Canadian pork expedited to Wuhan

Canadian pork will reach Wuhan consumers in record time as customs and port authorities concentrated their efforts to expedite the shipment.

According to Chinese State T.V., six refrigerated containers of chilled pork purchased by China's State-owned COFCO Group reached Shanghai's Yangshan port on March 28 (Chinese video here). State-owned shipping company COSCO's general manager said their "direct service" shortened the time from factory to consumer. The meat's journey from Canada's Vancouver port to Shanghai took 14 days.

Shanghai port inspectors check Canadian pork against electronic documents.

The port prioritized unloading, documents were transmitted directly to customs officials, and a special inspection area was set aside to achieve a "zero waiting time" process. The containers were on their way to Wuhan 24 hours after arriving at the Shanghai port.

China's 2020 Agricultural Worries

Agricultural worries threaten to undermine China's grand plan to eliminate rural poverty in 2020. Journalists warn that Chinese farmers need higher subsidies to prevent them from abandoning grain production, and rice and soybean supplies from abroad could be interrupted during the covid-19 crisis. African swine fever has decimated pork supplies, spring weather conditions look bleak, fast-moving "fall army worms" threaten to gobble up crops, and desert locusts are swarming on China's back doorstep in South Asia. An already-fragile spring planting period may be worsened by disruptions of farm input distribution and displacements of labor due to covid-19 lockdowns.

The communist party's "Document No. 1"--composed last December but not released until early February--focused on "resolutely win[ning] the war on poverty" and achieving a "comprehensive all-round well-off society" in the target year of 2020. The document contained initiatives to narrow the urban-rural income gap, build rural infrastructure, improve services for rural people, clean up the countryside, treat rural migrants more fairly, and improve governance of villages. During the peak of China's covid-19 epidemic in February, Xi Jinping wrote an "important article" in the communist party journal "Seeking Truth" that admonished officials to keep working to win the war on rural poverty while fighting the virus, an indication of its high priority.

Also in December, an article warning about an emerging crisis in agriculture appeared in the communist party magazine Outlook. The article noted that China now has just 5 provinces that can supply surplus grain to the rest of the country, down from 13 in the early 2000s. The authors warned that weather problems and natural disasters were becoming more common, and agricultural insurance does little to compensate for risks. The article mentioned heavy rains in southern China that severely affected the late-season rice crop last fall. They observed that many farmers that consolidated plots of land into large operations abandoned their farms because low grain prices did not provide enough income to offset rising land rents, labor costs, and input prices. The authors reported complaints that subsidies are insufficient to give farmers incentives to produce, and claimed that governments of agricultural counties don't have money to invest in farming infrastructure and land improvements.

One paragraph of the No.1 Document echoed concerns in the Outlook article demanded that officials maintain food security as a top priority. It called for giving grain production performance stronger weight in provincial officials' job evaluations, promised to "improve" farm subsidies and "adjust" minimum prices for rice, demanded that each province keep grain-planting stable this year, and recommended improvements in transfer payments to finance county-level grain programs and land improvements.

News articles appearing in March 2020 reiterated the warnings about low returns for farmers, complaining that the price of 500g of grain is less than the price of a bottle of water. Another article purportedly based on an investigation in northeastern provinces pronounced that "reduced enthusiasm of farmers is an indisputable fact" and claimed that farmers who get only 10 percent of their income from farming have slacked off on grain production. They do the bare minimum, "relying on heaven to eat," even though they don't leave many fields completely untended. The articles warned about wet conditions and crop residues left on fields that nurture pests and clog irrigation ditches in the northeast and cautioned that conditions have heightened risk of widespread stripe rust in winter wheat. Both articles called for increases in farm subsidies and broader coverage of more crops and regions.

