Friday, September 28, 2018

Ag Minister Not Afraid of Trade Friction

China's strength in agriculture gives the country confidence to face trade friction, the country's ag minister said in an article posted on the communist party's Peoples Daily website today.

Minister Han Changfu said a sixth-straight 600-million-ton fall grain harvest is just 10 days away, providing food security "ballast." Han spent most of the article reciting improvements in farm policy, rural development, and ecological balance that give the economy "room to maneuver" against economic risks.

The only mention of the United States is a sentence citing a $16.4 billion agricultural trade deficit with the U.S. in 2017, but the trade war is in the background of the article. The main thrust if the remarks is to emphasize China's commitment to globalization in agriculture and the resilience of its rural economy in the ongoing trade war with the United States.

Han finished his remarks by touting China's rising degree of openness and international cooperation in agriculture. Citing statistics on remarkable growth in trade since joining the WTO in 2001, Han emphasized that China has become the largest agricultural importer and second-largest agricultural trading country. He noted that China is the largest buyer of soybeans, sugar, and cotton, and has become a target market for other countries. China has 120 agreements on agricultural cooperation with over 60 countries and international organizations, Han said. Through its "Belt and Road" initiative, China has made joint plans on cooperation, is sending agricultural experts abroad, and is building demonstration zones. China has invested $18 billion abroad in 100 countries during the last five years, Han said.

According to Han, China's strategy of utilizing both domestic and foreign resources and markets has helped China import what it needs, relieve pressure on stressed domestic resources, and stabilize supply.

According to Han, China will not provoke trade frictions, but is not afraid of trade friction either. Trade frictions pose challenges as well as opportunities and, "In this regard, we have plenty of enthusiasm and confidence," Han said.


Thursday, September 27, 2018

Food Safety Logo Replaced With Digital Code

China is replacing the "QS" food safety logo found on most food packages with a digital "SC" code as of October 1. The blue QS logo (stylized English letters signifying "Quality Safety") was introduced more than a decade ago to signify that food manufacturers had passed a food safety audit that was good for 3 years. Regulations introduced after enactment of the 2015 Food Safety Law called for the SC code to replace the QS logo.

"SC" represents the Chinese pinyin "Shengchan", or production, which identifies the licensed producer and its location. The code's 14 digits represent the food code, province, city, and county where it was produced, and a code for the company. The digital code is said to be better suited for digital traceability systems.

According to a journalist in Yangzhou, most of the packages carrying QS logos have already disappeared from stores as manufacturers phased out the symbol.
The blue QS logo (above) on China's food packages is replaced 
with a 14-digit "SC" code (below) as of October 1, 2018

Estimate: 500,000 Tons of Smuggled Pork Annually

Chinese customs officials say they are cracking down on "rampant" pork smuggling to prevent further spread of African swine fever and downward pressure on domestic pork prices. On August 24, Chinese coast guard officials apprehended a ship carrying over 300 metric tons of chicken feet, frozen pork, feet, ears, and tongues. Officials claim to have seized of 15,000 metric tons of meat in 6 meat smuggling cases from April 25 to May 25. 
Comic shows a stream of ants carrying loads of "smuggled zombie meat" through a tunnel into "China"
The article notes that meat smuggling is cyclical: it rises when Chinese pork prices are higher than foreign prices and falls when Chinese prices fall. The article estimates that smuggling of frozen pork and offal totals 500,000 metric tons in a normal year, but rises to over 1 million metric tons when prices are high. The article estimates that 100,000 live hogs are smuggled into the country annually. The article claims that smuggled pork has a "very bad" effect on Chinese pork prices.

Meat smuggling is mainly in Guangdong Province, Guangxi and Yunnan. Smuggling by boat is popular because it is easier to evade authorities, the article said. Smuggling of live hogs and cattle occurs mainly at two crossings from Vietnam into Guangxi Province, and some also occurs on the Yunnan border, the article said. Live hogs are transported to slaughter facilities in Jiangxi, Chongqing, and Hubei Provinces.
Diagram posted by a small city in Sichuan shows the supply chain for 
smuggled hogs from buyers in Vietnam to brokers and slaughterhouses in China.

Legal imports of pork and offal peaked at 1.6 million metric tons in 2016, then fell to 1.2 million metric tons in 2017. Legal importers include processing companies like Shuanghui, COFCO Meat, Jinluo, Yurun, Congpin, and Longda. In 2016, Shuanghui was the top legal importer, accounting for 19 percent of imports.
Truck smuggling pigs intercepted by authorities in Yunnan Province in 2016.

