Dim Sums: Agricultural Markets in China

China has been experimenting with agricultural price index insurance, a new approach to mitigating the risk of price fluctuations. A recent description in Economic Reference News highlights a pilot for vegetable producers initiated in Zhangjiagang, a prefecture in northern Jiangsu Province. The price index insurance product is offered by Peoples Insurance Company of China (PICC) with 90 percent of the premiums paid by prefecture and township governments. A basis price is set--apparently the commodity's wholesale price during the same period in the previous year. If the current period's price falls below the basis price, the producers receive a compensation payment from the insurance company based on the price shortfall. The Zhangjiagang pilot is for leafy cabbage-type vegetables grown in the summer when they are in short supply. The basis price is set using average price data provided by local price bureau surveys every 10 days. Last year the insurance company paid out 80,...

A news item from Tibet notes that 80 percent of the pork in the capital city's market is imported from the United States. The reporter visited the Chokpori (Yaowangshan) market near the Potala Palace in Lhasa and found that 80 percent of the 40,000 kg of pork sold there is frozen pork imported from the United States. He said the pork had become popular with consumers because it is much cheaper than Chinese pork. It sells for 11 yuan per jin (about $1.75/lb) in Lhasa, and its price at the port is just 7 yuan. According to the reporter, the pork maintains its quality over the vast distance and has good quality and taste. The reporter emphasized the safety of the pork, noting the freezers filled with neatly-stacked boxes clearly labeled with production date and lot numbers. Every morning inspectors from the local animal quarantine bureau come to inspect samples. A local quarantine official credited the American production system for the low price. In contrast to the large numbe...

Some of China's top agricultural policy advisors acknowledged that China has massive reserves of grain that are "hard to digest" given low international prices. In light of these problems, they say the "temporary reserve" price-control policies will have to be changed. The comments were made at a May 16 forum on food security held in Beijing. Cheng Guoqiang, a senior agricultural policy advisor and advocate of "target price" subsidies, said reserves of corn and rice are at a historical high, and other commodities are at 60-70% of their record levels. Overall, he said, China has a half-year's grain consumption in inventories--that would be about 300 million metric tons. Nie Zhenbang, former head of the Grain Bureau, said grain imports have been flowing into the country despite big domestic inventories of grain. This is because international prices are much lower than China's prices. Nie said granaries in the northeast were filled to capacit...

In mid-April, news began spreading that Chinese importers were backing out of soybean purchases. Some defaulted on their contracts because the penalties and lost deposits were less than they would lose by accepting the soybeans. As usual, the situation is murky, Chinese industry leaders are blaming the foreigners and calling for more subsidies and protection from the government. But the root of the crisis lies in the immaturity of the Chinese economy: Everyone makes money as long as prices go in the same direction, but everything freezes up when prices go in the opposite direction. Rigidities and interest rate controls create black market arbitrage opportunities that distort markets for real commodities.  Chinese Commerce Ministry officials have been in Shandong Province --ground zero for the crisis--talking to soybean importing companies to find out the extent of contract defaults and whether importers are being denied letters of credit. According to the news media report,...

A decree by China's State Council expanded a tax waiver for state-owned grain marketing enterprises to include sales of soybeans held in government reserves beginning in May 2014. Chinese authorities use the 13-percent value added tax (VAT) to encourage or discourage various behavior and to create price wedges between domestic and international commodity prices. The VAT is a 13-percent tax (for ag commodities) on the difference between the purchase value and the sale value, but there are all kinds of exemptions and rebates. Exported commodities get a rebate on VAT, except when authorities want to discourage exports. Commodities sold by farmers and farmer cooperatives are exempt from VAT. The VAT raises the cost of imported commodities by 13 percent since the VAT is assessed on the gross value of imported shipments, including tariff, when they reach China. The new tax waiver for soybeans extends coverage of a 1999 Tax Bureau decree ( 财税字[1999]198号 ) that waived VAT on sales of g...

China's National Bureau of Statistics (NBS) reported its annual statistical profile of rural workers employed in nonfarm work . It shows a gradually growing class of rootless untrained workers who man factories and construction sites. Their wages are rising rapidly, but are still low at $1.90 an hour. Living expenses are rising even faster. About half receive free or subsidized housing from employers, but that proportion is gradually falling. NBS estimates that the country had 268.9 million rural nonagricultural workers in 2013. The number of rural workers increased 6 million from 2012 and is up 45 million from 2008 when NBS first started reporting annual numbers. (In English translations, NBS calls these people "rural migrants" but many work near home and live at home.) China's rural nonagricultural labor force of 268.9 million equaled 34.5 percent of China's employed workers in 2013. It was roughly twice the entire U.S. nonagricultural labo...

According to China's Grain Bureau , "policy-type purchases" accounted for more than half of the grain purchased in Heilongjiang Province for the 2013-14 market year. Authorities have been saying for decades that they want market forces to play a greater role in allocating grain, but China seems to be once again retreating from marketization as authorities obsess over "food security". The National Bureau of Statistics says Heilongjiang is now China's biggest grain producer, with output at 60 million metric tons (mmt) in 2013, just under 10 percent of the national total. The Grain Bureau statistics say that a total of 60 mmt of Heilongjiang's grain had been purchased by April 2014 (that's the entire harvest--surely an overstatement since farmers still retain significant quantities for their own use). The Bureau also reports that "policy-style" purchases accounted for 33.85 mmt of grain procured, or 56 percent of Heilongjiang's total....