Monday, December 31, 2018

Industry Parks to Turn Farms into Factories

Literally turning fields into factories is at the core of China's plan to cover the countryside with "Modern Agriculture Industry Parks" to jump from peasant-type subsistence farming to leading-edge high-tech agriculture. This adventurous great leap utilizes all the fashionable buzz words ("clusters," "incubators," "integration," "innovation," "smart," "green") and the latest engineering. It could turn out to be either a path-breaking approach to agriculture for the 21st century or another white elephant to add to China's herd of ghost cities and bridges to nowhere.
Guangdong Province plans to build 100 province-level
 "modern agriculture industry parks", including this ambitious design.
The first list of 20 "National-level Modern Agriculture Industry Parks" in a dozen provinces was released by the Ministries of Finance and Agriculture and Rural Affairs at a meeting of provincial agricultural officials in Beijing December 30. The industry parks are described as a new driver for agricultural and rural development. Using a "production + processing + sci-tech + brand" model, the parks are meant to integrate entire industry chains, promote science and technology, and market brand-name products. The parks will concentrate factors of production and companies at designated locations to take advantage of "clustering" synergies and serve as a platform for innovation and business creation. Parks containing processing plants and seed research facilities are to be surrounded by "production bases" of vast contiguous fields designed to feed the factories with raw materials. The parks are said to serve as a "vanguard in leading agricultural industrialization" and as a "new template for creating flourishing rural industry."
Zhejiang Province has built two agricultural industry parks near Ningbo.
The one in Cixi City was designated as one of the first 20 national-level parks.
The plan aims to use a "ladder-type" model of setting up national-level agricultural industry parks that will catalyze a cascade of provincial-, city-, and county-level parks. The parks are envisioned to take a year to get up and running, achieve results in two years, and develop a complete system of parks nationwide in five years. (There is no explanation of how this month's "first" list relates to the "first" list of 11 national-level modern agriculture industry parks announced in June 2017--all those parks are on this list--and a "second" list released in September 2017 which contains some on on this month's "first list"--and a completely different list of 21 parks released six months ago.)

China has been building futuristic agricultural facilities since the 1980s, and directives to begin the latest "agriculture industry park" program were included in the 2017 and 2018 No. 1 Documents. The Ministry of Agriculture and Rural Affairs issued a circular in May this year giving guidance to local authorities about the program to build agriculture industry parks and instructions to apply for the national list. Government support can be in the form of monetary awards, "financial services," land, personnel support, and electricity and water services, according to the circular.

Last year, Zhejiang Province said it began its modern agriculture park in Zhuji City in 2010 with cumulative investment by the local government of 2 billion yuan ($285 million). Zhejiang's Cixi park has a salt-tolerant rice production base, a 3600-hectare vegetable export base, a large dairy farm, and  grapes that have been awarded a "geographic indication." The Cixi park includes a 3-million-bird egg production project operated by Thailand's CP Group, said to be one of the largest egg farms in China. It claims to have a 5000-head dairy farm operated by 3 workers and 200 hectares of pasture.

Agriculture industry parks are based on a "factory concept" (工厂化理念) that combines scaled-up farming, "intelligent" production methods, and modern logistics. Descriptions of the parks feature diagrams showing the park's layout, photos of large fields and tractors, drones, giant greenhouses, automated processing facilities, paved roads, irrigation and power, "green" production (low-pesticide use, utilization of livestock waste for energy and organic fertilizer), and logistics facilities.

Earlier this year Guangdong Province announced its first batch of 15 provincial modern agriculture industry parks to create "internationally competitive" agriculture. The Guangdong parks receive 50 million yuan of construction aid for each one. Guangdong aims to have 100 parks by 2020.

Saturday, December 29, 2018

China Pork Offal Imports Down in 2018

China's pork imports through November 2018 were down from a year earlier, reflecting mainly lower offal imports from the United States. Imports of muscle cuts were down less than 1 percent, year-on-year, but imports of offal were down 21 percent. China's African swine fever epidemic has not affected its pork trade yet, but the industry is reportedly shedding production capacity due to disruptions of internal hog marketing and gloomy prospects for controlling the virus.

China's pork imports were likely impacted both by domestic market conditions (a plunge in domestic prices earlier in the year suppressed demand for imports) as well as the trade war. The United States supplies predominantly offal (organs, feet, snouts, etc), and the decline in offal shipments from the United States accounts for most of the decline in offal imports. Imports of muscle cuts from other sources did not offset the 68,495 metric-ton decline in imports of U.S. muscle cuts.

