Chinese Swine Farms: "Transformation" and Higher Costs

Big Chinese swine companies are transforming the industry by replacing rudimentary "backyard" brick piggeries with huge automated barns, but the hefty overhead costs of the new farms are also boosting hog production costs. Consequently, falling hog prices are hitting their breakeven level faster than expected. That could put a brake on the industry's expansion and create a permanent opportunity for imported pork in China's market.

On May 17, an official from China's livestock and veterinary bureau claimed the country's swine inventory has almost fully recovered from its dramatic shrinkage during the 2018-19 African swine fever (ASF) epidemic. But he also warned that the steady drop in hog prices this year has put Chinese farmers perilously close to financial losses.

The cadre of swine companies--despite being privately owned--delight Chinese officials who love big things they can subsidize and manipulate. On May 19, Vice Minister of Agriculture Ma Youxiang met with 14 big swine-farming companies where he celebrated the swine industry's rapid recovery from the ASF epidemic. Ma exhorted swine-farming companies to lead the pig recovery and to assist small and medium farmers. Vice Minister Ma also warned companies to strengthen industry "self-discipline" and to resist temptation to violate laws and regulations, suggesting distrust of these industry "dragon heads." Ma ordered local officials not to let up on their work to promote recovery of pork supplies and to prevent spread of ASF. 

Vice Minister Ma acknowledged that African swine fever is still a "very big risk"--a subtle change from regular assurances over the past year that ASF was under control. Ma also warned of rapidly falling profits for farmers and an erosion of sow productivity. 

A field trip to Guangdong and Guangxi Provinces published in early May found that the industry there had recovered to 60-70 percent of its pre-ASF inventory--a lot of progress but less than the Ag Ministry's optimistic assessment. Three of the big swine companies reported that they contract with thousands of independent farmers to fatten hogs for a fixed payment. Reports on disease were mixed. Some companies reported few problems, while others reported pockets of serious outbreaks during the winter months. In Guangxi Province around the Fangcheng port, 70-80 percent of farms had been infected by ASF. One company said infections had been as high as 40-50 percent during the winter in Shandong and Henan Provinces. Disease problems included ASF transmitted by illegal vaccines, PED, FMD, and PRRS.

Veterinary Bureau "Inspector" Xin Guochang credited an increase in "above scale" farms for "upgrading" the industry. The Guangdong-Guangxi field trip report confirmed the rapid expansion of the swine-farming companies. Three companies had a combined 75,000 sows in the region. One company said it had doubled its sow inventory from 20,000 to 40,000 since last fall and accounts for 40 percent of Guangdong's slaughtered hogs. The field trip report said that smaller backyard farms had exited in large numbers since the ASF epidemic. One company said the number of contractor farms had been cut in half. In one area, the number of slaughterhouses had also been cut in half. The companies planned further expansion by the end of 2021.

A March 2021 social media discussion about whether you can earn more money raising pigs than as a migrant worker advised readers that breeding sows and producing piglets is a high-input, high return and high risk segment that requires a lot of technical know-how and investment. This is the segment the big companies specialize in. In contrast, fattening weaned pigs to market weight, either as a contractor or an independently operated farm, requires mainly physical labor--feeding, cleaning and shoveling manure--during the 5.5-month production cycle. The writer advised those who have the know-how to consider working for a company on salary if you don't mind being cooped up on a farm for a month at a time. Other posts noted that small hog farms don't make much money, don't qualify for subsidies, and are gradually disappearing. 

Inspector Xin of the veterinary bureau said China now has enough sows to produce 690 million fattened hogs. The rapid expansion has been achieved by holding back female pigs meant for the commercial herd to breed as sows. The field trip study team was told these "third generation" sows produce 10 pigs per litter versus 14-15 per litter for sows from the breeding herd. Xin claims that farms are culling these  low-productivity sows and replacing them with more productive sows. Companies visited on the Guangdong-Guangxi field trip, however, said 70 percent of sows held by big companies in Guangxi were commercial "third generation" gilts and the proportion was 60 percent in Guangdong. One slaughterhouse said 70 percent of pigs it processes are males because so many females are being retained to be bred as sows. 

