Pork Subsidy King China Investigates EU Pork Subsidies

China is launching an anti-subsidy investigation against European pork--a brazenly cynical move since China itself probably has more pork subsidies and government intervention than any other country.

An industry source estimated earlier this month that 22 Chinese hog-producing companies received a total of 4.7 billion yuan (about $650 million) in subsidies during 2023. According to the industry source, the objective of the government aid is to build up big companies with prominent brands on the premise that they will "pull along" farmers and cooperatives. Muyuan, the largest hog producer in the world, got 2.877 billion yuan in aid. Others got smaller amounts: 257 million yuan to New Hope Group, 242 million yuan to COFCO, 232 million yuan to Wens Group, and 202 million yuan to DBN. The industry source estimated that 29% of aid given to Wens was for production activities, 23% for R&D, 15% for buildings and equipment, and 8% for environmental protection (no mention of where the other 25% goes).

China's pork subsidies first began in 2006-07 when authorities were anxious to rebuild the industry after a "blue ear disease" epidemic killed off pigs and drove prices to record highs. A decade later subsidies were ramped up again and when China's pork industry was in the midst of an even bigger epidemic--African swine fever (ASF). 

Hundreds of major pork-surplus counties get an annual transfer payment of at least 1 million yuan ($143,000) based on their production and sales of pork. Regulations say these funds should be used for support of the local pork industry, including subsidized loans for farms and slaughterhouses, breeding and veterinary support.

The central government  allocates about a billion dollars a year to provinces for support of mandatory livestock vaccinations and proper disposal of diseased pig carcasses. 

Communist party leaders issue pork production targets to provincial leaders. Each province and locality could have a different mix of policies. Most policy measures cannot be identified by outsiders because there is no legislation or regulation that establishes the policies such as:

• Grants for construction of large-scale livestock farms of 500 head or more, ranging from 200,000 yuan ($29,000) for 500-999 head to 800,000 yuan ($115,000) for 3000 head or more.
• Breeding animal acquisition and subsidies of 30 yuan per head for farms that maintain stocks of native-breed animals
• Subsidies for automated feeding and water-conserving equipment
• Subsidized immunizations and insurance for sows and finishing hogs
• Compensation for culling animals during an epidemic and for safe disposal of carcasses

During the 2019 African swine fever-induced pork shortage Chinese officials prodded lower-level officials to boost pork production. Premier Li Keqiang ordered up "comprehensive measures to restore hog production" and "more urgent attitudes." A September 2019 directive by China's State Council set a 95-percent self-sufficiency target for pork and called for recovery of pork production capacity asap. The Agriculture Ministry's 3-year plan to restore pork production capacity cited Xi Jinping's "important directives" and the Premier's "clear requirements," and held consultations to urge local leaders to carry out the plan. The news media was enlisted to write glowing articles about the pig support policies. 

In 2020 the communist party's No. 1 Document ordered officials to speed up the expansion of pork production and decreed that normal production capacity should be restored by the end of the year. Pork companies were ordered to build slaughterhouses and procure pigs from farmers in poverty-stricken counties as part of the national poverty alleviation initiative.

The agriculture ministry's 3-year plan included many specific tasks to expedite an expansion of pork production capacity during 2019-20, mainly by constructing some of the biggest pig farms in the world:

1. Start building farm projects before the end of the year using this year's subsidy funds and use 2020 funds to build projects and rush them into production as soon as possible. 
2. Order local officials to subsidize purchases of automated feeding equipment, and equipment for environmental control, disease prevention and control, and waste treatment using the agricultural machinery and equipment subsidy program.
3. Loosen bans on using farmland to build pig farms, waive the approval process for using village "construction land" for pig farms, and otherwise simplify land approvals.
4. Use hog county transfer payments to fund industry development, veterinary services, and marketing infrastructure. 
5. Expand a collateral loan pilot, issue subsidized working capital and construction loans for breeding farms and large-scale farms. Expand insurance for sows and finishing hogs. 
6. Create 120 replicable high quality demonstration farms to upgrade production. 
7. Choose 1 or 2 localities for pork-based poverty alleviation projects in provinces of Hunan, Hubei, Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, and Shaanxi. Companies will collaborate with small and medium-scale farmers to expand pork output.
8. Urge local officials to ease up on local environmental bans on livestock farms by the end of the year and order local officials to stop declaring "pig-free" cities and counties.
9. Carry out environmental impact assessment of pig farms. Utilize an automated system and let farms of 5000 head or more start construction without having to wait for the final approval. 

