Expansion Fails to Bring Down China's Hog Price

Another surge this month leaves China's hog price at about the same as the record-highs posted a year ago--despite the Ministry of Agriculture's claim that the country's swine inventory has rebounded faster than expected and is now at 90 percent of normal. 

The average hog price reported by China's National Bureau of Statistics for mid-December 2020 was 33.9 yuan per kg., just slightly below the average of 34.2 yuan/kg the Bureau reported for the same time period in 2019. Soozhu.com reports a further increase in the hog price to 35.40 yuan/kg on December 30, 2020. Prices were about 10-to-15 yuan/kg. before the surge in prices in mid-2019.

Data from National Bureau of Statistics average purchase prices for industrial materials.

The Ministry of Agriculture and Rural Affairs reports a similar pattern in pork prices. The average wholesale price of a swine carcass averaged 49.82 yuan/kg in mid-December 2020, slightly lower than the 50.99 yuan/kg reported a year earlier. The price is still more than double the "normal" price, despite the Ministry's claim that the herd is just 10 percent below its "normal" size.

Data from China Ministry of Agriculture and Rural Affairs average wholesale market livestock prices.

High prices and thick profits are attracting new entrants and expansion. The profit from a slaughtered hog is said to be equal to two bottles of luxury Maotai liquor (but a Soozhu.com commentary calculates that it falls at least 1000 yuan short), and it's hard to not succeed with such high prices.  Most industry commentators warn of declining hog prices in 2021 and possible excess capacity.

Rising production costs could mean that China's pork prices get stuck at a permanently high level. An October industry commentary wondered how long the good times would last, with declining hog prices and rising corn prices squeezing hog farm margins (hog prices were falling in October). A December 23 commentary warned pig farms that cost control would be key for 2021 as the industry slides into the downward phase of its "super cycle," and poorly managed farms with high costs could get hammered.

Rapid expansion pushes up the cost of scarce raw materials. A December 16 Soozhu.com commentary noted that feed companies announced the latest in a series of price increases this month. Ag Ministry data shows that the current price of pig feed exceeds the record-high in 2014. The average corn price is also near its record-high posted the same year. Rising feed prices, of course, translate to rising costs for pig and chicken farmers, shrinking profits and restraining  growth. Rising costs are especially problematic for poultry farmers because their prices crashed a year ago.

Ministry of Agriculture and Rural Affairs reports of average wholesale prices.

Mega-farms entering the industry may enjoy scale economies, but they also have higher fixed costs for facilities and must pay high wages to attract laborers. Wens Company, one of the top two swine producers, warned investors that the cost of producing feeder pigs is higher this year due to the amortized cost of building "efficient" farms and increased labor costs. Soozhu.com noted that the African swine fever virus has forced farms to adopt stricter biosecurity measures and pay for senior-level workers--definitely "good things"--but these are also costly things. 

Commentaries warn about falling hog prices next year,
following this year's aggressive expansion

The rapid hog expansion has also degraded the quality of the herd. Short of breeding stock, farmers often retained gilts intended for commercial herds to use as breeding sows, reducing productivity and sometimes introducing disease to sow barns. While there is not much chatter about African swine fever now, other diseases like hog cholera and pseudorabies are reportedly widespread this year.

The price of feeder pigs has come down about 20 percent from August highs, but piglets remain expensive. The price of a feeder pig is still 2.8 times the price of a finished hog, well above the recent "normal" ratio of 2:1. This ratio appears to be ratcheting higher over time as costs balloon in that segment of the production chain. This means piglets are a bigger share of the final cost of a hog. The rising cost of feeder pigs is another signal that industrial-type sow farms are costly to operate and hard to build. The October commentary recommended that farms adopt a farrow-to-finish production model to avoid costs of purchasing piglets through intermediaries. 

Calculated from China Ministry of Agriculture and Rural Affairs wholesale price data.

A feedtrade.com commentary noted that profit margins in the slaughter component of the sector have shrunk as hog prices soared. The gross margin from slaughtering hogs plunged from nearly 82 yuan/head in 2018 to 42 yuan/head in 2019 and was near zero by October 2019. The average margin for 2020 was reported to be 14.24 yuan/head, the lowest in the last three years. Slaughterhouses had to pay more for hogs, and consumers cut back on pork purchases as prices soared. In parts of northern China during the first half of 2020, the slaughter volume was down 30-to-50 percent from a year earlier. Some big companies had very high costs for labor and utilities that pushed margins into negative territory.

The industry may have to learn how to live with imported pork. The slaughter commentary noted that margins and shipment volume for slaughter enterprises are restrained by pressure from "frozen meat"--code for imports. China's pork reserve auctioned a total of 50,000 metric tons of frozen imported pork on December 24 and 28. 

Sichuan Province--traditionally China's largest pork producer--now has a pork supply deficit and relatively high prices and slaughter margins. Selling pork to Sichuan was once like "shipping coal to Newcastle." Now, according to the commentary, carcasses produced in Sichuan are sold locally at high prices, while low-priced cuts are shipped into the province to fill the deficit. 