China pork imports, January-November
HS code Description
Metric tons
All imports:
0203 Pork 1,105,374 1,097,445 -7,929
020649 Pork offal 1,119,214 883,631 -235,583
From United States:
0203 Pork 152,536 84,041 -68,495
020649 Pork offal 369,446 172,685 -196,761

Pork imports (muscle and offal combined) peaked in March, then began falling as Chinese domestic prices declined and as China assessed successive 25-percent tariffs on U.S. pork in April and July. Imports of U.S. pork surged to over 60,000 mt in March, than shrank from 35,000 mt in April to 5,800 mt in November. Although they declined sharply, China never completely stopped imports of U.S. pork, despite 50-percent retaliatory tariffs.
In November 2018, the share of China's pork imported from the United States shrank to 3.6 percent as China imported from a number of other pork suppliers in Europe and the Americas. From April to November 2018 (when China's tariffs on U.S. pork were in place) China's largest pork suppliers were Spain (16 percent share), Germany (15 percent), and Canada (13 percent). The share of pork imported from the United States during those months (10 percent) was comparable to shares from Denmark (10 percent), the Netherlands (9 percent), and Brazil (8 percent). Other significant suppliers included France (6 percent), Ireland and Chile (3 percent each).

China's African swine fever (ASF) epidemic has not significantly impacted pork imports yet. Restrictions on transportation of swine and pork have created excess supplies and depressed prices in pork-producing provinces unable to ship animals or pork to other provinces. Prices are elevated in pork-deficit provinces. A commentary this week observed that hog prices are as low as 8 yuan/kg in surplus provinces and 20 yuan/kg in net-consuming provinces. The commentary observed that China is now in a protracted war against ASF and the war of low prices is just beginning.

The disease has now been confirmed in 23 of China's 31 provinces, and customs officials discovered ASF in two shipments of blood meal from slaughterhouses in Tianjin intended for export. In Guangdong Province, one of the previously disease-free deficit provinces, cases of ASF were confirmed this month at a slaughterhouse and two farms, causing "panic slaughter," tumbling prices, and restrictions on shipments within the province. Shortages were a concern in the city of Shenzhen which has no local pig supplies.

China's overall domestic pork supplies seem to be adequate at present, but supplies are expected to be tighter in 2019. notes that big companies and small farms both expanded production aggressively during the price-peak in 2016, but this year tumbling prices, disruption of cash flow and biosecurity requirements are pushing small-scale producers out of production, while remaining producers are cautious about adding capacity. Restrictions on inter-provincial shipments have hurt big companies specialized in breeding and propagation, but the Ministry of Agriculture loosened restrictions on shipments of piglets this week.

Wednesday, December 26, 2018

Brazil Supplied 91% of China's Soy Imports July-November

China relied even more heavily on Brazil for its soybeans during this year's trade war. China has not found new soybean suppliers to replace the United States.

China's customs data show that China obtained 75 percent of its soybean imports from Brazil during January-November 2018. The 61.7 million metric tons imported from Brazil during those months is up 12.7 mmt from the same period in 2017.

Brazil supplied 91 percent of China's soybean imports from July to November--the months when the 25-percent retaliatory tariff on U.S. soybeans was in effect.

China Soybean imports, January-November 2018
From: 2017
Million metric tons
Brazil 49.0 61.7 +12.7
United States 26.7 16.6 -10.1
Argentina 5.9 1.3 -4.7
Uruguay 2.4 1.0 -1.4
Canada 1.5 1.0 -0.5
Russia 0.4 0.7 0.3
Others 0.0 0.1 0.0
Total 86.0 82.3 -3.6

China's soybean imports from the United States totaled 16.6 mmt through November, down 10.1 mmt year-on-year. Imports from Argentina and Uruguay combined were just 2.3 mmt this year, down 6.1 mmt year-on-year. Imports from Canada were also down this year. Imports from Russia were up 300,000 metric tons, but most of those imports came in the first two months of the year, before the trade war started. China's soybean imports for the calendar year through November totaled 82.3 mmt, down 3.7 mmt from a year earlier.