On March 20, the Ministry of Agriculture and Rural Affairs issued its second open letter to "farmer friends" urging farmers to rebound from the coronavirus epidemic, act quickly to plant spring crops, and carry out pest and plant disease prevention measures. In February, officials announced an increase in rice prices and urged farmers to resume double-cropping rice. In March, an officials hinted at higher subsidies for farmers in a videoconference on spring agricultural work. Soon after, China's top grain-producing province announced an increase in corn subsidy payments for this year's crop, and government-controlled granaries in the same province announced the highest price for domestic soybeans seen in years.

Chinese news media are bipolar regarding news of curbs on exports by some countries and disruptions in South America, wondering whether food will become scarce like facemasks while reminding readers the turbulence in world markets validates China's self-sufficiency policy and reveals the risk of over-reliance on soybean imports. Chinese officials say they are unperturbed by Vietnam's recent restraints on rice exports because China's rice imports went down last year and China has plenty of grain stockpiled. But when Chinese officials deny there's a problem, it usually means they are worried. A securities news article says news of export bans and port disruptions have caused a surge in stock prices for some agricultural companies, but rushes to point out that supermarket prices are stable and domestic commodity prices are making modest rebounds from historic lows.

China's pork shortage--due to an African swine fever epidemic that broke out in 2018--prompted an entire paragraph in this year's No. 1 Document. It called for a crash program to restore hog production capacity by the end of 2020 and prevention of the disease that caused the shortage. The National Bureau of Statistics said consumer pork prices in February were up 135 percent from a year ago and estimated that pork accounted for 3.19 percentage points of the 5.2-percent year-on-year increase in China's CPI. The agriculture ministry posted a universally-ignored report that 8.3 million hogs were slaughtered at designated slaughterhouses in February (many were closed during the virus epidemic's peak), the lowest monthly total since they began reporting these figures in 2010. The agriculture ministry claims sow numbers have increased 5 months in a row, but the ministry stopped issuing its monthly reports on swine inventories last October--the first interruption of these reports since 2010. Only four six occurrences of African swine fever have been officially reported this year (all in March): two three instances of infected piglets trucked into the biggest hog-producing province, and two cases of infected pig trucks in Henan and Inner Mongolia, and a reports of infected wild boars in a National Forest in Hubei, just across the on different sides of a provincial border about 50 km from where infected wild boars were found in December. These reports suggest risk of the virus moving around the country persists, yet officials have reported no infections of farms. The government says it has spent 444 million yuan on interest subsidies for swine farms, 3.77 billion yuan for aid to swine-producing counties, and 371 million yuan for swine-breeding subsidies. Officials advised banks to accept live pigs and barns as loan collateral and encouraged Chinese companies to raise pigs overseas in places like Vietnam and Argentina.

Chinese officials are worried about the spread of fall army worms, a moth/caterpillar that entered southwest China from Myanmar for the first time last year. Control of army worms was also a priority mentioned in this year's Document No. 1. The army worms spread over 160,000 ha. in 20 provinces of China in 2019, but aggressive spraying with pesticide minimized impact on crops. In 2020, the deputy director of China's Academy of Agricultural Sciences estimates the damage to crops could be more severe as army worms begin their northward spread in March and could reach the major grain-producing regions of the northeast by June. China's national pest monitoring network has forecast that fall army worms may cause damage to 6.7 million ha of cropland (about 5 percent of the total). Pest control is such a worry this year that Premier Li Keqiang held a meeting of the Standing Committee of the State Council in March to discuss monitoring, prevention and emergency management preparations. On March 25, the Ministry of Agriculture and Rural Affairs sent teams to investigate the army worm and wheat stripe rust situation in Henan, Chongqing, Sichuan, Guizhou, and Shaanxi Provinces.