High hog prices have prompted larger-than-usual slaughter weights. The average in Guangdong-Guangxi was reported to be 130-140 kg, up from 115 kg before ASF. Especially huge hogs of 150 kg are produced by a practice of "second-time fattening": farmers acquire hogs already at their usual slaughter weight and fatten them to even larger weights. At these heavy weights, feed conversion diminishes and buyers discount the price for high fat, but high hog prices made the practice feasible. One company contacted by the field trip said the practice was uncommon in their area, but another reported that 40 percent of hogs were "second-time fattened" in its area. 

One company reported an overlooked effect on sow productivity: sow conception rates were low this year due to disappearance of staff members during and after the February Lunar New Year holiday. One  post in the social media discussion of pig farm profits observed that most employees on company-operated farms are elderly "aunties and uncles" with little education or training. Other respondents said company-operated pig farms pay good salaries of 7,000-10,000 yuan per month and are offering enticements like on-farm karaoke, billiard tables, basketball courts, and free room and board to attract workers. Another propaganda meme features university graduates who took up pig farming.

Inspector Xin said there are signs that farms are losing money as recent hog prices of 18-19 yuan per kg approach the breakeven price for farms of about 17 yuan per kg. The breakeven price is 4.5-yuan higher than before ASF, Xin said, due to rising costs. The biggest Guangdong company told the field trip team its cost is 16-18 yuan per kg, while another company said its cost was 15.4 yuan. Costs for disease prevention are up. 

A Caijing article last week reported on the decline in hog prices to breakeven and noted that most pig-farming companies had reported weaker profitability for the first quarter of 2021. Caijing quoted a securities analyst who attributed the weaker performance to ASF outbreaks, rapid turnover of sows, and generally higher costs. A Chinese Academy of Agricultural Sciences expert told Caijing China's hog production costs are 17 yuan/kg versus 12 yuan/kg in foreign countries--a 40 percent difference. 

China's breakeven hog price of 17 yuan per kg should put a floor under Chinese hog and pork prices. If prices fall below the breakeven level, farms will come under financial pressure and cut back on production or quit the industry. This may restrain further expansion of the swine herd.

The breakeven price is roughly equivalent to a pork price of 27 yuan per kg (historically, China's wholesale pork price has been about 60-70 percent higher than hog prices). That's higher than Chinese wholesale prices that prevailed in 2019. The breakeven level is also 45 percent higher than the average C&F value of imported Spanish pork in April 2021 and 89 percent higher than the C&F value of imported U.S. pork. Thus, with a high cost structure Chinese swine farms will become unprofitable well before the price drops to be competitive with imported meat.

Sources: China Ministry of Agriculture and Rural Affairs; production cost reported by MARA;
import unit values from Chinese  customs data.

The Guangdong-Guangxi field trip report noted efficient feed conversion ratios of 2.5-2.8 for large companies (lower than the historical average of 3.1) and survival rates for piglets of 94-95 percent. However, the swine industry expert told Caijing that 40 percent of production costs are now in the production of sows and piglets. The Caijing article hammered on China's weakness in animal breeding and its lack of feed resources as chokepoints for the swine industry. 

A reflection of the changing cost structure is the Ag Ministry's announcement that analysts will phase out the hog-to-corn price ratio as the measure of farm profitability. Costs of feeder pigs, labor, manure management, facilities construction, and disease prevention have increased. The Ministry noted that manure management and disease prevention alone account for 150 yuan per head in cost. The Ag Ministry explained that the grain-hog price ratio was a good profitability measures in the past when hog farmers had no depreciation or interest expenses, used no hired labor, and spent minimal amounts on disease prevention.

The Ag Ministry says it is exploring intervention policies to stabilize the hog supply. In other words, they are looking at new subsidies to correct the problems of oversupply and entry of not-ready-for-primetime companies caused by the first round of subsidies launched in 2019. Watch for discovery of a swine disease in Europe or the United States, discovery of contaminated imported meat, an antidumping investigation, or new standards to clamp down on imported pork if prices keep falling.

