Dim Sums: Agricultural Markets in China

A speech given at a veterinary conference in August zeroes in on a key constraint to productivity in China's hog industry: Chinese sows don't produce enough piglets. According to the speaker U.S. sows produce an average of 24.35 pigs per year, far higher than the average of about 15 for Chinese sows. In Denmark the average is over 27. The key to improving productivity and reducing costs is to increase the number of pigs per sow. The speaker observes that U.S. farms have high costs of facilities and labor that they have to spread over larger numbers of pigs to bring down unit costs. The breakeven number of pigs per sow for U.S. farms, he says, is 19. He reports that two big American companies increased the number of finished hogs produced while cutting back on the number of sows. According to the speaker, the breeds and feeds (corn-soy meal) are similar in the U.S. and China, so why should Chinese sows be less productive? He says the big problem is weaker disease control and pr...

A Beijing Normal University professor conducted a study of income distribution in China which reveals how the urbanization process is ripping-off Chinese peasants due to their lack of property rights. About half of China's GDP "growth" comes from building things, usually on farmland. If farmers had secure ownership rights to their land, they would be benefiting greatly from the rising value of their land. In reality, most benefits from rising land values accrue to developers and government officials who act as brokers in these real estate deals. In most cases, collectively-owned village land on the fringe of urban areas is leased to a developer who pays rent to a government organization. The villagers, theoretically the collective owners, generally get a fraction of the rent paid by the developer. The report found that 40 million peasants have "lost" their land, which seems to mean that it has been rented out for urban uses. The report profiles Bailian village ...

Feed warehouse of Mr. Liu's company. An interview with a feed industry executive titled "Feed Industry Re-shuffle" provides some interesting perspective on the evolution of China's animal feed industry. The interview follows up on a speech given to an aquaculture industry conference by Liu Hanyuan, the chairman of a fish feed company in September. (Actually, the website of Liu's company says it is a conglomerate composed of feed, fish, food, pharmaceutical, chemical and solar energy companies.) The interview begins by discussing the growing role of state-owned companies in the feed industry. Mr. Liu provides some historical background. He traces the feed industry's mostly-private character back to the 1980s when Deng Xiaoping proclaimed that the feed industry would be open to everyone. After 30 years, the industry has transitioned from state-owned to companies with private or mixed ownership, "highly marketized and responsive." The entry of state-ow...

More cracks are appearing in China's rock-bottom-price-export juggernaut. Apple juice, which came out of nowhere to dominate the world market during the last decade, is losing its competitiveness due to a surge in apple prices. The Consumers Daily reported the story about rising apple costs on October 25. According to the article, the price of apples used for making juice is up to 1400 yuan (US$220) per ton, which translates to a raw material cost of US$1430. (It takes 6.5 tons of apples to make 1 ton of apple juice concentrate for export.) Adding the cost processing, fuel, transportation and steel drums there is no room for profit at the current FOB export price for juice concentrate of US$ 1850 per ton. "Processors would rather stop production than lose money." One processor said the raw material price went up to 1600 yuan (US$250) per ton in the last couple of days. The break-even price for juice is US$2200 per ton with this level of raw material cost. Chinese juice is...

Piles of soybeans. Source: Jinrong Shijie (Banking World) China's soybean traders are taking advantage of their ability to get credit to become suppliers of cash to the underground lending market. The story is an interesting merger of several megatrends: the booming demand for imported commodities, hot demand for short-term financing at high interest rates, and financial whiz-kids gaming the strategy of steadily appreciating the Chinese currency. The Ministry of Commerce's International Commerce News reports the story . The reporter says many ports have mountains of hundreds of thousands of tons of soybeans that have been imported faster than the market can absorb them. Warehouses in many ports are said to be nearly filled with soybeans. One analyst estimates the total soybean inventories held in ports to be 6.6 million metric tons, an historical high. According to the reporter's explanation, "soybean banking" works as follows. A trading company with rights to imp...

There is consensus among analysts that China's soybean production is down substantially this year. The Jilin Province Commerce Department estimates that production is down 30% this year, to 12 million metric tons (mmt). Another estimate from a crop tour organized by a futures exchange group observes that soybean planted area is down 25%-30% in Heilongjiang, but estimates this year's national crop at 14 mmt, down 8%-9%. An article in the Huaxia Times reports varying estimates of the decline in soybean production. One soybean analyst estimates a 17% decline, but the article adds a caveat: "compared with some other estimates this seems optimistic." The same analyst estimates that production in Heilongjiang Province could be down 26%. Another futures analyst says he found on a crop tour of the northeast that soybean area has been declining since 2008 and is down one-third to one-half in many areas. The Huaxia Times report uses military rhetoric to sound an alarmist ton...

As forecasts of Chinese corn imports inflate, it's worth keeping in mind that China has a tariff rate quota (TRQ) system that limits corn imports to 7.2 million metric tons annually. Some of the arcane restrictions associated with the system could limit imports by even more. A closer look shows that the TRQ system is stacked in favor of state-owned companies...er, a state-owned company. Last month, the National Development and Reform Commission announced the annual application for 2012 corn import quotas . The total quota available is 7.2 mmt, of which 4.32 mmt is reserved for state-owned traders. That leaves 2.88 mmt for private companies. These amounts were set at the time of China's WTO accession in 2001 and have not changed since then. Corn imported within the quota is assessed a tariff of just 1% while over-quota imports are charged a tariff of over 70%. According the NDRC announcement, applicants for corn quota must register with the state commercial and industrial manag...