 105 mmt used. The amount of corn used by feed manufacturers in China increased 21.5 percent last year, according to the report. Feed manufacturers used 11 mmt of wheat, which declined 22 percent during 2016. The increase in corn use was likely a response to a 14.4-percent decrease in wholesale corn prices in 2016. The support price for corn was cut 10-percent for the 2015/16 market year, and elimination of the policy was announced in April 2016. Wheat is now an expensive feed material relative to corn, since its price is still supported by a minimum price policy.

China animal feed industry use of raw materials, 2016
Raw materials  2016 Use Change

Million metric tons Percent
All raw materials 191.49 7.0
Corn 104.97 +21.5
Cottonseed meal 3.55 -18.3
Soybean meal 37.80 -1.5
Rapeseed meal 4.48 -5.0
Fish meal 1.85 -39.3
Other meals 4.92 13.2
Wheat 11.01 -22.0
dicalcium phosphate 2.44 -16.3
other raw materials 20.47 -1.0
Source: China Feed Industry Office.

The statistics show decreased use of the major types of protein meals during 2016. Soybean meal was the second-largest ingredient used by feed manufacturers, with a total of 37.8 mmt used during 2016. Soybean meal use by the feed industry decreased 1 percent during 2016, according to the statistics. The average price of soybean meal fell 3.1 percent in 2016. Rapeseed meal use totaled 4.5 mmt and was down 5 percent. Fish meal use declined 39 percent, and cottonseed meal use fell 18 percent. Use of "other meals"--which likely includes peanut, sesame, and sunflower meals--totaled 4.9 mmt and increased 13.2 percent.

Use of "other" raw materials totaled 20.47 mmt. This may include sorghum, distillers grains, and barley--grains that were widely used as substitutes for corn. However, the report says use of "other" raw materials declined only 1 percent during 2016, but customs statistics said imports of these grains declined by a much larger 40-50 percent last year.

Bags of soybean meal and feed mixing apparatus at a Chinese pig farm:

Thursday, July 13, 2017

China MOA Ag S&D Estimates July 2017

The July 2017 China Agricultural Supply and Demand Estimates (CASDE) from China's Ministry of Agriculture boosted its estimate of soybean imports and slashed its estimates of corn imports for 2016/17.
China soybean supply and demand (Ministry of Ag, July 2017)
Item Unit 2016/17 June 2016/17 July 2017/18 June 2017/18 July
Planted area 1000 ha 7,156 7,208 7,899 8,196
Harvested area 1000 ha 7,150 7,202 7,899 8,196
Yield Kg/ha 1758 1796 1785 1797
Production MMT 12.57 12.94 14.1 14.73
Imports MMT 89.45 91.55 93.16 93.16
Consumption MMT 103.69 106.16 108.59 108.63
--Crushing MMT 89.01 91.09 92.50 92.50
--Food MMT 11.18 11.18 12.04 12.04
--Seed MMT 0.6 0.64 0.6 0.64
Loss and other MMT 2.9 3.25 3.45 3.45
Exports MMT 0.14 0.13 0.22 0.22
Surplus MMT -1.81 -1.81 -1.55 -0.97

The 2016/17 soybean import estimate was raised to 91.55 million metric tons, 2.1 mmt higher than the estimate made in June. CASDE explains that the higher estimate reflects mainly a larger use for crushing, which the authors attribute to increased demand for soybean meal. This, in turn, partly reflects recovery of pig and poultry inventories, but it also reflects substitution of soybean meal for shrinking imports of distillers dried grains (DDGS) and smaller supplies of other protein meals, they say. The decline in DDGS imports reflects antidumping duties imposed to curb imports from the United States (DDGS is used as a substitute both for corn and for soybean meal in China). The decline in other protein meals reflects largely a drop in rapeseed production as farmers in central China shifted land into wheat and other crops after the support price for rapeseed was abandoned in 2015. CASDE raised seed use of soybeans slightly, reflecting estimates of increased soybean area planted this spring. Loss and other uses of soybeans were also increased.

CASDE raised soybean production for 2017/18 to 14.73 mmt. CASDE estimates that imports of soybeans will reach 93.16 mmt in 2017/18. That represents an increase of only 1.6 mmt from 2016/17.

