Has China's Pork Consumption Peaked?

China's pork consumption has reached a plateau, according to a Farmer's Daily article last week. This is the second time State media have broadcast this message in 2022 as officials try to reassure consumers tired of high meat prices and rein in a mostly private-sector pork industry.

The Farmers Daily piece was based on an interview with Zhu Zengyong, a pork industry analyst who is the go-to source for all articles in state-run media on pork. Zhu stressed that pork's share of meat consumption has fallen from 65% to less than 60% in the last decade while poultry has grown to 25-30% and beef and mutton are up to about 15% of meat consumption. He expects steady annual pork consumption at 55-to-56 million tons in the future as population growth offsets a declining trend in per capita consumption. Zhu blamed short-term fluctuations in pork prices on the pandemic, highlighting the closure of cafeterias and intermittent interruptions of pork distribution as factors affecting prices. 

The Farmers Daily reporter claimed to have gathered his information from a recent interview, but it appears to be a summary of an April 2022 article in business publication Yicai, "Consumers’ preference for pork declines, the last thing the hog farming industry wants to see." The Farmers Daily and Yicai articles seem to be the first to discuss pork consumption since the African swine fever crisis induced a pork shortage three years ago. Government orders to "...strengthen the guidance and management of public opinion" during the pork shortage issued in 2019 probably imposed a moratorium on news articles about pork shortages. 

The Yicai article coincided with release of the Ministry of Agriculture and Rural Affairs' (MARA) 10-year projections of agricultural supply and demand. Mr. Zhu presented the pork projections at the Ministry's release meeting in April, but the projections were not mentioned in the article. The projection of pork consumption was essentially flat through 2031, consistent with Zhu's assessment. MARA's projection contrasts with USDA's projections released in February that showed a slower recovery from the African swine fever dip and faster future growth. Both sets of projections end up about at the same level in 2031. 

Sources: Ministry of Agriculture and Rural Affairs and USDA.

In the Yicai article, Mr. Zhu noted last year's recovery of pork consumption from the African swine fever-induced shortage, but highlighted his assessment that pork consumption is still below a record level reached in 2014. Zhu said said pork's large share of meat consumption is a result of traditional cooking habits and he said the rural population accounted for most recent growth, narrowing the traditional gap between urban and rural per capita consumption. Zhu thinks younger generations are more inclined to consume poultry, beef and mutton. He thinks aging of the population also favors poultry because the elderly are more inclined to consume poultry meat.

Yicai also interviewed pork analyst Shen Yuanbing who suggested that pork consumption in China is near its saturation point. Shen agrees that aging favors poultry, eggs, and milk, as elderly people prefer  food that is light, easy to digest and nutritious. Shen also believes the growing popularity of ready-to-eat meals and fast food favors poultry, beef and mutton over pork. Shen expects annual growth of 1.5%-2.0%, driven entirely by consumption by rural residents and rural-urban migrants. 

Household consumption data for 2021 indicate a strong rebound in per capita pork consumption in 2021 with a record-high amount. 

Source: China household income and expenditure survey.

The Yicai article concluded with a shot across the bow of big hog-farming companies. According to Yicai, twenty publicly listed hog-farming companies produced 136 million head last year, 20% of the national total. With little room for growth in consumption, Yicai the "frantic expansion" of production capacity by these companies is "bound to trigger a game of fighting" over a limited market. 

Evaluating China's non-GMO soybean "advantage"

 "Non-GMO soybeans are our core competitive advantage"--so proclaimed the head of China's soybean industry association in a speech earlier this month.  

The speech on "The development and future outlook for China's soybean industry" presented at the Dalian Commodity Exchange's China International Oils and Oilseeds Conference cited the Russia-Ukraine war, "international epidemics," and "China-U.S. relations" as factors creating crises in food, energy, and "data security." The speaker said these crises validate China's obsession with food security and the necessity of maintaining "oilseed security." 

The speech was given by Yang Baolong, deputy Party secretary and general manager of Beidahuang Nongken Group, the commercial arm of the network of giant State Farms in Heilongjiang Province. The speech featured plenty of national jingoism and nods to Heilongjiang and Beidahuang as key players in China's soybean industry. 

Yang cited the Chinese origin of the soybean and its "5000 year history." He then recounted the more recent history of China's soaring imports from Brazil, America and Argentina. He was careful to refer to the imports as "genetically modified," and he cited the 100-million-ton of imports during calendar year 2020 as a watershed--round symbolic numbers like this often send Chinese policymakers into a tizzy. 

Yang sought to dispel what he called "deification" of genetically modified soybeans, claiming that the "American" GMO soybeans have no yield advantage nor superior oil content. He dismissed GMO soybeans' pest resistance and their tolerance of weed-killing chemicals. Citing Heilongjiang's 15 research institutes and seed brands, Yang claimed that Beidahuang's soybean yields had surpassed the Americans this year in concluding that China must stick to its non-GMO soybean "advantage." 

Statistics indicate this advantage is illusory. Comparing Chinese soybean yields with yields of U.S., Brazilian and Argentine soybeans shows that Chinese soybean yields are clearly lower than yields in exporting countries...and they have been falling further behind. U.S. soybean yields exceeded Chinese yields by about 50 percent in the early 2000s but the U.S. advantage increased to over 70 percent in recent years. 

Source: USDA production, supply and distribution database.

The Chinese data are questionable. The Chinese yield trend is suspiciously smooth from year to year. Unfiltered data from China's national cost of production survey indicate more year-to-year variation in yield and NO progress in soybean yields over the past decade. Detailed data from the production cost survey show that the two main inputs in Chinese soybean production have been declining: labor input plummeted over the years from about 110 days per hectare in the early 2000s to 35 days in 2020, and fertilizer input has fallen since reaching its peak in 2012. Soybean varieties would have to achieve big yield increases just to offset the decline in inputs used. 

Source: China National Bureau of Statistics and China National Development and Reform Commission.

Source: China National Development and Reform Commission production cost survey.

No competitive advantage is evident in China's soybean import-export performance. Chinese customs data for the calendar year so far (January-October 2022) show China exported 76,665 metric tons of non-GMO soybeans but that number paled in comparison to imports. The data indicate that China imported 1.5 million metric tons of non-GMO soybeans and 71.68 million tons of GMO soybeans in the first ten months of 2022.

China's soybeans are a lot more expensive than imported soybeans. According to customs data, imported GMO soybeans so far this year were valued at an average of 4,506 Chinese yuan per metric tons (these don't include tariffs and taxes; current estimated C&F import values are 5,224 yuan by one source and 5,580 yuan by another source). The customs data said China's exported non-GMO soybeans were valued at an average of 7,856 yuan per metric ton--74 percent more than imported GMO soybeans. According to the National Bureau of Statistics, the average price of soybeans in Chinese domestic rural markets was 7,775 yuan per metric ton over the first ten months of 2022. Farm gate prices for this year's soybean crop are currently about 5,900 yuan per ton (about $22.40 per bushel). Futures prices for non-GMO soybeans and GMO soybeans at China's Dalian Commodity Exchange indicate a 10.8-percent price premium for non-GMO beans. 