China's Corn Imports Exceed TRQ for First Time

China has imported 9 million metric tons (mmt) of corn in the first 11 months of 2020, China's largest-ever corn import total. The corn import total exceeded the country's 7.2-mmt tariff rate quota (TRQ) for the first time as of October after falling short of the quota every year since it was established in 2001. An additional 1.23 mmt imported during November pushed the 2020 total even further beyond the quota. 

Source: China customs statistics.

China's January-November 2020 imports of corn from the United States totaled 3.285 mmt, a more than 10-fold increase from the 2019 total and the largest total since 2013. While efforts to meet purchase commitments from the U.S. in the Phase One agreement are one factor behind the surge, Ukraine remains the top supplier of China's imported corn in 2020 with over 5.2 mmt. Imports from Ukraine also increased this year. Other countries--including Bulgaria, Russia, Laos, and Myanmar--supplied 531,000 mt of corn through November, up nearly 200,000 mt from the 2019 total. 

The surge in corn imports appears less dramatic when considered in context of China's overall feed imports. China's imports of corn, sorghum, barley, DDGS, and cassava combined totaled 23.6 mmt in Jan-Nov 2020. That total is up 9 mmt from 2019, but about "normal" in historical context. Combined corn-sorghum-barley-DDGS-cassava imports peaked at over 42 mmt during 2015 when Chinese feed mills were eager to find substitutes for pricey domestic corn. The non-corn feed imports deflated in 2016 and subsequent years with the end of the corn price support, anti-dumping/countervailing duties on U.S. DDGS and sorghum, a new set of duties imposed during the trade war, and AD/CV duties on Australian barley this year. In 2020, sorghum imports bounced back after retaliatory duties were lifted, but imports of DDGS remain minimal.  

2020 is the first year after a WTO panel issued a 2019 report of written submissions and oral arguments in the U.S. challenge of China's tariff rate quota administration for grains. There was optimism in some circles that reforms of the quota system would boost imports by making more of the quota available to private-sector importers. However, some clues indicate that the government still dominates corn imports this year and the surge in 2020 imports may reflect a plan to refill reserves with cheap imported grain.

China still doesn't reveal which companies receive import quota and public statistics do not reveal which companies import grain. However, corn import statistics tabulated by the province where importers are registered give us a clue about the dominant role of COFCO. Customs data show that companies headquartered in Beijing accounted for nearly all the surge in 2020 corn imports. As of October (these data have not been released for November), 52 percent of this year's corn had been imported by Beijing-registered companies. COFCO almost certainly accounted for nearly all of these imports since most big Chinese agribusiness companies are headquartered outside Beijing. The increase in corn imports this year by companies based in Shandong and Fujian Provinces was unremarkable. Corn imports by Guangdong-based companies went down this year. 

There was a signal earlier this year that the surge in corn imports reflects a program to refill government reserves with imported corn. On April 22, 2020, a "rumor" spread that Chinese authorities were considering a plan to restock commodity reserves with "10 mmt of soybeans, 20 mmt of corn, and some cotton, sugar and vegetable oil." The plan was said to be motivated to calm markets during the pandemic, take advantage of low international prices, and to meet Phase One agreement commitments to purchase U.S. commodities. China Grain Net described the reserve restocking plan as a "rumor" that needed to be confirmed by the government, but no confirmation was ever given. Yet the surge in imports of corn, wheat, and cotton this year and the predominance of Beijing-based companies appear to be consistent with the plan.

It is unclear how corn imports exceeded the quota. The margin between Chinese and international prices is not wide enough to justify imports at the out-of-quota 65-percent tariff. There is speculation that the government subsidizes grain imported for reserves or exempts reserve grain from tariffs, but that has never been announced publicly. The 2019 WTO panel report on China's TRQ dispute revealed that China has a history of managing the TRQ in an opaque, arbitrary manner, and this may be more of the same. Chinese officials have announced that the TRQ will again be set at 7.2 mmt in 2021 despite reports of purchase commitments for U.S. corn that exceed this amount. 

The 40-percent increase in China's corn futures prices since the beginning of 2020 has been concentrated in the northern part of the country. Guangdong Province--one of the two largest feed-milling provinces--has backed off from purchasing domestic corn from northeastern provinces, instead stepping up imports of sorghum and barley (perhaps also feed wheat). Consequently, corn inventories at northeastern Chinese ports have built up to record levels.

In contrast to corn, customs data show sorghum is imported primarily by companies in southern provinces: Guangdong, Fujian, and Shanghai. Beijing companies imported minimal amounts of sorghum in 2020. Almost nobody imported sorghum during 2019 at the peak of the trade war (and at the nadir of swine losses to the African swine fever virus). Sorghum imports have bounced back in 2020, but they are still relatively low. Thus, the larger corn imports are to some extent offset by low imports of sorghum and other feeds restrained by other duties. 

*2020 data through October.