Chinese officials also have their eye on devastating "desert locusts" that have spread from East Africa through the Middle East to South Asia. In the midst of China's coronavirus crisis on February 25, a team of Chinese agricultural experts was deployed to Pakistan to advise counterparts there on how to control the swarms that have been stripping fields of crops such as cotton, chickpeas, and rapeseed. The Chinese team's recommendations were mainly to monitor the locusts with drones and human observers and douse them with pesticides. China promised to send 250 tons of malathion pesticide and 42 heavy duty sprayers by the end of April. Another team planned to visit East African countries in April, but their trip had to be postponed due to the coronavirus situation. While these trips are portrayed as foreign aid projects, a detailed article reveals the trips are part of a strategy to monitor the locusts at their source to prevent them from entering China. Scientists say publicly that natural barriers such as the rain forests in Myanmar and the Himalayan and Kunlun mountain ranges will probably keep the locusts out of China, but monitoring stations have nevertheless been set up in Yunnan, Tibet, Xinjiang and even in parts of inland Sichuan Province.

On March 27, the agriculture ministry dispatched a work team to Yunnan Province's Pu'er district along the border with Laos to check on monitoring and biological controls for army worms and 15 monitoring points for desert locusts. The team was also ordered to check up on a key reservoir and look into how drought is impacting fruit trees and tea plantations in the Pu'er region.

U.S. Soybeans: State-owned Customers in 2019

China's State-owned companies significantly increased their purchases of U.S. soybeans, while other Chinese companies bought mainly from South America last year.

China's customs data show that soybean imports by Beijing-based companies--which include state-owned COFCO, Sinograin, and Chinatex--reached 22 million metric tons last year--10 mmt more than they had ever imported in previous years. Meanwhile, imports by companies registered in other Chinese provinces dropped by a nearly-equal amount of 9.7 mmt. Beijing-based companies accounted for nearly 25 percent of China's soybean imports last year, about double their share in earlier years.

Another cut of the data shows that the boom in Beijing soybean purchases reflects a shopping spree for U.S. soybeans. Beijing companies bought 14.1 mmt of U.S. soybeans in 2019, up 11.9 mmt from the 2.2 mmt they purchased during 2018. Beijing-based companies' purchases of South American soybeans dropped by about 2 mmt.

In contrast, companies headquartered in China's two biggest soybean-crushing provinces continued to shun U.S. soybeans. Jiangsu and Shandong Provinces have the country's largest crushing capacity, and most of it is operated by multinational and private Chinese companies. Jiangsu-Shandong imports of U.S. soybeans dropped from 6.2 mmt to 1.3 mmt between 2018 and 2019. Last year, no U.S. soybean imports arrived in Shandong or Jiangsu from March to October. Most of Jiangsu-Shandong's soybean imports came from Brazil last year.

Imports by state-owned companies can be identified using the China's customs administration database which allows users to tabulate imports by the province where the importer is registered. The province where the importer is registered only loosely corresponds to the location of imports. (China no longer reports the customs district where imports actually arrived.) Companies registered in Jiangsu and Shandong Provinces have the most soybean crushing capacity and they account for the largest share of imports in most years.

Last year companies in Beijing and Shanghai accounted for a large share of imports although there is not much crushing capacity in those regions. Shanghai is the location of trading companies. Beijing companies COFCO, Chinatex, Sinograin are among the leading crushers that import soybeans for their facilities in coastal provinces from Liaoning to Guangxi. Sinograin is a major crusher and the manager of national grain and oilseed reserves. There is no indication of whether all the American soybeans were crushed or stored in government reserves. Beijing companies imported U.S. soybeans each month from February to December. The unit values of U.S. soybeans they imported were reported to be $17-27-per-ton less than Brazilian soybeans from September to December.

Overall, China appears to use about half of its crushing capacity. Agri.sci99.com reports that crushing capacity was 172.93 mmt at the end of 2019, about double the volume of soybeans imported and domestic soybeans crushed. Sci99.com said four new soybean crushing production lines were added in Sichuan and Liaoning Provinces last year. Crushing capacity has been growing at a slower pace than earlier in the decade, but imports have been flat, indicating a gradual decline in capacity utilization.

Dots indicate crushing capacity; bars show the volume of soybean imports.