Source: average value of imports/exports and National Bureau of Statistics.

The customs data showed that Russia accounted for 38 percent of non-GMO soybean imports and the United States accounted for 33 percent. Canada and Benin each accounted for about 12 percent of non-GMO import volume, Ukraine accounted for 3.6 percent, and a combined 1 percent came from Tanzania and Ethiopia. All of them had much lower unit values than Chinese soybeans. 

In a separate article analyzing the customs data, the Heilongjiang Soybean Association mixed up values with quantities and omitted imports of U.S. "non-GMO" soybean imports. Maybe they know data is being misreported or maybe they just wanted to hide the inconvenient fact that non-GMO soybeans are being imported in large volumes from the United States. 

Yang's speech goes on the whine about why China's soybean industry lacks price-setting power despite being the world's largest buyer. He complains that Chinese soybean importers have no negotiating power. Is he concerned that the price of imported soybeans is too high when their prices are 40 percent cheaper than Chinese soybeans? Or does he think imported soybeans are artificially cheap and Chinese importers should insist on higher prices? It seems like Chinese consumers are the ones who lack negotiating power.

Yang also calls for higher direct subsidies for soybean farmers in China, subsidies for rotating corn with soybeans, and subsidies for leaving land fallow. In addition to the high price, this year the subsidy for soybeans is about 250 yuan per mu or 3750 yuan per hectare. At a yield of 2 metric tons per hectare that works out to 1,875 yuan per metric ton, equal to about 32 percent of the current farm gate price in China. 

Yang calls for strengthening "food safety consciousness" and placing the non-GMO concept of domestic soybeans "deep in the hearts of consumers," code for telling consumers scary things about GMOs. (Heilongjiang's soybean association has for many years been China's chief purveyor of misinformation about GMOs and cancer.) Yang insists that the government must carefully monitor soybean markets to prohibit GMO soybeans from entering food use. 

In 2016 Heilongjiang banned production of GMO soybeans, corn, and rice in the province. Heilongjiang produces 40 percent of the country's soybeans, so this ban effectively rules out commercialization of GMO soybeans in China. 

Puzzling Grain-Steel State-owned Tie-up

A puzzling tie-up between COFCO and Baowu Steel--Chinese state-owned food-trading and steel-making behemoths--was featured at a signing ceremony for 11 collaborative agreements between 15 central state-owned companies and 5 local state-owned companies held October 31. Short English summary here.

The ceremony, held immediately after the conclusion of the 20th communist party congress, is apparently a signal that newly-minted dictator-for-life Xi Jinping has endorsed state-owned companies as the core of his approach to economic management. 

The chairman of the State-owned asset supervision committee presiding over the ceremony promised formation of new enterprises that would "serve the new requirements of national strategic goals." The description of the ceremony emphasized interconnections between state-owned companies, including plenty of language about "collaboration," "linkages," "integration," and "industry chains."

The tie-up between COFCO and Baowu Steel is puzzling since the companies' businesses do not seem to overlap at all. It's not obvious what synergy is possible.

COFCO is China's premier state-owned food conglomerate that includes assets in grain, cotton and sugar-trading, edible oil processing, corn manufacturing, flour- and rice-milling, biofuels, milk, pork, wine, an e-commerce platform, and a joint venture with Coca Cola. Baowu Steel is a giant steel-maker based in Shanghai, a place that has virtually no agriculture.

COFCO has a history of absorbing other state-owned companies in cotton-trading, animal husbandry, and grain logistics in recent years. The party's decision to ramp up farm commodity imports in 2020 was a license to print money for COFCO since it controls most of the import quotas for grains, cotton, and sugar, allowing it to import at world prices and resell at high prices in China. 

Baowu Steel has a history of taking over under-performing steel companies from all over the country. In 2016, Shanghai's Baoshan Steel absorbed Wuhan Iron and Steel to become Baowu. Ten years ago Wuhan Iron and Steel famously made its own weird announcement that it was starting up a pig-farming venture.

COFCO's party secretary and chairman's comments about the "strategic cooperation" with Baowu Steel were limited to vague jargon about "professional integration projects," and "optimizing resource allocation." His promise to "focus on the core business of grain, oil, sugar, cotton, meat, and milk" seems at odds with this cooperation with a company that has absolutely nothing to do with these core businesses. Baowu Steel's party secretary/chairman spouted similar meaningless jargon about "integration."  

A different version of the article contained similarly vague jargon about "synergy", "joint development force," "industrial ecosystem," "low-carbon," "green" to build a world-class enterprise through the COFCO-Baowu collaboration.

A collaboration between China Rare Earth Group and Rising Holdings Group announced at the October 31 ceremony made more sense. Another strategy featured was integration of central-government-owned companies like Aviation Industry Group with provincial or local companies like Shenyang Aviation Industry Group (to focus on intelligent manufacturing). Another agricultural tie-up featured Yunnan Province's State Farm Group and China Southern Power Grid, also described as a model of "integration of central and provincial governments." 

The article on the October 31 signing ceremony quoted a report from the just-completed Party Congress promising to "deepen the reform of state-owned companies" to make state-owned enterprises bigger and stronger. The asset commission chairman said the 20th Party Congress had given state-owned enterprises new missions and tasks, including a focus on "strategic security, industrial leadership, national economy, peoples' livelihood, and public services" to serve national strategic goals. He reiterated the mantra of focusing on the core business.

Another official commenting on the ceremony said the main goal for upcoming state-owned enterprise reform is to establish a dominant position in the relevant industry chain. 

An essay on state-owned enterprise reform posted on COFCO's web site in September promised to focus on core business and highlighted the company's jettisoning of non-core businesses (like hotels and golf courses). 

The ascendance of COFCO was evident in state news media coverage of last week's 5th Shanghai Import Expo. Its eagerness to make purchase deals with other countries at the expo was played up by describing COFCO as the "world's shopping cart." COFCO promised to use the expo to make friends up and down the supply chain and to diversify China's imports. China Daily said COFCO signed $10 billion worth of purchase agreements with foreign partners at the November 5-11 expo in Shanghai. COFCO also reported an agreement with the U.S. Soybean Export Council to establish a Collaborative Soybean Innovation Center was signed at the expo.

No rationale was given for the link-up between COFCO and Baowu Steel. A link to the state media article on the agreement is the only mention of the deal evident on the COFCO web site.

Perhaps Baowu wants to take advantage of COFCO's port and logistics facilities acquired in its purchase of grain traders Nidera and Noble Agri six years ago to import raw materials. Or maybe the apparatchiks controlling one of the two companies are too closely affiliated with one of the communist party factions that are Xi's enemies and need to be watched carefully. 

Same Pork Output, Price Doubles

China's third-quarter pork output in 2022 was about the same as a year ago, yet prices are about twice as high. Something's wrong with this picture.

Data in the National Bureau of Statistics' Q3 2022 report indicate pork output was 12.1 million metric tons, almost the same as last year's Q3 output of 12 million metric tons. The number of hogs slaughtered during Q3 this year was almost identical to last year, at 154.5 million, and the inventory of hogs was slightly higher than a year ago. 