China's corn prices have some room to rise further in 2021 and corn imports could reach 20-to-30 mmt, according to futures analysts interviewed by China's Futures Daily last week. However, there are a number of uncertain factors that could affect the corn market and agricultural markets more broadly, including the potential for a global food price increase in a post-covid era, possible warming of U.S.-China relations, expansion of corn production in China next year, and impacts of weather on corn production. 

Leadership Change at China's Ag Ministry

addendum: Tang Renjian was appointed Minister of Agriculture December 26, 2020.

China's Minister of Agriculture mostly disappeared from the Ministry's web site at the end of November. While Han Changfu remains Minister of Agriculture for the time being, his more important position of communist party secretary has been handed over to Tang Renjian in a minor shake-up of personnel in Beijing. 

A one-sentence posting on the Ministry's web site said as of December 1 the communist party central committee had decided that Comrade Tang Renjian serves as member and office director of the Central Rural Work Committee and Party secretary of the Ministry of Agriculture and Rural Affairs, and that Comrade Han Changfu no longer serves in those positions. 

In: Tang Renjian

Out: Han Chanfu

During the last 3 weeks Han Changfu no longer appeared in any news stories on the ag ministry web site, nor did he appear for meetings with visiting dignitaries. The site still lists him as Minister, however. Tang Renjian was featured only in two sessions where he instructed the Ministry's party organization on priorities in rural work and on an inspection tour in Hubei Province. On each occasion Tang urged listeners to study the remarks of Xi Jinping on rural policy.

Tang Renjian, 58 years old and a native of Chongqing, was most recently governor of Gansu Province since 2017. He now replaces the 66-year-old Han Changfu who has served as Minister of Agriculture since 2009 and was head of the central rural work group for the last 2 years. 

Tang graduated from the Southwest University of Finance and Economics in 1983 and rose through the ranks of the Sichuan government. Tang reportedly studied for a doctorate in economics while he was employed and held the title of "senior economist." He is an adjunct professor at Southwest University of Finance and Economics and at China Agricultural University. 

His big break came in a 1998 posting to the Office of the Leading Group for Financial and Economic Affairs, where he became supervisor. He held top posts in the Guangxi provincial communist party before returning to the Office of the Leading Group for Financial and Economic Affairs as Deputy Director in 2016 where he succeeded Chen Xiwen in directing rural policy work. Tang has reportedly been a key assistant to two powerful men in Xi Jinping's orbit: Liu He and Wang Yang. 

Tang has been involved in a number of rural policy and poverty alleviation working groups, including the drafting of the 2004 "Document No. 1" that launched China's first program of rural subsidies and cancellation of agricultural taxes. His work has included "Respond to the Challenge of Entering WTO with the Strategy of Unbalanced Competition," "Developing 'Company Agriculture' and Agricultural Companies," "Nurturing Rural Informal Financial Organizations," and "Establishing Agriculture's Tax-Free Era." 

Another rural policy wonk, 57-year-old Han Jun, has also been transferred from his posts as vice minister of agriculture and deputy party secretary where he had served since 2018. Han Jun is now deputy governor and acting governor of Jilin province.

China Obsessed with Looking for Covid on Imported Food Shipments

Chinese officials eager to shift blame for covid-19 have reported finding traces of the virus on a handful of imported frozen meat and seafood boxes out of thousands tested after a massive testing campaign was ordered. A box of chicken legs appears to be the only domestic product that has been tested--and it came from a multinational company operating in China. Inactive virus was found on the outside of boxes; none of the food inside the boxes tested positive.

Chinese official disinfects U.S. pork boxes that tested positive for covid-19.
The meat itself did not test positive.

On November 25, Chinese food safety officials announced that covid-19 virus had been detected on the packaging of dozens of shipments of imported frozen food in a number of localities. The deputy director of the national food safety risk assessment center attributed the surge in positive test results to the increase in number of tests performed, and warned consumers not to panic because positive results were found on only 4.8 per 100,000 samples. Virus was found only on packaging, not in the food itself. The official explained that traces of the virus DNA can remain on surfaces after disinfection inactivates the virus. 

In each instance, hundreds of follow-up tests of workers, storage facilities, containers, and processing equipment were all negative. On November 24, China's State Council ordered an "Imported food cold chain comprehensive disinfection work program" that requires imported frozen food to be held separately at ports, tested, and disinfected, before being released to the domestic market.

Most positive tests of imported meat and seafood reported in Chinese news media in mid-late November and December appear to have been found in cold storage warehouses in ports such as Dalian, Tianjin, and Yingkou, and in second- or third-tier cities. None have been reported in tier-1 cities Beijing, Shanghai, or Guangzhou. 

Disinfecting a food market in Zhejiang Province.

In Shanghai--the largest entry point for imported meat and seafood--officials announced in November that they had found no positive covid results in tests of 130,000 samples of imported food and 2,432 samples taken from trucks, containers, and cold-storage warehouses in the imported food cold chain.

