Saturday, June 22, 2019

China Wheat Price Support Policy Still in Play

China's wheat industry can't shake its dependence on government price supports. A good winter wheat harvest and weak demand are creating a supply glut, driving prices down. Officials say they want to marketize wheat procurement, but the price support program is once again the focal point of China's wheat market.

According to Grain and Oils Market News, the minimum-price wheat purchase policy "needs to give stronger guidance" and "enliven the market" by inducing more purchasers to enter the market. A Xinhua report said the influential role of intervention purchases on the wheat market "cannot be underestimated," and reported that experts expect the market to be enlivened after policy purchases of wheat begin. The Masses Daily assures farmers in Shandong Province that the price support will prevent prices from falling--despite excess wheat supply in the province.

With wheat prices falling, Chinese traders are cautiously buying the new crop only as needed, afraid of being caught with inventory that loses its value as the market becomes more glutted. After wheat from the new harvest came on the market this month, the price of old wheat from last year's harvest fell about 60-100 yuan/mt. Authorities hope that putting a floor under prices will encourage private traders to re-enter the market when they are assured the price will not continue dropping.

China wheat prices
June 2019 domestic prices Yuan/mt
Minimum purchase price 2240
Jiangsu Province 2100-2240
North of Huai River 2160-2200
Shandong Liucheng 2160-2300
Shandong Heze 2270
Purchase by flour mills 2240-2320
2018 wheat enter-mill 2340-2400
Average auction price 2330
April 2019 imports*
Canadian hard wheat 2254
Australian wheat 2087
Kazakh wheat 1720
Russian wheat 1759
*1% duty and 10% VAT added to unit values calculated from customs data

Market reports say Chinese wheat prices are under downward pressure following a rebound in wheat output and better quality of this year's crop. Adding to supply pressure, authorities offered 3 mmt of wheat from reserves for auction in each of the first three weeks of June (but with prices exceeding current market prices, less than 150,000 mt was actually sold).

The chief of Shandong Province's grain and commodity reserves bureau warned that a "seasonal decline" in the wheat price is possible. The Masses Daily described this year's summer grain procurement as "especially complicated" with several factors weakening demand for wheat:
  • summer is the low season for flour consumption
  • shrinking swine inventories due to African swine fever have depressed demand for feed ingredients such as wheat bran 
  • flour mills are having difficulty raising funds for working capital to buy wheat.
According to reforms of the program issued in 2018, local authorities can launch minimum price procurement after verifying that market prices have fallen below the minimum for three days in a row. Reports say the price for newly-harvested wheat in Shandong is hovering near the minimum price of 2240 yuan/mt.  In Shandong Province's Heze Prefecture, the price of common wheat is 2270 yuan/mt, down 5-to-25 yuan from early June. In Shandong's Liucheng the price is below the minimum price, at 2160-2300 yuan/mt.

North of the Huai River the price is 2160-2200 yuan/mt, and in Jiangsu Province the price is 2100-2240 yuan/mt. Anhui Province launched its price support purchase program June 5, and neighboring Jiangsu Province launched its program on June 12. Xinhua said under current market conditions, Hubei, Henan and southern Shandong could also launch minimum purchase programs soon. Xinhua estimated that 10 mmt of this year's wheat crop will be purchased by the minimum price program.

China's National Grain and Oils Information Center (CNGOIC) estimates China's 2019 winter wheat crop at 125 mmt, up 430,000 mt from last year. Total wheat output is estimated at 132 mmt.

The 2018 wheat crop quality was seriously degraded by heavy rains after harvest in Hubei, Anhui, and parts of Henan that caused lodging, mold and sprouting, but the 2019 crop is said to be good quality. Test weights are said to be 780-800 g/L, up 20 g/L from 2018. Large amounts of the 2018 crop could not be used for flour-milling. None of the 2018 wheat reserves offered for auction this month has sold. Some organizations estimated feed use of the 2018 wheat crop was 18 mmt, up 3 mmt. Industrial use was estimated at 12 mmt, up 2.5 mmt. CNGOIC estimates that those increases in feed and industrial use will be reversed in 2019.

A separate Xinhua report from Shandong assures farmers that the provincial branch of the Government's Agricultural Development Bank of China has 30 billion yuan (about $4.3 billion) set aside for purchase of this year's Shandong wheat crop, estimated at 18.75 mmt. According to Xinhua, Shandong has set up post-harvest service centers to clean, dry, store, process, and sell wheat on farmers' behalf. Following this spring's audit of grain reserves, Xinhua promised strict investigations of violations of national grain purchase policies.

The Shandong reserve bureau chief told The Masses Daily that his bureau will ensure the volume of grain held in reserves is "truthful," meets quality standards, and that farmers do not encounter difficulty in selling their grain. The bureau is on the lookout for potential threats to social stability and warns grain-buying officials who neglect their responsibilities that they will be severely punished for bad effects on society.

Despite the glut of wheat and massive reserves, China imported 1.15 mmt of wheat during the first four months of 2019. Seventy percent was from Canada and about a fourth came from Kazakhstan and France. Smaller amounts came from the United States, Australia, and Russia. The Canadian wheat cost an average of 2254 yuan/mt after adding the 1-percent in-quota duty and 10-percent VAT. That's slightly higher than the minimum price, but the quality is superior to most Chinese domestic wheat. On the other hand, Kazakh and Russian wheat had low prices indicating poor quality. Other sources reveal that the Kazakh wheat is used to manufacture feed.
China's tight control over the tariff rate quota system insulates the domestic market by channeling imports into government reserve warehouses or coastal provinces that are distant from production regions. China customs data say about 80 percent of the imports were made by companies registered in Beijing, most likely COFCO/Sinograin. Authorities may be replacing 1.8 mmt of old U.S. wheat imported in 2013 that was auctioned from reserves last year. Other significant importers were registered in coastal provinces Guangdong and Fujian and in Xinjiang which borders Kazakhstan. Major flour-milling provinces of Shandong, Henan, and Jiangsu imported only a few thousand tons apiece, and none was imported by companies in other major flour-milling provinces Anhui, Hebei, or Hubei.


Sunday, June 16, 2019

Fish vs. Pigs on Chinese Riverbanks

A Chinese fish farm's demand for compensation from a pig farm illustrates the competition for China's overburdened natural resource base and the power vested in courts by vague assignment of property rights.

