Dim Sums: Agricultural Markets in China

The “household responsibility system” (HRS) implemented in the early 1980s broke up big collective farms and leased out the land to farm families. Dividing up the land among so many families resulted in tiny farms of a couple acres each, but production took off when farmers operated their own farms and responded to economic incentives. HRS worked well for a couple of decades, but now it is becoming apparent that this kind of farm structure is not ready for the prime time of global agriculture. How do you guarantee that farmers are not using toxic pesticides, growth hormones, carcinogenic drugs, or selling dead pigs to the slaughterhouse when you’ve got so many tiny independent suppliers? How do you trace back to find the source of tainted vegetables that show up in the market? How do you guarantee large quantities of standardized potatoes to make French fries? How do you make sure everybody is vaccinating their chickens and keeping them in enclosed housing? Chinese ag officials hav...

Chinese authorities keep rolling out the subsidies for rural areas. In addition to direct subsidies to farmers there are intergovernmental transfers to local governments in grain-producing areas. Many of these local governments are deeply in debt for various reasons--township and village enterprises that failed in the 1990s, over-staffed bureaucracies, and over-ambitious spending. The cancellation of the agricultural tax in 2006 stripped them of a major revenue source. A June 27 Peoples Daily article posted on the Internet says that the central Ministry of Finance will allocate 12.7 billion yuan ($1.8 billion) for “comprehensive agricultural development” in order to develop grain production. This is an increase of 10.9% from last year. The funds will be targeted to main grain production areas with planned sown area of 26.55 million mu (1.77 mil. Hectares) of middle- and low-yielding fields. The aim is to raise grain production capacity by 3 million metric tons. Apparently, this is at l...

According to the June 4, 2008 monthly report on edible oils markets by China National Grain and Oils Information Center (NGOIC), soybean inventories at Chinese ports are at an historical high. In May soybean stocks at ports were estimated to be about 3.55 million metric tons, up 250,000 mt from April, and 1.4 mmt higher than the same period last year. One reason given by NGOIC for the bulging stocks is an unusually large volume of soybeans arriving at ports. In May 3.5 mmt arrived; in June 3.8 mmt are expected and in July 3.3 mmt are expected—10.6 mmt in 3 months. That is up from about 8.5mmt for the same period in 2007 and 2006. NGOIC also cites a slow-down in soybean crushing since April. Factories have accumulated high inventories of soy and palm oil and demand for oils has slackened. They don’t see an increase in soy oil demand on the near-term horizon and suggest that an increase in soymeal demand will have to lead the way in reviving crushing. The report sees little prospect on t...

Inflation in China is one of the big topics these days. China's consumer price index keeps registering significant inflation, especially in food prices. Is it really "inflation" or higher food prices that reflect market disruptions? The prices that have driven the inflation figures have stabilized over the last few months, but this won't show up in the CPI which only shows year-on-year changes. We can shed a little more light by looking at individual prices. The two markets that have seen the biggest increases in prices are pork and soybean oil. These two price increases reflect mainly market conditions. Pork supplies in China shrank in 2007 due to disease and a massacre of hogs in 2006 due to low prices. Soybean and veg oil prices shot up for various reasons--soybeans lost area to corn, biodiesel demand in Europe boosted veg oil demand, China had a bad soybean crop in 2007 and China's rapeseed (the other main oilseed in China) production was down the last couple ...

A report by the economics research institute of Renmin University in Beijing warned that the tightening of cash availability could set off a chain-reaction in the real estate sector. The report said that real estate square footage (actually “meter-age”) coming on the market in the first four months of 2008 rose by over 20%. However, the amount actually sold declined 4% year-on-year. (In the same period last year real estate sales were booming at a 25-percent annual rate.) In other words, we have an excess supply situation that could lead to price declines, followed by declining profits for China’s budding class of real estate tycoons, and declining investment in real estate—the biggest single piece of China’s enormous fixed asset investment pie. The report speculates that this could occur in the second half of 2008 and continue into 2009. Long-time China watchers will recall the forests of half-finished buildings that marked the last real estate bust in China about a decade ago. Source...

It was about a year ago, in mid-2007, that strange reports about the "blue ear disease" ( porcine reproductive & respiratory syndrome or PRRS ) in hogs first started coming out. The Ministry of Agriculture rushed out a vaccine last year, but the top veterinarian, Dr. Jia Youling, announced on June 11, 2008 that "blue ear disease" is still present in 22 provinces (out of 31) this year. From January to May there were 289 outbreaks in 194 counties. Dr. Jia said 45,858 animals were affected, including 18,597 that died and 5,778 culled. This is only a tiny percentage of the hundreds of millions of pigs in China, but it sounds like the virus is spread over a wide area. Dr. Jia says the Ministry is working with related technical departments to develop a vaccine, and they are within 3 months of completion. They have already selected 12 veterinary medicine companies to manufacture the vaccine. Blue ear is just one of the many animal disease floating around in China. A ne...

China ’s leaders are congratulating themselves on policies that have largely insulated China from the world food price crisis. A June 13 news item reports on farmer Jiao Xiqing in Shandong Province who has just brought in another big wheat harvest from his 3 mu (half an acre) of land. Farmer Jiao takes time from planting corn to tell the reporter that he got subsidies of 80 yuan per mu (that would be a total of 240 yuan or $35) and he will gross 2,500 yuan ($362) on the 3 mu of wheat, and that’s not including what he’ll get from the corn he’ll harvest in the fall. The article says that another big harvest of summer grain means that China will have a fifth-consecutive big grain harvest. The article points out that relatively stable grain prices in China are a sharp contrast to the high prices in world markets. The officials interviewed in the article give credit to China ’s policies. The vice-director of the Grain Bureau, Zeng Liying, tells us, “Production is the basis for grain...