China went from relying mainly on two suppliers of imported soybeans in 2017 to one supplier this year--Brazil. Imports of U.S. soybeans have been negligible since September, according to China's customs data.
China's monthly soybean imports from Brazil have been ahead of last year's in 9 of 11 months so far this year. Imports from the United States have fallen short of last year's totals in 8 of 11 months. China's shift away from U.S. soybeans began in January-March, before the trade war officially began.
Brazilian sellers did not use their monopoly to raise prices on Chinese buyers. The average cost of imported Brazilian soybeans (calculated from customs data) peaked at $447 per metric ton in June and July, then plunged to $428/mt in September--less than the value of U.S. shipments that arrived that month (which does not include tariffs). The average value of Brazilian imports rebounded to $427/mt in October and November.

Monday, December 24, 2018

Trade War Bites China's Ag Trade

China's November customs data show the trade war in agricultural products started biting both China and the United States last month. China's imports from the United States were down sharply from a year earlier, and Brazil's supply of farm product sales to China fell off the torrid pace set during the trade war's initial months.

During November 2018, the value of China's agricultural imports fell behind its year-earlier value for the first time this year. China's imports of agricultural products from the United States fell to $353 million. That total was $2.48 billion less than the value in November 2017.
Brazil was again, by far, the leading supplier of China's ag imports during November, supplying 18 percent of the $10.6 billion total. By comparison, the 27 European Union countries supplied half as much as Brazil--9 percent--and the United States supplied only 3-percent (down from 26 percent in January), a little less than shares supplied by Indonesia, Canada and Australia, and a little more than shares supplied by New Zealand, Vietnam and Thailand.

Trouble is, the $1.9-billion from Brazil during November was well below the $3-to-$4-billion-per-month pace sustained during May-October when Chinese buyers were hoovering up every Brazilian soybean they could find.

China imported 5.38 million metric tons of soybeans during November 2018--of which 5 mmt came from Brazil--but that was down from 6.9 mmt in October and the lowest monthly total in 2018. China's customs data show no soybean imports from the United States during November, normally the peak season for imports of U.S. beans. A year ago, China imported 8.68 mmt in November 2017, of which 4.6 mmt came from the United States.

China customarily cuts back on grain imports during the fall months when its own grain harvest is at its peak, but this year the reduction has been sharper than usual. The 2018 "number one document" set a priority on disposing of corn and rice stocks this year. Imports of corn and its substitutes from all countries have plummeted since May as authorities ramped up their auctions to offload corn reserves. Barley imports--mainly from Australia--remained relatively robust until November when they also plunged. An antidumping investigation will likely choke off those shipments.

China is importing substantial animal protein. China's meat imports remained relatively steady at over $900 million in November, while imports of fish and seafood exceeded $1 billion. Declining pork prices early in the year slowed pork imports. The 90,000-mt volume of pork imports during November was in line with monthly imports since June. Beef imports have ratcheted upward to more than 100,000 mt in November. Only 1 percent of China's meat imports came from the United States in November. The U.S. supplied 6 percent of China's fish and seafood imports, but that was down from 10 percent in October.
Share of China agricultural imports that came from U.S. 2018 (Percent)
Month All agri- cultural* Oilseeds (HS12) Grains (HS10) Meat (HS02) Fruit and Nuts (HS08) Cotton (HS52)
Jan 26 62 22 6 14 17
Feb 25 53 33 8 4 28
Mar 22 48 27 13 8 21
Apr 17 33 20 8 6 19
May 10 6 20 5 6 18
Jun 9 8 22 5 10 11
Jul 6 5 6 4 11 6
Aug 5 4 0.3 3 4 5
Sep 5 3 3 2 4 4
Oct 5 2 0.2 2 8 4
Nov 3 0.7 0.6 1 11 3
*Agricultural = HS codes 01 to 24, 41, and 52.

Saturday, December 15, 2018

2018 Grain Output Figures Announced

China's National Bureau of Statistics estimates of 2018 grain output released December 14 show a modest 0.6-percent decline from a year ago. Officials are ambivalent, on one hand explaining that the decline was engineered to correct excess supplies, while also expressing angst about the future course of production and potential threats to food security.

The 2018 output of 657.89 million metric tons is down 0.6 percent from 661.6 mmt in 2017. The grain statistics incorporate revisions made after the Bureau's third agricultural census that were incorporated in the 2018 China Statistical Yearbook released last month. (An estimate of 617.9 mmt for 2017 had been released earlier this year--prior to revisions). China's official definition of "grain" (traditional food crops, although corn and soybeans are now used primarily as animal feed) includes cereals, soybeans and other beans, and tubers Soybeans are included in the "bean" category; the soybean output figure shown below was calculated from area and yield figures provided in an accompanying article explaining the data.

