Soggy Fields and Costly Farm Inputs Affect China's Corn and Wheat

Chinese leaders are worried that flooded fields and soaring farm input prices are slowing the corn harvest and planting of the winter wheat crop. 

Sustained heavy rains and other anomalous weather events--including giant hail, tornadoes, and snow in August--have occurred all over northern China since the summer months. Many fields remain waterlogged or flooded, creating a double threat of suppressing the fall harvest of corn and delaying or preventing the planting of winter wheat. 

Flooded corn field in Shandong Province, September 26, 2021.
Source: iqilu Shandong news service.

The standing committee of China's State Council held an October 20 meeting that ordered officials to take measures to ensure that fall grain is harvested and to speed up the planting of winter wheat. The top leadership promised to give strong support for completion of fall harvest and planting of over-wintering crops to ensure food security and commodity price stability. 

According to Yicai, an official business news outlet, wet and muddy fields delayed harvest of grain and raised the cost of operating mechanical harvesters. Videos show corn stalks in standing water as much as a meter deep and farmers filling floating tubs with corn cobs. The agriculture ministry says 75 percent of the fall grain has been harvested, 4 percentage points less than usual. The cost of harvesting corn rose to about 50-to-100 yuan per mu (about $47-$93 per acre). 

Corn harvested in Shanxi Province.

Wet field conditions are having a more serious impact on planting of winter wheat. The ag ministry says wheat-planting is 26 percent complete, about half the usual progress. A ministry official warned at an October 20 news conference that the delay reduces the accumulated temperature-days for wheat seedlings to sprout and become established before winter sets in.  Late planting could affect the wheat's growth next spring and excess soil moisture is conducive to disease and pests. Some fields still have standing water and may not be planted at all.

Officials are also worried about how soaring prices of chemical fertilizer, pesticide, fuel and other inputs will affect farmers' income and production incentives. Yicai says the price of nitrogenous fertilizer has risen 25 percent since spring planting and phosphate fertilizer has risen 30 percent. The increase in fertilizer price is estimated to increase the cost of wheat production by the equivalent of 100-200 yuan (about $15-$30) per metric ton.

Indexes calculated using National Bureau of Statistics raw material purchase prices.

The State Council ordered officials to organize the procurement, drying and storage of corn. Their second responsibility is to ensure the planting of winter wheat by draining fields, choosing early-maturing varieties, applying extra fertilizer, and advising farmers on field management. The State Council instructed officials to maintain fertilizer supplies, stabilize input prices, adjust imports and exports, and monitor the quantity and quality of seeds. 

Agricultural officials have been ordered to drain fields, subsidize grain-drying equipment, ensure electricity supplies, and to speed up winter wheat-planting. They should use existing funds and finance departments should pass down next year's funds for aid to agricultural counties and machinery and equipment purchase subsidy funds to finance the disaster mitigation activities. A June 18 State Council meeting approved an extra 20-billion yuan in one-time subsidies for grain-planting farmers to compensate them for more costly farm inputs. 

The Ministry of Agriculture and Rural Affairs has assigned each of its top leaders responsibility for one province each of the seven targeted for assistance in grain harvest and wheat planting: Hebei, Shandong, Henan, Jiangsu, Anhui, Shaanxi, and Shanxi Provinces. Local news media report that communist party officials are organizing teams to dredge ditches, draining fields with earth-moving equipment, and giving advice to farmers for harvesting corn and planting wheat.

Pumps supplied by firemen drained fields in a county of western Heilongjiang. Source: The Paper.

China Pork: Shortage to Glut in Two Years

China's swine industry is in liquidation mode exactly two years after hog supplies cratered in the fall of 2019. In August 2019, a vice premier ordered officials to build hog farms to replenish pork supplies asap. Now the same officials are being ordered to pare back herds in their provinces and counties. 

China's Economic Weekly reported that six of the top hog-producing companies in China reported losses for the third quarter of 2021. That includes a loss of 500 million to 1 billion yuan for the largest company, Muyuan, a loss of 2.58-2.98 billion yuan for New Hope Group, and a loss of 6.75-7.25 billion yuan for Wens Foods. In Hunan Province, farms are reportedly taking losses by selling weaned pigs to barbecue restaurants because the farms would lose even more by raising them to slaughter weight.

The pork glut is an outcome of frenzied expansion. Last year the chairman of hog company Tangrenshen told Economic Weekly that companies like his planned to add production capacity totaling 2 billion head, more than three times annual consumption of about 650 million head. A September 2021 notice issued by an organization overseeing the Hunan Province livestock industry warned that many big farm projects have been abandoned, leaving creditors and prospective contractors in the lurch, dodging their "social responsibility" and creating a "hidden risk." 