News reports say that several packages of Argentine beef that had the virus detected at inland warehouses entered China through the Shanghai port: 

• One shipment in Jingzhou City of Hubei Province tested positive a month after it had arrived in China. The shipment was produced in Argentina during August-September, reached the Shanghai port October 28, was shipped to Zhengzhou in Henan Province October 30, and reached a warehouse in Jingzhou City in Hubei Province November 15, before virus was discovered on packaging December 2.
• Another Argentine beef package tested positive on December 20 in a Huzhou, Zhejiang Province market more than a month after it entered through the Shanghai port on November 12 (130 other samples and 40 workers in this market all tested negative).
• A frozen beef package from Argentina that tested positive in Chongqing December 15 also came from Shanghai.
• A 27-tonne shipment of Brazilian beef in Wuhan that tested positive November 12 had arrived at the Qingdao port August 7 and had been in the warehouse in Wuhan since August 17.

On December 15, the first instance of a positive covid-19 test result for domestic food packaging was reported by a supermarket in Wuxi, Jiangsu Province. "Third party testing" discovered the virus on packaging of one of three shipments of chicken legs produced by a factory in Anhui Province. It is unclear why these chicken legs were being tested since there are no other indications that domestic food products are being tested. The chicken legs just happened to be supplied by a wholly-owned subsidiary of a prominent American company. The company supplies chickens from its own farms for the processing plant, stores them in its own facility, and ships them in its own trucks. No positive results were discovered in over 2,700 other samples taken from workers, factory surfaces, trucks and warehouses. Anhui Provincial officials insisted that the packaging could not have been infected in their province. 

November-December Detections of Covid-19 virus on imported frozen food in China
Date		Province	City/county	Origin	Food
Nov	12	Hubei	Wuhan	Brazil	beef
	12	Shandong	Liangshan	ns	beef
	12	Fujian	Quanzhou	ns	frozen food
	13	Henan	Zhengzhou	Argentina	beef
	13	Gansu	Lanzhou	ns	shrimp
	13	Shandong	Jinan	Argentina	beef
	14	Shandong	Sishui	ns	fish/shellfish
	15	Shaanxi	Xi'an	Argentina	pork
	21	Guangdong	Dongguan	Argentina	chicken wings
	28	Liaoning	Dalian	Russia	cod fish
Dec	2	Hubei	Jingzhou	Argentina	beef
	4	Liaoning	Yingkou	Argentina	beef
	7	Zhejiang	Ningbo	Brazil	beef
	13	Tianjin	Binhai	Argentina	pork
	15	Jiangsu	Taizhou	USA	pig ears
	15	Jiangsu	Taizhou	China	chicken legs
	15	Chongqing	Gaoxin	Argentina	beef
	20	Zhejiang	Huzhou	Argentina	beef
	21	Liaoning	Anshan	Brazil	beef
Source: compilation of Chinese news reports.

Chinese officials have been accusing imported frozen food of bringing covid-19 into China ever since a June outbreak in Beijing that was traced to a cutting board where Norwegian salmon had been sliced. No positive samples were found in nationwide testing of markets and warehouses in mid-June that was launched the day after the discovery of covid in the Beijing market. News stories of testing in June featured several of the same markets where this month's positive tests were announced: Jingzhou, Wuhan, Chongqing, Xi'an, Ningbo and Tianjin. Earlier in November, authorities manufactured another scare linked to German pork and fish from India--also found on packaging but not in the products. China has  rejected dozens of shipments of shrimp from Ecuador for months, claiming that containers and packaging contained traces of covid-19 virus.

The New York Times noticed that China's leadership is putting great effort into creating a narrative that the virus originated outside China. There is little doubt that the excessive crackdown on imported frozen food is meant to focus attention on foreign countries as the source of the virus.

The campaign against imported frozen food doesn't seem to be meant as a trade barrier. Beijing Daily quoted an official from China's logistics and procurement federation who said that large amounts of imported frozen food are needed to fill gaps in domestic supply, a view he described as "consensus."

Ironically, the surge of frozen meat and seafood imports blamed for importing the covid-19 virus is the result of abysmal failure in controlling the African swine fever virus in 2019. The virus swept through the entire country within months, killing off at least 40 percent of the country's swine and creating the biggest meat shortage in history in 2020.

Veterinarian dishes on China's hog recovery

A "Real P3" podcast featuring American veterinarian Wayne Johnson provides a rare glimpse of what’s happening on the ground as China’s swine industry recovers from its African swine fever (ASF) epidemic. Dr. Johnson offers a unique perspective, having worked in China for 16 of the last 24 years in training, consulting, and running a diagnostic lab. 

Last year, the ASF outbreak closed many pig farms and this year's “novel coronavirus” or “covid-19” prevents farm visits, but the doctor keeps his finger on the pulse of the industry through constant lab testing of samples submitted by customers, consulting and training.

Dr. Johnson observes that many Chinese pig farmers have shortcomings in their understanding of good nutrition, proper ventilation, and the exercise of “discipline.” They learn by doing, and farmers now understand biosecurity a lot better than they did. "ASF will teach you biosecurity in a hurry,” Dr. Johnson explains.