2018 China Grain Production Statistics
Mil ha
Mil tons
All grains 117.037 657.89 5621
Cereals 99.685 610.19 6121
Rice 30.189 212.13 7027
Wheat 24.268 131.43 5416
Corn 42.129 257.33 6108
Beans  10.171 19.14 1882
:Soybeans 8.400 16.00 1905
Tubers 7.180 28.56 3978

The Bureau explained that crop-planting structure changed in response to orders issued by the communist party central committee and the State Council in the "No. 1 Document" issued in 2018. Planted area was reduced for rice and corn--"crops with relatively large inventories." Double-cropping of rice was reduced by 531,000 hectares in Hunan and Jiangxi Provinces, and Heilongjiang reduced rice area in its northern low-temperature belts. Nevertheless, figures indicate that corn output declined by only 1.6 million tons and rice output declined by 600,000 metric tons. Wheat output was down 1.7 million tons. Farmers were urged to expand soybean production this year, but the figures given suggest soybean output increased by only 700,000 metric tons. The Bureau cited five provinces that used subsidies and other measures to increase soybean production this year.

Changes in China grain output, 2017-18
Crop Change in area Change in yield Change in output
1000 ha Kg/ha Mil tons
Rice -558 109.5 -0.6
Wheat -24 -66.0 -1.7
Corn -269   0.0 -1.6
Bean crops  120 49.5  0.7 
:Soybeans  155 52.5  0.7

According to the Bureau, crop growing conditions were generally favorable, with no widespread "disasters," although a decline in wheat yield was attributed to "disasters" affecting summer grain. Fall grain crops had early spring and summer drought in some regions that were offset by favorable conditions in September, the Bureau said. Directives by Xi Jinping and the State Council were said to have prevented losses by stimulating effective flood-prevention and drought-mitigation work.

Bureau officials indicate that the reductions in grain output are an ongoing "structural adjustment" intended to correct problems of excess supply, and they assure readers that the country has ample inventories on hand after years of producing large amounts of grain. However, the Bureau follows this up with worries that "the base of grain production is not yet stable," remains vulnerable to weather, "the structure is not rational, returns are low, and problems have been fully solved." The Bureau concludes that this means China still has a ways to go to achieve food security.

Tuesday, December 11, 2018

China Soybean Farmers Unpaid

Some Chinese soybean farmers have not been getting paid for their crop, according to an article in China Business Reference News that was reposted on numerous sites last week. According to investigations in Heilongjiang Province, bankrupt crushing plants have failed to pay traders who, in turn, were unable to pay for soybeans they purchased from farmers. Farmers say they call the traders over and over to collect on their IOUs, but the traders claim to have no money to pay or they just disappear.

The article says quite a few soybean farmers have been unpaid during the last two years. In many cases, traders from other provinces like Hebei and Henan contact farmer cooperatives in Heilongjiang to buy soybeans. They promise payment in 2 or 3 days and transport the soybeans to a warehouse in a coastal location. There, the soybeans are used as collateral to obtain loans. When those loans fall into arears, traders are unable to pay farmers on time. One farmer said he had been promised payment in 2 or 3 days but has been waiting for over a year to be paid for last year's soybeans. Some farmers contacted police for help, but police said they are not responsible for economic disputes.

One trader who acknowledges owing farmers 2 million yuan (about $285,000) said China's soybean market is a buyers' market, and money from buyers in distant provinces doesn't always arrive. He said the payment delays are common in the industry, due to "triangular debt" and bankruptcy of processors.

In November, China's Grain and Commodity Reserves Administration issued a circular on fall grain work that prohibited issuing IOUs to farmers, downgrading grain, and other practices that would harm farmers' interests.

Tuesday, December 4, 2018

Price Cut Despite Poor Wheat Profits

Chinese authorities announced a reduction in next year's floor price for wheat, despite poor profits from this year's wheat production. Authorities face a challenge of reducing their intervention in the wheat market while guarding against farmers abandoning the crop.

On November 16, China's National Development and Reform Commission announced that the minimum price for the 2019 wheat crop would be set at 112 yuan/50kg (equal to 2240 yuan/mt or about $320/mt), down from 115 yuan/50kg (2300 yuan/mt) this year. This is the second year in a row the Commission has cut the wheat price by a relatively modest 3 yuan/50g (less than 3%) after holding the minimum price steady at 118 yuan from 2014 to 2017.