Chinese soybeans grown in Russia want subsidies

Distant observers presume that China can easily grow more soybeans in Russia to replace imported  American soybeans. On the ground there are a lot of obstacles to overcome, and Chinese farmers accustomed to pervasive subsidies at home are requesting financial aid and more efficient customs clearance to help them with their ventures in Russia. They also want relief from tariffs and taxes on imports designed to insulate domestic crops from imports.

The June 2019 "strategic partnership" agreement between Russia and China included a provision to promote production and trade in soybeans between companies in China's northeastern Provinces and Russia's Far East and Baikal Regions.

In July 2019, China's customs authority gave a "green light" by approving imports of soybeans from all parts of Russia. This was quickly followed up by a 4,400-metric-ton shipment of soybeans to the Jiangsu Province port of Nantong arranged by the two countries' agricultural behemoths, COFCO and Rusagro.

This blog first wrote about the topic in 2015 when imports from Russia first started to become significant. Customs data show imports of Russian soybeans for the October-September marketing year ratcheted up from just 15,000 metric tons in 2013/14 to 322,000 mt in 2014/15. Imports leapt to 756,000 mt in 2017/18 and dropped to 737,000 mt in 2018/19. Imports in October-December 2019 totaled 139,000 mt, up from 34,000 mt in the same period of 2018.

Chinese State media describe soybeans as a "test plot" for China-Russia agricultural cooperation. More than 70 companies from Heilongjiang Province already grow soybeans in Russia and there are eight foreign agricultural "industry parks" covering an area of 9 million mu (600,000 hectares), according to a report last year from China's Xinhua State media outlet. Dongjin Group--based in Heilongjiang's capital Harbin--was said to be planning a 1.4-billion-yuan ($200 million) investment in a 200,000-hectare "super modernized farm" in Russia's Far East. Other initiatives include the Huaxin China-Russia modern agricultural industry cooperation area and the Heihe Fengzhong Russia Amur agricultural industry park in Russian Far East, both of which are said to enjoy "favorable policies."

A March 2020 article appearing on a Chinese site for news about Russia notes that the cross-border soybean trade calls for subsidies to address a number of difficulties that still impede Chinese farms in Russia and transport of soybeans into the home market. The article says China's trade tensions with the United States prompted Russia to offer 1 million hectares of land and favorable financing for Chinese investors to grow and process soybeans. The article acknowledges that soybeans from Russia alone could not come close to filling China's 90-million-ton deficit.

The attributes of Russian soybeans appear to position them as competitors for domestic Chinese soybeans, not as replacements for beans imported from the Americas. The Russian soybeans are said to be non-GMO and high in protein, making them suitable for food products like tofu in the Chinese market. Their oil content is said to be about 3 percentage points lower than U.S. and Brazilian beans, making them less suitable for extracting cooking oil.

Costs of transporting soybeans and clearing customs are pressing concerns for the Chinese companies bringing them home from Russia. They travel 100-to-200 km on aging, winding roads from Russian fields to border crossings. Train cars are in tight supply, so most Russian soybeans are brought into China by truck. The transportation cost is reported to be 100 yuan (about $14-to-15) per metric ton.

Clearing customs and inspections at the border is a bottleneck. According to Russians, about 80 percent of the trucks at border crossings are Chinese. The Russian inspection stations at crossings in remote regions have few officials. Their strict inspections are said to take half an hour or longer.

Border crossings from Russia to China. Image from Google maps.

The article estimates that only 10-15 trucks are processed per day at the Tongjiang crossing over the Amur River. Tongjiang is one of the chief points of entry for Russian soybeans, handling 68,000-to-109,000 metric tons annually during November-April. Two years ago, Tongjiang officials on the Chinese side sent a letter to their Russian counterparts in the Jewish Autonomous Oblast Economic Bureau requesting faster customs clearance to address the "urgent need of enterprises." Two years later, this article says long lines and hours-long waits are common. It calls for upgrades of infrastructure and services at border crossings. The article also complains about "intangible costs" (bribes?).