China hasn’t dealt with ASF “straight-up.” There’s a “great deal of posturing about it.”

China is dealing with diseases of both the past and present. Older diseases like classical swine fever and pseudorabies have eclipsed ASF as the main problems. Other problematic bugs are PED, 4 or 5 strains of PRRS, and diarrhea from e coli. 

ASF wiped out about half of China’s sows. This year farms have been breeding “anything that’s female” to restock their herds. Some gilts were rushed into the breeding program, bred too young without proper acclimation. Gilts brought pseudorabies from finishing barns into farrowing houses.

Some producers in China developed what they call “ASF-resistant” pigs. They are animals that have learned to tolerate the virus and they actually function as carriers. 

China is importing a lot of pork. Imports have been evident in the supermarket. Pork is imported and dumped into the market through a “bottomless" pork reserve. It’s bad PR to acknowledge that you’re importing so much. China shut down imports of German pork after ASF infected some wild boars, and now imports come mainly from the United States. 

China’s market has been volatile. With hog prices fluctuating around $2.40 per lb.—about five times the U.S. price—"it’s hard to do enough wrong to not make money." 

The doctor saw a commercial feed product last year that contained 5 antibiotics, none of them at the proper level. This year, China banned antibiotics in feed. Instead, farmers are putting the antibiotics in the water. 

The doctor warns that nutrition, care of animals, and various kinds of antibiotics are all part of successful management. Pigs are like machines, in a way. If you treat your machine well, it will treat you well, Dr. Johnson explained. 

China Tries to Talk Down Corn Prices

Chinese officials attribute record-high corn prices to speculation and hoarding. For months they have been warning about impending collapse in prices and doom for speculators, but prices just don't come down.

The average corn price reported by the National Bureau of Statistics peaked in August, but resumed its climb in September-October despite the arrival of newly-harvested corn. The price appeared to level off in November, but the latest data point for late November bumped upward again. The late November corn price is up 34 percent from a year earlier. 

Source: China National Bureau of Statistics raw materials purchase price.

Preliminary estimates of grain output released by the Bureau today showed a tiny 100,000-ton decrease in corn output to 260.67 million metric tons in 2020. Some industry observers expected a larger decline due to multiple typhoons that hit northeastern China in the summer and fall, but agricultural officials insist that losses were minimal as experts helped farmers recover the corn from stalks flattened by storms. The Agriculture Ministry's S&D reports in November and December estimated a 4-mmt increase in 2020 corn production to 264.7 mmt. 

National Grain and Oils Information Center's November report blamed the typhoons for setting off speculation in the futures market, but claimed the damage was not that great and was offset by big harvests outside the storm-hit northeastern provinces. NGOIC expected a slight increase in 2020 corn output.

One recent article warned traders and farmers not to "blindly pursue higher corn prices" because a Dec. 4 National Grain and Commodity Reserves Administration news conference signaled impending policy pressure to bring corn prices down. The article cautioned market participants about signs that corn traders are about to start dumping their corn-holdings as the peak corn marketing season arrives. The writer said livestock farmers could not tolerate high corn prices for long--apart from hog farmers making modest profits poultry farmers are suffering big losses, and substitution of wheat for corn in feed rations is becoming more widespread.

Sinograin announced plans to suspend purchases of corn for reserves in the northeastern region. An auction of 576,574 metric tons of corn held in reserves since 2015 has been scheduled for December 11--such auctions are usually not held during the peak corn marketing season. 

Other news also appears calculated to tamp down expectations of corn shortages. Ukraine reportedly exported 1.3 mmt of corn to China in November. A "rumor" says that COFCO plans to buy 1 mmt of Brazilian corn. 

The increase in corn prices is not as strong in southern China where imported corn and other feed ingredients keep a lid on prices. Thus, the price differential between south and north is unusually narrow and stocks have built up at northern ports.

An article yesterday on Agricultural Futures Net insisted that a decline in corn price is nothing to be afraid of. The cost of holding record-high commercial corn stocks is high, the usual interregional corn price relationships are distorted, and demand is going to weaken next year. A decline in corn price is not a bad thing, the article insisted, because substitution of wheat and rice for corn, imports, and pressure from costs of holding inventory pose a risk for those holding high-priced corn inventories. 

Pig Farms Compete for China's Cropland

Plans to build pig farms on cropland to alleviate China's meat shortage highlight mounting conflicts in a resource-poor food system. Earlier this year pig-farming giant Muyuan Group announced aggressive plans to build 84 industrialized pig farms in 13 counties surrounding its headquarters in Nanyang, a city in the hinterland of Henan Province. The plan stirred up controversy because 55 of the pig farms would be built on 1,000 hectares (2,500 acres) of "permanent cropland" designated by the government for producing grain crops. 

In 2019, Muyuan produced over 10 million swine--making it China's largest pig producer. Its sales of hogs, feeder pigs, and breeding stock reached nearly 12 million head in the first nine months of 2020. Only 6 of Muyuan's 90 branch companies are located in Nanyang, according to the company's semi-annual report. This month, Muyuan announced projects in counties of Anhui, Hubei, and Liaoning Provinces.

