Thursday, January 30, 2020

Coronavirus quarantine blocks feed to poultry farms

Poultry farmers in China's Hubei Province claim they are running out of feed due to transport restrictions imposed to prevent the spread of coronavirus. Hubei Province, the epicenter of China's coronavirus epidemic, is under strict quarantine. On January 28, 2020, the Hubei Province poultry farming association issued an emergency appeal to the national feed industry association requesting 18,000 metric tons of corn and 12,000 metric tons of soybean meal--a 10-day supply--to aid the survival of poultry producers. According to the letter, most of the province's "scale" poultry farms are running out of grain due to public health emergency measures that include road closures and limits on transportation to control the spread of the coronavirus. The letter said farms are facing irreparable economic losses and asked that feed companies with production capacity and transportation channels sell the feed ingredients at recent market prices and deliver the feed to Hubei.

It is unclear how companies responding to the appeal would be able to deliver the feed if roads are closed. Hubei normally raises more pigs than poultry, so it's unclear how pig farms are feeding their animals...unless the number of pigs has been decimated by last year's African Swine Fever epidemic.

Saturday, January 25, 2020

Grain Bureau Secrecy Earns Recognition

China's Grain Reserve Bureau was recognized for its "secrecy work" by the State Secrets bureau, a reminder that China's promises of "openness" and free-flow of information are still constrained by an Orwellian bureaucracy that outsiders never see.

The Administration of Food and Commodity Reserves announced on its web site that it had been designated an "advanced collective in National secrecy work," by the National Administration of State Secrets Protection. The award given in January 2019 is a recognition of the bureau's work in maintaining secrecy that is given out only once every five years. The reserves administration is responsible for overseeing the procurement, storage and distribution of government grain and cotton reserves.
In a training class held in 2019, local grain reserve officials are reminded that
the communist party dictates what information should be kept secret.
Photo from Ningxia Autonomous Region administration of grain and commodity reserves.

The grain reserve bureau's secrecy work was described as a matter of national food security and business reform. The bureau's director general, acting in his role as chairman of the bureau's "secrecy committee," issued many directives related to secrecy, heard reports, and dealt with many secrecy problems in a timely manner, according to the bureau's announcement.

"Secrecy is no small matter" was one of the instructions given to grain officials at Tianjin municipality's grain bureau attending a training session given by the director of the local State Secrets Bureau in November 2018. A similar training for grain officials in Ningxia Autonomous Region in July 2019 had a theme of "support party management of secrets, strictly handle secrets according to law." Secrecy bureau directors at both trainings advised officials of the "grim situation" facing secrecy work in the "new era."

Secrecy training is linked to a government information disclosure initiative launched by Premier Li Keqiang in 2016 that allows public requests for information similar to the U.S. "Freedom of Information Act," but secrets remain. The grain reserve bureau's web site includes regulations for setting up a secrecy review system. staffed by personnel whose chief qualification is "political quality."

For example, the State Administration of Grain and Commodity Reserves conducted a national audit of publicly-held grain reserves last year, but never released any concrete information on the amount of grain or its condition. The program for carrying out the audit included instructions to keep secret grain testing results, prevent information leaks, and to choose secrecy personnel based primarily on their "political quality."
Broken bags of aging rice in a government reserve warehouse photographed by official news media in 2017. Original source: China News Net, photo obtained from microblog.

Monday, January 20, 2020

China Grain Reserves Bulge With Weak Market

Chinese officials stockpiled more grain during 2019 to shore up sagging prices as a slow market undermined plans to jettison the stockpiles. With warehouses already bulging, it will be challenging for China to buy more American grain this year to meet its "Phase One" purchase commitment.

Chinese state news media boasted that price support policies for wheat and rice raised Chinese farmers' income by 10 billion yuan (about $1.4 billion) in 2019. The news item claimed that programs to purchase wheat and rice at minimum prices have put money in farmers' pockets by preventing farm gate prices from falling below minimum levels set by the government.

Rice and wheat stocks are at record levels and corn stocks are still "abundant" (despite a massive 3-year de-stocking program), according to a January 15 Ministry of Agriculture and Rural Affairs press conference.

Grain prices are down, despite stockpiling efforts. The Ag Ministry said grain prices in December 2019 (peak season for sales of fall-harvested grain) were down from last year. Farm prices for indica rice were down 6.3 percent from a year earlier, japonica rice prices were down 7.7 percent, and corn prices in production regions were down 2.8 percent from a year earlier. Wholesale prices for common wheat were down 4.4 percent and quality wheat prices were down 6.5 percent.