At a press conference this week, the Ministry of Agriculture and Rural Affairs noted that the pork surplus is so serious that hog prices did not rebound during the peak mid-Autumn festival and National Day holidays, and farms of all types are incurring deep losses. The Ministry estimates that the swine sector has about 10% surplus production capacity and reports that sow numbers have fallen three months in a row since July. A Ministry official suggested farms cull one low-productivity sow from every ten in the herd, cull one extra runt from each litter, and slaughter fattened hogs 10 days early. The Ministry reported that the number of hogs slaughtered at above-scale facilities in the first nine months of 2021 was up 61 percent from the previous year, and slaughter at those facilities in September 2021 was up 95 percent year on year. 

According to the National Bureau of Statistics, 492 million hogs were slaughtered in the first nine months of 2021. That's 36-percent more than were slaughtered in the same period of 2020, but about the same as production in 2018--before the African swine fever epidemic decimated the herd. The Bureau reported that third quarter 2021 hog prices were down 55.5 percent year on year. 

How is it that China's pork market has reached a saturation point with deeply depressed prices with production about the same as two years ago? China's pork output for January-September 2021 was reported to be 39.2 mmt--up 10.8 mmt from the same period in 2020. This year's pork output so far is about the same as during the same period of 2018--before the African swine fever epidemic began. 

A broader view including meat imports and production of other meats shows the overall meat supply is up about 14 percent from 2018. The greater supply of pork alternatives and crimped travel and food service from strict covid-19 lockdowns cutting into demand could explain why China's pork market is saturated. 

China cranked up production of other meats. The National Bureau of Statistics reported that poultry meat output in January-September 2021 was up 3.8 percent year on year, beef was up 3.9 percent, and mutton output was up 5.5 percent. Total meat production was up 22.4 percent. Over the last four years production of these other meats in the January-September months has grown from 21.7 mmt to 25.1 mmt, net growth of 3.4 mmt. The volume of imported meat and offal during the same period grew from 3.1 mmt to 7.5 mmt, growth of 4.4 mmt. Adding these together, the total January-September meat supply grew from 63.2 mmt to 71.8 mmt between 2018 and 2021.

China has the dubious distinction of being not only the biggest pork producer and consumer in the world, but also the highest-cost producer. Imports now constitute a significant portion of supply. China's 3 million metric tons of imported pork so far in 2021 constitutes about 7 percent of the pork supply. The 7.5 mmt of all meat and offal imported in the first nine months of 2021 constitutes 11 percent of the country's January-September meat supply. 

Targets set last year call for limiting pork imports to 5 percent or less of the supply and beef and mutton imports at 15 percent. 

The Ministry of Agriculture and Rural Affairs is now instructing local authorities to issue warnings to hog farmers about market conditions and to urge them to pare back their herds. At the same time, the government says it is retaining policies subsidizing the industry--favorable access to village land for hog farms, special treatment in enforcement of environmental regulations, earmarked and subsidized loans, and subsidized insurance.

China Promises to Rescue WTO

Chinese officials are promising to rescue the global trading system as they celebrate the country's 20th year as a World Trade Organization (WTO) member. While China spent its early years in the WTO watching and learning, confident leaders now seem to be maneuvering toward a more proactive role as a leader of the organization. 

Last week a forum was held by China's agriculture ministry to discuss the country's agricultural development in the 20 years since it joined the WTO. Deputy Agriculture Minister Ma Youxiang emphasized that China's agriculture had "withstood" multiple tests of a global food crisis, world financial crisis, and the covid-19 pandemic. Ma went on to praise China's achievement of "stability," and insisted that China's agriculture has become more globally competitive. Ma added that China has also enhanced its ability to participate in food and agricultural governance, code for China's ambitions to take a more proactive role in international organizations and reshape trade rules, food standards, and food aid. Ma suggested that China should now continue pushing WTO agricultural reform negotiations, promote bilateral, regional and multilateral trade negotiations, and spur exploration of innovative approaches to promoting agricultural trade.

The broad theme of China's leadership in global trade was launched in March by Foreign Minister Wang Yi's remarks on four "lessons" from 20 years as a WTO member. Foreign Minister Wang insisted that China must remain an open economy to build on its achievements in foreign trade, and stick to a win-win approach to trade and globalization. Wang said China must not respond to challenges by withdrawing into protectionism or by decoupling. He praised the WTO as the the "cornerstone" of international trade and a "pillar" of global economic growth. Wang announced  China's willingness to work with all countries to continuously improve the multilateral trading system and to enhance the effectiveness and authority of the WTO.

Yi Xiaojun, who recently stepped down from a term as WTO deputy director general, remarked at a May forum on the 20th anniversary of WTO membership that China's reform and opening was the best choice for resolving many contradictions the country faces in the international arena today. Yi claimed that, "China, the U.S. and Europe are roughly the same in terms of abiding by the rules and fulfilling their promises." Long Yongtu, lead negotiator for China's WTO accession, asserted that China's membership had changed the WTO's pattern and direction, and he claimed the United States was one of the biggest beneficiaries. Long added, "China has not lost its commitment to a socialist market economy, nor has it lost [its vision for] opening up developing countries." 

