Tuesday, September 19, 2017

China Biofuel Dreams

Chinese authorities have set ambitious goals for biofuel use that call for nationwide use of fuel ethanol in automotive gasoline by 2020, scaling up of cellulosic ethanol production by 2025, and attaining a world-leading position in biofuels. The plan entails quintupling ethanol production in three years, and implies that China's history of non-grain biofuel flops will be reversed.

The "Implementation program for promotion of biofuels and expansion of bio-ethanol as automotive fuel" jointly issued by 15 Chinese ministries and commissions, led by the National Development and Reform Commission and the Energy Bureau on September 13, 2017 was described as having "great practical and strategic significance." By 2020, automotive use of bio-ethanol fuel will be expanded nationwide from the handful of pilot provinces currently using it. The document also urges development of cellulosic ethanol and advanced biofuels to achieve a world-leading position in biofuels by 2025.

Biofuel initiatives have waxed and waned in China for two decades--in sync with market conditions for corn, the main raw material. The first fuel ethanol plants in China were opened 15 years ago during an earlier corn glut. All were built in grain-producing areas to process massive stockpiles of corn and wheat with a hefty cash subsidy for every ton produced. As grain supplies became tight again in 2006, the National Development and Reform Commission banned additional grain-based ethanol plants and began to phase out the subsidy. Now China once again has a even higher stockpile of moldy corn built up by maintaining an ill-considered support price program, and officials are once again in ethanol-expansion mode.

The need to dispose of the corn stockpile dovetails with China's ambition to be a global leader in combating climate change, and promises less reliance on imported petroleum. The use of "clean" biofuels is meant to mollify Chinese residents choking on fumes from vehicle exhaust. The promise to develop cellulosic ethanol from crop straw, stalks, and trees aims to utilize rural wastes that traditionally were burned in peasants' stoves over the winter but are now burned in the fields after harvest, covering the countryside with clouds of smoke.

According to one estimate, the target for nationwide use of a 10% ethanol blend at the current gasoline production level implies an fuel ethanol production level of 12 mmt--nearly four times the volume now produced (2.1 mmt in 2015, according to the five-year plan for renewable energy). That, in turn, would require 36 mmt of corn as raw material. It is unclear how China can reach this target in three years. China has never produced more than 2.5 million metric tons of fuel ethanol in the industry's 15-year history. 

Two years ago, industry reports indicated that ethanol production ground to a near-halt due to a perfect storm of the removal of subsidies, low gasoline prices (the fuel ethanol is set as a proportion of the gas price in China) and artificially high corn prices. Since then the corn price has dropped by nearly half and ethanol producers have been able to ramp up production again, but output is a little more than half of the 4-mmt target set for 2020 in the current five-year plan for renewable energy.

China's corn inventory is estimated to be around 200 mmt by most news media reports in the country. Scientists happily point out that China has huge amounts of moldy and contaminated grain unsuitable for feed or food that could be used to make fuel ethanol, while the by-product distillers grains can be used as livestock feed. These optimistic pronouncements don't seem to account for the even higher concentration of molds and toxins in the distillers grain by-products that would make it unusable. This would seemingly leave a stockpile of toxic byproduct equal to two-thirds the original volume of grain used for ethanol production.

China's initiative to make biofuel from non-grain raw materials is not new either. Ten years ago when global grain prices were soaring China's 11th five-year plan for 2006-2011 called for making biofuel from nongrain materials, including sweet sorghum, potatoes, cassava, and jatropha trees (for biodiesel). Early sweet sorghum projects undertaken by state-owned Chinese companies and a multinational fizzled due to the cost and timing of procuring and transporting huge volumes of sorghum. A cassava-based ethanol plant in Guangxi Province opened in 2008 shut down by 2011 when it faced soaring raw material costs and resistance from fuel retailers. Local cassava farmers could not supply raw materials as planned, and cassava had to be imported from Thailand and Vietnam. Planned cassava-based plants in Zhejiang and Guangdong Provinces were never built. A project to grow cassava for ethanol is being set up in CambodiaJatropha trees covering hillsides in southwest provinces were abandoned years ago because they don't pollinate easily and lacked sufficient water.