Data from National Bureau of Statistics quarterly reports.

The report claimed that the hog price was up 36 percent from a year ago. The September consumer price index also reported a 36-percent increase in consumer pork prices. However, these figures vastly understate the increase in prices indicated by Ministry of Agriculture price reports which show wholesale pork prices nearly twice as high as last October and hog prices are up nearly 140 percent from last October. 

Ministry of Agriculture and Rural Affairs weekly livestock and feed reports.

The National Bureau of Statistics raw material price report for mid-October showed an even larger increase in prices, reporting an average hog price of 26.5 yuan per kg, up 150 percent from 10.5 yuan a year ago. 

National Bureau of Statistics Raw Material Purchase prices.

Consumer demand is not driving up pork prices. Per-capita household expenditures so far in 2022 were up a paltry 1.5 percent from a year earlier, and urban expenditures were down -0.2 percent.

Drought Hits China Rice Quality

Rice quality has been reduced by this year's drought conditions in south China. Cngrain.com reports that hot, dry weather has resulted in low yields, low milling yields, and degraded quality that could affect the appearance, texture and taste of long grain rice. The problems have become apparent since the October 1 National Day. 

Rice with quality problems is fetching low prices, while supplies of good quality rice are tight. Grain and Oils News reported last month that the low quality of this year's crop was boosting demand for old crop long grain rice released from reserves. 

Authorities began purchasing long grain rice at minimum prices in Anhui, Jiangsu, and Henan Provinces this month. Such purchases are authorized only when market prices fall below the minimum price--set this year at 129 yuan per 50kg for single-season indica rice. Rice must meet grade-3 quality standards, and rice at higher grades gets a premium.

A communist party web site posted a Q&A on government intervention purchases of rice in Xiangtan City of Hunan Province emphasizing that rice they purchase must meet national quality standards, another indicator of concern about marketing of this year's rice crop. The Xiangtan City document said single-season long grain rice could be purchased at the minimum price from October 10 through January 31, 2022. The document reminded officials that rice they purchase must meet national standards for moisture, milling yield, and foreign material. They must purchase newly harvested rice for government reserves; in other words they can't buy up old rice to stock reserves. The document identified 5 state-owned companies in the local area that are eligible to purchase rice for reserves directly from farmers who deliver the grain to the warehouse. Rice cannot be purchased at minimum price from traders or other intermediaries. 

This year people delivering rice to granaries in Xiangtan will have to fill out a form with their name, i.d. card number, contact info, date of delivery, weight of the rice, registration number of trucks used to ship the rice, cadmium content, warehouse number, and the village, town and county where the rice was grown. The form is part of a new traceability system, apparently to trace the source of rice that has excessive cadmium detected. 

The Xiangtan City document reminded officials that stabilizing the grain market is especially important this year due to the communist party's 20th congress held this week, the struggle against the covid pandemic, and other world events. Each local government and enterprise must raise its political stance.

"Big Data" and Human Element in China's Livestock Statistics

China's National Bureau of Statistics blames its data problems on conspiratorial fraud between the local officials and companies that report data to Beijing. In a May 2020 campaign to crack down on fraudulent statistics an NBS official complained that fraud and fake reporting of data remained rampant in some regions and warned that inspectors are being sent out to local government offices and companies to catch the fraudsters. This was a continuation of a crackdown on statistical fraud and deceit ordered by Xi Jinping in 2021.

In July 2022 statistical inspectors were sent to China's agriculture ministry to root out fraud and falsification, punish perpetrators, and demand that all clerks and accountants take seriously the importance of quality statistics. This follows a visit last year. In August, an inspection team conducted a spot check of livestock statistical reporting in Jilin Province where they checked farm records, investigated the reporting system, and lectured local officials about their responsibilities. 

Statistical inspectors arrive at agriculture ministry. Shall I wear a white shirt or a blue one?

Statisticians are hopeful that developments in "big data" and "artificial intelligence" can cut out the human element in data collection. One example is a recent initiative for companies to set up an automated system to send data directly to Beijing, thus eliminating opportunities for local officials to massage the numbers. 

China's chaotic livestock industry is a longstanding statistical sore spot and a target of "big data" statistical automation. The Jilin livestock statistics investigators got a report on the "Jilin's cow cloud" --a key project--and checked in with a local livestock tech company. Another team visited Shandong Province to catch up on livestock "informatization" efforts, including a demo of the “Shandong province smart livestock industry big data platform” and "big data" capabilities. Jiangsu Province officials held a training seminar for managers of milk collection stations to automate reporting of milk marketing data.

Statistical inspectors lecture a livestock farmer in Jilin Province.
Source: National Animal Husbandry Station.

These "big data" efforts sound great, but progress is still undermined by the human element. Six years ago China's agriculture ministry kicked off a pilot program for an elaborate "consumption-guided whole-industry-chain hog monitoring" system that would take advantage of "big data", cloud computing, and internet-connected devices to collect real-time data from farm records, slaughterhouses, wholesale and retail markets and pork consumers. One of the "scientific" system's stated principles was to "reduce human interference." The system was expected to improve the accuracy, timeliness, and usefulness of pork industry statistics. Officials would use "deep data mining" to identify leading indicators to issue "early warnings" to help business entities make production plans and allow government officials to surgically intervene in the market to smooth out price gyrations. 

The hog statistics pilot launched in 2016 was expected to build the foundation for an improved swine statistical system within three years. Two years later--in 2018--an African swine fever epidemic swept through the country, wiping out at least a quarter of the national herd, severely crimping pork supplies. In early 2019 agricultural officials predicted that pork prices might rise 55 percent. Prices actually went up 120 percent later that year. At the peak of the pork shortage crisis, officials mostly stopped issuing pork statistics altogether as pork prices soared to unprecedented levels.  

Even pig statistics are inherently political in China. In August 2019, Vice Premier Hu Chunhua had ordered officials at all levels to restore pork supplies asap as a "political task." Thus, local and provincial officials had great incentive to hide data that highlighted pork shortages while inflating their pig production statistics to win plaudits from their superiors and demonstrate effects of massive subsidies. Provinces competed to outdo one another in showing big rebounds in hog numbers.

The hog statistics pilot promised to be "consumption driven," including special attention to rural pork  consumption using a 30-year-old agriculture ministry village monitoring survey. However, there has absolutely no discussion or analysis of pork consumption by government, academics or news media during the African swine fever crisis. Such discussion was probably banned to avoid embarrassment since Xi Jinping had announced China would reach "all-round relatively well-off society" status in 2020 and the communist party's centenary was in 2021. Statistics on rural pork consumption would have been especially embarrassing since anecdotal reports indicated that rural consumption plunged while urban consumption took a softer hit during the African swine fever-induced shortage. In 2019, Vice Premier Hu ordered news media to "shape public opinion" on the pork shortage, and Peoples Daily quoted the agriculture ministry as insisting that "the pork supply is assured" at the same time Hu was ordering officials to alleviate the shortage.

Puzzling pork consumption data buried in China Statistical Yearbook.

