Dim Sums: Agricultural Markets in China

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...

As I arrived in the city of Guangzhou for the first time in 8 years I was taken aback by the number of Africans on the street. Dozens of young African men were going about their business in the area around my hotel. They were clearly not students, diplomats, tourists or 5-star executives—the kind of foreigners one expects to see in China. I was also intrigued by the number of restaurants with Arabic signs around town. I went back to my hotel room and consulted Google to find out what these Africans were doing in Guangzhou. An English translation of an article from Guangzhou’s Southern Metropolitan Daily provided the answers. Over the past decade thousands of African and Middle Eastern merchants have been coming to China—mainly Guangzhou—to buy blue jeans and other budget-priced merchandise to ship back to their home countries, including Nigeria, Mali, Congo, Angola, Yemen, and Lebanon. By some counts there are at least 20,000 and perhaps 100,000 Africans in Guangzhou and the number ar...

According to a corn industry report from yumi.com.cn, the head of China’s grain bureau said that the government will not issue corn export quotas until they see how the fall harvest goes in September. He said, “If this year’s harvest is not bad we could export some corn, but we have to make sure we first meet the needs of domestic feed mills and starch manufacturers.” The report notes that imports and exports have a big influence on Chinese domestic grain prices. There is a big gap between China’s corn price and international price (China's price is lower) now so big imports are not going to happen. The report suggests that exporting corn could make domestic prices take off and strain the domestic supply-demand balance. The government has canceled the export tax rebate for corn since last December 20 and this year has added export taxes on corn and corn products of 5-10% and taken “reasonable control” of corn export quotas. At the same time the government strengthened its planning ...

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...