Dim Sums: Agricultural Markets in China

An article from the Daily Business News reports that this year's wheat purchases are down from last year. State-owned companies are getting a shrinking share of the grain as they have to compete with private-sector purchasers. Grain bureau officials in Dezhou, a district of Shandong Province, describing this year's wheat purchase, said, "This year's volume is not that big, less than usual." According to grain bureau statistics, wheat purchases in the 10 major wheat provinces as of July 5 totaled about 16 mmt, about half the amount that had been purchased last year at the same time (31.9 mmt). The article doesn't explain why purchases are down so much this year. Perhaps last winter's drought had a bigger impact on wheat production than officials have been willing to admit. The article concentrates mainly on the falling share of state-owned grain enterprises. This has been a common theme on the China Grain Net site since last year. So far, state-owned compa...

China's tax bureau has published draft regulations that award a new tax break to agricultural processors. It raises the rate used to deduct the "purchase VAT" on agricultural raw materials from 13% to 17%, in effect reducing the value added tax paid by agricultural manufacturers. The regulations apply to dairy and edible oil manufacturers as "pilot" industries (implying that the plan is to spread it to all agricultural processing industries). Like many countries, China has a value-added tax (VAT) which assesses a tax on the amount of value added at each stage in the industry chain. Each manufacturer calculates the difference between the final value of his products and the value of raw materials, and pays 17% of the difference as tax. The calculation is complicated by the taxation of unprocessed agricultural products at a lower rate of 13%. Under the "old" method, a dairy product manufacturer's VAT is calculated as: VAT = 17%x(value of dairy product...

The Securities Times, a newspaper for Chinese investors, interviewed two executives who offered their opinions on why China is entering an era of permanently higher agricultural prices . The executives are the chairman of the Longping High-Tech Co and two investment fund managers. They argue that agricultural prices are destined to rise, due to increasing scarcity of agricultural resources, cost pressure, and a new policy environment where cities and industries will "feed" agriculture. They say the transition from "traditional" to "modern" agriculture presents many investment opportunities. The Longping Co. chairman emphasized the transition from a 50-year period of chemical-based production to reliance on "biological agriculture." This is what Americans would call sustainable agriculture. Instead of constantly adding chemical fertilizer, soil fertility is maintained by returning biological material to the soil. Biological pest and weed controls...

Using commodity reserves to stabilize prices is bad idea that just doesn't go away. Chinese officials are obsessed with building up larger reserves of every commodity so they can control and adjust the market. Last year, they even began a campaign to build up vegetable reserves . This idea is a reflection of early-twentieth-century hubris when social scientists thought they could apply precise engineering systems to planning economic activity by employing clever bureaucrats equipped with mathematical formulas, reams of statistics, and sharp pencils. Most Chinese leaders were trained as engineers and the current party line is the "scientific outlook on development." The pork market is an excellent example of misguided stabilization policies. According to an announcement by the government's Agricultural Development Bank of China (ADBC), the bank has been busy making loans to finance pork reserves. In the first half of 2011 the bank made loans totalling 2.34 billion yuan...

There is still uncertainty and speculation about whether the major cooking oil producers will raise retail prices of their products. According to a July 22 article in the Southern Metropolitan Daily , an edible oil company executive said that the two leading companies have requested permission to raise prices by 5% and have received tacit approval from the National Development and Reform Commission. However, the companies have still not announced anything and discount this news as rumors. The rumored price increase would be for the two leading edible oil brands, Jinlongyu, sold by Yihai Kerry (Wilmar), and Fulinmen, sold by COFCO. Leading peanut oil producer, Luhua, "tested the waters" by announcing a price increase earlier but retracted it shortly thereafter. An Yihai Kerry official said, "We haven’t applied for a price increase, and have no plan to increase prices.” A COFCO official said the report of a planned price hike is "false news." The year-on-year CPI...

A farmer quoted in an article about high pork prices recently observed that food for pigs costs more than food for humans. As corn prices rise above wheat prices, feed mills are substituting wheat for corn in animal feed. Normally, the wheat price is about 10% higher than the corn price, but declining corn stocks and robust demand have pushed corn prices above wheat prices since April. Wheat is now about 150-yuan more per metric ton than corn. In Gaotang County of Shandong Province, corn is now about 1.1 yuan/500g and wheat is 1.04 yuan/500g. As pig prices soar, feed mills are turning to wheat. One livestock company in Henan has been buying mainly wheat--about 200 metric tons daily--since the wheat harvest came in last month. Since 1998 there have only been two previous periods when the wheat-corn price relationship was inverted. One was during 2001 when wheat stocks were extremely high and wheat prices were depressed. A second was a 14-month period during 2007-08 when a big expansion ...

A new survey conducted by the Chinese Center for Agricultural Policy at the Chinese Academy of Sciences has found that slightly over half of consumers surveyed were either strongly or moderately receptive to genetically modified foods. Only 16% were strongly opposed and 27% were neutral. The survey covered 400 families in six cities of Guangdong and Jiangsu Provinces. Professor Huang Jikun, leader of the study, said that the results show that Chinese consumers still have a higher degree of acceptance of GMOs than consumers in other countries. However, the degree of acceptance appears to be on a downward trend. In 2002 and 2003 the Center conducted similar surveys that showed 61% were receptive to GMOs and only 8% were strongly opposed. About the same proportion were neutral. Huang attributes the declining acceptance to negative publicity about GMOs disseminated on the Internet in recent years. The only major food in China containing significant genetically-modified material at present ...