A railroad bridge at Tongjiang is a flagship project signifying Russia-China cooperation that has been in the works for a decade. The bridge was half-completed for years as China promptly built three-fourths of the bridge from their side, but the Russians were delayed by squabbles over contractors, inflated costs, and a plunge in the value of the Russian currency. The two sides of the bridge were connected last year, but it is not quite complete. The Amur River is choked with ice during the long winter months when soybean freight peaks. The first highway bridge connecting Russia and China at Heihe was completed last year. (Iron ore and natural gas appear to be the main commodities targeted for trade on these routes.)

The Amur River is choked with ice at the Tongjiang border crossing. 
The road crossing on the Russian side appears uninhabited with small, twisty roads. 
The unfinished rail bridge is to the right. Image from Google maps.

State news media have reported for years on upgrades of customs clearance and inspection capabilities at these border crossings, but Chinese soybean importers still complain about lack of coordination between customs and foreign exchange bureaus on the China side. It sounds like customs officials have to send information on shipments to the foreign exchange bureau to release foreign currency to pay for the shipments, and this reporting system often breaks down. The article recommended improvements in data-sharing and electronic transmission of forms between customs, foreign exchange bureaus, banks, and commercial bureaus.

The local government of Tongjiang gives a subsidy of 20 yuan per metric ton of soybeans returned from Russia to help with the costs of transportation. However, Chinese soybean merchants say the subsidy needs to be higher to encourage enterprises to ship more soybeans.

The article also complains about lack of government support for Chinese farms in Russia. It complains that only high-profile projects like industrial parks and model companies (such as the super-farm project mentioned above?) receive support. Microenterprises and small businesses can't apply. The article complains that support is only piecemeal and ticks off a laundry list of activities that need government support: investment, financing, labor expenses, agricultural insurance, storage, processing, and distribution.

Soybean farmers are attracted to Russia by cheap land and lower expenses for some other items, but many have cash flow difficulties. Chinese farmers mostly have to self-finance input costs paid early in the growing season because production credit is not widely available. Some Russian banks will lend to Chinese farmers, but borrowers must supply Russian property as collateral and only 50-to-60 percent of the value is accepted as security for loans. Three-year loans have an interest rate of 17 percent and higher, about double the rate charged by Chinese banks, they say.

The article complains that taxes are too high. Imported Russian soybeans are charged the same 3-percent tariff as other soybeans, plus an "import tax" (probably referring to value added tax assessed on the gross value of imported soybeans) of about 10 percent. The article suggested preferential tax treatment for soybeans produced abroad by setting a lower rate, giving a tax rebate, discounting the value of bartered goods, or giving credit for labor, transportation or machinery expenses.

The article doesn't mention it, but the preponderance of Chinese farming ventures in Russia are run by companies or people associated with the system of State farms in Heilongjiang Province that were established as military outposts 60 years ago to populate borders threatened by Russian incursion. State Farm 209 is not far from Tongjiang, and villages in the area have names like "Victory," "Pioneer," and "East Wind." The Russian side of the border appears to be wilderness.

Long propped up with subsidies and bank credit, China is now trying to turn its State farms into money-making agribusinesses. They have also been tagged as models for overseas farming investment, but they often flounder when they venture abroad without the i.v. drip of state bank loans and help from friendly government officials.  (Beidahuang, the flagship company of the Heilongjiang State Farm system, had a high-profile venture to grow soybeans in South America a decade ago that quietly disintegrated.) It turns out that the Chinese agricultural model doesn't travel well.

The main threat of the soybean ventures appears to be incursions of Russian territory as China effectively colonizes its distant, empty Far East. But that's a story for another time.

Poultry Surge Eased China Feed Decline in 2019

The decline in China's animal feed output during 2019 was relatively modest in comparison with the plunge in pig numbers as a surge in poultry feed offset part of the decline.