In a press conference, the Commission explained that the minimum price needs to be brought into line with market prices to eliminate big gaps between Chinese and foreign prices. The Commission explained that the minimum price will be restored to a floor under the market price--it will no longer be the prevailing market price. Purchases at the minimum price will be made only when the market price falls--the minimum price program will no longer be the main channel for marketing wheat. Authorities say they hope to coax farmers to produce the grades of wheat demanded by the market instead of producing maximum volume to sell to the government. Reductions in the minimum price are being made gradually to prevent disruption, and the price cuts are intended to break expectations of ever-rising prices that took hold when the price was raised every year from 2007 to 2014, the Commission said.

Farm production cost surveys in several major wheat-growing provinces indicate that returns for China's wheat growers took a plunge this year due to low yields, poor quality of the crop, and a rise in farm chemical prices. In Shandong Province, the wheat yield measured by the survey was down 7.9 percent and was the lowest since 2010. Shandong had a long, dry winter, late spring, and heavy rains and typhoons that reduced yield, caused lodging, poor quality, molds and rusts in parts of the province. Anhui Province was hit the hardest with weather problems, as average yield was down 24 percent, the lowest in five years. In Henan, problems were concentrated in the southern part of the province, and the province-wide average yield was down 3.2 percent. The Henan survey mentioned that "quality" strong gluten wheat varieties were especially susceptible to fungus and disease. In Hebei Province, the test weight was down by a full grade, on average.

Wheat yields and prices in Chinese provinces, 2018
Province Yield Change from 2017 Price Change from 2017
KG/mu Percent Yuan/mt Percent
Shandong 421 -7.9 2374 -2.7
Henan 417.5 -3.2 2240 -1.3
Anhui 338.2 -24.4 2040 -9.7
Source: Provincial production cost surveys.

Declines in wheat prices received mainly reflected poor quality of the crop. Prices for grade 3 and higher wheat were generally higher than the minimum price, so most localities did not launch the minimum-price purchase program. It was estimated last summer that just 2 mmt of wheat would be purchased at minimum prices this year. Large volumes in Anhui were sprouted or low-grade wheat that did not meet the standards of the minimum price program. The average price in Anhui was just 2040 yuan/mt, down 9.7 percent from last year. State granaries were ordered not to accept substandard wheat, especially wheat with vomitoxin--to preserve food safety.  Large volumes of the off-quality wheat was purchased for feed. High-quality wheat remains in short supply, and prices were about 10 percent higher than the price for common wheat. In Anhui, the Grain Bureau reported average prices of 1900-2200 yuan/mt versus 2400 yuan/mt for standard quality wheat. With lower prices and lower yields, wheat growers in the three surveyed provinces experienced lower gross income from wheat.

Wheat prices reported by the State Administration of Grain illustrate the divergence between low- and high-quality wheat. The low price slipped from 2040 yuan/mt in May to 1900 yuan/mt in July-September as large volumes of sub-standard wheat drove down prices at the low end. The highest prices reported went up over the course of the marketing season, reflecting the tight supply of the best quality wheat. The average price exceeded the minimum purchase price of 2300 yuan/mt.

China average wheat purchase prices, 2018
Date Low Average High
Yuan/metric ton
May 28 2040 2369 2760
June 25 2000 2337 2760
July 23 1900 2362 2752
Aug 27 1900 2379 2777
Sept 25 1900 2390 2784

Labor and land production costs for wheat have stopped their rapid increase. Surveys showed small increases or decreases of 1-to-2 percent in these items. In Anhui, the survey reported that farmers had cut back on their labor input because of low profitability from wheat. Some cut labor input by selling wheat immediately after harvest without drying the grain. Land rents are steady or falling, also due to weak profitability of wheat. The largest increase in cost was due to an increase in fertilizer prices.

The cash return for wheat farmers in Anhui Province was 228.5 yuan/mu, down 60 percent from last year. In Shandong the net cash return was 540 yuan/mu, down 20 percent. The net return in Henan was down 15 percent.

The National Development and Reform Commission assured farmers that the cut in the minimum price for wheat does not mean that market prices and returns will fall next year. The Commission promises to continue the quality grain project next year and experiment with pilot programs for insurance against cost increases and income fluctuations as a tool to stabilize farmers' income.