This decree likely came from leaders eager to position China as a global leader in the fight against climate change. Did they consider the history of missed targets and abandoned projects? Can anyone explain why the results will be better this time?

Monday, September 11, 2017

China Subsidizes Crop Rotations, Land Idling

China is expanding subsidies for crop rotations and land-idling to rehabilitate degraded farmland and conserve moisture in marginal agricultural areas. At a press conference last week, a Ministry of Agriculture spokesman explained the program--a continuation of a plan initiated in 2016.

The spokesman explained that intensive use of farmland has degraded the quality of land and resulted in pollution. The exploratory pilot program aims to establish a rotation and fallowing system within 3-to-5 years that will restore fertility and reduce environmental degradation. The 2017 rotation and fallow pilot program covers 12 million mu in 9 province and 192 counties--5.84 million mu more than last year. This year's program will be supported by 2.56 billion yuan in central government funding, nearly twice as much as last year. The funding will be used to compensate farmers for reduced income while land is idle and to cover the cost of officials administering the program.

The farmland rotation-fallowing program is mainly aimed at cutting back excess corn production, but it also relieves stress on severely degraded land in marginal areas, polluted regions, and areas where groundwater is severely depleted.

The Ministry said corn planting was reduced by 30 million mu (2 million hectares) in 2016, and soybean planting rose by 10 million mu (666,667 ha). Corn planting is expected to fall by another 20 million mu (1.33 million ha) this year, alleviating the corn surplus, the Ministry said.

Corn-soybeans are the main rotation promoted by the program, targeted for 1 million mu in Jilin Province and 2.5 million mu in Heilongjiang Province. Rotating corn and soybeans is expected to reduce chemical fertilizer use by 30% (versus continuous corn), the spokesman said.

There are four "auxiliary" rotations promoted in various regions:
  • corn with potatoes and other tubers
  • seed corn with forage crops (corn for silage, alfalfa, rape for grazing, sweet clover, and rye grass)
  • corn and minor grains/beans (millet, sorghum, oats, red beans, drought resistant minor grain and beans)
  • corn and oilseeds such as peanuts, sunflowers, peonies for oil

The rotation-idling program also includes three cadmium-contaminated districts of Hunan Province where a 100,000-mu isolation area will be established. Soil will be treated by applying lime, tilling the earth, and/or planting cover crops to absorb pollutants. No food crops can be harvested in the area until contamination is below tolerances.

In regions in Hebei and Heilongjiang Provinces where underground aquifers have been severely depleted, 1 million mu will be idled during the dry season and planted in rain-fed corn, potatoes, and drought-resistant minor grains and beans during the wet season.

In Guizhou and Yunnan Provinces, 40,000 mu of environmentally fragile land will be idled for up to 3 years. In the northwestern Province of Gansu land subject to wind erosion, desertification, and salinization will be idled and measures will be taken to preserve moisture.

The Ministry of Agriculture emphasized that compensation will be paid to ensure that farmers' income will not be reduced from idling or rotating crops that earn lower returns. The compensation for farmers will be 800 yuan per mu for idling land that could bear two crops a year, and 500 yuan for a single-season fallow. Compensation is roughly equal to the rental rate for land, the Ministry spokesman said.

The Ministry encouraged local governments to combine the rotation-fallow pilot with other pilot or demonstration programs that they might be eligible for in order to obtain more aid. Other programs include green high-yielding, high-yielding districts; poverty-alleviation key counties; and agricultural sustainable development demonstration programs.

Sunday, September 10, 2017

2016 China Soybean Subsidy 118.58 yuan/mu

The 2016 soybean subsidy is 118.58 yuan per mu for China's Heilongjiang Province, China's top soybean-producing province, according the Heilongjiang Price Bureau. This payment--based on the soybean crop produced last fall--is paid out as part of the target price subsidy program which has operated on a pilot basis from 2014 to 2016. Funds will be issued to county finance departments and state farm bureaus in the province and paid to farmers by September 15, 2017 (nearly a year after the crop was harvested, and 5 months after this year's crop was planted). The subsidy equals roughly $111 per acre when converted to U.S. dollars at the current exchange rate.