Tuesday, September 25, 2018

China Ag Imports Up...except for U.S. products

China's imports of most agricultural and food commodities have grown in the first 8 months of 2018, but imports from the United States fell sharply as retaliatory tariffs took effect July 6.

Since April, China's reporting of foreign trade data has been limited to a handful of monthly bulletins posted on the customs administration's web site. Piecing these together, it's possible to get a crude picture of how Chinese agricultural imports are faring during the "trade war" with the United States.

Approximating agricultural imports by adding up HS chapters 01-24 and 52 shows that China's imports of farm products from other countries was up about 16.5 percent year-on-year for January-August 2018, while imports from the U.S. were down 1.9 percent. The United States accounted for 18 percent of ag imports by this definition.
Soybeans are by far China's largest agricultural import, valued at $26.8 billion in January-August 2018. China imported 62 million metric tons of soybeans during January-August, about 1 mmt less than the same months in 2017. There was no drop-off as the 25-percent tariff on U.S. soybeans kicked in July 6. On the contrary, imports were up to 9.15 mmt in August. The customs data don't reveal which countries the August soybean imports came from, but Brazil was surely the predominant source.

China's grain imports surged during April and May, probably reflecting front-loading of shipments to get ahead of the U.S. tariffs. Grain imports were clearly down in July and August

Imports of U.S. grain fell to near-negligible amounts in July and August. Imports of fruit, nuts, dairy, meat and seafood from the U.S. also fell sharply.
 China's imports of U.S. alcohol have fallen, but imports of processed food, food preparations, meat and bone meal, fish meal and pet food have been more robust.

Imports of grains were down (except for corn), pork was down slightly, but China's imports of most major commodities were up sharply in the first eight months of 2018.

China imports of selected agricultural items, January-August 2017-2018


January-August total

Item
Unit
2017
2018
Percent change
Soybeans
MMT
63.3
62.0
-2.1





Cereal grains
MMT
17.96
16.41
-8.6
  Corn
MMT
2.03
2.87
41.4
  Sorghum
MMT
3.84
2.02
-47.4
  Barley
MMT
6.02
5.55
-7.8
  Wheat
MMT
3.18
2.23
-29.9
  Rice
MMT
2.68
2.02
-24.6





Cotton
1,000 MT
810
980
21.0
Edible oils
MMT
3.56
3.88
9.0
  Palm oil
MMT
1.88
2.16
14.9
  Rapeseed oil
MMT
0.58
0.83
43.1
  Soybean oil
MMT
0.51
0.29
-43.1





Seafood
1,000 MT
1,950
2,120
8.7
Meat and offal
1,000 MT
2,710
2,834
4.6
  Pork
1,000 MT
834
829
-0.6
  Beef
1,000 MT
456
638
40.1
  Poultry
1,000 MT
290
326
12.4
  Mutton
1,000 MT
176
227
29.0
Dairy products
1,000 MT
1,718
1,880
9.4
Fruit and nuts
1,000 MT
3,110
3,840
23.5
Alcohol,beverages
Mil. Liters
1,003
1,767
76.2




Monday, September 24, 2018

Can China Kick its Soybean Meal Habit?

Chinese officials say they will cut back on use of soybean meal in animal diets this year in order to accommodate lower expected imports of soybeans from the United States. At least one Chinese official has said that his country has been consuming "too much" soybean meal and has room to cut back. The Ministry of Agriculture and Rural Affairs' September CASDE report cut its estimate of 2018/19 soybean imports to 84 mmt from 94 mmt last month.

China has spent the last two decades building a dependence on soybean meal that cannot be easily broken. Let's take a look at the numbers.

China is by far the top consumer of soybean meal in the world. The USDA Production, Distribution and Supply database shows that China consumed over 70 million metric tons of soybean meal during 2017/18, while the number-2 and number-3 consumers, U.S. and EU, each consumed less than half as much as China. Brazil--with the world's most plentiful supplies of soybeans--used only 17.5 mmt. Other countries were in single digits.