The hog statistics pilot also aspired to incentivize company participation in the data collection effort by offering "services" to companies, presumably access to statistical reports and analysis. However, there are still no statistical reports on the pork industry that would have any value to companies. Annual and quarterly reports--issued by companies for the benefit of investors--convey far more market information than do government reports. 

We are collecting "big data" inside these cardboard models of giant factories.

Instructions given by a team leader after last month's Shandong livestock informatization inspection reveal some problems in vacuuming up data from various private companies. The team leader ordered local officials to pay close attention to Internet security; to speed up data sharing and eliminate "information silos"; and to devise standardized codes for data items from various companies. 

The Internet security order was probably inspired by July's massive leak of data from a Shanghai Police web site. If government data sites are vulnerable to hackers, companies are not going to "share" their data with statisticians. The economic motivation for companies to compile and analyze "big data" is to gain an advantage over their competitors. Why would companies share valuable data that their competitors might exploit? Wouldn't statisticians in possession of proprietary company data be motivated to engage in insider trading or to accept bribes? Why would it be advantageous for slow-footed government bureaucrats to dictate data standards to fast-moving companies looking to profit from their proprietary data?

Echoing the 2016 hog statistics pilot, last month the leader of the Shandong inspector team ordered local cadres to "develop informatization service capability." In other words, government statisticians in China still have nothing of value to offer companies in exchange for the data they want them to share.

A "big data" platform demo in Shandong Province. Perhaps she's saying, "These pretty pictures based on garbage-in-garbage-out data will definitely upgrade China's livestock industry." Source: National Agricultural Husbandry Station.

China Likes Big Techno-Farms

Chinese officials view scaled-up techno-farms as their farms of the future. Small-scale peasant farmers still blanket the countryside, but subsidies are gradually tilting toward big farms. 

business propaganda outlet Yicai proclaimed recently that scaling up farming operations is the key to addressing a crisis of chronic low earnings from grain production that undermine incentives. Yicai insisted further that small-scale farms of 10 mu could never improve rural living standards. The Yicai article featured the head of a "cooperative" who had acquired 19,200 mu of land through "land transfer" as a technologically adept farmer superior to the small-holder peasants who still dot China's countryside. The cooperative had boosted wheat yields and quality, linked up with a flour manufacturer, and had plans to expand his business even more.

Yicai cited a 5-year-old Farmers Daily article that found 60 percent of China's cropland is farmed by small-scale farmers with holdings of 10 mu or less, while only 20 percent was farmed by scaled-up farms (the other 20% was not accounted for).

A recent Economic Daily discourse on "Rationally Maintaining Farmers' Net Returns to Growing Grain" pointed out that crop yields are highest for farmers cultivating 500 mu of land--about 10 times the typical holdings of small-scale farmers. The article's China Agricultural University authors gave examples of efficient farm producers: a "specialized rice cooperative" in Heilongjiang's Jiamusi City and an "agricultural services" company in Shandong's Gaomi City that cultivate the cropland of entire villages, bring in new seed varieties, mechanize the entire process, and fly drones over the fields to spray pesticides.

The fragmented nature of China's grain farms is cemented in place by its outmoded land policy that distributed plots of land to every rural family based on the number mouths to feed and number of laborers. Land can be temporarily transferred to other farmers but it can't be sold to other farmers. 

In contrast, pig farms are mostly independent of land-holdings and have consequently scaled up at a furious pace. Chinese officials love big pig farms with high-rise barns, automated feeding and temperature control equipment, data collection and artificial intelligence. They also love that they can call company executives to Beijing to lecture them about policy priorities, trot them out on stages, and feature them as models loyal to the leadership. 

After dead pigs floated into Shanghai in 2013, officials were ready with a plan to shut down small pig farms and replace them with big ones. During years that followed aggressive environmental measures eliminated millions of pig farms. In 2019, a long list of subsidies and loans to restore pork supplies after the African swine fever epidemic were given mainly to scaled-up farms. Muyuan Foods--now the world's biggest pig farmer--got big tracts of farmland to build giant pig barns despite a crackdown on diverting farmland from grain production. China had 21 million pig farms in 2020, less than half the 50 million in 2014 and a fifth of the 105 million pig farms China had in 2002. 

Source: China livestock industry yearbooks.

Priority initiatives to reduce soybean imports show how China is marginalizing small-scale farms by featuring complex techno-farming initiatives that are beyond the grasp of peasants.

A corn-soybean strip-cropping pilot program--one of China's top farming initiatives in 2022--is meant to increase soybean output without sacrificing corn by planting fields that alternate 2-4 rows of corn with 2-6 rows of soybeans. The technique has complicated requirements for row spacing, varieties that can tolerate dense planting and are resistant to lodging and shade-tolerant, special herbicides and different application times are needed for the two crops in the same field. Specialized machinery (which doesn't seem to be even available now) is needed for seeding, chemical application and harvesting. 

Last month, Economic Daily reported that production costs for the corn-soybean strip-cropping technique are extraordinarily high due to complex field management, specialized inputs and machinery required. High subsidies of 200 yuan per mu (about $170 per acre, plus additional subsidies for equipment purchase costs) are available only to large-scale farmers, cooperatives, and companies engaged in strip-cropping. Small-scale farmers are ineligible. 

This week China's agriculture ministry held a seminar to demonstrate progress on low-protein soybean meal diets for livestock, another measure to reduce soybean imports. The seminar featured presentations from giant companies like New Hope Group and Muyuan Foods. Official talking points on this initiative scold small and medium-scale farmers for judging feed quality based solely on its soybean meal content rather than designing feed rations based on diets that set minimum amounts for a half-dozen unpronounceable amino acids, fermentation processes, and distinctions between metabolizable versus digestible protein. 

The problem is that big farms have high capital requirements, high costs, and cannot operate on a shoestring as small-scale peasant farmers have done for decades. The giant pig farms are losing billions of dollars. One promising pig farming company went bust in 2018, and the number-2 pig-farming company now appears on the brink of bankruptcy.

According to Economic Daily, farmers are not able to cover the costs for soy-corn strip-cropping even with the high subsidies.

The Economic Daily and Yicai articles pointed out that land rental costs are an obstacle to profitability for scaled-up farmers. Economic Daily authors said they learned that Heilongjiang Province land rental rates went up from 500-600 yuan per mu in 2020 to 700-800 yuan per mu in 2021, while rent in Henan Province on land used for wheat-corn crops is 800 yuan. 

The cooperative head interviewed by Yicai said the 800 yuan land rent currently paid was "reasonable" but claimed that he would not be able to make money if rent was boosted to 850 yuan. Another farmer in Inner Mongolia interviewed by Yicai rented 6000 mu of "sandy" land from animal herders to plant soybeans and sorghum. He complained about the high expenses of 900-950 yuan per mu for land rent plus inputs and services and the land's vulnerability to windstorms. He complained that the rent exceeds the cost of inputs for the crops and he only nets 170 yuan per mu. 

An Anhui farmer interviewed by Yicai warned that many entrepreneurs who ran restaurants, bathhouses and other businesses think they can easily make money in farming. He recalled a wave of such farmers 10 years ago who quickly went bust. The farmer commented that a new wave of 1000-mu and 10,000-mu farms has recently appeared, lured by rising corn prices and subsidies, loans and financial awards from local governments. The article warns that these farmers could encounter big losses if corn prices don't keep rising and if subsidies are not sustained permanently.