The Changjiang Daily reported that a fish-farming company went to court to seek compensation for loss of fish they blamed on wastewater dumped in the river by an upstream swine breeding farm. After large numbers of the company's fish died during June-October 2018, the fish company and the swine farm both filed a request with the local fishery supervisory commission to investigate the cause and evaluate the losses.

The Ministry of Agriculture's Central-Upper Yangtze River Fishery Environmental Monitoring Center reported in December 2018 that the river's water quality suffered from serious ammonia-nitrogen, chemical oxygen demand, and eutrophication due to the long-term violation of regulations by the swine farm's discharge of wastewater. The initial court judgment ordered the breeding farm company to pay 2.32 million yuan to the fish company.

The swine farm appealed the judgment. The swine farm pointed out that the river had suffered from severe eutrophication since 2010 and that the fish company routinely lost fish every year. In most years the fish losses were small, and the two companies settled the losses through private mediation. In 2014, the managers of an "agricultural park" set up a formal mechanism for the swine farm to pay an annual 180,000-yuan "water adjustment fee" to fund compensation for the fish farm's losses. The unusually large loss during 2018 prompted the fish company to file the legal complaint.

The court's investigation found that the fish company had collected funds from the "water adjustment fee" as compensation in previous years, had never filed a complaint until 2018, and had not regularly monitored water quality. The appeal judgment issued this month determined that the swine farm was at fault for the 2018 fish kill, but found that the fish company was responsible for bearing 20 percent of the loss. The appellate judge slashed the fish farm's compensation to 1.86 million yuan.

China's farm families once used animal manure and canal mud to fertilize fields, fed pigs food scraps and mash from liquor distilleries, burned crop stalks in their stoves, and only ate meat on special occasions. Today, all these activities are uncoupled, and by-products that were once valued resources have become wastes. Soaring agricultural production in an increasingly-stressed ecosystem means not only that water and land are degraded, but different agricultural activities often impinge on one another. The communist system has long been obsessed with maximizing production statistics without regard for broader social impacts or sacrifice of future productivity.

Pigs have been a growing problem that has mostly gotten lip service since the 1990s. The idea of banning pig farms in environmentally sensitive areas, residential areas, and near roads was first included in a 2006 livestock law. It was never widely implemented until 2014 when China's State Council and Ministries of Environmental Protection and Agriculture introduced a series of laws, regulations and action plans to close pig farms in zones near bodies of water and residential areas. The Yangtze River region where this pig farm is located was one of the regions specifically targeted by these plans to control pig-manure pollution. News media featured triumphant images of pig farms being destroyed to save the environment, yet this farm was allowed to continue operating and dump effluent into a river that was already known to be polluted. The farm's name was not revealed, but it is likely a breeding farm under the provincial government's purview that is subsidized and too important to be closed or moved.

In 2014--when officials were ramping up the campaign to close polluting pig farms--a mechanism was set up to allow this farm to pay the fish farm for its pollution. The damage to the fish farm is surely only a fraction of the full social cost of the pig farm's pollution. Individual fishermen and people who use the water for drinking or other activities like food manufacturing did not receive compensation.

Will regulation of pig manure lighten up now that China likely faces a shortage of pork and needs to rebuild pork production capacity?

Wednesday, June 12, 2019

Differing ASF Impacts in Guangdong and Sichuan

Teams of Chinese futures analysts found that Guangdong Province has suffered much more severe declines in swine numbers than has Sichuan Province. While the latest national estimates say China's May 2019 swine inventory is down 23 percent from a year earlier, the surveys find African swine fever (ASF) is moving at a different pace in various regions. Family-based pig farms are being closed down, some farms are switching to poultry production, big companies with good biosecurity are maneuvering to expand swine output later in the year, cheap soybean meal is crowding out other proteins, and use of domestic wheat bran and rapeseed in feed has shrunk.

Teams of Chinese futures market analysts visited farming, feed, and meat companies in Guangdong and Sichuan Provinces during May 2019. These are key pork-producing and consuming provinces. Official statistics say Sichuan slaughtered 65.8 million hogs in 2017 and Guangdong slaughtered 37.1 million. Guangdong is the second-largest feed-producing province.


According to the Guangdong survey report, serious outbreaks of ASF began in Guangdong during the February 2019 spring festival and prompted panic slaughter. According to the report, the severity of the epidemic there peaked in March and remained severe during April and May. Guangdong's decline in March swine inventory is estimated at 40 percent from a year earlier, double the national decline. The reduction was most prominent in Guangdong's western districts of Maoming, Yangxiang, and Zhenjiang. Shaoguan--in northern Guangdong--had a decline of only 10 percent.

The Sichuan survey reported that ASF had less impact there, attributed to Sichuan's relatively remote location, mountainous terrain, and small scattered farms. The report says that environmental regulations have pushed pig farms out of the Sichuan river basins into mountainous areas. There were serious outbreaks reported in Yibin and Zigong prefectures, but they did not spread widely. When an ASF outbreak occurs in Sichuan's hills and hollows, the radius of culling to contain the disease encompasses fewer farms than in plains and heavily-traveled regions further east, the report said. The report also credited strict biosecurity measures taken by large companies in Sichuan. The year-on-year decline in Sichuan's swine inventory is estimated at 10 percent, half the national rate.

The survey reports indicate that both Sichuan and Guangdong have large numbers of small, family-operated pig farms. The reports say large companies hope to take advantage of the ASF crisis to expand. The Sichuan report notes that the province's officially-reported outbreaks were among small-scale farms and no large-scale farms reported ASF problems. In Sichuan, backyard farmers reportedly had a 30-percent decline in swine inventories while large farms had little change.

In contrast, small farmers in Guangdong are concentrated in the western districts of the province. In Maoming, the decline in pig inventories was reported to be 50%, and sales of pig feed were said to be down 70% there. In western Guangdong, villages are overwhelmed once the disease hits one farm. The report emphasized that losses were especially heavy in Yangchun district, known as Guangdong's main supplier of piglets. Sows are said to be especially vulnerable to ASF, and their numbers may have declined by as much as 60 percent in Yangchun, where carcasses reportedly lined the roadside. Heavy rain in April may have contributed to spread of the virus.

In Guangdong, many of the family farms have started raising chickens and ducks after clearing out their pigs. Aquaculture production in Guangdong can ramp up quickly, but its expansion this summer depends on weather conditions and prices. In Sichuan, small farms are also reported to have taken up poultry production. The increase in poultry feed sales is offsetting declines in pig feed to some extent.