Chinese pig farms have very lax environmental regulations compared to European counterparts, and animal welfare measures are voluntary and rare. During the 2019 pork shortage local officials were ordered to expedite environmental assessments of new pig farm projects.

Local officials are allowed to approve construction of pig farms on land designated for grain production--an exception to China's strict "food security" regulations. 

The result of China's breakneck expansion policy was that pork prices plummeted in 2021 as fast as they had risen in 2019. In 2021 a document on promoting a "stable, healthy swine industry" celebrated the policy responses by provincial leaders to restore pork capacity and called for continuing the support measures. The document focused on eliminating gyrations in production by dictating sow numbers and intervening aggressively by buying and selling pork reserves. 

With a rebound in supply and weak consumer demand during and after covid lockdowns Chinese pork prices have been stuck at levels at or below cost of production over the past 3 years. Chinese production costs are high due to the high prices of grain, rampant disease and relatively low productivity in China's pork industry. Therefore, when Chinese hog prices are at loss-making levels they are still higher than prices in major pork-producing countries of the Americas and Europe.  

Parts of the animal such as organs, snouts, feet, etc. have minimal value in Europe and North America, but they are in demand in China. These parts of the hog can be sold to China at prices that far exceed the prices they can fetch as pet food or fertilizer ingredients in exporting countries. Chinese authorities claim this constitutes "dumping" and are now constructing a string of non sequiturs to link "unfair" prices of exported pork offal to some European policy.

Soy-corn strip cropping faces obstacles

China's soybean-corn intercropping technique is promoted as a panacea for getting 2 crops from 1 field, but adoption of this complex technique faces multiple obstacles. It is only viable on large-scale mechanized farms with hefty subsidies. 

China's soybean-corn intercropping program features alternating rows of soybeans and corn. The most common version is "4+2": 4 rows of soybeans alternating with 2 rows of corn. The technique was first promoted in Sichuan and other southwestern provinces with small plots on mountainous terrain where many farmers had quit to seek work in cities. Agricultural officials adapted the technique for farms in other provinces in their drive to promote intercropping nationally. The 2023 program called for technical demonstration farms in 17 provinces: "expanding in the southwest, northern China plain and middle-lower reaches of the Yangtze River and stabilizing the scale of implementation in the northwest." Intercropping is not used in the main corn and soy-producing provinces of the northeast. 

Weather bureaus were instructed to give special advice to farmers
strip-cropping corn and soybeans in 2023.

Economic Daily claimed that area under soy-corn strip cropping increased by 5 million mu in 2023 to reach 20.3 million mu--about 1.33 million hectares. That appears to be less than 3 percent of last year's combined area planted in soybeans (10.47 million hectares) and corn (44.2 million hectares). It would still be a tiny share of production in 2025 if strip-cropping area reaches the 50-million-mu (3.33 million hectares) target set by the14th five-year plan.

According to an article by China Agricultural University (CAU) economists, the campaign to revive soy-corn intercropping began with a 2015 directive issued by China's State Council. The technique was adopted as a key technique in the Ministry of Agriculture and Rural Affairs' soybean revitalization program launched in 2019. It was included in the communist party "Document No. 1" in 2020. 2022, and 2023. This year's Document called for "orderly expansion" of soybean production but did not mention the strip-cropping method. 

Implementing the strip-cropping method is extraordinarily complex. Farmers must plant the two crops at different times and soybean and corn seeds are planted at different depths. Farmers must choose soybean and corn varieties that are mutually compatible and don't block out sunlight nor blow over, configure the rows, spray each crop for different pests and weeds, and harvest the two different crops separately with special machinery. In the north China plain region fields have ridges that don't sync with the row spacing specified for the technique. In the northwest region the number of corn stalks has to be reduced due to their height and tendency to block sunlight from soybean rows. The 2023 program specified soybean varieties with shade tolerance, lodging resistance, and high yields suited to dense planting and mechanical harvesting in north China and drought tolerance in the northwest and south. 