Growing cities, shrinking farmland make officials sweat

With China's cities expanding at a rapid clip, the loss of farmland seems to have set off alarms among Chinese leaders, but statisticians are not allowed to report farmland loss.

Rapid urbanization was one of the most notable features in China's new population census data, released last week. China added 236 million to its urban population between 2010 and 2020, while its rural population shrank by 164 million. The population was 64 percent urban in 2020, up from 50 percent in 2010. 

Source: China's 7th population census.

Urbanization is a reversal of China's heritage as a nation composed primarily of rural peasants. The urbanization rate was only about 10 percent when the communist regime took over in 1949. Most people lived directly off the land, and only a small portion of the food supply was needed to feed city-dwellers. 

The urbanization rate began its long upward climb with "reform and opening" in the late 1970s. The  64-percent urban share of population in the 2020 census seems to have taken the statisticians by surprise. It was 3.3 percentage points higher than the 2019 urbanization rate reported last year by the National Bureau of Statistics. Now, with most people living in cities, most of the food must move through a huge, complex marketing system to feed the people. Chinese leaders worry that cities may be fed by imported food they can't control. Hence the slogan, "Chinese peoples' food bowls must be firmly in their own hands."

Source: China National Bureau of Statistics.

Case in point is Guangdong Province, China's most populous province (126 million people), teeming with migrants and working-age people, according to the new population figures. One commentary on the population census figures noted that now only a few of China's provinces produce more grain than they consume. Guangdong relies on 41 million tons of imported grain and purchases from grain-surplus provinces to fill its supply-demand deficit, according to a 2018 report by its grain bureaucracy. The commentator insisted that China must follow the road of "food security with Chinese characteristics" to keep China's food bowl firmly in its own hands, in view of "rigid growth in grain consumption" and depleted water and soil resources. 

On May 7, Premier Li Keqiang proclaimed, "Maintaining the food security of 1.4 billion Chinese people is a great contribution to the world." In his speech, Li gave "strict orders" to strengthen control of cropland use, resolutely curb the diversion of agricultural land to nonfarm uses, prevent planting of non-grain crops on land designated for grain production, and "strictly guard" the 1.8-billion mu (120 million hectares) "red line" for cultivated land. Li called for progress on the next 100 million mu (6.7 million hectares) of "high standard fields" resistant to droughts and floods. 

China Grain Net followed up Premier Li's remarks by listing directives to enforce the "strictest land protection system" issued since last December's Economic Work meeting that prioritized the "red line", "high standard field" construction, and protecting "black soil" in the northeastern provinces. The "Number one document" called for preventing loss of cultivated land and establishing a system to monitor land quality. The Minister of Agriculture announced "measures with long teeth" to protect farmland. A March 2021 meeting pledged funding to accelerate "high standard field" construction as a "major food security task." Last month, the Ministry of Natural Resources proposed a "field captain" system to monitor farmland and called for penalizing land conversions.

Despite apparent nervousness about a shrinking farmland base, Chinese statisticians have been reporting growth in cropland area. Official data reported 95 million hectares of cultivated land during the 1990s, a total that was acknowledge to be underestimated due to farmers and villages under-reporting land to dodge taxes. The first agricultural census in 1996 included a special survey to measure the cropland base, and raised the total to 130 million hectares. The 2006 census found the cultivated land base had shrunk to 122 mil. ha. This decline apparently was not acceptable, as a new survey by the Ministry of Land Resources immediately discovered 135 million hectares of cultivated land which has been reported ever since. The 2016 agricultural census (released in 2018) reported the Ministry of Natural Resources cultivated land area statistic. The same statistic has been reported in each yearbook since then.

A commentary by China Grain Net last month warned that China's land resources are near their limit. The commentator estimated that food imports represented a shortage of agricultural land of more than 51 million hectares. The country cannot easily add to its cropland base, the commentator warned. The situation is worsened by the loss of organic matter in soil, erosion, hardening of soil, and acidification of soil through loss of potassium, calcium, and magnesium. According to the commentator, the pH rose above 5.5 in 35 percent of the soil in rice-growing provinces Jiangxi, Hunan, and Guangxi over the past 30 years, reducing productivity by 20 percent. A 2019 Agriculture Ministry soil classification found 22 percent of soil is low-yielding, 47 percent is medium, and 31 percent is high-yielding. The Ministry hopes to raise grain production by upgrading soil productivity.