The two provinces show how China is gradually becoming a pork-deficit nation. Guangdong is one of the clear pork-deficit regions. Its Pearl River Delta is highly urbanized and is now set to become part of an advanced "Greater Bay" metropolis extending into Hong Kong--dirty pig farms will not be welcome there. (Dongguan City was the first locality to limit pig farms a decade ago.) A separate article last month estimated that Guangdong produces only about 60 percent of the 55 million hogs needed to support annual consumption. Worried about dual impacts of ASF and farm demolitions (to comply with environmental plans), Guangdong officials say they set up 133 pork production bases that are ordered to prioritize supplies for Guangzhou to avert shortages.

Sichuan is the second-largest hog producer, but it is also the top consumer of pork. One large feed company in Chengdu estimated that Sichuan produces 45-to-55 million hogs annually (official statistics say 65.8 million). "Legal" imports of 9 million hogs and "illegal" imports estimated at 12-15 million fill the deficit. Sichuan has some of the highest hog prices in China, but the report claims that an influx of hogs from other provinces has prevented prices from rising higher. There is some concern that hogs from Yunnan and Guizhou Provinces could bring more ASF into Sichuan.

The Guangdong report said the widespread sell-off of pigs is the reason why prices have not risen. The Guangdong report says panic slaughter of hogs has filled pork storage facilities to capacity. The Sichuan report says pork inventories are not as large there. A Sichuan slaughterhouse is holding 600-to-700 metric tons of pork in inventory, but it has 12,000 tons of storage capacity. The company says it will consider stocking up on frozen pork if the price falls below 12 yuan per kg. Its main customers for frozen pork are food processing plants. Five thousand tons of its storage capacity is for holding state reserves. There is concern that frozen pork inventories could contain the ASF virus. A Sichuan manager said testing of pork inventories ordered by the government has not started yet. Some people say 90 percent of the pork held in inventory is infected, but the slaughterhouse manager doubts it is that prevalent. Infected pork will have to be destroyed, the manager said, since there is nothing else to do with it.

The Sichuan report contains a mix of pessimistic expectations about future ASF outbreaks and maneuvering by large companies to expand output. Sichuan is described as a "battleground" for several national companies and a handful of local companies fighting for market share. At a meeting of 12 companies accounting for 11 percent of the province's output, they set a goal of expanding their share to 15 percent this year (collusion among companies is not considered an antitrust problem in China). A feed company in Meishan said small farmers are adding sows. Expansion of frozen semen companies has promoted artificial insemination and raised productivity in Sichuan.

Saturday, June 1, 2019

Fake Pig Vaccine Case in China

Last week police in China's Zhejiang Province announced their arrest of a gang selling pig vaccines made of colored water. The fake pig vaccine case shows that braggadocio about progress in developing a new vaccine for African swine fever and use of artificial intelligence technology in pig-farming masks dysfunction at the grass roots level.

Local police in Jiaxing City (also the source of 10,000 dead pigs that floated into Shanghai in 2013) said the 14-person gang manufactured fake animal vaccines at workshops in Henan Province. The vaccines were little more than colored water with no efficacy in preventing disease, authorities said. False labels were affixed to vaccines that were marketed to customers all over China using internet and social media. Customers were mainly pet shops and veterinary stations, police said. A raid of the facilities in Henan reportedly discovered 58,000 bottles with labels from 16 companies and 270 kinds of vaccine as well as many more empty bottles, labels, instructions, cell phones, and sales books.

Police say a person named Zhou bought 100 bottles of foot-and-mouth disease vaccine in September-October 2017 and then sold the vaccines to a swine-producing cooperative. The farmers' pigs died, causing losses reported at RMB 500,000. The company whose name was on the vaccine label claimed the vaccines were fakes. Police formed a task force and somehow uncovered the gang in Henan.

Some observations:
  • This fake vaccine producer apparently continued to operate despite annual Ministry of Agriculture action plans to crack down on fake vaccines since at least 2015.
  • Subsidized (mandatory) vaccines for foot and mouth disease are no. 33 in a list of 37 agricultural support policies released by the Ministry of Agriculture and Rural Affairs this week--a policy that was initiated 12 years ago to address severe disease problems. There is supposed to be a system of approved manufacturers and distribution through government-run veterinary stations to supply foot-and-mouth vaccines to farmers. Yet farmers apparently still buy vaccines through acquaintances and cheap online vendors.
  • The death of unvaccinated pigs suggests that foot-and-mouth disease is endemic. Chinese authorities control diseases with vaccines but they do not eradicate them.
  • China has never had significant formal education to train professional practicing veterinarians. The shortage of veterinarians in China has been estimated at 1 million. A propaganda article last month discussing measures being taken to shore up surveillance of African swine fever in Shandong Province includes resolve to address the shortage of official veterinarians. Today, veterinarians can make more money treating dogs and cats in cities.
Security Times recently quoted a Chinese pork industry investment analyst who said, "Although the country already has technology to detect African swine fever, the market doesn’t give it much credibility. [In my area] there are cost and reliability factors."


Friday, May 24, 2019

Gangster Pork Monopolies in China

Gangster monopolies of local pork markets are common money-makers for China's criminal syndicates in third- and fourth-tier cities, according to news media coverage of the Chinese government's crackdown on "evil black societies" or triads this month.

In Jiangxi Province's Ganzhou City, "meat lords" force pork traders to take their hogs to "designated slaughterhouses" under that gang's control, where they collect arbitrary fees. Thugs equipped with steel pipes and machetes act as an "underground enforcement team" to punish anyone who failed to use the monopolized facility.

In Hubei Province's E'zhou City, authorities say a letter from an angry meat trader alerted them to a "meat tyrant's" monopolization of the city's pork market via control of a slaughterhouse where traders were charged 185 yuan to dispose of animal waste plus a fee for slaughtering without issuing any receipts or explanation of the fees. The two heads of the gang reportedly earned 10,000 yuan per day from the 200 hogs slaughtered daily. Authorities claim a list of traders and contact numbers persuaded them of the letter's authenticity and launched a crackdown based on accusations in the letter.
Gangsters accused of monopolizing pork market in Hubei Province, Weining City, October 2018

In neighboring Guangdong Province, authorities announced uncovering numerous "village tyrants" who are accused of monopolizing pork and vegetable markets, engaging in illegal mining, forced trading, extortion, running casinos, illegal detentions, and "seeking trouble." Gangs based on family or clan ties manipulate elections for village chief and secretary of the communist party branch to gain control of village land which they use illegally. In one village, a gang monopolized markets for pork, pig feed, noodles, beer and other commodities. The price of pork reportedly went down 1 yuan per 500g after the gang was broken up.