The amount is consistent with previous reports of 120 yuan/mu. The target price subsidy was 150 yuan/mu in 2015.

The target price subsidy equals approximately 28 percent of the crop's gross value. (With an average yield of 120 kg/mu and average price of 3.6 yuan/kg, the gross value of the 2016 crop was about 420 yuan/mu.)

A new soybean subsidy per acre planted will replace the target price subsidy for the 2017 crop.

Wednesday, September 6, 2017

China: Let Them Raise Donkeys


China's approach to "precise poverty alleviation" focuses on starting up industry chains to pull poor people out of poverty, both at home and abroad.

At first glance, the "International Symposium on Donkey Industry Development" held last month in Shandong's Dong'e County sounds like a joke to those of us unaware of the value of donkeys, but it was quite a serious occasion with millions of dollars at stake.

 Online Donkey Exchange kick-off held in December 2016.
The online donkey exchange set up in the same city last December--the first online donkey trading platform in China!--also sounds like a satirical article from The Onion, but it also is a serious venture. This "Internet + Donkey" model aims to bring the little fellows into the era of "big data", with an expectation of 300 donkeys traded daily and eventually becoming a center for global donkey trade.

"Revitalizing the Chinese donkey industry is our responsibility to donkey farmers for 'precise poverty alleviation,'" said Qin Yufeng, president of the Dong'e E'jiao company that hosted both the symposium and online donkey exchange. President Qin was keynote speaker at the donkey symposium, serves as head of the donkey exchange, was inaugurated head of an international donkey technology alliance founded at the symposium, and heads the Chinese Animal Husbandry Industry Association's donkey section.

Mr. Qin continued: "Investment in donkey-farming and trade is a win-win for everyone: farmers escape poverty, local government gets more revenue, trading is enlivened, businesses are started up- and downstream, and jobs are created."
Farmers display awards at a donkey exhibition in northeastern China

Why donkeys? Dong'e (东阿) County is the home of a traditional Chinese medicine called E'jiao (阿胶, named after the county), a gelatin made from donkey skins which purportedly has all kinds of benefits and is high demand in China. Output (of authentic medicine) is limited by the number of donkeys in China which has fallen by about 50 percent since the 1990s as farms mechanize. To make matters worse, donkeys reproduce slowly due to low fertility and a long gestation period. With the shortage of raw material for a product in high demand, the price of both e'jiao and donkey skins has soared.

Dong'e E'jiao, the Shandong company that makes the medicine, set up the donkey exchange and sponsored the international symposium, which President Qin hopes will "break through a raw material bottleneck for the company."

The company and/or the county seems to have some clout. Shandong province declared donkey-farming a key industry for poverty alleviation. Liucheng Municipality in Dong'e County has been developing the industry since 2015 and last year had 207 scaled-up donkey farms and 100 poverty-alleviation donkey farms. Liucheng aspires to be a nationally-recognized breeding base with 1 million black donkeys by 2020. Tongtiankai City has the county's first donkey market with 120 vendors, and aims to be China's central collection point for commercial donkeys.

Despite these efforts, China's demand for donkeys has outstripped domestic supply. Traders have been combing the globe in search of skins and hoofs, and Africa has been a prime destination. Traders bought up so many donkeys that Niger and Burkina Faso banned donkey exports last year. Henan Province officials made overtures to South African counterparts about a donkey investment deal, but smuggling--often by criminal syndicates--has caused an uproar in South Africa. The Chinese embassy issued a statement earlier this year denying involvement of Chinese companies in the trade and asked the press to stop reporting stories about the topic.

Now China wants to organize the donkey trade under the banner of One Belt One Road. Chinese companies will go forth into poor remote regions of South and Central Asia and Africa, doing business, building agricultural industrial parks, sharing technical and market information, and creating industry chains that enrich farmers.

These themes were prominent at the International Donkey Industry Academic Exchange Meeting held in Dong'e last month. The meeting hosted experts from 16 countries to form a blueprint for development of a global donkey industry, discuss breeding, health, animal welfare, and commercial supply chains for donkeys, and their potential economic value. A "Dong'e Consensus" issued at the meeting called for governments to devote more attention to donkeys in research and international exchanges. The symposium launched an international alliance for donkey industry technology and set up a $10 million fund to support donkey research.