Restaurant Garbage Replaced by Corn and Soybean Meal?

Did the Chinese government's ban on swill-feeding of pigs to prevent spread of African swine fever (ASF) in 2018 really stamp out the practice? Even if it didn't, the idling of food service establishments during 2020 surely cratered the supply of swill. Are grain-feeding swine farms now replacing swill-feeders?

The long history of feeding food scraps and other waste to pigs in China shifted into high gear as the country's food service industry boomed over the past two decades. Restaurants, cafeterias, and hotels collected table waste in drums and bags, then sold it to dealers who picked it up in small vans and delivered it to surreptitious farms hidden in villages on the outskirts of cities. There, the garbage is cooked in vats and fed to dozens or hundreds of pigs held in rudimentary pens and sheds.

Restaurant waste is delivered in barrels to be cooked down and fed to pigs.
These were photographed at a farm on the outskirts of Kunming, China, in 2014.

Over the past decade, Chinese authorities have been trying to shut down swill-feeding farms to prevent spread of disease, poor sanitation, and to eliminate pollution from these farms. China's Livestock Law prohibits feeding garbage unless it has been treated properly at high temperature. In 2010, China's State Council ordered city mayors to strengthen oversight of food waste. The government was prodded by embarrassing publicity about so-called "gutter oil"--a by-product of cooking garbage to feed to pigs. Localities issued regulations banning the practice and imposing penalties. In 2011, the government started setting municipal systems to collect food waste and use it to generate electricity or dispose of it properly, and $100 million was allocated to subsidize demonstration projects. 

A widely-published "investigation" by a Xinhua reporter in 2017 described seeing several garbage-feeding farms in Tianjin being demolished by authorities. Yet he managed to find another one still in operation which he described in detail. As recently as April 2018, a local news site in Beijing reported finding a farm in the Tongzhou suburb that raised thousands of pigs on waste trucked in daily from the city.

When African swine fever hit China in 2018, the government ordered that swill-feeding farms be shut down after the Ministry of Agriculture and Rural Affairs found that ASF was spread by feeding food waste to pigs. 

This propaganda comic says the barrel of restaurant garbage is uncontrolled;
the "swill pig" spreads disease and pollutes the environment.

In February 2019, Chinese news media circulated a report of two farmers in Sichuan's Jintang County who were arrested for raising 600 pigs on food waste after it had been banned the previous October. This was widely posted, presumably as a warning to farmers. Another warning posted on social media in August 2019 explained the dangers of garbage-feeding, its role in spreading African swine fever, the government's crackdown, and penalties for engaging in the activity. A February 2021 article explained that farmers could feed waste to pigs that they consume themselves, but feeding restaurant garbage to pigs is banned and local governments offer a reward for turning in violators. 

Legitimate restaurant garbage collection and treatment programs are still in the pilot stage. The locality of Jiaxing in Zhejiang Province just announced a pilot program to produce electricity from biogas generated from restaurant waste. This locality has been a hotspot for model pig farms since it launched 10,000 dead pig carcasses into Shanghai's river 8 years ago.

A November 2018 article, "The State's Ban on Swill-Feeding Pigs to Ensure Swine Safety is Correct, but How Will So Much Waste be Treated?" wondered how China's huge volume of food waste could possibly be treated if swill-feeding farms were shut down. The article cited an estimate that the country produced nearly 100 million metric tons of restaurant waste in 2017 and another estimate that only 10 percent of restaurant waste was properly disposed of and treated. The author said there were many barriers to disposing of restaurant waste in a safe and sanitary way (including "illegal interests"--presumably profits enjoyed by criminal networks from selling "gutter oil" and pigs). 