In late August, state media's "Voice of China" broadcast called attention to Muyuan's plan to build pig barns and manure pits on cropland. Muyuan and local Nanyang officials took advantage of a December 2019 document issued by the Ministry of Natural Resources and the Ministry of Agriculture and Rural Affairs that loosened prohibitions in China's land law on unauthorized construction or changes in use of "permanent cropland." The December document permitted projects where use of such land is "unavoidable," only if "small" amounts are used, and if the lost land is offset by additions of new parcels of permanent farmland created elsewhere. The broadcast noted that there is wiggle room in the law's implementation. Rural land law experts consulted by Voice of China offered differing opinions on whether using "permanent cropland' for pig farms was a reasonable exception to the strictures on converting cropland to a different use. 

Construction of a Muyuan pig farm on "permanent cropland."

Local Nanyang authorities interpreted the "small" requirement by allowing projects to use no more than 30% of the permanent farmland base. Muyuan Group and Nanyang officials launched the pig farm investment project after the December policy adjustment, keeping the planned use of "permanent farmland" under the 30% cap. 

A year ago--with pork prices up more than 100% from the previous year--rural officials were ordered to prioritize construction of pig farms, with a goal of restoring normal pork production capacity by the end of 2020. Most farms are built by private companies, but they need land tightly controlled by township and village officials. Local leaders were ordered to hasten approval of applications to use village "construction land" for pig farms, but there was no mention of whether cropland could be used. In January 2020, the communist party's "Number 1 Document" called for improvements in rural land use policy and repeated the ambitious goal of restoring normal pork production capacity by year-end.

A completed Muyuan farm.

Another article reported opposition from villagers in Nanyang whose land had been requisitioned for Muyuan pig farms. Farmers complained that the rent was too low and that they had no say in the decision to lease their land to Muyuan. A villager named Yang said he refused to sign the agreement that would lease his entire 5.4-mu (less than an acre) land holding to the pig farm project because he would have no source of food grain and the 800-yuan annual rent is less than he makes growing peanuts and wheat on the land. The reporter claimed that 24 of the 64 families in Yang's village refused to sign the agreement to lease 500 mu of land for a pig farm. According to this article, justification for the Muyuan project was based on its addition of pork supplies, creation of 10,000 jobs, stimulation of activity in other sectors, strengthening of Muyuan's brand, and its potential to burnish Nanyang's image as a prosperous and important city. The city's deputy communist party secretary defended the project.

Group photo in front of Muyuan's headquarters in Nanyang.
The site also features what appears to be a replica of the Louvre.

A Peoples Daily opinion piece appearing several days after the "Voice of China" story condemned the use of "permanent" farmland to build pig farms. The author asserted that Chinese people should not have to sacrifice rice to fill their bowls with pork. A number of online videos warned readers that they may have to choose between going without pork or going without rice.

On November 4, 2020, the State Council issued an "Opinion on preventing 'non-grain-ization' of cultivated land to stabilize grain production." The opinion warned that grain production could be destabilized by planting fruit trees and digging fish ponds on permanent cropland or transferring large parcels of cropland to investors planting non-grain crops. The document forbade construction of structures like greenhouses and livestock facilities on cropland in designated "functional grain-producing areas." Policy has traditionally encouraged use of "waste" land on mountains, gullies or swamps, and land designated for forestry to construct pig farms.

Sign in Nanyang's Xinye County explains that 332.73 hectares of permanent cropland in Nanwang village cannot be used for nonagricultural purposes, cannot be converted to forest, fruit trees, or grass, and cannot be used for fish ponds or livestock farming. The village head is responsible for protecting the land. 

The strictures on construction of greenhouses are surely a response to another abuse of agricultural land use policy two years ago: widespread construction of vacation homes, restaurants and hotels inside greenhouses posing as "vegetable production bases." 

Officials in China have long pretended that the magic of "modernizing" subsistence peasant agriculture could achieve greater production without sacrifices or tradeoffs. In the past, most of China's 700 million pigs were tucked away in small pens and sheds in backyards, courtyards, the ground floor of residences, and strips of unused land on river banks or the edge of fields. Muyuan's industrialized swine farms cannot be tucked away in the nooks and crannies of the countryside.

Another company chopped off the top of a mountain and built a pig farm on top.

National priorities like "food security" and "red lines" on use of farmland inevitably clash with other priorities like alleviating meat shortages. Local interests--like building up the country's biggest pig farming company and promoting the fortunes of a small city--take precedence over dictates from Beijing. Policies crafted in Beijing still need to be negotiated. The hills are still high and the emperor is still pretty far away, illustrating the challenges to imposing "rule by law" in the hinterland.

Pigs and Poverty Alleviation in China

Muchuan County in Sichuan Province illustrates China's efforts to simultaneously boost the meat supply and fight poverty on the fringes of the Middle Kingdom. A featured prong of China's "precise poverty alleviation" initiative is to recruit companies that boost local specialty industries in the impoverished hinterland. Incorporating poor farmers into modern supply chains that tie "small farmers" into "big markets" is the initiative's core.