Yicai concluded that more subsidies are necessary. China will get around World Trade Organization limits on subsidies by using insurance programs that guarantee farmers a minimum income. Provincial and central governments will subsidize 70 percent of the premiums in most farming counties and 60 percent in rich eastern provinces. Agricultural insurance is considered a "green box" support measure that is exempt from WTO limits, so there is plenty of room for growth, Yicai said. The program is supposed to cover all major grain-producing counties this year.

China has been experimenting with subsidies for large-scale farms over the past decade. The "land fertility subsidy" created in 2016 by consolidating other subsidies has a chunk reserved for scaled-up farms. Some provinces have subsidies specifically for scaled-up farmers or "awards" to offset the expense of land rent. 

A new income insurance scheme, "insurance plus futures," is touted as China's new approach to subsidizing grain farmers. The mechanism involves subsidized premiums for insurance that pays farmers if crop prices fall below a certain target. It involves complex hedging in futures and options markets that are beyond the comprehension of nearly all Chinese farmers. 

Gyrating Pork Prices Vex Chinese Officials

China's August 2022 CPI report said pork prices were up 22 percent from a year earlier, the largest increase of any component of the price index. The Statistics Bureau reckoned that the 10-percent increase for the broader meat category contributed 0.32 percentage points to the 2.5 percent year-on-year rise in consumer prices.

A year ago, the August 2021 CPI report said pork prices were down 44.9 percent from a year earlier, the largest decline of any component of consumer prices. In August last year, the meat component of the CPI pulled down the 0.9-percent CPI change by 1.2 percentage points. 

According to agriculture ministry wholesale market price monitoring, August 2022 pork prices averaged 33.88 yuan per kg (about $2.23 per lb). That was higher than any historical pork price excluding the once-in-a-lifetime prices during Sept 2019 to January 2021 when African swine fever cratered pork supplies. 

Data from China Ministry of Agriculture and Rural Affairs market monitoring.

Chinese officials have been spooked by the gyrations in pork prices. In a July macroeconomic analysis by the State Council's Development Research Center think tank, three economists investigated the lurking risk of a new rapid surge in pork prices. They zoomed in on the possibility that "excessive shedding of production capacity" due to rising feed costs, a broken financing chain for some large-scale hog producers (e.g. Zhengbang), and over-zealous environmental regulators shutting down pig farms.

The economists said another price spike was unlikely because big farms that can withstand cyclical pressures are squeezing out small independent farms. They were pleased to report that 

• scaled-up farms producing 500 head or more had increased their share from 53% to 60% between 2019 and 2021. 
• Sows held by scaled farms increased by 4.4% between April 2021 and June 2022 while sows held by small independent farmers had fallen 11.6%. 
• High-productivity second-generation sows increased from 50% of the herd in May 2021 to 88 percent in February 2022 as low-productivity third-generation sows have been displaced.

Somewhat more alarming was the financial data for pork companies:

• While 21 publicly listed hog companies produced 15% of hogs last year, 14 of them reported losses totaling 53.97 billion yuan
• 20 companies posted losses in the first quarter of 2022 totaling 18.94 billion yuan
• 14 companies have debt-asset ratios over 60%, and four have ratios over 80%.
• The report singled out Zhengbang Sci-Tech, the no. 2 pig producer, for its particularly dire financial straits.

The DRC economists judged that the likelihood of a rise in pork prices is low since pork consumption is under pressure due to closure of food service during pandemic lockdowns and a general decline as consumption diversifies away from pork. They said per capita pork consumption fell from 42.6 kg to 40.1 kg between 2014 and 2021. 

After rolling out a dozen policies to accelerate recovery of pig production exactly 3 years ago, the economists now recommend another round of loans and other support policies to prevent excessive exit from the industry. They called for increasing the corn import quota and simplifying procedures to reduce feed prices. They also called for expanding imports of other feed grains like barley and sorghum, distillers dried grains, and oilseed meals while pursuing low-soybean meal feed rations.

What the DRC economists did not bother to ask is why pork prices have surged to an historical high when demand is decidedly lackluster. Doesn't it suggest a supply shortfall? 

The National Development and Reform Commission held meetings in the summer with big hog-producing and pork companies, industry associations and other government departments to warn against hoarding and price manipulation. Authorities learned that the current supply of fattened hogs is sparse due to a reduction of capacity when companies were losing money last year. Companies said they would have to slaughter immature pigs in order to ramp up supplies immediately. 

The NDRC's September meeting once again had an upbeat assessment, concluding that pork supplies are ample and prices will be stable. 

The DRC economists called for cracking down on false information, hoarding and speculation. They meant this for companies, but the government should also stop putting out fake statistics, rosy outlooks, and stop hoarding grain.

Indian Rice Replaced China's Expensive Corn...until now

China's expensive corn is upending agricultural markets in unexpected ways. India banned exports of broken rice last week and imposed a 20-percent export tax on most other types of rice to pre-empt food security risks. Booming demand for broken rice has been blamed on the war in Ukraine as importers sought out replacements for Ukrainian corn. That's true, but China's demand for broken rice has been on the rise for two years, driven by spiraling Chinese corn prices.

Customs data show a relentless growth in Chinese imports of broken rice--a type of grain typically used as an industrial or feed raw material and often imported by African nations. China's broken rice imports tripled from about 200,000 metric tons per quarter in 2020 to around 600,000 metric tons per quarter in 2021. With the onset of the Ukraine war, imports accelerated again to 800,000 metric tons in 2022 Q1 and over 1.2 million metric tons in 2022 Q2.

Back in 2020, China imported broken rice mainly from Vietnam, Myanmar, Thailand and Pakistan. Following an agreement to open China's market to Indian rice signed in 2018, China began importing broken rice from India for the first time in decades in December 2020. China's imports of Indian broken rice zoomed to over 1 million metric tons in 2021. This year, China imported 1.45 million metric tons in the first seven months of 2022. So far this year, nearly 60 percent of China's broken rice imports have come from India. 

China also cut its tariff on broken rice imports to 5 percent in 2018. That means Chinese importers can buy broken rice from abroad at a relatively low tariff without limit. In past years they had to beg the government for a tiny sliver of the annual tariff rate quota in order to buy any kind of foreign rice. 

China's taste for India's broken rice exactly corresponds to a price inversion between Chinese corn and imported broken rice. Chinese corn prices were $100 to $200 less than the unit value per ton of imported broken rice during 2019 when China was still dumping its massive corn reserves into the market. During 2020, Chinese corn prices began climbing while India offered discounts on broken rice sales. By early 2021, Chinese corn was about $40-$50 more expensive than imported broken rice, and the business boomed.

In a news report 6 months ago, Indian and Pakistani traders attributed China's "exceptionally vigorous" demand for broken rice to tight supplies of Black Sea corn and wheat. They cited Chinese demand for spurring a boom in prices for broken rice that inverted the spread between 100% and 25% broken rice. In late February, Indian 100% broken rice was quoted at $310 per ton fob, up $29 from the beginning of the year. Chinese corn was over $415 per ton at that time.