This month the National Grain and Commodity Reserves Administration also reported declines in farm gate prices for wheat (-3.1 percent), corn (-2.3 percent), japonica rice (-3.6 percent), and indica rice (-.7 percent in the two biggest producing provinces), but they were smaller than those reported by the Ag Ministry. Soybean prices were up, despite an 18-percent increase in output. (Domestic soybeans are used predominantly for high-protein food products and may be benefiting as substitutes for expensive meat.)

China farm procurement prices January 2019-2020
Commodity Location Jan 14 2019 Jan 13 2020 Change
Yuan/metric ton Percent
Wheat National 2395 2320 -3.1
Indica rice National 2525 2516 -0.4
Jiangxi 2495 2478 -0.7
Hunan 26152598 -0.7
Hubei 2491 2513 0.9
Guangdong 3521 3240 -8.0
Japonica rice National 2699 2601 -3.6
Heilongjiang 2646 2599 -1.8
Anhui 2604 2593 -0.4
Corn National 1801 1760 -2.3
Heilongjiang 1649 1638 -0.7
Jilin 1722 1711 -0.6
Shandong 1950 1931 -1.0
Henan 1857 1843 -0.8
Soybeans National 3428 3566 4.0
Heilongjiang 3425 3552 3.7
Henan 3620 4440 22.7
Source: China Administration of Food and Commodity Reserves.

With last year's grain shopping spree, de-stocking of government grain reserves slowed during 2019. The weak market appears to have undermined efforts to "optimize" stockpiles and make price support programs more market-oriented that were ordered by the "Document No. 1" issued by communist officials at the beginning of 2019. Support price programs were activated later than usual this year to give more time for private sector entities to purchase grain, but the degree of market intervention was nevertheless heavy. Price-support purchases of wheat accounted for 31 percent of all wheat procured in the six major wheat-growing provinces. A disastrous japonica rice crop and retreat of private buyers from the market in Heilongjiang prompted the provincial government to issue emergency notices to boost purchases from farmers in December, but overflowing storage bins, the short time before the holiday season, and snowfall disruptions limited the implementation of the action plan.

During 2019, officials purchased 22.27 million metric tons (mmt) of wheat and 15.2 mmt of rice at minimum prices. The combined 37.5-mmt purchases of wheat and rice were 41-percent larger than in 2018. The bigger government purchases reflect big harvests in 2019, weak demand, and downward pressure on prices in 2019. The grain goes into government warehouses where it is held until it can be sold when prices are more favorable, but few sales are made and grain has been accumulating for years.

Only 2.6 mmt of wheat held in reserves was auctioned off in 2019. That implies the stocks of wheat held in reserves increased by 19.7 mmt during 2019. One online report estimates that "policy-type" wheat reserves reached a record high of 93 mmt at the end of 2019 after dipping briefly during 2018. The stockpile of wheat reserves accumulated from market intervention is estimated to have doubled since 2015.

Auctions sold 12.6 mmt of old rice reserves during 2019, 4.05 mmt more than was sold in 2018. About half of the sales were japonica rice (6.255 mmt). Middle-late indica rice (4.88 mmt) and early indica rice (1.47 mmt) sales were nearly double those of the previous year. Nevertheless, the 12.6-mmt auction sales of old rice were less than the 15.2-mmt of purchases of new rice to prop up this year's prices, implying a 2.6-mmt net increase in policy-type rice reserves during 2019.

The formal price support for corn was suspended in 2016 when the stockpile swelled to 250 mmt or more. The 3-year disgorgement of corn stockpiles was slowed by the weak 2019 market as corn output rebounded by 3.6 mmt and demand was reduced by African swine fever and tepid starch production. Sales of corn stockpiles totaled 56 mmt in 2017 and 101 mmt in 2018, before decelerating to 22 mmt in 2019, according to data from Sinograin, the state-owned company that manages government reserves.

The slow-down in de-stocking appears to be the main impact of African swine fever on the corn market. The government is willing to keep holding the corn to prevent an even steeper fall in prices. The Ministry of Agriculture and Rural Affairs' top market analyst estimates that China's consumption of corn exceeds its production by 25 mmt, but in his judgment current corn supplies are adequate due to availability of stocks.