Gangs also reportedly controlled the pork market in Rizhao, a port city in Shandong Province. About 60 pork vendors were forced to sell in one of four markets controlled by the gang. If they tried to sell elsewhere, they would be beaten and have their meat seized. One shopper said he took a 20-minute bus ride each day to a neighboring town's market every day to buy cheaper pork. The pork price in Rizhao reportedly fell by a third after the gang's monopoly was broken.

In Leting county in Hebei Province, Mr. Yu said three men claiming to represent the local market regulatory bureau barged into his shop demanding to know why he didn't sell pork from a particular slaughterhouse. He said he was beaten after explaining that he didn't buy the company's meat due to its high price. A county official said underground "enforcement teams" beat truck drivers, destroy trucks carrying meat from other regions, block the warehouse gates of competitors, and beat pig farmers in their fields.

These are quite similar to reports of gangster pork monopoly crackdowns compiled on this blog eight years ago. This month's articles use similar key words ("meat tyrants," "enforcement teams"), report on reductions of pork prices after crackdowns, and claim the public is "applauding." A common component of this month's reports is accusations that local authorities provide an "umbrella of protection" for gangsters.

There have been reports of crackdowns and arrests of gangsters in Ganzhou over the last few years. A 9-year-old social media post insisted that news media would never report the full story. Claiming to be a pork trader himself, the writer said,

"I was threatened [for bringing pork from elsewhere], but I'm not afraid of these people. Wearing a bullet-proof vest and carrying a mace, I'm as vicious as these [tough guys]. We can die together." 


One commenter accused the original poster of himself being a "black society member." Another commented, "Society is getting darker and darker. Why don't police take care of this?"

Sunday, May 19, 2019

Shandong Feed: Hog-to-Poultry Shift

Statistics from China's largest feed-producing province show steep decline in swine feed output this year as impacts of African swine fever took hold, but gains in poultry feed offset the decline.

Shandong Province January-April feed production statistics show a 27.5-percent in swine feed output from a year earlier, but poultry feed production was up 8.6 percent, leaving overall output in the province unchanged from year-earlier levels. The data seem to confirm sharp declines in swine numbers due to African swine fever, but they also indicate that expansion of the poultry sector is muting the impact on feed production. (The report did not reveal statistics on feed for egg-laying poultry, aquaculture, or ruminants). Shandong was China's top feed producer during 2018 and accounts for about 10 percent of China's swine feed and more than a third of poultry feed output, according to a January report on last year's feed output.

Shandong Province manufactured feed output, January-April 2019
Type of feed
Output 
(1000 metric tons)
Change from a year earlier (percent)
Formulated feed 10,455 0.31
Concentrate 306 -23.1
Additives/premix 232 7.9
Meat poultry 3,927 8.6
Swine feed 2,180 -27.5
 Nursery/starter pigs 476 -46.0
 Sows 272 -39.0
 Finishing hogs 1,317 -16.6

Feed for sows and young pigs had the steepest declines from a year earlier: -39 percent for sow feed and -46 percent for nursery and starter pig feed. Feed for grower-finisher pigs was down 16.6 percent. However, the report also claims that April production of feed for nursery/starter pigs was up 4 percent from March, which the author interpreted as a sign that restocking of farms has begun while the number of finishing pigs continues to fall.

These year-on-year changes follow blistering 21.4-percent growth in Shandong feed output during 2018, according to the January report on last year's output. During 2018, poultry feed output grew 33.6 percent and swine feed output grew 11.2 percent. The report attributed the province's swine feed growth to high prices after outbreaks of African swine fever and claimed that Shandong had not had any reports of the virus (the first Shandong outbreak was reported in February 2019). The report also cited aggressive expansion in the province by companies such as New Hope-Liuhe, Muyuan, and Wens Group (which promote use of commercial feed supplied by the companies). The January report attributed 2018 growth in poultry feed output to a shift in meat consumption from pork to poultry and other meats as a shift due to aging of the population is accelerated by rapid spread of African swine fever.

Shandong Province 2018 annual manufactured feed output
Type of feed
Output (1000 metric tons)
Change from a year earlier (percent)
Total feed 35,670 21.4
Formula 33,770 23.6
Concentrate 1,180 -4.5
Premix 720 -12.6
Pig feed 9,100 11.2
Poultry feed 21,800 33.6


Saturday, May 18, 2019

High-Rise Pig Farms: China's Future?

Chinese high-tech companies' experimentation with factory-style approaches to pig-farming are getting an extra boost as China grapples with African swine fever, a deadly virus that is roiling the country's massive pork industry. Feed company New Hope Group has a plan to increase its swine production ten-fold in four years, and competitor DBN plans to boost production to 10 million head by 2021--up from 1.68 million head in 2018. Alibaba and Netease are incorporating digital technology into pig farming.

One company has gained attention for its complex of high-rise "pig hotels" deep in the mountains of Guangxi Province that have attracted dozens of foreign journalists, industry experts and politicians since they were constructed in 2017. The company's latest publicity scheme invited a group of scientists from Chinese research institutes and universities to conduct a "scientific assessment" of their high-rise high-tech pig complex this month.
Pig farm with four high-rise barns for pigs nestled 
in the mountains of China's Guangxi Province.
According to an online article entitled, "The Future Pig Farm Has Arrived!" Yangxiang Ltd Co. constructed their pig farm complex in the mountains 150 km east of the Guangxi Provincial capital on a site located in 2,667 hectares designated for forest use with no other farms for miles around. The farm is designed to form a closed channel from materials to farm to consumer.  It has separate access roads designated for pigs entering and exiting the farm, for people, materials, and waste, a separate living area for workers, and three feed mills. Two 11-story buildings and two 9-story buildings house up to 30,000 sows, great-grandparent and grandparent breeding stock. Two floors in each building are used for ventilation and manure-handling equipment. Each floor is a separate enclosed unit accessed by elevators. The buildings are designed as a collection of enclosed barns stacked on top of one another with minimal movement of air, people, or pigs between floors. The facility is enclosed to minimize disease transmission by rats, mosquitoes, and birds.
Diagram illustrates one-way flow of materials into 3 small feed mills, 4 digitized barns, slaughter, and supermarket. 
Apart from its high-rise buildings the company touts the efficiency of its use of artificial intelligence and its FPF (Future Pig Farm/Factory) system developed by partner company Yingzi (Shadow) Technology. FPF utilizes facial recognition and handheld devices to track pigs, adjust feed and environmental conditions and correlate performance with genetic make-up of animals. Pig Progress magazine described a presentation of FPF by Yingzi's CEO last year who acknowledged developers are still tackling problems such as pigs' reluctance to sit still to pose for photos to be fed into the system.