Xi's "China Dream" for Soybeans

A revival plan for China's soybean industry bears all the marks of Xi Jinping's broader "China Dream" of a glorious rejuvenation of Chinese culture and economic leadership. The doctrine asserts that it is now time to throw off foreign domination of an inherently Chinese commodity. China will create a market for soybeans with distinct Chinese features that will pull along suppliers in Eurasia and Africa, with processing led by Chinese companies and with prices determined in Chinese markets. 

Economic Daily led off the month of August with a brief article, "Who has the power to set prices for domestic soybeans?" (reposted on the Chinese commerce ministry's web site) and followed up with a 12,000-word "Investigation of the Soybean Issue" feature article (Harbin TV version with photos). Many articles described the experimental corn-soybean strip-cropping technique rolled out this year. Several addressed non-GMO futures market topics, and the feed industry association ordered up training to promote substitutes for soybean meal in animal feed. 

The articles envision China carving out a non-GMO segment of the global soybean market where China will be the key player. China will procure non-GMO soybeans from its own farmers and from trade partners around the world, Chinese companies will produce and export soy-based food products, and a Chinese futures market will set the prices for non-GMO soybeans, thus regaining China's "right to speak" in the worldwide soybean industry. 

Economic Daily attributed this year's renewed attention to self-sufficiency in soybeans and oilseeds to "special instructions" issued by Xi Jinping conveyed in a speech by Vice Premier Hu Chunhua at a May meeting in Heilongjiang Province, China's top soy-producing region. (In a March 7 post, the dimsums blog noted China's dashed hopes of becoming a non-GMO soybean exporter, soaring Chinese soybean prices, and this year's self-sufficiency push.)

Typical of Xi thought, the soybean strategy is predicated on a narrative of unfair American domination. Economic Daily moans about the unfairness of global prices being determined in American markets when China has become the largest importer and Brazil the largest exporter. The writers blame unfair prices for undermining incentives to grow soybeans in China. Economic Daily complained that low soybean prices, in turn, resulted in farmers abandoning crop rotations, and this resulted in a corn monoculture that degraded China's soil quality. 

Like other Xi Jinping initiatives, the soybean narrative looks backward to find innate historical Chinese greatness that has been suppressed by foreigners. Economic Daily points out China's role as originator of the soybean and was top exporter 100 years ago. Economic Daily dredges up a 2000-year tofu history traced to a king in the Western Han dynasty that supports a leading role today for Chinese soy products.

Automated packaging of soymilk mix at a factory owned by Beidahuang, a company
controlled by the State farm system in Heilongjiang Province. Source: Harbin TV.

Self-reliance and independence are other watchwords of Xi thought. Economic Daily crows about China having created two "independent" soybean markets, claiming that non-GMO soybeans are the "competitive advantage" of China's food processors. The authors note that imported non-GMO soybeans are prohibited for use in food products, and they observe that products with a "non-GMO soybean" label can be found in "many supermarkets" in Beijing. 

A May 2022 market commentary on first quarter soybean imports explained that Americans have mastered soybean pricing by ensuring that soybeans throughout the world are priced with reference to the Chicago market. The commentator alleges that Americans keep non-GMO artificially expensive in order to create more demand for their cheaper GMO soybeans. The commentator expressed his hope that non-GMO soybeans would retain their high price and thus bring high returns (...to Chinese soybean farmers but not to Chinese food processors or consumers).

The May commentary pointed to an arrangement to set the price for a 2000-ton shipment of Canadian non-GMO soybeans with reference to the Dalian futures price as a symbolic restoration of China's price-setting power in the soybean market. 

Economic Daily lauds the Dalian Commodity Exchange's (DCE) "No. 1" non-GMO futures contract as the world's largest futures market for food-use soybeans. Twenty years ago, DCE created the non-GMO futures contract--settled almost exclusively with Chinese soybeans--while the "No. 2" soybean contract has no restrictions. A DCE official said the exchange provides price information about China's high-quality high-protein soybeans and envisions the exchange becoming a "fair and just" non-GMO soybean import and trading mechanism that will restore China's pricing power in soybean markets.  

Xi's theme of China disseminating its culture abroad to make the world better is reflected by the Peoples Daily's "Planting Soybeans Gave Us New Hope," describing Tanzanian villagers' enthusiastic discovery of Chinese soybean milk and great improvements in yields and income from production techniques taught by Chinese scientists. 

Data on GMO and non-GMO soybean imports posted online last week reveal that China's non-GMO soybean imports are a dribble. In July 2022 China imported 88,900 tons of non-GMO soybeans and nearly 7.8 million tons of GMO soybeans. Russia was the main source of non-GMO soybeans. The second-largest supplier was Canada. The United States supplied both GMO and non-GMO soybeans, according to this data. The combined volume coming from "Belt and Road" countries Kazakhstan, Ukraine, and Africa was about equal to the amount of non-GMO soybeans imported from the United States. South American countries supplied only GMO soybeans to China.

The data also reveal that the "fair and just" "China price" for non-GMO soybeans is far higher than in the rest of the world. Unit values per ton calculated from the July customs data revealed that prices of imported non-GMO soybeans vary widely, from just $400-$500 per metric ton for Kazakh and Russian soybeans to over $800 per ton for soybeans from Ethiopia, Benin and Tanzania. The numbers suggest that Americans can supply China with non-GMO soybeans more cheaply than African countries. U.S. and Canadian non-GMO soybeans averaged about $760, less than unit values of African soybeans. In contrast, wholesale market prices for Chinese soybeans reported by China's ag ministry averaged $1098 per ton in July. Brazil's GMO soybeans averaged $736 per ton in the July customs data.

Today's Dalian futures prices are about 5,700 yuan for non-GMO soybeans and about 4,700 yuan for GMO soybeans for delivery in January 2023. That implies that market participants expect a 20-percent premium for domestic soybeans after the upcoming harvest.

Economic Daily acknowledged that Chinese non-GMO soybean prices had risen dramatically over the past two years. To combat the incentive to substitute GMO for non-GMO soybeans due to the price spread, Chinese regulators are stepping up their scrutiny of wholesale markets and food manufacturers to root out any non-GMO soybean use in foods. 

Economic Daily's "Investigation" acknowledged that the high cost of Chinese soybeans is ultimately due to low yields, and celebrated stories of new seeds that purportedly provide a quantum leap in yields. The seeds are bred and supplied by Chinese companies.

High prices are not enough to make soybeans profitable in China. Economic Daily also celebrates big subsidies for soybean growers this year that include a direct payment to soybean growers, a crop rotation subsidy for farmers, insurance that guarantees a net return for soybean and other grain producers, and transfer payments to soybean-producing counties. A massive corn-soybean strip-cropping experiment targeted to reach 5 million mu (824,000 acres) this year is subsidized at 500 yuan per mu ($440 per acre).

The non-GMO soybean strategy is in line with Xi Jinping's vision of inevitable future Chinese glory based on tales of past Chinese greatness. The inherent greatness of China means that any successful competitor must be guilty of exploitation and cheating. 