China corn supply and demand (Ministry of Ag, July 2017)
Item Unit 2016/17 June 2016/17 July 2017/18 June 2017/18 July
Planted area 1000 ha 36,760 36,760 35,590 35,496
Harvested area 1000 ha 36,760 36,760 35,590 35,496
Yield Kg/ha 5,973 5,973 5,947 5,970
Production MMT 219.57 219.57 211.65 211.91
Imports MMT 1 0.8 1 1
Consumption MMT 210.72 210.72 214.07 214.57
--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 59.75 60.25
--Seed MMT 1.61 1.61 1.57 1.57
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.3 0.15 0.3 0.3
Surplus MMT 9.55 9.50 -1.72 -1.96

China has choked off corn imports to a trickle. The only change in the 2016/17 corn balance sheet is a cut in estimated imports from 1 mmt last month to just 800,000 mt this month. Corn imports for 2017/18 are estimated at 1 mmt.
CASDE cut its estimate for 2017/18 corn area due to a faster-than-expected decline in summer corn planting in Hebei, Shandong and Henan Provinces. Drought in eastern Inner Mongolia prompted some farmers to switch from corn to soybeans and minor grains. The corn yield is forecast at 5970 kg/ha, raised 23 kg from last month. CASDE says rains brought relief from drought conditions in parts of the north China plain which is very favorable for growth of spring and summer corn. The estimate of overall 2017/18 corn output was raised to 211.91 mmt. Industrial use of corn was raised by 500,000 mt.

CASDE explains that corn prices have been rising in China despite robust sales of corn from reserves due to constraints in transportation and moving corn out of storage. This has created spot shortages in some regions, CASDE said. 
China cotton supply and demand (Ministry of Ag, July 2017)
Item Unit 2016/17 June 2016/17 July 2017/18 June 2017/18 July
Begin inventory MMT 11.11 11.11 9.23 9.13
Planted area 1000 ha 3,100 3,100 3,200 3,200
Yield Kg/ha 1,555 1,555 1,572 1,594
Production MMT 4.82 4.82 5.03 5.10
Imports MMT 1.00 1.00 1.10 1.00
Consumption MMT 7.69 7.79 7.69 7.74
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 9.23 9.13 7.66 7.49

Cotton auctions have injected 1.78 mmt of cotton reserves into the market as of July 7, 2017. CASDE raised 2016/17 cotton use by 100,000 mt to 7.79 mmt. Accordingly, ending cotton stocks for 2016/17 were reduced by 100,000 mt. No other changes were made in the 2016/17 cotton balance sheet.

Cotton imports remain at 1 mmt in 2016/17 and 2017/18 cotton imports were cut from 1.1 mmt last month to 1 mmt this month. Cotton yield for 2017/18 was raised, based on plenty of sun, adequate rainfall, and low levels of pest damage. Cotton production for 2017/18 was raised to 5.1 mmt. Estimated carry-out stocks for 2017/18 were reduced to 7.49 mmt, slightly less than annual consumption of 7.74 mmt estimated for 2017/18.

China edible oils supply and demand (Min Agriculture, July 2017)
Item Unit 2016/17 June 2016/17 July 2017/18 June 2017/18 July
Production MMT 26.57 27.06 27.07 27.21
--Soy oil MMT 15.58 15.96 15.92 16.05
--Rapeseed oil MMT 5.64 5.76 5.71 5.71
--Peanut oil MMT 3.18 3.18 3.24 3.24
Imports MMT 5.6 5.6 6.2 6.2
--Palm oil MMT 3.25 3.25 3.75 3.75
--Rapeseed oil MMT 0.75 0.75 0.85 0.85
--Soy oil MMT 0.58 0.58 0.58 0.58
Consumption MMT 31.46 31.46 31.63 31.63
--Urban MMT 21.5 21.5 21.65 21.65
--Rural MMT 9.96 9.96 9.98 9.98
Exports MMT 0.13 0.13 0.13 0.13
Surplus MMT 0.58 1.07 1.52 1.66

CASDE increased its estimate of edible oils production for 2016/17, reflecting increased imports of both soybeans and rapeseed. CASDE thinks increased soybean meal demand prompted greater imports of soybeans and consequently greater soybean oil production. Excess domestic reserves of rapeseed oil have been exhausted, leaving a deficit in the domestic market that is filled by crushing imported rapeseed. Imports and consumption of edible oils for 2016/17 were not changed this month. The increased crush of imported soybeans and rapeseed goes into higher ending stocks of edible oils. CASDE sees another increase in soybean oil production in 2017/18 and another surplus that will swell stocks of oils.

CASDE made no changes in the sugar balance sheet.