A stream of propaganda articles over the years described initiatives to promote swine-farming in a mountainous Leshan region of Sichuan Province as a "precise poverty alleviation" strategy. An article this month recounts construction of giant swine farms in the county by a half-dozen prominent companies and restocking of farms with local government subsidies to achieve the numerical targets for restoring hog production in the counties of Leshan. 

A September article promoted another poverty alleviation strategy by featuring the inspirational story of Wang Yong who was injured in a construction accident, but returned to his village in Muchuan County (a model county for poverty alleviation policies) to escape poverty by taking up pig-raising and growing kiwis and pepper plants. His village communist cadre helped him jump on the poverty alleviation "express train," the propagandists said.

In 2016, the Sichuan feed-producing branch of China's COFCO food conglomerate "married" a pig-farming cooperative in Muchuan County to "precisely eliminate poverty" by supplying farmers with feed and technical advice and giving them a market outlet for their pigs. The core of COFCO's 10-year agreement was to replace the chaotic network of feed traders and retailers with direct supplies of feed through the pig-farming cooperative run by village communist party cadres. The 4-year-old article is still featured on swine industry web sites, presumably under orders to promote the strategy. 

COFCO signs agreement with pig-farming cooperative in 2016.

 Nine years ago, another propaganda blast featured lending by Muchuan County's rural credit cooperatives to support "ecological pig farms." 

In 2018 Muchuan County imposed fines on swill-feeding pig farms to stop the spread of African swine fever, an indication that many pigs were not raised on commercial feed. (The 2000-yuan fine, however, is less than the sale price of a single pig.)

Leshan's leaders set a target of producing 5 million hogs annually within 3-to-5 years. Six privately-owned "dragon head" companies have been recruited to invest 20 billion yuan in 74 projects, including three 10,000-head mega farms, a high-rise pig farming facility, and a network of company-operated breeding farms (COFCO was not mentioned). A network of modest-sized farms are planned for 100-hectare parcels of land designated for forestry use. The projects typically include plans to use pig manure to fertilize fruit trees to justify use of forest land. 

Leshan's Counties refurbished and restocked pig farms that were emptied out last year in a mass-cull of pigs during the ASF epidemic. Restocking efforts included initiatives to build up 1000-head villages composed mostly of small-scale farms.

Stimulative policies in Leshan include 5 million yuan in aid to counties for farm re-stocking, subsidies of up to 200 yuan per head for pigs in several counties, subsidized loans, pig insurance, and unspecified aid for slaughter.

Leshan officials recite statistics showing they have brought in hundreds of thousands of pigs to restock farms. They don't say where these pigs came from. Most of the officially-reported ASF outbreaks this year were reported in shipments of piglets transported to places in southwest China, including two incidents in Leshan.

Company pig breeding farm perched on a hillside elsewhere in southwest China.

Covid on Imported Meat Scare Could Worsen China's Shortage

Chinese officials are on alert for transmission of covid-19 via imported meat and seafood. With imports filling a meat shortage of epic proportions this year, testing, disinfection and other precautious could keep meat prices at record highs for a little longer.

Chinese officials stepped up surveillance of imported meat when a worker at the port of Tianjin tested positive for covid-19 on November 8, four days after unloading a shipment of imported frozen meat. The worker was hospitalized and 156 of his coworkers and neighbors were tested (results not released yet).

Officials in China have been on guard against transmission of new covid-19 outbreaks through frozen food most of this year, following covid-19 outbreaks at meat processing plants in exporting countries such as Germany, the United States and Brazil. 

On November 6, local officials in Dezhou, a city in northern Shandong Province, tested a shipment of German pork knuckles and found four samples with weak positive covid test results and 1 positive. The provincial disease control center confirmed the positive results the following day. Twenty-three workers who had contact with the pork shipment and 67 of their close contacts all tested negative for covid-19. Nine out of 63 samples from external packaging were positive, but negative results were found for samples from the pork itself, trucks, external environment, clothing and gloves.

On November 7, officials in Taiyuan, Shanxi Province, discovered covid-19 virus on packaging of frozen fish imported from India which also had been delivered from the Tianjin port. 

Officials in Baoding, Hebei Province, learned that a truck had delivered frozen food purchased in the market in Dezhou where the infected German pork packages were discovered. They found the truck stopped in Baoding's Anguo City for 1 hour, 51 minutes on November 6. The truck delivered frozen fish and chicken. No pork knuckles were on the truck and tests conducted at three seafood shops were all negative. 

A China Agricultural University professor hypothesized that transmission of the virus via frozen food is an objective possibility, and warned everyone to be on guard. Another professor from Zhongshan University warned consumers to buy frozen food only from legal markets and supermarkets and to be wary of products sold by e-commerce vendors.

