Dim Sums: Agricultural Markets in China

China's Xinjiang "Autonomous" Region is the world's biggest cotton-producing region, but its cotton farms depend on billions of dollars in subsidies to keep them viable in what is also one of the world's most remote regions. Depressed cotton prices this year are inflating the subsidy bill, but officials grudgingly pay the tab to support this "pillar" industry, maintain stability on the fringes of the empire, and avoid relying on cotton imports from unfriendly countries. Rising wages generally spell trouble for production of cotton, one of the most labor-intensive field crops. China's farmers were eager to grow cotton when they were poor in the 1990s, but they have been quick to abandon the crop as wages grew. Cotton production fell in eastern and central regions, and increasingly concentrated in the Xinjiang region bordering central Asian countries where yields are higher, there are fewer alternative crops, and where the government was willing to spe...

China's new rice subsidy payment is designed to replace the crop's 15-year-old price support program as it is phased out, officials say. Information about the subsidy is sparse, even though it is a major new policy designed to benefit millions of growers of one of the country's staple crops. Scattered references to a rice subsidy began to appear in official Chinese news media in early 2018, but there was never any major announcement of the program. More reports about distribution of subsidy funds in several provinces appeared in December, and other propaganda has appeared this month explaining that the subsidy is intended to offset the gradual reduction of the support price and wean farmers off their habit of growing rice to sell to the government. The most detailed explanation is a December report from " Voice of Rural China " radio assuring farmers that the rice subsidy in Heilongjiang and Liaoning Provinces would be paid out by the end of the month. A brie...

China's corn farmers can expect to continue receiving their subsidy payments in the future as subsidies tied to acreage planted in specific crops become one of China's main subsidy strategies, according to a recent online article posted on numerous agricultural news sites in China. It is clearly tied to the amount of corn grown, unlike the first round of grain subsidies that began in 2004. The article provided answers to 10 questions to help farmers understand the corn subsidy payment. 1. Will this be the last year for the corn subsidy? A: This is the third year of the subsidy's 3-year trial, but it is likely to continue in future years. Indeed, it may become a common subsidy measure that covers all crops (it already covers corn, soybeans, and rice). 2. When is the land area for the corn producer subsidy verified? A: Each year by June 30. The subsidy funds are distributed by September 30. 3. How much is the subsidy? A: The amount varies by province and year. Dur...

China is expanding subsidies for crop rotations and land-idling to rehabilitate degraded farmland and conserve moisture in marginal agricultural areas. At a press conference last week , a Ministry of Agriculture spokesman explained the program --a continuation of a plan initiated in 2016. The spokesman explained that intensive use of farmland has degraded the quality of land and resulted in pollution. The exploratory pilot program aims to establish a rotation and fallowing system within 3-to-5 years that will restore fertility and reduce environmental degradation. The 2017 rotation and fallow pilot program covers 12 million mu in 9 province and 192 counties--5.84 million mu more than last year. This year's program will be supported by 2.56 billion yuan in central government funding, nearly twice as much as last year. The funding will be used to compensate farmers for reduced income while land is idle and to cover the cost of officials administering the program. The farmland ro...

China's target price policy for soybeans will be adjusted in time for spring planting next month, according to a report by Grain and Oils News .  The report about the subsidy reform is said to be based on information learned from the National Development and Reform Commission. Details on how the subsidy will operate have not been released yet, but the report suggests that the reform is intended to coordinate the soybean subsidy with the corn producer subsidy and encourage the shift from corn to soybeans in northeastern region. Officials say the new target price subsidy program will adhere to the principles of allowing the market to determine prices and broadening the number and type of buyers for farm commodities.  An agricultural economist with China's Academy of Agricultural Sciences explains that the reform will address some problems with the target price policy that include: lack of control over price, high operation costs, and "moral hazard." He says the ne...

China's Heilongjiang Province announced a new pilot subsidy for farmers who rotate corn and soybeans . The subsidy is 150 yuan per mu (about $136 per acre). Eligible farms must have planted corn in 2015 and soybeans in 2016. The subsidy will be paid only to new-type farms that include large scale farms, family farms, and farmer cooperatives. The subsidy appears to be part of two Chinese initiatives. First is the overhaul of grain subsidies which combines three separate subsidies into a single payment and makes payments to both small-scale landholders and new-style farms that rent in land. Second is a structural adjustment initiative which hopes to address the surplus of corn and deficit of soybeans by inducing farmers to shift land from corn to soybeans. A related initiative seeks to break the continuous mono-cropping of corn that has become predominant in northeastern China and degrades soil fertility. The document announcing the subsidy offers no concrete details about how au...