Earlier this year, a province in northwest Pakistan announced a sustainable donkey development program aimed at attracting Chinese investment as part of the China-Pakistan Economic Corridor, one of the most prominent segments of the Belt and Road initiative. Pakistani officials’ described the program to “export donkeys to the government of China” with language seemingly drawn from the Chinese blueprint. It will feature new office buildings, dormitories for workers, investment in machinery and equipment, and a “rigorous breeding program” to meet market demand.

Tuesday, September 5, 2017

China Livestock Farm Closures Proceed

213,000 livestock farm closures during the first half of 2017 were featured in a news conference held by China's Ministry of Environmental Protection last month that reported progress on a “Water Pollution Prevention Action Plan.”

Local authorities across China have been ordered to designate zones where livestock farms are banned, where they are limited, and zones suitable for livestock farms. Commercial-scale farms must close or move out of the zones where they are banned--near bodies of water, drinking water sources, residential communities, and scenic areas. If they want to continue operating, farms must invest in facilities to collect animal waste, re-use waste water, and utilize manure for biogas and organic fertilizer.

According to a report on the news conference by the China Livestock Farming Alliance, 49,000 livestock-farming-ban zones covering 636,000 square km have been designated nationwide. So far this year 213,000 livestock and poultry farms have been closed or moved from livestock-ban zones, and the rest are due to be closed or moved by the end of 2017. Fourteen provinces (Shanxi, Jilin, Heilongjiang, Hunan, Guangxi, Hainan, Tibet, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang) have not completed their delineation of livestock-ban zones and progress is slow on closing and moving farms.

Livestock companies such as Wen’s Group, New Hope Liuhe now have to devote 20%-30% of spending on new farm construction to environmental protection. The bigger the company the more attention they have to give to environmental protection. Sichuan Province’s environmental protection bureau published a list of the province’s key enterprises for monitoring that included livestock companies like Wen's, West Hope, Tian Zhao Group, and Tieqi Lishi Group.

With the deadline for completing the farm closures five months away, local governments are under greater scrutiny and more likely to use more aggressive means to close or move farms.

Some localities--primarily in Zhejiang and Fujian Provinces--have gone to the extreme of declaring pig-free villages (无猪村) and towns. In Pingchuan Town, in a mountainous area of western Fujian, the county government declared last year that all of the town's villages would be pig-free. After eight months of hard work by village cadres, 175 pig farms with 20,000 pigs in five villages have been closed. Now the "water is clean, the land is green," and one villager declared, "It's much better now, and we no longer have that horrible smell!" Elsewhere in Fujian, in pig-free Xingang Town the communist party secretary has given up raising pigs and is now planting fruit trees on land rented from neighbors. He began raising pigs 20 years ago when the government urged villages to take up pig-farming as a sign of advanced economic development.

The top priorities for dealing with the livestock pollution problem was the southeastern river systems, the Yangtze River basin, and large cities Beijing, Tianjin, and Shanghai. Now attention is turning to a new set of regions. On July 31, an environmental inspection team was posted in Shandong Province, a major livestock-producing province. Local governments there have been issuing plans for designating livestock-ban zones and closure or removal of farms.

A propaganda piece on a Shandong TV station shows pigs and ducks being hauled away and farms being dismantled. A lady named Zou closed her pig farm after the party secretary paid multiple visits. The villagers are willing to close their farms once they realize the significance of the pollution problem, the news report said. Teams are guiding the farmers to switch to other businesses like growing mushrooms, ginger, and garlic.

Another news item reports that local governments in Shandong are under pressure to meet the environmental requirements, but warns farmers not to panic. According to this item, the directive only applies to pig farms selling 500 or more head or specialized households selling 50-500 head. Local officials cannot designate pig-free zones or declare "pig-free villages" without a solid basis for doing so, the news item said. The farm closures also cannot disrupt the supply of meat, eggs, and poultry.