One of the specifications of row-spacing for intercropping 
2 rows of corn with 4 rows of soybeans.

The CAU economists said they found that strip-cropping is done mainly by large-scale farmers and cooperatives with responsibilities as "model farms" or "guided by government funds." The idea is to demonstrate the technique to inspire wider adoption by small-scale farmers, but they are not eager to adopt the technique, having not yet seen clear benefits.

The CAU economists insisted that bigger subsidies are needed to stimulate soy-corn strip-cropping. Subsidies include cash payments to farmers, distribution of free seeds and inputs, and subsidies to buy equipment. The CAU economists said large-scale farms in the southwestern provinces expected cash payments of at least 150 yuan per mu to make the technique profitable. Large-scale farms in the north China plain--where land rents and other expense are higher--expected 200-to-300 yuan per mu ($415-to-$625 per hectare). Small-scale farmers expected subsidies of no less than 300 yuan per mu. Farmers hoped to get subsidies to buy machinery equal to 30% to 50% of the price.

In 2022 the Chinese government allocated funds to local areas that would fund a cash payment of at least 150 yuan per mu (about $310 per hectare at this year's exchange rate). Sichuan and Hebei Provinces were the first to issue subsidies for purchase of specialized machinery ranging from 1500 to 7700 yuan ($310 to $1,070).

A Dim Sums internet search turned up subsidy lists showing a wide range of subsidies in 2023. In Hai'an City 19 farmers got soy-corn strip-cropping subsidies of 60 yuan per mu, but Mr. Guo got 97 yuan per mu and Mr. Wang got 169 yuan. In Chongqing's Kaizhou district 493 farmers got 200 yuan per mu. The subsidy was also 200 yuan in a district of Liuzhou, Guangxi Province. In Suining County 5 farmers got subsidies of 300 yuan per mu. In Ningxia's Wuzhong City 7 farmers got 500 yuan per mu for strip-cropping, while 3 farmers got smaller subsidies of 400 yuan per mu for mono-cropping soybeans. 

The size of farms receiving strip-cropping subsidies varied widely. The largest operation we found was in Hai'an City, where Mr. Luo strip-cropped 1,134 mu. In the same district Mr. Song strip-cropped 7 mu. In Chongqing's Kaizhou district land holdings ranged from as small as 10 mu to as large as 300-to-500 mu farmed by cooperatives. In a district of Yunnan Province, 21 cooperatives strip-cropped 80 to 800 mu. 

Meanwhile, a subsidy list from Jiutai district on the outskirts of Changchun, the capital of Jilin Province (where strip-cropping is not used) showed 16,247 villagers got mono-cropped soybean subsidy payments of 600 yuan per mu for and mono-cropped corn payments of 55.53 yuan per mu. Despite the high subsidies for soybeans, Jiutai district farmers preferred to grow corn: farmers planted an average of 17 mu of corn and just 0.73 mu of soybeans.

The CAU economists found that schemes to consolidate village farmland into large contiguous fields--necessary to create large fields for mechanized strip-cropping--are encountering resistance from villagers. After the COVID-19 pandemic villagers are less willing to give up their land--viewing it as a "bottom-line guarantee" of subsistence. The scheme to create a vast contiguous field can be torpedoed by one of more villagers refusing to give up their plots. There are no written land transfer contracts in the southwestern region, so land rental arrangements are insecure. Land contracts are often short-term, and some villagers demanded increases in rent or reneged on their land contracts. These uncertainties made long-term planning impossible for the large-scale growers implementing soy-corn strip cropping.

The CAU economists cited other technical obstacles. Farmers complained that inputs and seeds distributed by authorities were not matched to local conditions. Plastic film was delivered in a village where it was not needed. A list from Xiji County in Ningxia shows that chlorobenzyl and hydrazine were distributed to strip cropping farmers last year. NIH PubChem describes chlorobenzyl as "very toxic to aquatic organisms" and strongly advises against releasing it into the environment. Hydrazine is highly toxic to multiple organ systems and can easily catch fire.

Breeders have not given sufficient attention to developing special varieties needed for the technique--different ones for different regions, the economists said. It takes years to breed seeds and 2 or more years to test and approve them. 

Demonstration farms are required to erect a billboard explaining
their project's intercropping technique facts, figures, and location.