Saturday, January 18, 2020

Pork output down 31%, prices doubled in Q4 2019

China's Q42019 pork output was down 31 percent from a year ago and China's swine population was the smallest in 25 years, according to data released by the National Bureau of Statistics this week. The Bureau estimated that the doubling of pork prices from a year earlier accounted for about half of the 4.5-percent increase in China's December CPI.

The Bureau's January 17 release of preliminary macroeconomic data reported that 2019 pork output fell 21.3 percent from 2018. Poultry production expanded 12.3 percent year-on-year, and egg, beef, and mutton output also grew. However, the 5.1-mmt gain in other animal protein output offset less than half of the -11.5-mmt loss of pork output in 2019.

China Livestock Production, 2019
Item 2019 output
Change from year earlier
Million metric tons
Million metric tons
Pork 42.55 -11.5 -21.3
Poultry 22.39 3.0 12.3
Eggs 33.09 1.8 5.8
Beef 6.67 0.2 3.6
Mutton 4.88 0.1 2.6
Source: China National Bureau of Statistics. 

The Bureau estimated the number of hogs slaughtered was 544.9 million head (down 21.6 percent), and the swine inventory at the end of 2019 was 310.4 million head, down 27.5 percent from 2018. The Bureau's estimate of the shrinkage is significantly smaller than estimates issued by the agriculture ministry, but the swine inventory estimate is nevertheless the smallest they have reported since 1984, two and a half decades ago. The slaughter number was the smallest reported since 2002.
China National Bureau of Statistics data.

Some calculations from previous reports show that the reduction in pork output was concentrated in the second half of 2019. Pork output in the first and second quarters of 2019 was down less than 1 mmt (about 5 percent) from the same quarters in 2018. In the third and fourth quarters of 2019 pork output was down about 5 mmt from a year earlier. The year-on-year declines were -42.1 percent for the third quarter and -31.2 percent for the fourth quarter.

China's quarterly pork output, 2018-19
2018 2019 Change Percent change
Million metric tons
MMT Percent
Q1 15.43 14.63 -0.8 -5.2
Q2 10.71 10.1 -0.6 -5.7
Q3 12.29 7.11 -5.18 -42.1
Q4 15.61 10.74 -4.87 -31.2
Annual 54.04 42.55 -11.49 -21.3
Calculated from China National Bureau of Statistics reports.

Producer prices for pork were up 50 percent during 2019 and 109.5 percent in Q4 2019 from a year earlier, according to the Bureau's report.

A National Bureau of Statistics report on the December 2019 consumer price index estimated that pork prices were up 97 percent from a year earlier. The Bureau estimated that the increase in pork prices accounted for 2.34 percentage points of the 4.5-percent year-on-year increase in the December CPI.

Wednesday, January 15, 2020

Xi's Corruption Contradiction

Seven years after he launched aggressive anticorruption efforts in one of his first initiatives as supreme leader, Xi Jinping promised renewed crackdowns on corrupt officials in an "important speech" on "strict party governance" this week to the Central Discipline and Inspection Commission. The crackdown will spare no one--from low-ranking "flies" to high-ranking "tigers." Xi admonished officials to be "soberly aware of the anti-corruption fight's grave, complex, long-term and onerous nature of the anti-corruption fight."

Xi advised Communist Party officials that corruption must be investigated and severely punished because it undermines the foundation of the Party's rule. Xi promised to attack corruption in financial organizations and state-owned companies, to strengthen management of state-owned assets and resources, and crack down on fraud in medical organizations and foreign investments. He warned grass roots officials against stealing money from anti-poverty programs, and he cautioned officials against micro-corruption, shielding organized crime groups, and serving as "stumbling blocks" to policies intended to benefit the people.

Xi cited successes in the anti-corruption fight and claimed China is an example the world can learn from. Propagandists quoted admirers in Nepal, Serbia, Russia, France and Germany who expressed great enthusiasm for Xi's anti-corruption efforts. None of them questioned why corruption is still an urgent problem after seven years of aggressive rhetoric and crackdowns.

The Chinese economic model of giving communist party officials control over the commanding heights of the economy is the likely explanation. Banks, state-owned real estate, companies making multi-billion-dollar overseas acquisitions, and village collective land and businesses are owned by no one and effectively under the control of communist apparatchiks.
Villager in Gansu Province carries his dividend payment from the village collective
under the watchful gaze of communist party officials. From Farmers Daily.