Two out of three data sources say China's feed output dropped in 2019. China Feed Industry Association numbers say feed output fell 3.7 percent while the Alltech global feed survey estimates the decline at 10.6 percent. China's National Bureau of Statistics is the outlier with a 1.2-percent increase. The estimates covered a wide range of nearly 100 million metric tons between Alltech's estimate of 167.9 mmt and National Bureau of Statistics estimate of 261.8 mmt. Chinese feed statistics are more like impressionist paintings than engineering blueprints, so don't expect any precision from these numbers.

Measures of China's animal feed production, 2019
Source	2019 output	Growth
	MMT	Percent
China Feed Industry Association	228.9	-3.7
China National Bureau of Statistics	261.8	1.2
All-Tech global feed survey	167.9	-10.6

The Feed Industry Association's decline in feed output is broadly consistent with trends in China's official meat production data. Feed output had been on the rise since 2016, despite stagnation of meat output. The 3.7-percent decline in feed output during 2019 was about a third of the 11.3-percent decrease in meat output last year.

Swine feed led the decline, with a 26.6-percent drop in feed output. Feed for piglets (-39.2 percent) and sows (-24.5 percent) fell faster than feed for fattening hogs (-15.9 percent). Feed for meat poultry grew 21 percent and meat poultry feed output of 84.65 million metric tons exceeded the output of swine feed (76.63 mmt) for the first time, as many Chinese farmers stocked their empty hog barns with ducks and chickens. Feed for layers grew 9.6 percent. Feed for ducks grew faster than feed for chickens. All together, poultry feed accounted for half of China's feed output last year, according to the feed industry association's numbers.

Feed for beef cattle grew extremely fast (32.5 percent), and feed for sheep also grew at a robust rate (7.8 percent). Feed for dairy cattle and aquaculture was relatively stagnant, with growth of less than 1 percent.

China industrial feed production, 2019
Type of livestock	Production	year-on-year change
	Million metric tons	Percent
All	228.85	-3.7
Hog	76.63	-26.6
Fattening hogs		-15.9
Piglet		-39.2
Sow		-24.5
Layer poultry	31.17	9.6
Chicken		1.8
Duck		27.2
Meat poultry	84.65	21.0
Chicken		17.9
Duck		25.2
Ruminant	11.09	9.0
beef cattle		32.5
dairy cattle		0.8
sheep		7.8
Aquaculture	22.03	0.3
Other animal feed	2.42	29.5
Pet food	0.87	10.8
Source: China Feed Industry Information Net.

Changes in feed output exceeded changes in official estimates of animal protein output. The 26.6-percent decline in swine feed was faster than the 21.3-percent decline in pork output reported by official statistics for 2019. The increases in poultry feed also outpaced the increases in poultry meat and egg production. Beef output went up just 3.6 percent, much slower than its feed output. Sheep feed growth far exceeded the increase in mutton output. Aquaculture feed production and output of cultured fish/shellfish both point to stagnant production last year.

China's scramble for piglets inflates prices

With obscene profits to be made, China's swine farmers are scrambling to buy scarce piglets, driving their prices to crazy-high levels. Soaring piglet prices are the most obvious indicator of a ballooning cost structure that is likely to lock in ever-higher Chinese meat prices for the future.

While live hog prices have come down slightly in early March, the price of piglets is still rising. The Ministry of Agriculture's average wholesale price for a piglet in the last week of February 2020 was RMB 84.07/kg, up RMB 9/kg from the first week of January and RMB 60/kg higher than the price in February 2019. One article reports prices of RMB 1700-1800 for a 7-kg piglet. Another article reports prices of over RMB 2000 for 15-kg piglets and comments, "While you've been buying face masks, giant pig farms have been scrambling to buy pigs." Wens Company, China's largest swine producer, announced it will award managers a cash bounty for every piglet they buy through the end of 2020.

China Ministry of Agriculture weekly wholesale prices.