Yangxiang Co. also claims that its high-rise pig farm has "social benefits" by treating urine and manure with an anhydrous system that eliminates smell and turns the waste into organic fertilizer.
Yangxiang also has a multi-story boar farm in Liaoning Province, thousands of miles from its Guangxi farm complex.
The "assessment" by the scientist group included vague endorsements of the company's "strong independent innovation" and practical use of FPF technology. The high-rise cluster concept was praised for overcoming China's shortage of land, addressing its "arduous" disease prevention challenges, and introducing "green," "intelligent" methods to boost the country's pork industry. There was no mention of how much the scientists were paid to deliver this assessment.

The company claims to have achieved a 92.7 percent survival rate for its swine, 28.8 pigs per sow, and a production cost of 10.62 yuan per kg (about US$70/100lbs). Recent analyses published in the New York Times and in Slate magazine questioned China's infatuation with artificial intelligence as a panacea for agriculture and raised questions about the feasibility of these technologies on pig farms. An industry expert noted that benefits of facial recognition are marginal while the cost of photographing pigs far exceeds the cost of ear tags currently used and facial recognition does not aid in tracking pieces of the pigs beyond the slaughterhouse. The cost of trucking massive amounts of feed materials to mountaintop farms, trucking out the pigs/pork, and attracting workers willing to be confined inside a remote compound for weeks at a time has not been discussed. A video of the farm shows three human workers are needed to herd a dozen piglets down a corridor and into an elevator.

The description of the Yangxiang high-rise farm insists that China must adopt innovative pig-farming models equal to those in Europe and North America. It notes that African swine fever has dealt the industry a blow that leaves it "unrecognizable." Factory-style models uncoupled from traditional village-based agriculture appear to pose an antithesis to the thesis of small-scale backyard farms that still dominate China's pig-farming sector. The upheaval of African swine fever appears to be a catalyst that may bring forth some type of synthesis, but the process may get messy. Industry and government leaders have too many objectives to be achieved simultaneously: achieving biosecurity, treating and utilizing waste, raising productivity, reducing costs, and...avoiding reliance on imports of genetic stock and feeds. Chinese leaders seem to place their hope in technology as a magical panacea.

The Yangxiang assessment described the beginning of its high-rise farming project in 2013 as "the first step in a Long March." During the 1930s-era "Long March" communist rebels fled populated regions of southeast China and spent years winding through rugged terrain of remote regions in western China, randomly ending up sojourning in an impoverished northwestern region where they bided their time. That may be a good metaphor for the country's 21st-century pork industry.

Saturday, May 11, 2019

China Exports Rice Glut to Africa

China's dissonant rice policy has prioritized maintaining domestic production at its current level while pondering how to dispose of massive reserves of old rice, much of it not even be fit for human consumption. One outcome appears to be China's sudden re-emergence as a rice exporter as it jettisons rice stocks in Africa. The Chinese government's top grain market analysis group has projected that China will flip from top importer to net exporter of rice in 2019/20.

China's rice and wheat were designated as "crops that must be protected" (必保品种) in the communist party's  "Document Number one" issued early in 2019, and "absolute security in food grains" has been a recurring buzz word in official speeches this year. Shortly after the document was released, officials announced that the minimum purchase price for rice would be held steady this year after two years of reductions and much rhetoric last year about "marketizing" grain policy. In addition, rice growers are promised generous subsidies. Yet authorities are also prioritizing disposal of "huge" stockpiles of rice and targeting marginal areas for cut-backs in rice-growing.

An article this month posted on many web sites (implying backing by propaganda officials) advised rice farmers that China has many subsidies to support them and advised farmers to seek out subsidies available in their area. Subsidies include:
  1. The minimum purchase price for rice set at early indica rice 2400 yuan/mt, middle-late indica rice 2560 yuan/mt, japonica rice 2600 yuan/mt. 
  2. Rice growers can also receive a direct payment based on the amount of rice they plant. The amount and mechanism is set by local authorities using funds issued to provinces by the central government. The subsidy was reported to be 250 yuan per mu (about $560 per hectare) in 2018. 
  3. A subsidy for large-scale farmers ("large" threshold generally is 50 mu or 3.3 hectares) is set by local governments. This subsidy varies from 40 to 100 yuan per mu. 
  4. Subsidized insurance against disasters--farmers pay no more than 20% of the premiums.
  5. Subsidized insurance for rice seed producers.
  6. A subsidy for leaving rice land fallow (on land contaminated with heavy metal or with shrinking aquifers) or rotating rice with corn, soybeans, rapeseed. Heilongjiang Province's subsidy is 500 yuan per mu. Pilot regions cover 2 million hectares.
  7. A transfer payment of 5 to 80 million yuan is made to local governments of major grain-producing counties to bolster their finances. In addition, five "super grain producing counties" are chosen in each of 13 major grain-producing provinces--based on production and marketing statistics-- to get additional payments earmarked for supporting the grain industry.
  8. Heilongjiang has a new pilot program for "intelligent rice-soaking" equipment to promote germination of seeds. The subsidy is 1 yuan/kg or 4 yuan/mu.
This list doesn't mention a program to subsidize construction of "high standard" fields, machinery purchase subsidies, soil fertility testing, a support and protection payment, loan guarantees for farmers, subsidies and tax waivers for farmer cooperatives, or subsidized rehabilitation of polluted farmland.

Officialdom's concern about maintaining rice production seems to clash with dour reports on China's rice market. One such report that appeared in November after last fall's harvest bemoaned weak prices, difficulty selling rice, and financial losses by large-scale rice growers.