Top 10  consumers of soybean meal, 2017/18
Country
Million
metric tons
China
70.4
United States
31.8
European Union
30.0
Brazil
17.5
Vietnam
6.0
Mexico
5.9
India
5.0
Indonesia
4.5
Thailand
4.3
Russia
3.6
Source: USDA PS&D

China's 70-mmt consumption of soybean meal far exceeds its consumption of other protein meals. China consumes less than 12 mmt of rapeseed meal, about 4 mmt each of cottonseed and peanut meal, 1-2 mmt of fish meal and sunflower meal, and 0.5 mmt of palm kernel meal. China is already the world's leading consumer of peanut and fish meal, and number-2 consumer of rapeseed and cottonseed meal.

Major protein meals used for feed in China (million metric tons)
Type of Meal
Used during
2017/18
World
rank

Soybean meal
70.4
1
Rapeseed meal
11.9
2
Cottonseed meal
4.0
2
Peanut meal
3.9
1
Fish meal
1.6
1
Sunflower meal
1.1
5
Palm kernel
0.5
6
source: USDA PS&D

Another measure of China's extraordinary use of soybean meal is the high proportion of soybean meal in its feed rations. The chart below shows the ratio of soybean meal use to feed use of major grains (corn, wheat, sorghum, and barley) by China, the United States, European Union, and Brazil from 2000/01 to 2018/19, again using estimates from USDA's PS&D database. China's ratio of soybean meal use to feed grain use rose from a ratio of 0.15 in 2000 to over .35 this year. The U.S. ratio has been fluctuating between .20 and .25, and the EU is at about .20. Even Brazil--the leading soybean producer--uses a lower proportion of soybean meal to grain, at about 0.30.
Calculated from USDA PS&D data.

No one ordered Chinese farmers or feed mills to use soybean meal. The high use of soybean meal is simple economics: soybean meal is relatively cheap in China compared to other feeds. The price of soybean meal in China is about 50 percent higher than in the U.S., but the price of corn in China is about double the price in the U.S.

In China, a ton of soybean meal costs about 1.65 times the price of a ton of corn. Market prices for feeds reported by the Ministry of Agriculture and Rural Affairs this month are 3450 yuan/mt for soybean meal and 2040 yuan for corn, a ratio of 1.69. By comparison, soybean meal is more expensive compared to corn in the United States--the U.S. futures price of soybean meal has been 2.5-to-3 times the price of corn this year.


Similarly, soybean meal prices would have to rise relative to the price of other protein meals to induce Chinese livestock producers to substitute other meals for soybean meal.

One substitute--distillers dried grain--can be ruled out since China has slapped prohibitive antidumping duties on DDGS from the United States, the sole major supplier.

The price of soybean meal would have to rise faster than the prices of alternative feed ingredients in order to induce farmers and feed mills to make the change--but there is no sign of this happening. On Friday, the futures price for soybean meal delivered in northeastern China December 2018 was 3176 yuan/mt, while the price for corn delivered in December was 1894 yuan/mt--a ratio of 1.68, not much different from the price ratio that has prevailed most of this year.

Will India, Ukraine and Canada give China bargains on cottonseed, sunflower, and rapeseed meal to replace 10-mmt U.S. soybeans? Surely they will want higher prices to supply the volumes Chinese officials want.

Meanwhile, U.S. soybean export prices have dropped nearly enough to put their China C&F price at near parity with Brazilian C&F prices. With the world flooded with soybeans and bargains galore, it will be hard for China to snub cheap U.S. soybeans and the tax revenue. It will be hard to break the soybean meal habit this year.

Tuesday, September 18, 2018

African Swine Fever: 18 Cases, Divergent Price Trends

With new cases confirmed recently in Inner Mongolia, Anhui, and Heilongjiang Provinces, China has had 18 outbreaks of African Swine Fever from August 1 to September 17. Cases have been widely spread, but Anhui Province has been hardest hit with 8 confirmed cases so far, including the latest on Monday. Other cases were confirmed on farms in Inner Mongolia and Henan Province last week.

China has had 18 cases of African swine fever confirmed as of September 17
Emergency measures have been adopted to cull swine, disinfect farms and stop transportation of pigs in the areas surrounding farms where the virus has been discovered. There is great uncertainty about the impact of African swine fever on retail markets and prices.