Crazy-high piglet prices are driven by a simple equation of tight supplies, fat profits from finished hogs, and companies eager to grab market share as the industry rebuilds after the 2018-19 African swine fever epidemic. Many farms sold most of their herd during the spring festival holiday. Restocking of farms has been delayed by the shortage of pigs and by disruptions of commerce and transport during the novel coronavirus epidemic. Disruptions are easing, but piglets are still scarce.

The Chinese swine industry--egged on by government officials desperate to maintain pork supplies--has taken shortcuts that will likely prolong the recovery and lock in low productivity and high prices for the long run. One commentator notes that the four-month increase in sow numbers reported by the Ministry of Agriculture last month was achieved by farms holding back female swine that had been intended for finishing barns to breed them as piglet-producing sows. One commentary estimated that 40 percent of piglets are being produced from these converted sows.

The shifting of pigs from "meat to breeding" yields a quick bump in inventory statistics and quick profits for farms, but it also dilutes the quality of the herd. In normal times, sows are bred carefully to increase litter size, improve maternal qualities, produce a large number of litters, and to turn out vigorous and muscular offspring. Commentators observe that these "third generation" animals intended as meat animals do not recover as rapidly after giving birth, and many farms are culling them after their second litter. This means more animals need to be held back as replacements, further constricting the supply of meat animals, increasing the cost of feeding and housing a larger proportion of sows, and prolonging the industry's recovery.

The drying-up of live pig imports over the last two years is another indicator of Chinese herd neglect. Chinese breeders normally bring in a small but steady stream of purebred animals purchased from breeders in North America and Europe to renew the nucleus herd of Durocs, Yorkshires, and Landrace pigs. These animals are bred and multiplied to become highly-productive commercial sows. Surges of pig imports have occurred after previous epidemics of PRRS and PEDv, but customs statistics indicate China's imports of live swine during 2019 were just $3 million, the lowest value in 15 years. Monthly data show that imports of live swine stopped after September 2018--except for a single shipment of Danish pigs in August 2019. The timing corresponds to the onset of ASF and trade tensions with the United States and Canada--the two main suppliers of China's live pigs in 2017 and 2018.

Source: China customs data.

The cost of piglets normally rises faster than the price of live hogs when the industry is in expansion mode, and their prices fall when the industry is in retrenchment. Over time, however, the price of piglets has been ratcheting upward and consuming a greater share of hog production costs, especially as the rise in feed and labor costs has been curbed since 2013.

Costs of "above-scale" farms reported by National Development and Reform Commission surveys.

Piglet prices rose to more than double live hog prices during periods of high demand during 2007-15, and they tended to settle at a ratio of 1.5 times hog prices in "normal times." Since 2017, piglet prices have risen to 1.5 times live hog prices during periods of peak expansion, while the "normal" ratio has ratcheted up to double the live hog price. In late February piglet prices per kilogram were 2.2 times live hog prices. The rise in piglet prices may reflect improvements in quality of the animals, but it probably also reflects a rising cost structure on the more sophisticated breeding and multiplier farms that are prevalent in China now and an inability to churn out piglets fast enough to keep up with the industry's demand.

Ratios calculated from Ministry of Agriculture wholesale prices.

There are no data on other pig farm costs, but they are probably escalating as well. Land is a frequently-cited barrier to the current swine industry recovery, and you can be sure local officials are extracting high rents from newly-built pig farms on rural collective land. Scarce laborers not keen on being confined to pig farms for weeks at a time are surely demanding higher wages from farm bosses. Truck drivers have been demanding higher rates during the coronavirus crisis--and there's a good chance those rates will not go back to their original level after the crisis passes. For now, swine farmers making huge margins may be willing to pay the higher costs, but those higher costs may become a new normal and lock in for the long term.

This boils down to lower productivity, a higher cost structure, and a ratcheting upward of pork prices for the long-term in China. Only large farms that can spread costs over large volumes will be able to survive when hog prices fall back toward normal levels. Watch out for griping about "unfair" competition from foreign pork and nontariff barriers when Chinese hog prices eventually start to drop.