Lead negotiator for WTO accession, Long Yongtu, and former WTO deputy director general, Yi Xiaojun,
praised China's WTO membership at an August 2021 forum. Source: southcn.com.

In August, Deputy Commerce Minister and trade negotiator Wang Shouwen suggested that China could rescue the WTO from its current "predicament." Again citing the 20th anniversary of China's membership, Wang Shouwen warned that the WTO system's "effectiveness and authority" had been undermined by paralysis of the appellate body and politicization of trade issues by "individual countries" who adopt "unilateral and protectionist practices." Wang cited examples of China's contribution to a trade facilitation initiative at the 2013 Bali ministerial, support of an agreement to end agricultural export subsidies at the 2015 Nairobi, and participation in negotiations on investment, e-commerce, and small and medium enterprises. 

Wang Shouwen promised that China would form a "new development pattern" to promote "high-level opening to the outside world." China has high hopes for strengthening WTO’s effectiveness and authority through progress on fishing subsidies, trade and health, appellate body reform, trade in services, facilitation of foreign investment, and e-commerce, Wang said. He added standard talking points that China is willing to work with all countries to promote economic globalization in an "open, inclusive, inclusive, balanced, and win-win direction."

Last week a Tsinghua University scholar explained that China's "opening" process is moving in historical stages. A "progressive advancement" stage began in 1979 with establishment of "special economic zones," reduction of tariffs, elimination of quotas and import licensing, a "go west" campaign to filter benefits of trade to western provinces, and membership in the WTO in 2001. His muddled explanation culminated in a stage of "systemic reform" adopted in 2018 to reform rules, regulations, management, and standards to promote openness [seems like this was supposed to happen with WTO membership]. Interestingly, the professor revives the "decisive role of the market in resource allocation" slogan adopted when Xi Jinping ascended to leadership in 2012 that later went missing.

The talking points emphasize that China's "national features" of "win-win" trade and a fair trading environment for developing countries influence its unique approach to reshaping the multilateral trading system. However, a concerning "Chinese feature" is its tendency to cynically take WTO-approved measures meant to liberalize trade and repurpose them as release valves that can be opened or shut to adjust the volume of imports as a market stabilizer. Chinese academic and government writings refer to this function with the oblique Chinese term "调空" but never define it. 

For example, when China joined WTO it agreed to adopt tariff rate quotas (TRQs) for grains, cotton, and sugar. TRQs are a complex mechanism invented by trade reformers in the 1990s to pry open agricultural markets sealed off by quotas, licensing and other nontariff barriers. However, Chinese officials view TRQs as a valve they can open or close at their discretion to protect domestic markets or supplement domestic supplies. In 2014, an earlier Chinese vice minister of agriculture told Farmers Daily that China opposed a WTO initiative to demand transparency in TRQ management and penalize countries that never filled their TRQs. The Chinese official explained that TRQs were one of the few tools China could use to limit imports and protect its markets from global fluctuations. Government and academic authors in China continued to describe TRQs in this manner until the United States brought a WTO case challenging China's opaque administration of its grain TRQs. The legal exchanges in the case forced China to reveal that its officials had routinely turned over most of the wheat and corn import quotas to a state-trading enterprise that was not subject to the same tedious requirements imposed on private companies that applied for a piece of the quota. China claims to have corrected this, but has not explained what was done.

China agreed to set biosafety and food safety measures on the basis of scientific evidence and risk analysis. However, behind the scenes Chinese officials also advocated use of these measures as valves to control the flow of imported commodities. For example, instead of setting a percentage tolerance that would pose an insignificant risk, China demands a zero tolerance of unapproved genetically modified material in corn shipments. In late November 2013, Chinese customs inspectors suddenly began rejecting every single shipment of U.S. corn because they claimed to have found traces of an unapproved corn variety that was planted on about 5 percent of U.S. corn acres that year. The rejections continued until China magically approved the corn variety a year later. 

In 2020, China decided to strictly enforce one of its many food safety requirements for Australian beef to punish Australia for demanding an investigation of the covid-19 pandemic's origins. While expressing great concern about the risks posed by Australian beef, inspectors gloss over the higher risks posed by its own beef. Last week China's top livestock official said Chinese beef producers need to be warned against the serious consequences of using "illegal additives" [i.e., growth promoters, hormones, and sub-therapeutic antibiotics], and he implied workers in the Chinese beef industry are at risk of infection from cattle diseases like brucellosis and tuberculosis that need more stringent controls in the country.

Unspoken in these public forums are China's concerns about reducing vulnerability to U.S. food embargoes; possible chokepoints in the Malacca Straits, Suez and Panama Canals; uneven regional development due to dominance of Pacific Ocean trade; and perceived U.S. dominance of the WTO and other international organizations.