Dim Sums: Agricultural Markets in China

We were wowed by the Olympic ceremonies. This amazing display demonstrated how China can concentrate resources on a problem it wants to solve regardless of the cost. Food safety was one of the big concerns in preparations for the games. Organizers worried that sick athletes or failed doping tests due to hormone-laced meat would give China bad publicity. So since 2005 there has been a massive effort to develop an elaborate system of production bases for vegetables, milk, poultry, etc., including secret pig farms where the hogs eat like kings, have to swear off drugs and get to roam around in exercise yards in accord with European animal welfare requirements. Last year I visited the control room in northwest Beijing to see the city's food safety monitoring system. Like the opening ceremonies it was an awe-inspiring martialing of technology and "Big Brother"-type control. The wall was covered by a bank of video and computer screens. There is a massive database that allegedly...

More signs that China's supply situation is turning the corner. Perceived shortages that prompted panic-driven cut-off of grain exports, stuffing of grain inventories, and furious purchases of soybeans and vegetable oil are gradually turning into gluts. China National Grain and Oils Information Center predicts a record corn harvest this year. They raised their projection to 156 million metric tons, up 3 million from their forecast last month. The rise in corn production is due to excellent weather. It comes despite a slight decline in corn acreage as farmers switched some area to soybeans to take advantage of the high soybean prices. CNGOIC says last year severe drought in july and august hit corn yields, cutting yields over 10% in many areas and 20% in some places. (No one was admitting this last fall.) The drought also devastated China's soybean production last fall, probably more than reflected in government statistics. With a big new corn crop prices are likely to fall. Ear...

Sweet sorghum is another crop being touted as a costless source of biofuel, but the road is not so smooth. Sweet sorghum looks like a giant corn stalk about 10 feet high. The stalk contains sugar that can be squeezed out and distilled into alcohol. Sweet sorghum is seen as an attractive alternative because it can grow on poor land that’s unsuitable for other crops. Nongrain biofuel projects are the “in” thing and they’re being pushed by the government and everyone wants a piece of the action. Especially since there are generous government subsidies available. Mr. Liu, an official of the local Agricultural Bureau’s seed company in Huanghua ( Hebei Province ), complained to a China Times journalist that COFCO had left the farmers at the altar. In March 2007 COFCO and its partner, BP petroleum, made plans for pilot projects in Hebei, Shandong, and Inner Mongolia, giving local officials and farmers some sort of promise that they would buy the sorghum to make biofuel on a trial basis. ( CO...

Some news gleaned from a late July feed industry report from China China ’s Commerce Ministry imported 200,000 metric tons of U.S. pork as a buffer to ensure pork price stability during the Olympics. The report notes that 40,000 mt went to a company in Jinan, Shandong Province (Wei’er kang = Wellcome? Foods). In Anhui and Hubei Provinces (central China) there are rumors of spreading “high fever sickness” among hogs. Hog prices have been slowly declining for months, but the ratio of hog-feed prices is still well above the historical average. Chicken prices are down slightly and egg prices up slightly. Beef and mutton mostly stable. In southern China the effects of typhoons (transportation limited, high temperatures, high humidity that promotes disease) have induced farmers to slaughter more animals. The report conveys a general sluggishness in livestock and feed industries in the south. They are past the seasonal peak and waiting for the build-up to the Chinese new year peak. Fee...

The biofuels industry is on a quixotic quest for a free lunch--to find raw materials that don't cost anything--switchgrass, jatropha, used vegetable oil, wind, etc. Most of these are years or decades away from practical use. But let’s consider cassava, also known as tapioca, a “nongrain” feedstock that has already been brought into production. In December 2007 China opened its first biofuel factory that uses a nongrain feedstock—cassava, also known as tapioca. Cassava is basically a weed that will grow anywhere. You just stick a piece of it in the ground and come back 8 months later to pull up its starchy root. It grows mostly in Guangxi Province and other parts of Southeast Asia where there is lots of rain, sunshine, and marginal soils. The idea is that biofuel can be produced from cassava without diverting grain away from food or feed users—that is, basically a “free” good. (If you skipped the first chapter of your economics textbook, the basic fact of scarcity is that ...

A very well-done article by David M. Dickson in the Washington Times, " China's Economic Bargaining Chip ," explains the economic co-dependency of the United States and Chinese economy. As I've attempted to explain elsewhere on this blog, the U.S. economy is addicted to consuming more than it produces and consequently to debt while the Chinese economy is compulsively producing more than it consumes. China sends the cash from its trade surplus back to the U.S. to invest in Treasury Bills--i.e. it is financing much of the growth in U.S. government debt. It turns out that China's financial wizards have lost a lot of dough investing in U.S. companies like Blacksone, Fannie Mae, and Freddie Mac just before their stock dropped like a rock. There was some discussion about this on my recent trip to China. Another interesting tidbit--the article notes that some Chinese citizens have noticed that China has been ploughing cash back into the U.S. economy, facilitating low int...

China has come a long way from the days of Marxism-Leninism. The Farmers Daily newspaper (the title used to be translated Peasants Daily in the old days) brings up the economic concept of “opportunity cost” in a July 16 article discussing declining profits from selling wheat, showing that Adam Smith may be more influential than Mao Zedong in today's Chinese economy. The journalist notes that fertilizer and diesel prices have raised wheat production costs about 80 yuan per mu (that turns out to be about $80 per acre at the present exchange rate). The government raised the minimum price for the recently-harvested wheat by about 0.05 yuan per jin. With a yield of 800 jin per mu, that works out to an increase of 40 yuan in revenue per mu, so profits are slimmed down, and farmers are wondering whether market conditions might push prices higher in coming months, making it advantageous to sell later. (By the way, wheat and rice are the only major crops that have minimum prices--most pri...