A feed industry information net analysis warned that pork industry analysts are underestimating the importance of imports in maintaining supplies this year, and suggested that new precautions to prevent covid transmission could tighten supplies of meat. China imported a record 7.4 million metric tons of meat in the first three quarters of 2020, worth $23.1 billion. A Chinese Ministry of Commerce official projected that meat imports for all of 2020 will hit 9.5 mmt. By comparison, China's domestic meat output was 76.5 mmt last year. Imports could account for 10-12 percent of China's meat supply this year.

The analysis ascertained that a 2.23-mmt increase in pork imports have filled most of an estimated national pork deficit of 2.67 mmt in January-September 2020. While officials brag that the swine inventory has recovered to 84 percent of "normal", the analyst points out that the recovery has not yet boosted market supply. Low consumption and strong imports are responsible for the recent decline in pork prices, the analyst surmised.

Officials are calling for extensive testing, inspections, and disinfection of imported frozen food packaging, shipping containers, and trucks, as well as careful record-keeping of shipments to track sources and possible destinations of infected shipments. With China still severely short of animal protein, strict implementation of these measures could exacerbate the shortage, keep consumption low, and keep prices high.

China's Soybean-Buy Agreement: Embrace of the Titans

China's national grain reserve company signed a soybean purchase agreement last week that exemplifies Xi Jinping's approach to creating an "open" economy: create compliant Chinese behemoths big enough to negotiate deals that neutralize the "unfair" advantage of multinationals. 

On November 6, 2020, China's national grain reserve corporation, Sinograin, signed a soybean purchase framework agreement committing to purchase soybeans from Brazil and Argentina. Suppliers signing the agreement included the so-called "ABCD" grain traders--ADM, Bunge, Cargill, Louis Dreyfus--plus China's COFCO International, ECTP (Engelhart Commodities Trading Partners), state-owned chemical giant Sinochem, and Sinochem-owned Swiss seed/chemical manufacturer Syngenta. 

The announcement of the soybean purchase agreement was a piece of political theater to promote Xi's "opening" initiative. The announcement revealed no details of the agreement. The article's main thrust was to link the deal to Xi Jinping's speech two days earlier at the third Shanghai Import Exhibition where he announced China's role in propelling global trade by granting foreign companies access to its huge market. A Sinograin official promised that the company would engage in deep study of Chairman Xi's important directives issued at the import exhibition and push forward the Chinese government's comprehensive opening policy. 

Sinograin's web site includes one article about the Shanghai import exhibition that printed Xi's speech verbatim in large letters, promised to study and implement the plan, and concluded with a single sentence about the soybean purchase agreement.

Xi's speech at the Shanghai exhibition emphasized that China has entered a new era where its big import market will be the driver of new growth in international trade. The Xi approach to globalization is one of carefully managed trade conducted by a few controllable giant companies beholden to State sponsors making carefully orchestrated deals. It is not the classical liberal approach to free trade where governments set well-defined rules, allow chaotic laissez-faire competition to run amok, and wait to see who comes out on top. 

The soybean deal shows that the players in Xi's vision of open trade are huge multinational companies and state-owned Chinese companies conducting business in conference rooms. A giant Chinese state-owned company--Sinograin--pledged to buy soybeans from four giant multinational grain traders (the ABCDs), and essentially two other giant State-owned Chinese companies--COFCO, Sinochem and Sinochem-owned Syngenta. In the announcement, officials of both Sinograin and Cargill referenced Xi's speech directly and recited buzzwords from the speech about "deepening all-round cooperation," "innovation in foreign trade," "mutual aid," and "common development." A Sinochem official promised that his company and Syngenta would work to maintain China's national food security.

The scene for Xi's new era in grain trade was set by injecting hundreds of billions of dollars into Chinese behemoths to bloat them into a size that puts them on equal footing with multinationals. Sinograin has received unlimited bank loans for years to buy massive amounts of grain that rots in warehouses or bursts into flames when auditors arrive; COFCO was bankrolled to buy up a pair of foreign trading companies so they could source grain in the Black Sea and South America; and Sinochem blew a wad on its purchase of Syngenta, becoming an instant leader in seed and farm chemical R&D. 

Xi's "opening" initiative purportedly promises to treat big foreign companies as friends in making "win-win" deals. But behind the scenes the multinationals are feared and loathed as unfair monopolists who threaten China's interests. A recent example in May 2020 complained that four ABCDs--three of them "American" companies--unfairly control 80 percent of the world's grain trade and warned that the companies threatened China's grain industry. A July 2019 article warned that the ABCDs set grain prices and threaten China's food security. An August article celebrated COFCO's appearance alongside formidable "ABCD" competitors in the Fortune 500 (it appeared in the same publication where the Sinograin soybean purchase agreement was announced). 

Finally, it is surely no accident that the Sinograin soybean purchase agreement did not mention the United States. Xi's speech did not mention the United States by name either, but he took implied swipes at the Americans. Xi insisted that China is willing to work with any country, and he called for countries to show "trust instead of suspicion," "join hands instead of punching," and to "negotiate rather than insult."