The Ministry of Commerce issued a notice ordering local commerce officials to pay close attention to possible effects of African swine fever and other animal diseases on food markets during the mid-Autumn Festival next week and the National Day Holiday coming up in early October. Local officials are ordered to carefully monitor pork supplies, keep prices stable and ensure that meat is safe. To avoid disruption in supplies, officials are advised to arrange deals between suppliers and vendors in their region.
A notice in Henan Province forbids loads of pigs on trucks bearing 
license plates from several other districts of Henan:
Xinxiang, Jiaozuo, and Zhengzhou. Source: Soozhu.com

African swine fever's impact on China's pork market is uncertain. Hog prices have risen in regions that rely on shipping in hogs from the hinterland, and prices are falling in major production regions. Prices are highest in eastern regions that rely on shipping in hogs from other regions. Similarly, prices have climbed to a high level in the western region. At the other end of the spectrum, prices are depressed in the northeast--the first region where African swine fever appeared in China and which has been hit hardest by bans on outbound shipment of hogs. The north and central regions have had the most outbreaks and are also seeing sinking prices. Prices in the South surged early this month but have since begun to fall.
Adapted from zhue.com



Thursday, September 13, 2018

Villas Disguised as Greenhouses Skirt China Land Zoning Rules

Chinese authorities are cracking down on rural villas disguised as greenhouses to skirt bans on residential use of land zoned for crop production. News media have been reporting instances of villas, resorts, and restaurants built around a greenhouse or hidden inside a giant greenhouse. The "greenhouse villas" (大棚房) skirt rules forbidding nonagricultural use of land designated for grain production or as "permanent farmland" by building a greenhouse and calling it a "modern agriculture" project. Most of the structures are occupied or operated by city people from outside the village that owns the land. Such developments are found all over the country.

A resort-type building and landscaping being constructed inside a greenhouse to evade restrictions on developing farmland.

A fancy teahouse built inside a greenhouse.


China Central Television reported finding an entire real estate development hidden under greenhouses that had been approved as a "vegetable production base" featuring greenhouse farming and a "company + base + farmer" model. A salesperson offered the CCTV reporter a choice of several options of varying sizes and prices and assured the reporter that the developers had an agreement to lease the land from the village for 50 years.

In Tianjin, a number of farmers' vegetable cooperatives have developed greenhouse villa projects. For example, one cooperative set up in 2013 gained control of a village land parcel and recruited an outside sales company the following year. Some renters constructed houses, gardens and paved walkways inside greenhouses. This year there were 155 greenhouse villas covering 6 hectares designated as "permanent farmland." The local land administration bureau destroyed the project this year.

On August 20, the Ministries of Natural Resources and Agriculture and Rural Affairs began a remediation campaign, destroying 14 greenhouse villas as examples. Supposedly, the land is being returned to crop production.
On September 9, the central communist party leadership launched a special cleanup remediation action to crack down on greenhouse villas.

Greenhouse villas are destroyed in Langfang, Hebei Province as part of the rectification program.

Wednesday, September 12, 2018

China Sells GMOs Overseas to Open Home Market

A Chinese company is seeking Argentine approval for a genetically modified soybean strain that would be grown in South America and exported back to China. This appears to be a gambit to break down Chinese consumers' resistance to commercializing GM crops in China. By demonstrating that foreign scientists think GM seeds are safe, Chinese government and industry leaders hope consumers will give up their resistance to allowing GM food crops to be grown in China.

According to Science and Technology Daily, Da Bei Nong (also known as DBN) Group, a feed, seed and crop protection company based in Beijing, has spent three years seeking Argentine approval to commercialize a GMO soybean variety that is resistant to both glyphosate and glufinosate--two common herbicides. DBN is working with Argentine company Bioceres to gain the approval and eventually develop marketing channels for the seed in Argentina. This has also been reported by an international organization ISAAA.

The Science and Technology Daily article describes the expected approval as validating DBN's own intellectual property and allowing the company to compete with "multinational companies such as Bayer and Dow-Dupont" whose seeds dominate soybean production in Latin America. The main thrust of the article, however, seems to highlight foreign approvals of Chinese GMO crops to assure Chinese readers that scientists in foreign countries think these crops are safe. The article also hypes the "safety-type" approval by the U.S. FDA and EPA of a Chinese GMO pest-resistant rice strain "Hua Hui No. 1" developed by Central China Agricultural University. "FDA" appears five times in the article. One of the headings in the article is "Safety is not a problem." The article also says China was the first to develop a genetically modified fast-growing carp during the 1980s and notes that a GM disease-resistant type of tobacco grown widely in Henan Province was exported to the United States during the 1980s and '90s.

Science and Technology Daily also highlights an "embarrassing" situation in which Chinese farmers are not permitted to benefit from GMO crop varieties developed by Chinese companies; instead farmers in Argentina will benefit from growing the soybeans and export most of them to China, the article said. The soybean variety will have to go through a Chinese approval process before the soybeans can be imported to China.