It would be fine to create an independent market for non-GMO soybeans with premium prices, but it's not clear what is unique about these soybeans and what benefit consumers get from them. The differentiation seems to be based entirely on manufactured fears of genetic modification and stories about American domination. 

Traders would flock to China's markets if they had the same transparency, reliable government data, a freely traded currency, and consistent enforcement of laws and contracts that are the foundation of markets in Chicago, London, Switzerland and Tokyo.

New Grain Reserve Behemoth Set Up in Beijing

China Enterprise United Grain Reserve Ltd. Company was established yesterday to manage China's national grain reserve. The new company is a joint venture between two state-owned grain behemoths, Sinograin and COFCO. The merger is part of a bigger program to wring inefficiencies out of China's bloated state-owned enterprises. Officials praised the new grain company as signaling a new chapter in maintaining national food security, improving capacity to intervene in grain markets, and enhancing communist party leadership. 

Earlier this year, explanations of maneuvers to meld Sinograin and COFCO explained that efficiencies could be gained by combining the two companies' overlapping businesses in specialized joint ventures. Sinograin is responsible for managing national grain reserves, but COFCO also hires out facilities to store grain and is China's premiere player in international grain trade. China Enterprise United Grain Reserve Ltd. Co will utilize Sinograin's policy role and COFCO's commercial role to store reserves, procure grain to fill the reserves, and buy and sell grain to intervene in the country's grain market. The slogan "storing the country's grain" and "finding grain for the country" reflects the functions of Sinograin and COFCO. 

The second overlapping business is in oilseed and edible oils processing--COFCO is China's no. 2 edible oil manufacturer and Sinograin is no. 3. (Singapore-based Wilmar is no. 1.) Presumably another venture that will create a giant oilseed-processing business is also in the works. 

The China Enterprise United Grain Reserves Ltd. Co. (中企联合粮食储备有限公司) joint venture arguably reverses reforms in the early 1990s that spun off policy-oriented functions like storing grain reserves from state-owned companies like COFCO, allowing those companies to focus on commercial business. While the new company is said to allow Sinograin and COFCO to focus on their core policy and commercial functions, respectively, the company forges together policy-oriented Sinograin and commercial-oriented COFCO. The arrangement potentially gives COFCO access to policy loans from the Agricultural Development Bank of China, and grain reserves potentially could be financed by money spun from COFCO's near-monopoly on wheat and corn imports. 

Officials from the National Development and Reform Commission, State Asset Management Commission, Agricultural Development Bank of China, and National Food and Commodity Reserve Administration as well as Sinograin and COFCO were at the meeting in Beijing. The new company "took a collective oath, showing loyalty to the party's cause." 

Hog Farm Money Squeeze Starves Pigs, Prices Gyrations Continue

Chinese officials thought they could stabilize the pork industry by replacing small farmers with corporate behemoths. China cut the number of pig farming operations in half over 5 years. Of the 21 million producers that remain, China's top 4 companies produced about 78 million hogs last year, about 12 percent of the country's total. But the industry is as unstable as ever. 

Data from Ministry of Agriculture price reports.

Compiled from China livestock industry yearbooks and 1996 agricultural census.

China's number-2 pig producer, Jiangxi Zhengbang Technology Co., attracted attention in July with reports that some of its pigs were starving due to disrupted feed deliveries. There were reports that farmers producing hogs for Zhengbang in multiple provinces were not getting feed supplies, farmers were not getting paid, and employees complained of unpaid wages. 

This summer, Zhengbang's monthly hog sales volume shrank to less than half the pace of a year ago. Another indicator of trouble is sales of immature hogs averaging 75 to 87 kilograms per head during April-June, well below the typical weight of 110 to 120 kg and much less than 140-kg slaughter weights a year ago. 

Commentators attributed the feed disruptions and missed payments to Zhengbang's dwindling cash reserves following steep losses in 2021 that exceeded all the profits the company had made in previous years. Zhengbang officials said it was a temporary blip due to restructuring. One commentator surmised that the company's sale of its feed mills--a desperate move to raise cash--may have been part of the problem.

Zhengbang's financial woes can be traced to a debt-fueled race over the last four years to gain market share in an industry long dominated by small-scale farmers. Chinese officials had long blamed back yard farmers for "blind" expansion and sow culls that produced gyrations in production and prices. Officials longed for an industry dominated by big companies that would stabilize the market.

Officials recruited companies to lead the recovery from the "blue ear disease" pork shortage in 2007, but the companies never made much headway competing with nimble, low-cost backyard farmers. An environmental clean-up following the 10,000 dead pigs floating through Shanghai in 2013 was another opportunity. Officials shut down millions of pig farms, giving pig-farming companies a new opening for expansion to fill the vacuum. However, many of the companies were in financial trouble by 2018. One prominent player, Chuying Pastoral, also had a much-publicized starvation of pigs and tried to repay creditors with hams before going under that year.

The African swine fever (ASF) outbreak in 2018-19 provided the biggest opportunity yet. Individual farmers slaughtered entire herds, often received no compensation for culling herds, feared resurgence of the disease, and had no funds to ramp up operations after their cash chain was broken. Moreover, a raft of policies, including earmarked loans, land-use approvals, expedited environmental assessments, and subsidized equipment for new and expanded pig farms mostly favored large-scale companies.

Zhengbang took advantage of China's ASF epidemic to vault to a top position in the industry. In 2017 most of Zhengbang's income came from feed sales, though it also sold 3.4 million swine. In 2019--a year of national pork shortages and record-high prices--Zhengbang's swine sales jumped to over 5 million head. By 2021, Zhengbang sold 14.9 million head, leapfrogging New Hope Group and Wens Foodstuff to become the number-2 pig-producer in China.

While 20 million small pig farms were disappearing over the past 5 years big companies were in a race to expand. Between 2018 and 2021, China's top 10 pig-farming companies doubled their combined share of industry output from under 7 percent to 14 percent. Moreover, the head of New Hope Group complained in 2020 that 1,000 real estate companies had also started raising hogs. According to statistics, national pork output had recovered to near its pre-ASF level by the end of 2020 but pork demand was crimped by China's weak economy, covid lockdowns and curbs on travel. In 2021, hog prices plummeted more than 50 percent. Costs rose due to rising feed prices, bidding wars for scarce piglets, sows, and personnel, big spending on new facilities, and low feed conversions on hogs raised to absurdly large weights. Conditions worsened in the first half of 2022 with a new round of covid lockdowns, consumption in the doldrums, and soaring feed prices due to the war in Ukraine.

Zhengbang posted a loss of 19 billion yuan (about $2.9 billion) in 2021 and 3-to-4 billion yuan in the first half of 2022. After borrowing heavily to finance both working capital and new construction, Zhengbang's debt was officially reported to be 97 percent of its assets and some analysts think the debt-asset ratio is now over 100%. Its stock price rose as high as 28 yuan in 2020 but is now down to 5.7 yuan. Its share price has fallen 25 percent over the past month.