A March 2019 article in Chinese official news media estimated that China has a "huge" inventory of "policy-type" rice of 140 mmt after several years of production exceeding 210 mmt. Since 2013, the State has purchased 30 mmt or more of rice each year but sold off only a cumulative total of 40 mmt, and the article estimated that the stocks-to-use ratio is now 70%. Rice can generally be held only 2-to-3 years before it becomes discolored, loses its taste and becomes vulnerable to mold and sprouting, the article said, and warned that illegal sales of aging grain is a threat to food safety. According to Chinese Academy of Social Sciences Professor Li Guoxiang, “Most aging rice is auctioned to trading and feed enterprises, and use of the grain is difficult to supervise, posing a food safety hazard.” A proposal to use rice stocks to make fuel ethanol offered during China's National Peoples Congress session in March said much of the stockpile is unfit for human or animal consumption due to mycotoxins and heavy metals.

A massive audit of grain stocks currently underway will quantify “problem rice.” A January 17-18, 2019 meeting of grain and commodity reserve workers said this year’s priority will be disposal of “irrational” reserves. Several new methods for auctioning rice reserves have been introduced, but sales during 2018 were down 1.7 mmt from the previous year.
Inside a rice warehouse in China
An April commentary in China Grain and Oils News, worried that upcoming auctions of rice from reserves could put downward pressure on an already-weak rice market in China. Heilongjiang Province holds the largest volume of stockpiled rice in government reserves, mostly rice produced during 2015-17 (it claims most of the older rice has already been sold). Rice mills in the province, meanwhile, have very little rice on hand and are waiting for auctions of reserves to begin so they can gain access to raw material. Auctions have been delayed by the national audit of grain reserves. It is rumored that low opening prices will be set for the Heilongjiang rice auctions of 2-to-2.2 yuan/kg for rice produced in 2014-15; 2.30 yuan/kg for 2016 rice; and 2.40 yuan/kg for 2017 rice. These prices are 30% below the minimum purchase price of 3.10 yuan/kg in 2014-16 and 20% below the 2017 purchase price of 3 yuan/kg. The article advises rice millers to be cautious in buying rice from government reserves because there is risk that the auctions could depress prices due to low demand for rice and a decline in the price of flour--a substitute for rice.

China's National Grain and Oils Information Center's (CNGOIC) first estimates of rice supply and demand for the 2019/20 market year indicate that China's rice supply will again exceed consumption by 16 million metric tons, which implies another increase in the stockpile (the Center does not publish estimates of grain stocks). CNGOIC expects a decline in 2019 output of 5.46 mmt due to a modest reduction in area planted. Small increases in consumption of rice for feed and industrial use will be partially offset by a 200,000-mt decline in food use. The most notable change is a forecast of 4 mmt in rice exports and a decline in rice imports to 3.5 mmt which would make China a net exporter of rice following a number of years as the world's top importer. (Most of CNGOIC's balance sheet is in rough rice values, but imports and exports reported in customs data are almost entirely milled, and CNGOIC appears to make no adjustment to make these values consistent with the rest of the balance sheet.)

USDA's PS&D also anticipates an increase in China's rice exports to 3 mmt during 2019/20, but USDA expects China to remain a net importer with imports of 4 mmt. USDA expects China to remain the largest importer of rice during 2019/20 while China also will be the 6th-leading exporter. USDA estimates suggest China's 3-mmt of rice exports will have increased more than ten-fold from 271,000 mt during 2015/16.

Top 10 rice importing and exporting countries, 2019/20
(Thousand metric tons)
Rice importers: Imports Rice exporters: Exports
China 4,000 India 12,500
Philippines 2,700 Thailand 10,000
Nigeria 2,400 Vietnam 6,500
European Union 2,000 Pakistan 4,000
Cote d'Ivoire 1,600 United States 3,207
Saudi Arabia 1,350 China 3,000
Iraq 1,300 Burma 2,800
Senegal 1,250 Cambodia 1,300
Iran 1,200 Uruguay 775
South Africa 1,050 Paraguay 600
Source: USDA Production, Distribution, and Supply data.

During January-March 2019, China was still a net importer of rice, but exports were up 42% from a year earlier and imports were down 25%. Thailand is China's largest rice supplier after imports from Vietnam fell 90% y-o-y. The precipitous decline in rice from its leading supplier of imports until last year is apparently due to strict Chinese inspection requirements as China's phytosanitary concerns about imports once again arise at the same time its domestic market is facing a glut. Meanwhile, China's rice imports from Pakistan doubled.

While China's rice exports were up 42% by volume from a year earlier, their value was up only 4%. Sales of cheap medium grain rice to Egypt ($280/mt) led the growth while exports of pricey medium grain ($780/mt) to South Korea dropped 50%. Turkey and Papua New Guinea were the other top destinations for China's medium grain rice.
Source: China Customs website, based on dollar value.

China's top destinations for long grain rice exports were Cote d'Ivoire, Cameroon, and Guinea, also at bargain prices of about $280-$300/mt.
Source: China Customs website, based on dollar value.
China's rice exports have a "Belt and Road" flavor. China exported medium grain rice to 41 destinations and long grain to 29 destinations during Q1 2019. These include predominantly countries in Africa, Pacific islands and eastern Europe and could be a reflection of China's efforts to build trade relations with such countries and/or to feed Chinese staff and workers posted in those places to carry out "Belt and Road" construction and aid projects. China exported $15 million worth of rice seed to Pakistan, probably for a foreign aid project, and smaller amounts of seed to several other Asian countries plus Sierra Leone and Uganda. China exported some very expensive brown rice to the United States.

However, China's large rice shipments to Egypt and Cote d'Ivoire at bargain prices surely reflect sales of excess reserves as part of China's rice de-stocking process. The $280/mt unit value of the exports to these countries works out to be RMB 1900/mt--less than the opening prices of RMB 2100/mt at China's auctions of rice reserves and far below market prices in China. Medium grain rice reserves would have been purchased at farm-gate prices of RMB 3100/mt during 2014-16 and  RMB 2600/mt during 2017-18. These prices for un-milled rice also exceed the apparent prices received for exports this year.

The quantum leap in China's rice exports to 4 mmt for 2019/20 projected by CNGOIC also surely reflects aspirations to dump part of China's stockpile overseas in a way that prevents further downward pressure on prices in China. This comes at the same time India is also subsidizing rice exports purchased by its own price support program. Developing countries appear to be replaying agricultural policy history of the mid-20th century when North America and Europe did precisely the same thing.

