Wednesday, March 28, 2018

China Subsidizes Buyers and Producers of Corn and Soybeans

Two of China's top grain-producing provinces announced subsidies for buyers of corn and soybeans layered on top of generous subsidies for growers. For some corn, it is possible that three different subsidies could amount to 38 percent of the farm price, and subsidies could add up to nearly half of the purchase price for soybeans.

On March 23, Heilongjiang and Jilin Provinces announced a subsidy for processing plants and feed mills that buy corn and soybeans harvested in the provinces during 2017. The subsidy for corn purchases is 100 yuan per metric ton purchased in Jilin Province and 150 yuan in Heilongjiang. The subsidy for soybeans purchased is a whopping 300 yuan/mt in both provinces.

The corn purchase subsidy is aimed at industrial processors that make starch and alcohol products from corn with at least 100,000 mt of annual capacity and feed mills with at least 50,000 mt of capacity. The soybean subsidy is aimed at companies that make food products from soybeans, such as tofu, soy flour, soy milk, dried tofu, pickled tofu, fermented bean curd, dried bean curd, extruded soy products, fermented soy products, soy-based protein supplements, bean products processing and 13 or more soybean food products like bean sprouts, bean paste, with capacity of 5000 mt or more.

The average purchase price of corn in Heilongjiang is about 1725 yuan/mt, so the 150-yuan corn purchase subsidy equals 8.7% of the purchase price in that province.

The average purchase price of soybeans is 4140 yuan/mt, so the 300-yuan purchase subsidy equals 7.2 percent of the price.

Farmers in Heilongjiang also get producer subsidies of 133.46 yuan per mu for growing corn and 173 yuan/mt for growing soybeans. The payments are awarded based on the actual area planted in these crops (15 mu = 1 hectare of land). Jilin Province also gives these subsidies, but the Jilin Government has not announced the amount.

Let's convert the Heilongjiang producer subsidy payments to yuan/mt. Assuming a corn yield of 400 kg/mu (6000kg/ha), the corn subsidy equals 333.65 yuan/metric ton. That's equal to 19.3 percent of the 1725-yuan/mt purchase price. Assuming a soybean yield of 140 kg/mu (2100kg/ha), the soybean producer subsidy equals 1235.7 yuan/metric ton, which is equal to 29.8 percent of the 4140-yuan/mt purchase price.

We're still not finished. China has a nationwide "support and protection subsidy" for all farmers who plant grain crops. This subsidy consolidates the previous "three subsidies" (direct payment, improved seed subsidy, and general input subsidy). Land planted in corn and soybeans or any other grain crop is eligible for this subsidy. According to government publicity, farmers get a subsidy based on their land holding unless they plant non-grain crops, leave land idle for multiple years, or build structures on the land. "New-type farmers" who rent-in land are eligible to receive the subsidy if they have an agreement specifying whether lessor or lessee receives the subsidy payment.

In theory, the "support and protection" subsidy is supposed to fund land fertility improvements, but an announcement of the subsidy in Heilongjiang makes no mention of this, nor does it mention any conditions for receiving the funds. The announcement proclaims, "If you register your land, then you can get the subsidy!" The announcement also emphasizes that this is separate from (i.e., in addition to) the corn and soybean producer subsidies. Thus, in Heilongjiang a farmer who plants corn on his land should get the support and protection subsidy and the producer subsidy for corn. Same for those who plant soybeans.

In Heilongjiang, the support and protection subsidy is 71.78 yuan/mu this year (Again, Jilin has not announced its subsidy). If corn is planted on the land and the yield is 400 kg/mu, the support and protection subsidy equals 10.4 percent of the current corn price in Heilongjiang. If the land is planted in soybeans, the support and protection subsidy equals 12.4 percent of the current soybean price.

2017/18 Subsidies in Heilongjiang Province
Corn (assume yield 400 kg/mu):
  Processor purchase subsidy 150 yuan/tonne 8.70%
  Corn producer subsidy 133.46 yuan/mu 19.30%
  Support and protection subsidy 71.78 yuan/mu 10.40%
Potential total corn subsidy 38.40%
Soybeans (assume yield 140 kg/mu)
  Processor purchase subsidy 300 yuan/tonne 7.20%
  Soybean producer subsidy 173 yuan/mu 29.80%
  Support and protection subsidy 71.78 yuan/mu 12.40%
Potential soybean subsidy 49.40%
note: 15 mu = 1 hectare of land. Processor subsidy available only for corn and soybeans purchased March 23 - April 2018, 2018.

The window for the processor subsidies is relatively short--only corn and soybeans purchased between March 23 and April 30 will be eligible. This subsidy appears to be intended to ensure that leftover corn and soybeans at the end of the marketing season gets purchased before authorities begin auctioning off corn reserves in May--which is expected to push prices downward.

In total, the Heilongjiang government could pay out three subsidies equal to 38 percent of the value of corn and over 49 percent of the value of soybeans for the relatively small volume that receives all three subsidies. It would appear that all corn produced in Heilongjiang should at least be eligible for the producer subsidy and the support and protection subsidy--a total of 29.7 percent of the purchase price. Similarly, all soybeans in Heilongjiang should be eligible for these two subsidies--equal to 42.2 percent of the purchase price.

Farmers nationwide get the support and protection subsidy. But the three northeastern provinces (Heilongjiang, Jilin, and Liaoning) and Inner Mongolia are the only regions that have the producer subsidies for corn and soybeans. So far only Heilongjiang and Jilin have the corn and soybean processor subsidies. Thus, northeastern farmers are the most heavily subsidized farmers in China.

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