Last week, one commentator speculated that Zhengbang could be on the same path to oblivion Chuying Pastoral followed four years earlier. The commentator thought the decline of both Chuying and Zhengbang was due to "blind expansion" during a time of high prices--exactly the behavior Chinese officials have long moaned about as a defect of small-scale farmers.

In May 2022 Chinese hog prices began rising again. Market commentators attribute the new price rise to a revival of demand as covid lockdowns were lifted and producers holding their hogs longer, hoping for even better prices. The price increase restored profitability but made government officials nervous about food price inflation. China's hog market seems as unstable as ever.

Xi Jinping's rural strategy envisions big companies like Zhengbang leading small-holding farmers into a magical era of common prosperity. Xi's signature poverty alleviation campaign ordered pig companies to ramp up "company + farmer" pig-raising operations in poor regions with a dual objective of raising rural incomes and restoring pork supplies asap after the African swine fever epidemic. Zhengbang's recent experience shows that this mechanism works when prices are rising, but the whole thing can seize up when prices fall. 

Like most pig companies, Zhengbang contracts with individual farmers to fatten some of their hogs (about 40% of Zhengbang's 2021 production, based on estimates by Shanghai financial news outlet Cai Lianshe). Contracts call for Zhengbang to supply the piglets, feed, drugs and vaccines, while the contracting farmer provides the labor and facilities for a set fee per pig. Commentators say this "asset-light" strategy allows companies to expand rapidly without having to invest in giant farms. They earn lots of money when prices are high, but they can lose a lot when prices fall. 

Disputes over farm contracts in China are common when prices rise and when they fall. If prices during the contract period farmers are tempted to sell animals on the open market when prices are high. When prices fall companies mired in losses often miss payments or accuse farmers of delivering substandard products.

Contracting farmers were in a bind when Zhengbang stopped delivering feed. Zhengbang technically owned the pigs, so if farmers went out and bought their own feed they would be making a loan to Zhengbang that would likely never be repaid. Farmers couldn't just walk away from their contracts because they had paid deposits to the company. Some farmers said Zhengbang came and collected their pigs with no explanation. Some farmers trying to get money from the company camped out in the company's courtyard or threatened to commit suicide. One farmer said it is possible to take legal action against the company and win, but it's a lot of trouble and you probably won't get any money.

A Zhengbang financial manager told Shanghai's Cai Lianshe that the company is cutting back on contracts with individual farmers to raise pigs, citing unsatisfactory disease prevention, high mortality, and lower costs when the company raises its own hogs. Zhengbang had contracts with 7,951 farmers in 2020, but the number was cut back to 5,743 in mid-2021.

Two commentaries on Zhengbang's "starving pigs" incident both seem to endorse the fully integrated production model used by Muyuan Foods, the biggest pig producer in China and the world. Muyuan produces its own pigs and raises them to slaughter weight on its own giant factory-style farms. 

Cropland v. Tourism Conflict in Rural China

A crackdown on vacation homes disguised as greenhouses reveals China's clashing priorities: leaders say they want farm-related tourism to pump money into the countryside, but most of the land can only be used to grow crops that pay farmers a pittance. 

Last week China's Agriculture and Natural Resources ministries jointly published a list of cases where rural villas and vacation homes were disguised as farming structures. These have been demolished and reclaimed as farmland since authorities launched a campaign against such projects 4 years ago (see this blog's September 2018 post on greenhouse villas). The projects skirt strict zoning of rural land for agriculture by building hotels, teahouses and villas inside giant greenhouses or by disguising vacation cabins as sheds for field laborers. With scarce land and robust demand for bucolic vacations and getaways in the countryside, the projects are an easy way for rural villages to earn money.

Vacation cabins illegally built on farmland in Shanxi Province's
Linfen City discovered in 2021. Source: Economy Half-hour.

The two ministries published the list of six illegal projects to warn local officials of the  "zero tolerance" for illegally changing the use of land zoned for farming, and demonstrated the two ministries' resolve to investigate and punish those who fail to comply. The crackdown is part of Xi Jinping's orders to prevent the loss of farmland.

The list included projects that began as long ago as 2008 and two that were discovered in 2021, including a development of 8 fenced cabins for rent or sale in a Shanxi Province village and an ecological agriculture company in Fujian that had illegally built 4 cabins, a parking lot, wood plank road, and 3 wooden rest halls. A project in Heilongjiang's "Love the People" District built 18 of 158 greenhouses on "permanent farmland" and rented them out to vacationers. The Heilongjiang project had been remediated by officials in 2019, but renters had carried out renovations since then that prompted another intervention by officials. 

Rental cabin hidden inside an agricultural hothouse.

The Fujian project used less than an acre of cropland for constructing the illegal cabins, while a project in Henan Province involved about 74 acres. The perpetrators were rural agricultural companies and agricultural industrial parks run by villages and townships. Several of the projects were raided by carloads of officials. The perpetrators were punished with self-criticisms, party warnings, and fines.

The crackdown on rural vacation cabins clashes with initiatives to integrate the rural and urban economies and to beautify the countryside. Rural officials are urged to promote the rural tourism industry, but strict land-use zoning limits the supply of land that can be used for such projects.

A 2019 essay by a greenhouse-building company attributed the persistence of the "greenhouse problem" to pursuit of "short-term gain" by farmers and rural officials. Farmers frustrated by low earnings from farming see an opportunity to make money from their land by fulfilling city peoples' "country house dream," the essay explained. The essay observed that farmers often exploit regulations allowing greenhouses to contain extra rooms to house workers by turning those rooms into hostels and rental houses for vacationers. The essay claimed that the long-term interests of maintaining farmland for food security outweigh the short-term interests of farmers and rural officials actually profiting from the land.

The conflict comes into clear focus in a pilot program to build upgraded sheds in agricultural fields launched in 2018--same year as the crackdown on "greenhouse villas"--in the Baiyun District on the outskirts of Guangzhou. The project's aim is to build modernized structures to replace crude shacks haphazardly constructed from corrugated steel, plastic sheeting, bamboo and other materials to house workers in farm fields and store tools. Authorities say they have built over 5000 new farm sheds in the last 3 years. The aim is to standardize the sheds, clean up trash, prevent damage to farmland and improve rural scenery.

Upgraded field sheds look a lot like vacation cabins. Source: Baiyun District.

The new farm sheds in Baiyun District look quite a bit like the illegal vacation cabins built by the illegal projects described above, and it's not hard to imagine a project to construct such farm sheds on the outskirts of a wealthy city morphing into another disguised rural tourism development venture (funded with subsidies for the "pilot" project).

Baiyun officials ordered village and town leaders to use the new sheds only for agriculture, have zero tolerance for abandoned farmland, and not to change the use of land without approval. Village leaders were also instructed to clean up trash and waste in fields and  roadsides, and were urged to promote agricultural tourism and leisure and "creative experience agriculture." 

Not noted by the greenhouse designer's essay cited above is that farmers who control the land (temporarily) have no means of profiting from the "long-term interests." They cannot sell the land and can only mortgage it using the value of crops produced from the land. 

This "food security" policy prevents farmers from reaping the full commercial value of their land and prevents city people from achieving their "country house dream."