Tuesday, April 30, 2019

China Touts Ag Cooperation with Belt-Road Countries

China's investment in foreign agricultural projects is booming, according to statistics peddled by Chinese agricultural officials during last weekend's "Belt and Road" summit held in Beijing.

China Central TV reported that China has 850 foreign agricultural-related projects in commodities such as rice, corn, soybeans, natural rubber, palm oil, cotton and livestock that reflect "deepening cooperation" with "Belt and Road" countries. According to Ma Hongtao, director of the Ministry of Agriculture and Rural Affairs Foreign Cooperation Office, China has 657 agricultural projects in Belt and Road countries valued at $9.4 billion, up 70 percent from five years earlier. 89 percent of investments are carried out by private entities, the official said.

Ms. Ma explained that investments had evolved from an early focus on crop production to a broader collection of processing, transportation, storage, and ambitions to pull along industry development  and create employment in the target countries. She said over 400 "senior agricultural experts" had been dispatched to developing countries for training and demonstration since 2014.

Official Chinese statistics show that agriculture, forestry, and fishing investment abroad has been slowing. Annual outbound investment flows rose rapidly from $500 million in 2010 to a peak of $3.3 billion in 2016. In 2017 outbound ag investment slowed to $2.2 billion and it slowed again to $1.8 billion in 2018. This reflects a general slowdown in outbound investment as authorities put the clamps on outflows of cash. These statistics don't include major investments in processing such as the purchase of Smithfield Foods (which is actually owned by a holding company listed in Hong Kong) or COFCO's purchases of agricultural trading companies.

Note: annual flows of outbound investment.
Source: China Statistical Yearbooks


The official statistics show agriculture, forestry, and fishing is the smallest sector for China's outbound foreign investment. Since 2005, ag-forestry-fishing has accounted for between 1.1 and 1.8 percent of all outbound foreign investment. The stock of China's outbound foreign direct investment in agriculture, forestry and fishing was $6.56 billion at the end of 2017, accounting for 0.9 percent of China's total outbound FDI.

At one of a dozen forums held last week, China's Minister of Agriculture and Rural Affairs Han Changfu said stronger cooperation in agriculture is "urgently needed" to address lagging agricultural infrastructure, low quality of products, and insufficient "food security capacity" in many countries. China aspires to promote policy coordination, market integration, investment increase, upgrades of agriculture in partner countries. China plans to send out 500 agricultural experts in the next three years to help developing countries raise production capacity, Han said. Han called for expanded contacts in trade of agricultural products, lower trade barriers, mutually open markets, formation of equal and mutual long-term stable relations between trade partners; creation of an open, transparent, inclusive and non-discriminatory agricultural economic and trade environment; more sharing of achievements in science and technology, a stronger focus on cooperation in science and technology, technology practice demonstration bases and industry parks, and exploration of new models for technology and research extension.

Vice Minister of Agriculture and Rural Affairs Qu Dongwu promised major efforts in multilateral and "south-south" cooperation with countries on the Belt and Road. Agricultural officials from Argentina, Pakistan, Mozambique, and Tajikistan recited their ambitions to expand agricultural trade and cooperation with China.

Another article in State media highlighted efforts to develop new points of entry to create a "green channel" for agricultural products from Central Asian countries. A complex of farms on China's Alashankou border crossing will quarantine thousands of live animals imported from Kazakstan. The first phase of the 660-million-yuan project built by CITIC Construction Ltd Co (a subsidiary of a State-owned investment company) will be able to hold 100,000 cattle, 30,000 sheep, and 12,000 donkeys and horses after its planned opening in October 2019. A second phase will expand capacity next year. China has been upgrading border crossings from Kazakhstan, Kyrgyzstan, and Tajikistan and streamlining of customs clearance processes since 2015, the article said. China's Xinjiang region now has 4 designated entry points for grain, 3 for fruit, 2 for fish and shellfish products, and 1 for planting material; 7 meat entry points and 1 for fruit have been approved. The article highlights horses for slaughter, sheep meat, aquaproducts, wheat, wheat bran, and soybeans from Kazakhstan; fish products, mangoes, tangerines from Pakistan; cherries and mung beans from Uzbekistan; cherries from Tajikistan; breeding horses and cherries from Kyrgyzstan; Belarus poultry; Mongolian frozen horse meat; and plants used for Chinese traditional medicine.

Trucks carrying wheat from Kazakhstan arrive at Lanzhou free trade zone, April 10, 2019.



Earlier this month, 600 metric tons of Kazakh wheat arrived with much fanfare at a free trade zone in Lanzhou, Gansu province, built to process imports from Central Asia. The wheat was trucked from Kazakhstan to the Lanzhou zone where it cleared customs. A pharmaceutical company in the Lanzhou zone called Haixiang Biotech Ltd Co will sell the wheat to be used as animal feed in Chongqing and Chengdu. The shipment is said to be a demonstration of plans for expanded trade in grain and oils with Central Asia. One rationale for boosting the trade is to utilize empty shipping containers returning to China from Europe. The Assistant manager of the company operating the free trade zone told State media that the zone will work hard to attract companies through tax rebates, land lease fees, and electricity rates.

Tuesday, April 16, 2019

China Soy Imports Slide Due to Multiple Factors

China's decline in soybean imports during Q1 2019 soybean market is due to weak fundamentals, including impact of African swine fever, the overhang of large U.S. inventories and expanded plantings in South America, according to an article in the country's Grain and Oils News this week.

Customs data reported China's March soybean imports totaled 4.9 million metric tons (mmt). The Q1 2019 soybean import total of 16.75 mmt was down 14 percent from a year earlier. Meanwhile, imports of fats and oils for the quarter totaled 1.96 mmt, up 48 percent from a year earlier.

Noting a slow-down in purchase of oilseeds, fats and oils, a COFCO manager said, "Our country's growth in oilseed purchases has reached a turning point." The COFCO manager said slow soybean purchases are due to the lowest crushing margins in years, low soybean meal basis, exchange rate factors, and slow downstream business activity.

A manager with feed company Haid Ltd. said multiple difficulties have come to bear on soybean prices, including African swine fever, China-U.S. trade tensions, and expansion of soybean production in South America.

According to Grain and Oils News, China's Feed Industry Association estimates that 2019 feed production will be down 1-to-2 percent and 2018/19 consumption of protein meals will be down 4-to-6 mmt due to the influence of African swine fever.