Puzzling Rice Policy Reversal

China announced an increase in its minimum price for indica rice and is encouraging production of the early-season rice crop that are reversals of recent rice policies. The early-rice directive is alternately viewed as a measure to stem the decline in rice output and as a countercyclical rural employment program for migrant workers trapped in their villages. This year's policy also includes an apparently symbolic upper limit on rice procurement that might be a gambit to bring the minimum price policy into compliance with WTO rules without making any material changes in the program.

A notice on this year's minimum prices for rice issued February 28 by the National Food and Strategic Reserves Administration announced minimum prices of 2420 yuan/metric ton for early indica rice, 2540 yuan/metric ton for middle and late indica rice, and 2600 yuan for japonica rice. The indica (long grain) minimum prices were raised by 20 yuan/mt from their 2019 values. These were the first increases in minimum prices since 2014. The japonica (medium grain) price was the same as last year.

China's minimum prices for rice, 2015-20
Year	Early indica	Middle-late indica	Japonica
2015	2700	2760	3100
2016	2660	2760	3100
2017	2600	2720	3000
2018	2400	2520	2600
2019	2400	2520	2600
2020	2420	2540	2600

The announcement also introduced a 50-million-metric-ton upper limit on annual procurement of rice at minimum prices. Limits are 20 mmt of indica and 30 mmt of japonica rice. The first 45 mmt of procurement can be purchased from any of the eligible provinces, but the final 5 mmt will be allocated among provinces based on unspecified needs for procurement. The document did not specify whether the limit will be based on the calendar year or marketing year (fall rice procurement typically runs from October to February, overlapping calendar years).

The upper limit on rice procurement is unlikely to be binding since China has never procured 50 mmt of rice at minimum prices. The largest volume ever procured through the program was 40 mmt in 2013; only 15 mmt was procured during 2019. (A similar upper limit on procurement of wheat at minimum price that exceeds past procurement volumes was also introduced for 2020.) So why bother imposing this limit? The limit may be intended to bring China technically into compliance with WTO rules for domestic support. By introducing the limit, China might declare that only 50 mmt of rice is "eligible" to be purchased at minimum prices, a sleight of hand that could alter the arcane domestic support calculations in a way that reduces the value of price supports reported to the WTO without making any actual changes in the program.

Another reversal of recent rice policy was issued in a February 18 State Council statement that encouraged revival of double-cropping of rice. The statement was attributed to Premier Li Keqiang. Since the 1950s China has intermittently encouraged farmers to grow 2 crops of rice on the same land when grain supplies were tight--an early crop planted in the spring followed by a late crop harvested in the fall. The policy has been reversed several times during supply gluts. In the last few years officials had embraced the decline in double-cropping of rice because the early-season crop is shunned by consumers, requires a lot of labor and water, and is unprofitable for most farmers.

There are two competing interpretations of the double-cropped rice revival. An article on China Grain Net thinks the reversal was stimulated by alarm over statistics showing a 1.2-percent decline in rice output last year and a drop in area planted to less than 30 million hectares. Area planted in early rice dropped 7.1 percent and early rice output fell below 30 mmt for the first time since 2004. The anonymous author reports that production of the early-season rice crop plunged 40 percent or more in a county in Jiangxi Province where he/she conducted a survey last year, due to high costs, lack of labor, and clogged irrigation ditches.

A China BRICS analyst connects the resumption of double-cropping to the coronavirus crisis. He notes that China has no shortage of rice and speculates that the encouragement of early rice production is an employment policy meant to absorb the labor of migrant workers stuck in their home villages because they are unable to return to their jobs.

A February 25 directive issued by Xi Jinping to carry out spring planting and continue implementing rural policies during the coronavirus reiterated Li Keqiang's command to stabilize grain production and to restore double-cropped rice production.

Hunan Province's February 26 press conference on coronavirus prevention and control featured measures to "stabilize double-cropped rice" output by "struggling" to ensure that 10 million mu of land is devoted to concentrated production of early rice seedlings.