The flip side of the article's concern is: If swill-feeding farms were shut down, would conventional grain-feeding farms replace the lost supply of swill pork? 

Swill-feeding could account for a significant proportion of China's pork output. If China's food service industry generated nearly 100 million metric tons of waste in 2017, let's guess conservatively that 20-to-50 mmt of that waste is fed to pigs (the rest is oil extracted for "gutter oil," inedible plastic, napkins, styrofoam, chopsticks, and stuff that rots or is actually disposed of). 

In comparison, China's feed industry association says 98 mmt of commercial swine feed was produced in 2017--which presumably does not include swill. That's about equal to the estimated volume of restaurant waste and could mean that a substantial portion of China's pork was fed swill pre-ASF. If swill-feeding farms are now replaced with conventional farms, that could translate to a 20-to-50 mmt shift from swill to commercial swine feed, requiring about 12-to-30 mmt of corn and 4-10 mmt of soybean meal as ingredients.

It's not clear whether swill farms were entirely closed down by regulators. People who flout rules and may be connected with criminal organizations are probably not easily scared off by fines and newspaper articles. But the closure of food service businesses during 2020 surely shrank the supply of swill when school and workplace cafeterias, hotels and restaurants were largely shut. China's food service business has been slow to rebound from Covid lockdowns. Moreover, the scarcity and high price of piglets surely cut back on the profitability of swill-feeding as well.

If the swill-feeders accounted for a lot of pork production, that could explain why so little commercial hog feed was produced pre-ASF. If they have been shut down now, it could explain why the demand for corn and soybeans is so vigorous if grain-feeding farms are replacing swill-feeders. This also raises the possibility of a resurgence in swill-feeding as the food service sector recovers, which might accelerate  the decline in hog prices to their break-even level.

Solving China's Cow Problem

Livestock should have the same status as grain in China's food security efforts, according to an Economic Daily article published last week. The article--which cited difficulties maintaining meat supplies, "social resistance" to high prices, and great pressure from imported meat--was reposted on numerous state-controlled news media sites, indicating it was a message from the propaganda gnomes.

The Economic Daily article observed that beef and mutton supplies have not kept up with growing demand. The article cited a 5-year action program for developing beef and mutton production issued by the Ministry of Agriculture and Rural Affairs (MARA) as an important new effort to ensure meat supplies and tamp down meat price fluctuations. The MARA "action program" document blames a poor industry base, long production cycle, and outdated production methods for failing to keep up with growing consumer demand for beef and mutton. 

An assessment by the Chinese Academy of Agricultural Sciences in December 2020 praised the beef industry as a "bright spot" and a "pillar industry" in the rural economy, but criticized lack of progress in developing specialized breeds, failing to conserve and utilize indigenous cattle breeds, backward production methods, high production costs, unscientific fodder management, and a preponderance of low-grade, low-value, and homogeneous beef products. 

The MARA beef and mutton plan's wide-ranging objectives include upgrading cattle and sheep breeding and protection of native breeds; maintaining balanced stocking rates in traditional pastoral regions while utilizing new regions, grazing animals on hillsides in mountainous southern provinces; replacing grain with fodder production in marginal cropping regions; luring private companies to rural regions to promote beef farming businesses that incorporate households; upgrading the processing and distribution by setting up beef-oriented industrial parks and sheep industry clusters; matching up production regions with meat-buyers; and improving disease control.

A beef production "community" in the mountains of Guizhou Province. 7 farmers rent space for 130 cattle in the blue-roofed barn built on a terraced mountain. This is an "ecological" farming project.

China has been trying to develop ruminant production for decades, but shortage of pasture and forage crops and the long production cycle for cattle have been barriers. In most of China, cattle were traditionally kept for their value as draft animals, and they were only eaten when no longer productive in field work. Rapid farm mechanization eliminated many oxen and water buffalo. About 10 years ago, a campaign to eliminate water buffalo in the south central region as carriers of schistosomiasis also eliminated a lot of ruminants.