China sugar supply and demand (Ministry of Ag, July 2017)
Item Unit 2016/17 June 2016/17 July 2017/18 June 2017/18 July
Planted area 1000 ha 1351 1351 1472 1472
--sugar cane 1000 ha 1183 1183 1277 1277
--sugar beets 1000 ha 168 168 195 195

--sugar cane MT/ha 60 60 60 60
--sugar beets MT/ha 52.5 52.5 52.5 52.5
Sugar output MMT 9.29 9.29 10.47 10.47
--sugar cane MMT 8.24 8.24 9.23 9.23
--sugar beets MMT 1.05 1.05 1.24 1.24
Imports MMT 3 3 3.2 3.2
Consumption MMT 15 15 15 15
Exports MMT 0.07 0.07 0.07 0.07
Surplus MMT -2.78 -2.78 -1.4 -1.4

Wednesday, July 5, 2017

China's Agricultural Processing Plan

China is prioritizing development of agricultural processing industry, according to an article in Farmers Daily last week. The plan is logical and elaborate, but relies on a host of subsidies, tax breaks, and coordination among officials in two dozen ministries and bureaus.

Officials are now working to develop agricultural processing and integrate primary, secondary, and tertiary industries as ordered by General Secretary Xi Jinping and Premier Li Keqiang and directed by a guidance document issued in December by the State Council.

While agricultural processing has already become a "pillar industry" in China's countryside with 81,000 enterprises and gross income of 20 trillion yuan, Farmers' Daily says the industry is still weak, is not in sync with the requirements of modern agriculture, and cannot adequately meet the needs of the changing structure of food consumption.

Farmers Daily says developing an agricultural processing industry is urgently needed to correct the mismatches in China's food system. China produces large volumes of generic farm products with few branded, quality or "green" products. Grain is produced predominantly in the north and shipped south, while vegetables are shipped from the south to the north, raising transportation costs. Special strains of crops or livestock for particular uses are few. Livestock production is not coupled to feed supplies. Processing companies are needed as intermediaries to pass market information from consumers to farm producers in order to ensure that farm output matches what consumers want. This, in turn, ensures that farmers can sell what they produce.

The State Council's document sets a goal of raising the ratio of value added in agricultural processing to 2.4 times the value added in farming by 2020. It also hopes to raise the processed proportion of agricultural products to 68%. The campaign will boost primary processing of grains, oilseeds, potatoes, fruit, vegetables,  tea and mushrooms as well as higher value added processing. It also calls for utilization of processing by-products like straw from crops, rice hulls, wheat bran, oilseed meals, fruit and vegetable material, skins, bristles, bones and blood of livestock and fish bones and innards.

Farmers Daily complains that indigenous innovation is weak and industry is over-reliant on imports of technology. The strategy calls for innovating new technologies and figuring out how to disseminate the techniques to processors. Ideas include setting up technology exchange centers and a pilot program to make scientists shareholders in companies that use the technologies they invent. The plan calls for concentrating processors in industrial parks, matching up processing regions with final markets, and syncing up livestock with feed supplies. The campaign will incorporate ag processing in poverty alleviation efforts by locating processing industries in poor regions.

The ag processing strategy hopes to link up new family farmers, cooperatives and agribusiness enterprises through cooperative ventures and alliances.

The state council recommended that food processors be allowed to use the subsidy for agricultural machinery purchases to buy food processing equipment. Funds to support food processors should be expanded. Imports of equipment may be exempt from value added tax. Other value added tax and business tax exemptions are also recommended. Local authorities are urged to actively support construction of agricultural processing raw material bases, public infrastructure, logistics and delivery systems.

Banks are encouraged to steer loans toward agricultural processors via government loan guarantees. Processing enterprises set up by farmer cooperatives will be included in loan guarantee schemes. Use of assets like farm buildings, contracts, and accounts receivable as security for loans will be explored. Insurance will be introduced for guarantees of microloans. Policy banks will extend credit for agricultural processing.

Acquiring land in rural China is a headache because land is collectively owned and zoned for particular uses. The ag processing plan calls for including agricultural processors in land use plans and facilitating acquisition of land for agricultural industry parks. Arrangements for village collectives to hold equity shares in processing enterprises in exchange for land should be worked out.

Officials will encourage companies to develop quality management, food safety control, seek traceability system certification, and support companies in acquiring "pollution-free," "green food," organic, HACCP, and GAP certifications. They plan to promote brands, agricultural trademarks, and registration and protection of geographic indicators. A food export demonstration base program will continue to receive support.

Officials will try to increase the supply of technicians, managers and scientists to support the industry by encouraging institutes to establish food science and processing programs, setting up food business incubators, and encouraging rural-urban migrants to return to their hometowns to set up processing businesses.

The State Council document calls for a dozen or more types of support measures and specifies 25 different government ministries and bureaus for involvement in various aspects of the program. Farmers Daily warns that developing agricultural processing will not be easy:
"Each level of agriculture department must actively fight to include agricultural processing industry development in local party committee and government agendas and to strengthen coordination among Finance, Development and Reform, and Ministry of Land Resource departments to actively push policy implementation so it will take root and bear fruit."