This week's Farmers Daily web site provides a visual illustration of the problem. Xi's anticorruption speech is featured at top of the site's home page along with a directive to study a 6-year-old Xi speech on "sticking to historical materialism" (rural officials are the publication's main audience). The rest of the site features lots of materialism, including a big photo of stacks of cash illustrating an article about a village collective dividend distribution ceremony.

The dividend article features photos of tables piled with wads of cash tied in red ribbons for distribution to 79 families in a "poverty" village located in Gansu Province. Photos show happy villagers carrying bags of cash past village and county officials presiding over the ceremony behind a long table. The article is intended to encourage village leaders to pool collective land to capitalize cooperatives and companies, then wait for cash to come rolling in so it can be distributed to share-holding villagers as dividends. Gansu's Daoping village started a rural tourism venture, a farming cooperative, and livestock farming and e-commerce businesses in 2018. The collective has just distributed 205,820 yuan (nearly $30,000) from last year's profits to 79 village families. This was only about a third of the total of 785,000 yuan in "individual and collective" dividends distributed.
Stacks of collective dividend cash to be distributed to villagers seated in the background. From Farmers Daily.

Under Xi's policies, village, township, and county officials are getting back some of the power and wealth they lost in previous decades when communes were abandoned, collective enterprises faded away, and taxes and fees on farmers were canceled. There was no mention of how much of the Daoping Village dividend money was derived from anti-poverty subsidies, earmarked bank loans, farming subsidies, sightseeing trips to the village organized by other government officials, or from investments in poor regions by outside companies made at the suggestion of provincial officials. With so much cash under their purview, the temptation to skim or divert some of it is strong and ever-present. As subsidies swell and more assets move into the control of officials, the opportunities for corruption expand and crackdowns strengthen in a vicious circle.

Thursday, January 9, 2020

China's Grain Industrial Policy

China aims to create a modern grain processing industry by linking up farms with world-beating companies, raising the quality of products, and creating powerful brands. Subsidies and guidance from officials are expected to create strong Chinese companies with premium high-end products to compete with multinational companies under the guise of preserving China's "food security."

According to Economy Daily, China's objective is to establish a modernized grain industry system with "green" high-end products, world-class internationally-competitive companies and stronger food security by 2025. The program is designed to overhaul China's grain sector which is geared toward producing mass quantities of generic grain, reduce losses from mold and deterioration in bins and warehouses, reduce contamination from pollutants and pesticides--and catch up with the more discerning tastes of Chinese consumers for higher quality and safer products. The program includes billions in spending as well as thousands of government officials orchestrating investments and supply pipelines.

Official news media attribute the grain industry development project to Xi Jinping's food security directives issued during inspections of grain-producing provinces. The State Council's 2017 "Opinion on speeding up progress in agricultural supply side structural reform by greatly developing the grain industry economy" ordered more support measures for China's grain processing industry to simultaneously maintain food security, stimulate local economic development, and strengthen the position of Chinese companies in global food markets.

During 2017-19, the central government budgeted 20 billion yuan (about $3 billion) which stimulated an additional 45 billion yuan (over $6 billion) of local government and private investment in construction of post production services (drying, cleaning and storing grain), quality inspection facilities, and a "China Good Grain and Oils" action plan to nurture companies producing safe, high-end, premium-priced products. Henan Province alone claims to have spent 6 billion yuan on its grain industry project since 2012.

Xi Jinping gave the grain industry initiative further impetus and prestige at the March 2019 Peoples Congress by issuing instructions to the Henan Provincial delegation to raise the core competitiveness of the grain industry by extending industry chains, and increasing quality premiums for grain products to achieve national food security and create modern, efficient agriculture.

Three cities have been identified as models for grain industry development: Binzhou, Shandong Province (corn processing, wheat flour), Wuchang, Heilongjiang Province (rice), and Luhe, Henan Province (wheat flour). 30 of China's 31 provincial governments issued policy measures and plans to promote their grain processing industries.

Official propaganda emphasizes guidance by the "invisible hand" of the market plus the "visible hand" of the government. China's Administration of Grain and Commodity Reserves takes the lead role in the "baton role" by holding meetings to match up grain-producing provinces with grain-deficit provinces to form "long-term" supplier-pipeline relations. Grain processors are directed to form production bases in farming regions and dictate quality specifications through contract purchases. Government officials are encouraged to perform by incorporating grain industry statistical indicators in job evaluations for provincial officials.