These are not new ideas. Back in 1995, China's Agricultural Yearbook described a plan for a "structural shift" in livestock production and consumption from pork to cattle. The idea was to replace pigs--which consume large amounts of grain--with cattle that consume inedible stalks, straw and other fodder to conserve feed grain--called "straw for beef" at the time. The recent December 2020 Chinese Academy of Agricultural Sciences article echoed this strategy by describing beef cattle as "grain-conserving" livestock and complained that China's huge supply of straw and stalks is not utilized as cattle fodder--the same mismatch that motivated the "straw for beef" campaign three decades ago.

The 1995 Agricultural Yearbook reported that tens of millions of yuan were allocated to set up 100 model cattle counties in the early 1990s. The 2021 beef and mutton plan also features money for model farms and model counties. Economic Daily describes beef and sheep-raising methods in parts of Inner Mongolia that have hosted model farms for decades. 

The 1990s beef plan focused on the central plains, northeast and southwestern mountainous areas--the same ones targeted by the 2021 "action program." The 1990s plan called for incorporating sheep in the initiative, but the 2021 plan emphasizes both sheep and beef. 

There are some differences in the new plans. Old plans subsidized imports of foreign breeding stock--often Simmental or Angus. This year's animal breeding plans emphasize the need to protect China's indigenous breeds from extinction and to incorporate them in forming hybrids of foreign and domestic breeds.

The 1990s plan promoted corn production in the northern regions and use of sugar cane fiber in the south to feed cattle and sheep. Foreign exchange was set aside to import material and equipment to ammoniate fodder. In 2021, corn is China's biggest crop and still doesn't meet the demand, but corn for silage is still promoted as a cattle feed. In 2016 there was a national campaign to cut back on corn production in the same semi-arid, mountainous regions targeted for cattle and sheep production in a "crescent" region stretching from Heilongjiang in the northeast to Yunnan in the southwest. Other fodders promoted are alfalfa and oat hay. 

During the 2000s, ruminants were included in more 5-year plans that featured "modernization" and "standardization" of livestock, although beef cattle and sheep got less attention than crisis-hit pigs and dairy. The 2006 plan launched subsidies for breeding stock, vaccinations, and upgrades of processing and marketing. Last week's Economic Daily commentary emphasized that "increased attention" did not necessarily mean subsidies. The MARA plan features lots of planning and coordination, with a demand that local officials take on their "responsibility" for "market basket" food supplies--that means most of the subsidies are given by local governments. The plan calls for subsidies for breeding farms, protection of indigenous breeds, and artificial insemination; financial transfers to fund programs in cattle- and sheep-producing counties; pilot programs to make bank loans using live cattle as collateral; subsidized insurance; and support for model farms, industrial parks and associated infrastructure.

China has few state-owned actors in the beef and sheep industry. The MARA plan calls for prodding big companies to set up business in poor regions, forging alliances between breeding companies and research institutions, nurturing prominent companies with branded meat products, and organizing clusters of sheep-related companies. 

The Guizhou beef-farming "community" is built for people of the Miao ethnic minority. Many beef projects are billed as poverty alleviation efforts.

The chart below illustrates China's difficulties in beef production. Statistics showed steady progress in beef output until 2017. China's Ag Ministry projected continued growth to 2024 in its first ten-year projections released in 2014. However, the progress turned out to be an illusion. China's third agricultural census discovered the number of beef cattle was actually 20 percent less than statistics had shown. Statisticians revised beef production data to account for the deflated cattle population, wiping out the growth in beef output. 

Statistics show production edging upward again in the last few years, and the latest MARA projections issued last month show renewed optimism, with beef output growing to 8 mmt in 2030.

Source: China Ministry of Agriculture, China Agricultural Outlook Reports.

While high pork prices have attracted attention over the past two years, beef and mutton prices have been stubbornly high and rising for a dozen years.

Source: China Ministry of Agriculture; USDA.

Source: China Ministry of Agriculture; IMF primary commodity prices.

While beef industry plans put forth in the early and mid-2000s included aspirations to boost meat exports by conforming to internationally-accepted standards and regulations promulgated by "developed countries." China's latest plans acknowledge that its livestock products have costs double those in the world market and are consequently uncompetitive. China's aspiration now is to formulate standards unique to China's own needs.