No major genetically modified food crops have been approved for commercial production in China. Cotton is the only major GM crop commercially grown there. For years Chinese consumers have been blasted with propaganda about the dangers of American genetically modified soybeans--that they cause cancer and/or sterility--that Americans do not eat genetically modified foods themselves, and that imported GM soybeans are wiping out the Chinese soybean industry. "Genetically modified" and "American" were often used as near-synonyms in past years, but that rhetoric has now vanished from Chinese news media.

The Chinese leadership's 2016-2020 five-year plan for science and technology endorsed production of GM crops--including herbicide-tolerant soybeans--as a major project. Xi Jinping gave a personal endorsement of GM crops--insisting that China remain on the forefront of an important area of science while maintaining the "strictest" policy of testing and evaluating the crops. A scientist quoted by Science and Technology Daily refers to the five-year plan and describes GM crops as having social benefits by meeting consumer demand with greater efficiency.

Sunday, September 2, 2018

China Hog Farm Closures in Pockets of Resistance

China's 5-year program to clean up rivers by closing pig farms is reaching further into the hinterland where there has been resistance from farmers and tepid support from local officials. Starting in 2013, Chinese officials issued a series of edicts ordering local officials to designate zones where pig farms would be banned, limited, or encouraged, based on potential to pollute rivers, concentration of residential housing, and scenic spots. Environmental officials have reported closing or moving over 100,000 farms, but there have evidently been pockets of resistance.

Polluted canal in Yulin, Guangxi Province shown to demonstrate persisting poll

Officials appear to be making an example of Yulin, a city in Guangxi Province midway between the provincial capital Nanning and Guangzhou. On June 4, the central government's Ministry of Environmental Protection admonished Yulin officials for failing to carry out directives to ban livestock and poultry farms in zones near the Nanliu River and to build waste treatment facilities. Measurements taken in a section of the Nanliu River earlier this year found the level of ammonia nitrogen was up 141 percent from 2016 and the level of phosphorus was up 83 percent. Official news media posted disgusting photos of black water, decomposing pig carcasses, and trash piled along the banks of the river. Yulin City officials have now designated zones containing 10,832 swine farms which will have to be closed or moved.
Pig manure collection tank adjacent to an irrigation channel in Yulin.

A May 2018 Consumer Daily investigation in Qi County of northern Henan Province discovered black ponds for storing swine waste that contained bags with rotting pig carcasses of all sizes. The reporter called the waste a public heath threat and complained that no regulatory officials appeared during the two hours he/she spent at the site.
Bags containing dead pigs were floating in a manure collection pit in Henan Province.

Some other localities are reporting success. Dayu County in central Jiangxi Province reported demolishing and rebuilding two farms with over 1000 pigs each and outfitting them with methane gas digesters after a survey discovered they were not up to pollution control standards.
These open pig sties in Jiangxi Province are reportedly being replaced
Local officials are a target of the propaganda. Meizhou Daily in Guangdong Province emphasizes that Sanhe village instructed local communist party officials regarding the importance of pollution control and the necessity of transitioning from traditional farming to environmentally-sustainable farms. The article highlights a farmer who replaced his pig farm with fruit trees and free-range chickens.

There is some vigorous pushback from farmers. The Meizhou Daily article acknowledges that closing pig farms is difficult because they are an important source of income in the region's villages.

A more vigorous complaint about pig farm closures was posted on a pig industry web site. The author complained that local officials are obsessed with closing pig farms in his district while a nearby chemical plant spews black smoke into the air and unidentifiable yellow material appears in the river when it rains. He attributes the high rate of cancer and loss of teeth by people in their 40s and 50s to pollution from the chemical plant.
This cartoon illustrated the complaint about pig-farm closures. The butcher knife is labeled "livestock-raising ban," and the pig is tethered to a post that says "businessman."
The author said farmers had their fields expropriated with modest compensation which they invested in pig farms. Now the pig farms are being closed with little or no compensation. "What are farmers supposed to do?" the author asks. He accuses officials of going easy on the chemical factory because it is one of the top sources of local tax revenue. He says farmers are not educated enough and lack sophistication to push back against officials taking advantage of them.

The author lashed out at local officials: "You don't care about farmers. You don't care about smokestacks. You only care about stopping pig-farming."