Henan Province's grain and commodity reserves bureau said the grain industry project will receive favorable access to land, discount electricity rates, and additional funding. The province has 23 "good grain and oils" demonstration counties and 17 model companies, and a model low-temperature storage facility. Henan will draft a five-year plan for grain industry development, include peanuts, sesame, and tea oil seeds in the program, create brands, and nurture a set of large grain and oils processing firms. A "big group" of "zombie" state-owned firms have been "rescued" by the program.

The plan also has a "global vision" to create a set of large, profitable international grain-trading companies. Grain companies will be actively encouraged to "go out" to invest abroad. Henan's grain reserve bureau says grain companies will be actively encouraged and supported with help from the "Belt and Road" initiative to follow the path of "internationalized brands" to get more Henan products on the world's dining tables. Economy Daily says China will participate in international exchanges and set trading rules to gain "discourse power" in world markets.

Thursday, January 2, 2020

China Will Phase Out Antibiotics in Feed in 2020

China plans to phase out growth-promoting antibiotics in livestock and poultry feed during 2020. China's livestock farmers will no longer be allowed to substitute chemicals for careful management and animal nutrition, and the move is likely to push more small farmers out of the industry--if it can be enforced.

In July 2019, China's Ministry of Agriculture and Rural Affairs issued announcement no. 194 that calls for stopping production, import, commerce, and inclusion of sub-therapeutic growth-promoting antibiotics in animal feed during 2020. Production and import of the drugs is to be suspended as of January 1, 2020, and production of feed additive products containing growth-promoting antibiotics must cease by July 1, 2020. Feed products that have already been produced can be marketed until the deadline of December 31, 2020. The Ministry will also revise standards and work out a regulatory system with the goal of removing growth-promoting antibiotics from use in feed while allowing antibiotics use for disease prevention.

An article in China's Science and Technology Daily explained that the ban is motivated by concerns about drug residues in animal-sourced food and the growing problem of bacteria resistance due to excessive use of antibiotics. A Yangzhou University Professor said that 90 percent of antibiotics are used in livestock and poultry production worldwide. China had already formulated a 2016-2020 action plan to stop bacteria resistance and a 2017-2020 plan to stop bacteria resistance in animal production.

Science and Technology Daily acknowledged that China's agriculture has been seriously impacted by animal diseases and pests, including the African swine fever epidemic and the spread of fall army worm which caused severe losses for some farmers. The paper concluded that Chinese farmers face a challenge of maintaining their industry's development while also preserving food safety and public health. The paper advocated study of more precise testing methods for drug residues and pathogenic bacteria and use of bacteriophages to fight super bugs.

The Yangzhou University Professor said that, "scientific use of medications is still the last word." He went on to emphasize that the ban on antibiotics in feed is a signal to farmers to concentrate on raising animal health and nutrition, adjusting feed nutrition plans, and choosing new types of "green" additives. Farmers must improve farm management and biosafety and build a program to replace antibiotics.

A survey of 100 feed companies by China's Feed Information Network in October found that feed manufacturers were "relatively calm" in the face of the coming ban and exploring antibiotic-free products. Nine percent said they were under pressure from the ban and 61 percent of companies said they were under "some pressure," while 30 percent said they were not under pressure. Forty-three percent of feed companies said they already have antibiotic-free products on the market, 45 percent said they are still doing R&D but have no products on sale, and 12 percent said they are looking into it.

Most feed manufacturers anticipated an increase in feed costs after the ban takes effect. The most common estimate was an increase of 30-100 yuan/tonne (by 64% of respondents), which translates to roughly 1-3 percent based on average prices for compound feeds and less than 1 percent for feed additives. Over 20 percent thought the increase would be more than 100 yuan/tonne, including nearly 5 percent who said the price would rise more than 300 yuan/tonne. Only 12 percent thought there would be no change.

Chinese feed manufacturers' estimates of increase in feed costs after ban on sub-therapeutic antibiotics
Yuan/tonne Percent of responses
No change 11.4%
10-30 yuan 4.6%
30-100 yuan 63.6%
100-200 yuan 6.8%
200-300 yuan 9.1%
over 300 yuan 4.6%
China feed industry information net survey of 100 feed manufacturers.

Acidifiers were the product most often identified as a substitute for antibiotics. Probiotics were identified by 67.8%; functional enzyme preparations by 62.7%; plant-based essential oils by 59.3%; plant extracts by 52.5%; antibacterial peptides by 45.76%; Chinese herbal preparations by 39%; medium/short-chain fatty acids and yeast products 37.3%; and oligosaccharides by 28.8%.