China's Finance Ministry has allocated 30 billion yuan ($4.5 billion) for the new "corn producer subsidy" that will be paid to farmers in the four northeastern provinces this year. This signals China's entry into a brave new world of giant farm subsidies. The funds will be issued to the four provinces (apparently on the basis of the amount of land planted in corn in each): Heilongjiang 11.6 billion yuan, Jilin 7.3 billion yuan, Inner Mongolia 6.6 billion yuan, and Liaoning 4.6 billion yuan. The provinces are responsible for setting up their subsidy programs. Last week, Heilongjiang released its subsidy implementation program which said the payment would be based on the amount of land farmers planted in corn this year, but it did not specify the amount of the payment. This subsidy is for the 2016/17 crop that was planted last spring, will be harvested in September-October, and sold from October through April. Calculations based on last year's data suggest the ...

China's Jilin Province has announced a subsidy of 150 yuan (about $23) per metric ton for corn used by industrial processing enterprises. Recipients must use corn procured from Jilin Province for their own use between January and June 2016. The March 17, 2016 document was issued by the provincial finance department, provincial grain bureau and Jilin's information and industry department. Many grain industry web sites posted an article on the document, but not the Jilin grain bureau that issued it. The article includes an image of the document, but there don't seem to be any electronic versions of the document. The Jilin subsidy was announced nearly two months after a document issued by several central government departments encouraged local authorities, companies and banks to take measures to dispose of excessive grain stockpiles. The announcement comes in mid-March with just over three months left in the six-month window for collecting the subsidy.

Much like their ham-handed approach to financial markets, authorities in China are also in a quandary about how to deal with volatile agricultural markets. Chinese authorities are pinning their hopes on a "target price" subsidy method that was abandoned decades ago by the United States. They have revealed little about experiments with the program on a trial basis since 2014, but indications are that this approach is fraught with problems and clearly not ready to be rolled out on a large scale to other crops. The target price program calculates the difference between the local market price and a "target" set by authorities. When the market price is less than the target, the government makes a cash payment to each farmer based on his/her land area planted in soybeans. The subsidy was 60 yuan per mu (approximately $57 per acre) in Heilongjiang Province last year (2014/15). While it sounds simple on paper, the program is much harder to implement in practice. The...

In Henan Province, winter wheat output (harvested in the summer) in 2015 was 35.2 million metric tons, up 5.2% from last year. However, heavy rains in the southern part of the province around harvest time caused wheat kernels to mold and fall short of standards for purchase. It could only be sold to feed mills at a substantial discount or stored by the farmer. As of August 15, only 16.4 mmt of Henan province's wheat harvest had been purchased, 3.4 mmt less than at the same time last year. There were similar problems in parts of neighboring Anhui Province. By August 7, eight million metric tons of Anhui's wheat had been purchased, 2.69 mmt less than last year. Henan Province has allocated 15 million yuan (about $2.35 million) to subsidize purchase of the substandard wheat. The funds will be issued to prefecture and county governments in affected regions and used to subsidize interest on loans to processing enterprises purchasing the moldy wheat. The loans are made by the...

With a surplus of cotton and falling prices, Chinese officials have cut their target price for this year's cotton crop and are urging farmers in the major production region to shift cotton acreage to wheat or hay. The 2015 target price for cotton in Xinjiang Autonomous Region has been set at 19,100 yuan/metric ton. This is the target for the crop to be planted this spring and harvested in fall of 2015.  The subsidy is based on the difference between the target price and the market price. As of April 3, 2015, market prices for cotton lint in Xinjiang ranged from 12,950 to 14,200 yuan--depending on the grade--far below the target price. The target price for the 2014 Xinjiang cotton crop was higher, at 19,800 yuan. The subsidy for the 2014 crop has just been distributed and totaled 450.5 yuan per mu (about $441 per acre). Agricultural officials in Xinjiang say the target price pilot program allows market supply and demand to be the main guide fo...

China's strategy of consolidating farms into fewer, larger operations is running into a problem: soaring land rents are eating up the profits of large-scale farmers. This is prompting demands for high grain prices and more and better farm subsidies. In Jiangsu's Gaoyou Municipality, officials have been encouraging the scaling-up of farming for a number of years by registering land rights and setting up township exchanges where lessors and lessees can find one another. The number of larger-scale farms has increased, but farmers have found that net earnings did not increase as fast as the scale of their operations. Mr. Jiang planted 100 mu (16.5 acres) in 2011 and earned 60,000 yuan from planting a winter wheat crop followed by rice in the summer.  In 2013 he doubled the size of his farm business by renting another 100 mu, but his net income was still just over 60,000 yuan. In 2014, he doubled his farm again by renting another 200 mu--now he's up to 400 mu (about 66 acre...