What is [not] in China's granaries?

Is there something China is not telling us about its grain supply? Since last year, Chinese authorities have been fretting about covid-caused foreign grain supply disruptions that threaten global food security. But maybe this chatter is intended to deflect attention from food supply issues at home they are keeping under wraps. Maybe China's frantic grain imports over the past year are part of a campaign to refill grain reserves that were faked, looted, or rotten.

In a Futures Daily commentary on China's grain, oilseed and meat import boom, grain market researcher Zhang Zhixian finds the explosion of grain imports this year "astonishing." Grain and soybean imports totaled 37.6 million metric tons (mmt) in the first quarter of 2021, up 62 percent from Q1 2020. Futures analyst Xu Ruzhou told Futures Daily the 6.7 mmt of corn imported in the first three months of 2021 is surprising since we were told just a few years ago the "temporary reserve" of corn was a gargantuan 260 mmt. How did China's corn market flip from a huge surplus to a huge deficit in four years? 

Last week China's Food and Strategic Commodity Reserve Administration and several other departments released "Notice on Problems Related to Strengthening State Daily Management and Legal Supervision of Policy-Type Grain." The long list of shenanigans banned by the document suggests that reports of empty warehouses, granaries that burst into flames, and inedible reserves are more widespread than the government has admitted. Last year, some granaries posted signs forbidding cell phones after someone posted a photo of a warehouse in Heilongjiang full of rotten grain that was about to be auctioned. Authorities claimed it was an isolated incident.

Some Grain Reserve warehouses posted notices banning cell phones and other recording devices
after someone posted a photo of degraded corn kernels in a warehouse leased by China's grain reserve authority last year.

The grain management document praises daily management of grain for being "good overall" in recent years, but the document scolds units in some places for not giving grain reserve management high political status and for failing to fully recognize the major significance of legal supervision of policy-type grain management. The document warns officials that "hidden dangers" need to be nipped in the bud. The bottom line is to ensure that the volume of grain reserves is truthful, the quality is good, and storage is secure, according to the document.

The document orders grain reserve management companies to strictly manage grain held by subsidiaries, watch the flow of subsidies, and to keep an eye on personnel and leased storage facilities. It charges the Agricultural Development Bank with verifying the reserves it finances. Particular attention is given to grain that was purchased before 2018. 

The document proscribes escapades such as false reporting of grain statistics, "round-tripping" (collecting subsidies for buying grain already in storage), surreptitiously shifting grain around to different locations, speculating on grain reserves, buying and auctioning grain that doesn't exist, pledging grain reserves as collateral for loans, using degraded grain to pad inventories, faking grain sales, charging extra fees to move grain out of warehouses and putting up other barriers to moving grain. The document also calls for treating farmers fairly in purchasing grain by publicly posting prices and grades, banning downgrading grain to cut the price, and banning payment with IOUs. 

These activities have been major concerns since the 1990s, so why do they need to be banned again?

What if the purported 260-mmt temporary reserve of corn was bloated by fake transactions and was never as big as we were told? What if the implausible 100-mmt auctions of reserve corn in 2018 and the 55-mmt auction sales of corn that mysteriously sold out week after week last year were phony transactions to take nonexistent grain off the books? Most of the corn auctioned in 2020 had been purchased in 2015 when authorities supposedly bought 125 mmt of corn that would have been nearly half that year's harvest. What if China's statistics bureau used the excuse of an agricultural census to revise their corn production data upward by 20 percent in 2018 to make production statistics consistent with the inflated "temporary reserve" number?

This is all conjecture, but conjecture is all we have to go on with less and less solid information available to make solid assessments. Is China reverting to the closed China of the 1950s and '60s when propagandists photographed children standing on wheat stalks, crops were replanted along Chairman Mao's train route, the government hid the biggest famine in history, and foreigners had to guess about China's food situation by dissecting newspaper reports and interviewing refugees?

A huge famine occurred a few years after Chinese propagandists claimed to have achieved world-record
rice yields in the 1950s based on bogus scientific concepts.