Dim Sums: Agricultural Markets in China

Premier Wen Jiabao has been lecturing the United States on how it should reform its shaky financial system. Wen got some attention by publicly worrying about the safety of China's U.S. investments. He also revealed that China diversified its investments into more risky equities just before the U.S. market started to unwind and they lost some $40 billion. This reveals more about the big U.S. rip-off of China (see "How We Ripped Off China" post May 2008 )--China manufactures real goods and sells them to the United States for pieces of paper that turn out to not to be worth much. The U.S. and China are equally at fault. They have a co-dependent relationship. U.S. consumers want to consume. China needs to keep hundreds of millions of people busy, employed, happy, and believing in slogans like "Without the Communist Party, there would be no New China." China is the United States' enabler. It grabs farmland for a pittance and sells it to a factory on the cheap. Wo...

China's collective land ownership system seems odd to most Americans, but we have something very similar here in the United States--the Native American tribal reservations. A March 16 piece on the Wall Street Journal's opinion page by Terry L. Anderson of Montana State University provides a window on the inefficiency of land use when nobody in particular owns it. The situation on tribal reservations is remarkably similar to that in rural China--underutilized empty land, a deeply ingrained culture of poverty and hopelessness. Fleeing to the city is the only way out. The land ownership and legal system behind it is also similar to that of rural China. Mr. Anderson argues that 19th-century laws that put Native American lands under the trusteeship of the U.S. Dept. of Interior's Bureau of Indian Affairs prevents lands from being sold, used as collateral, or passed on through inheritance. I understand that Native Americans were not given ownership because authorities thought the...

In 2007, China had a short soybean harvest. There was a severe drought in soybean areas of the northeast and a campaign to plant grain too area from soybeans (and rapeseed). Consequently, China's imports of soybeans and vegetable oil zoomed upward in 2007-08, contributing to soaring oilseed prices. In 2008, China's soybean production bounced back. We thought this would reduce China's demand for imports this year, but the bigger harvest went into storage bins--not much of it made it into the market--and China continues to buy up soybeans. World soybean prices started plummeting in the fall of 2008, just as the new harvest came in. Chinese officials were worried about keeping farmers' incomes up and preserving incentives to plant soybeans again in 2009, so they announced a support price for domestic soybeans well above the market price. A chunk of domestic soybeans were bought for government reserves at the support price and stored in bins. They were too expensive to proc...

Heilongjiang Province held a teleconference on March 6 to announce the details for distributing "quality seed" subsidies. This is one of three kinds of direct subsidies to grain producers introduced in 2004. It has never been clear how the subsidies are distributed--the methods may differ from province to province--but an article describing the conference gives some clues. The details revealed by the Heilongjiang Province finance department show that the subsidies have become more closely linked to actual production than in the past. The subsidies were originally based on a standard of 10 yuan per mu, apparently based on historically grain plantings. This year, Heilongjiang has announced that the subsidy will be 15 yuan per mu for rice, 10 yuan for corn, soybeans and wheat. It is emphasized that the subsidies are to be allocated according to actual planted area. You get a subsidy if you plant; none if you don't. The link to actual plantings moves this subsidy into "...

China's officials are worried that tens of millions of migrant workers who lost their jobs in the economic slowdown are a potential cause of unrest. Since the economy started going south last fall, the government has been publicizing its efforts to encourage migrants to start their own businesses when they go back to their villages. An article from the Chongqing Evening News celebrates a "million dollar girl" who went back to the country side to start a hog farm after her business went bust in the financial crisis. The journalist/cheerleader tells us, "The financial crisis is nothing to be afraid of; only be afraid of a 'dead heart.'" The article seems to be a propaganda piece that hearkens back to the socialist "model worker" stories like the apochryphal Lei Feng. The story has a good dose of melodrama (vital to a Chinese story), is calculated to inspire, and assures folks down on their luck that the government is here to help them. The petit...

The weekly report on the soybean market from eastern Heilongjiang reveals that trade in domestic soybeans is slowing even more. The fall in international soybean prices and soft domestic demand pushed domestic prices down by about 0.02 yuan/500g to about 1.62-1.64 yuan/500g (3240-3280 yuan/mt) for farm sale prices. The sale price for processors or traders is 1.65-1.67 yuan/500g. The support price for government reserve purchases is 1.85-1.87 yuan. As market prices fall, the gap between the actual market price and the support price widens, and it becomes less attractive to buy at the support price. So, it's not surprising that farmers are having trouble selling their beans. The report says that not many beans are being bought at the support price. Many of the designated purchasers don't have enough storage capacity--that may be true since usually no one holds large soybean reserves. It is said that some of the reserve beans will be shipped south where there is some excess storag...

It looks like China's officials are worried about keeping the farmers happy and making sure they plant their crops this spring. In Zhejiang Province, farmers are receiving "Five Gifts" from the government : policies, contracts (to purchase grain I guess), technology, farm inputs, and credit. Zhejiang plans to increase rural policy support this year, especially for grain production. The province pledged to increase rural subsidies by 40% in 2009. One farmer named Zhan reports that on February 9 the vice-governor "gave" him 400 kg of rice seed and a 150,000 yuan line of credit at the local bank. Farmer Zhan expresses appreciation for this love straight from the heart of the communist party and pledges to plant more grain and do a good job at it. The article describing the "five gift" program says it is calculated to encourage farmers to plant grain in the key period leading up to the time when they will plant their early-harvested rice crop. It notes the...