The decline in China's soybean meal market is attributed to global excess supply of soybeans, the possible resolution of China-U.S. trade tensions, declining profits for hog farms, and import of substitute meals to replace soybean meal. This triggers a "chain reaction" that affects soybean imports, the article said.

The United States is still holding large inventories of soybeans while South America is set to have a big crop, adding downward pressure on prices, Grain and Oils News said.

One trader who did not give his/her name told Grain and Oils News that China's consumption of protein feed was already waning when African swine fever broke out last August. Swine disease compounded the slide in feed demand, causing the decline in soybean imports.

Thursday, April 11, 2019

China Swine Feed Down, Poultry Feed Up

China's animal feed output grew 2.8 percent during 2018, according to figures released by the country's Feed Industry Association. Swine feed sales are down due to effects of African swine fever, but impacts vary by region. More recent reports say poultry feed sales are expanding, but they are constrained by lack of breeding stock and environmental restrictions. The reduction of soybean meal use parroted by officials in Beijing is never mentioned in reports on feed mill site visits--its low price still encourages use.

China's feed industry association said 2018 swine feed output was down due to the impact of African swine fever (ASF), while production of poultry, aquaculture and ruminant feed production was up. Production of complete compound feed was up 4.6 percent, but concentrates was down 13.4 percent (typically soybean meal and other protein meals, and micronutrients to be mixed on-farm with grains for pigs). Premix output was also down 5.1 percent.

China animal feed industry output, 2018
Type of feed
Output
Growth
Million metric tons
Percent
All feed 227.88 2.8
Complete feed 205.29 4.6
Concentrate 16.06 -13.4
Additives, premix 6.53 -5.1
by species:
Swine 97.20 -0.9
Layers 29.84 1.8
Meat poultry 65.09 8.2
Aquaculture 22.11 6.3
Ruminants 10.04 8.9
Other 3.60 10.7
Source: China feed industry association.

Swine feed accounts for 43 percent of feed output, according to the industry association statistics, a surprisingly small share considering that last year's pork output (54 mmt) accounted for 63 percent of meat output (85.2 mmt) reported by China's National Bureau of Statistics. Feed for chickens and ducks accounts for a disproportionately large share of feed output. Thus, expansion of China's poultry production is to some degree cushioning the industry against the decline in swine output.

Two Chinese provinces--Guangdong and Shandong--are dominant in feed output. Guangdong is the largest swine feed producer, but poultry and fish feed account for a large share of the province's feed output. In Shandong--the center of China's broiler industry--poultry feed output is more than double swine feed production. Guangdong is China's top fish feed producer and Shandong is the top poultry feed producer. Guangxi, Liaoning, Jiangsu, and Fujian also have significant poultry feed production. Jiangsu and Hubei are no. 2 and no. 3, respectively, in fish feed output.


This being China, every statistic is problematic. There are at least three statistics on China's feed output for 2018 that are within a few percentage points of one another. An industrial output statistic available deep in the National Bureau of Statistics web site says cumulative feed output through December 2018 was 242 mmt and was up 3.4 percent from the previous year. The Alltech global feed survey reported a much lower output of 187.9 mmt for 2018 and negative growth in output (-0.4 percent). Alltech says China is the world's leading feed producer.

Measures of China's animal feed production, 2018
Source 2018 output Growth
MMT Percent
China Feed Industry Association 227.9 2.8
China National Bureau of Statistics 242.1 3.4
Alltech global feed survey 187.9 -0.4

A separate report on site visits to feed manufacturers in Jiangxi, Hebei, Shandong, and Henan Provinces during February 2019 posted on a feed industry news site reported that swine feed production was down in February due to combined impacts of ASF and that month's lunar New Year holiday. The report said ASF impacts were milder in southern provinces and more serious in northern provinces. Hebei Province was singled out as a "disaster area" with swine inventories down 50 percent or more on most farms. The report concluded that expansion of poultry feed output was offsetting the decline in swine feed and anticipated more of the same if ASF could not be brought under control. (Publication of the month-old report was probably delayed by the usual ban on bad news during the "two meetings" of communist party leaders held in March.) 

A large feed mill in Jiangxi Province said there were ASF outbreaks in local plains regions but few in mountainous areas. The company had a big decline in swine feed output. Some large swine-farming companies were looking to expand production to take advantage of high prices later in the year, but medium and small farms are "on the sidelines." A feed mill in eastern Shandong said it was not affected much by ASF because small pig farms there don't buy much commercial feed. Sales of poultry feed were brisk. However, the supply of broiler chicks is limited due to restrictions on imports of breeding stock and prices are rising, shrinking profits for poultry growers. 

In Fujian, feed mills were said to buy corn cautiously, holding much lower inventories than usual. Output at a large feed mill in Hebei Province was down 60 percent in February, and corn purchases were only half the planned amount. 

Another March 2019 industry report on site visits in Guangdong found that swine feed sales were down 10 to 50 percent, but poultry feed sales were up 10 percent. Swine farms worried about ASF risks switched from mixing their own feeds to purchasing complete feed from a reputable mill. Expansion of poultry farming is constrained by environmental regulations in Guangdong. Duck farming is reportedly moving from Guangdong into neighboring provinces Guangxi and Hunan. An expansion of fish ponds in Hubei province has driven down fish prices, discouraging further aquaculture expansion in Guangdong. 

Reports do not mention the Chinese feed industry association's new standards published last October calling for reduced soybean meal inclusion. To the contrary, the Guangdong report says that the current price of soybean meal makes it a very cost-effective ingredient, and inclusion of soy meal in feed formulations was said to be at its upper limit. The soybean meal price was said to be about 2500 yuan/mt (down about 1000 yuan from the peak price in October). There was no shortage of protein feed ingredients, but companies were holding minimal inventories as they expected supplies to increase as soybean import arrivals increased their pace (from their low point in January-February). High prices for rapeseed meal were discouraging its use. 

Feed mills in Guangdong reported reducing their use of imported sorghum and barley-formerly at 40% of feed formulations. They now use 60-65% corn and 20% soybean meal in swine feed rations. They purchase most of their corn from depots in the northeast where they have personnel posted to keep an eye on grain purchasing and drying. One feed mill was considering eliminating wheat bran from feed because of the risk of transmitting ASF from wheat-growing provinces in the north. Mills are adding some field peas and sunflower seed meal to feed. another company engaged in feed and livestock farming emphasized the flexibility of feed formulations for poultry.