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
(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.