Sunday, February 11, 2024

China Massaged Soybean Data to Hide Policy Failure

China has been massaging data on soybean imports and consumption of soybean meal to hide the failure of its policies aimed at reducing reliance on imported soybeans.

Last month China's customs data reported that 99.41 million metric tons (mmt) of soybeans were imported during the 2023 calendar year, an 11.41% increase from 89.218 mmt imported during 2022.

However, adding up the monthly soybean import totals reported by customs over the last 12 months gives me a bigger total of 101.71 mmt for 2023. That would have been a record amount, exceeding the previous record of 100.3 mmt imported during calendar year 2020. What happened?

The 99.41 mmt total appears to have been doctored to whittle down the annual total and keep it under the symbolic 100-mmt barrier. A record soybean import total would have drawn attention to the failure of highly publicized and costly Chinese policies to reduce reliance on imported soybeans. The revisions also foil a prediction that China's soybean imports would exceed 100 mmt made in December by the head of the U.S. Soybean Export Council office in Beijing in an interview with a Chinese news outlet.

The 2022 import total also appears to have been doctored. Last month's customs report said 89.218 mmt had been imported during 2022, but a year ago customs reported that 91.08 mmt of soybeans had been imported during 2022. 

Customs officials appear to have made retrospective revisions that cut the 2023 total by 2.31 mmt and the 2022 total by 1.86 mmt. They probably reduced both years' numbers to keep the year-to-year change realistic. A comparison of monthly totals from previously published monthly reports with monthly totals currently in the customs database indicates that small downward revisions were made in monthly totals for January-June 2023 with no changes for July-December. Small changes were also made for 8 of the 12 months of 2022.

The 10.2-million-tonne increase in soybean imports during 2023 reported by official data far outstrips the 0.6-million-tonne increase in domestic soybean production achieved last year at great expense through multiple subsidies, earmarked bank loans, and "instructions" issued to farming enterprises.

A second questionable claim comes from China's Feed Industry Association which reported that use of soybean meal in manufactured animal feed dropped 11.8% in 2023 and the percentage of soybean meal in feed dropped 2.6 percentage points. These numbers appear to show that the industry achieved a directive issued in the communist party's 2023 Document No. 1 to "deepen implementation of the action plan to reduce and replace soybean meal used in animal feed." The Feed Industry Association's web site features a large banner promoting the soymeal reduction program and a November 2022 article on the association's site calling for faster reduction of soymeal use in poultry and aquaculture said the soymeal reduction program was of the utmost importance. 

However, the reported 11.8% decrease in soymeal use doesn't seem to square with the 11.4% increase in soybean imports. The November 2022 Feed Industry Association article said 85% of soybean meal in China is produced by crushing imported soybeans, so the increased volume of imported soybeans implies an increased supply of soybean meal. 

The CASDE soybean balance sheet issued by China's agriculture ministry shows increasing volumes of soybeans crushed during each market year: from 90.5 mmt in market year 2021/22 to 95.9 mmt in 2022/23, and 97.8 mmt in 2023/24, which also implies a growing supply of soybean meal. 

If the precipitous 11.8% drop in soybean meal use is true, what's happening to the increased supplies of soybean meal? 

There doesn't seem to be any indication that soybeans or soybean meal are being stockpiled. Instead, a report from China Grain Net (an organization affiliated with the government's grain reserve company) says the government has accumulated stockpiles of domestic soybeans and soybean oil. 

The import data was accepted at face value in China Grain Net's review of the 2023 soybean market. The report praised a series of policies that boosted domestic soybean output to over 20 mmt in 2022 and 2023, then listed a series of soybean procurements by Sinograin and local governments that removed about 2.7 mmt of 2022/23 domestic soybeans from the market to prevent prices from crashing. Sinograin also purchased an undisclosed amount of 2023/24 domestic soybeans last October. Sinograin also cut back on its auctions of soybean reserves to ease downward pressure on prices. 

The China Grain Net report did not mention any stockpiling of imported soybeans. 

The report revealed that reserves of soybean oil were bloated in 2023 due to import stockpiling during the 2022 lockdown year that wasn't needed because recovery of demand after the lifting of covid lockdowns was much weaker than expected.

China's usual tactic is to blame "subsidized" and "genetically modified" American crops for its problems, but it is Brazil's soybean supply boom that kept soybeans cheap. Low prices induced Chinese buyers to import record volumes, undercutting China's grand plan to reduce reliance on imported soybeans. The China Grain Net report cited a record crop in Brazil and low prices for the surge in soybean imports. The report noted that Brazil accounted for 70% of China's soybean imports during 2023. The U.S. share was 24%.

Friday, February 9, 2024

China's Insane Agricultural Policy Directives

It's said that doing the same thing over and over again and expecting different results is the definition of insanity. By that definition China's agricultural policy is insane. 

This month China released the latest in a string of "No. 1 Documents" on rural priorities issued each year since 2004. (An earlier set was issued from 1982-86.) The same programs keep coming up, often with the exact same language. Some long-forgotten programs are intermittently resurrected despite having failed in the past. 

This year's document has several failed programs resurrected from the dead.

The document directs provinces to experiment with a "dynamic mechanism" linking farm input subsidies to rises in input prices. This apparently is institutionalizing the so-called "one-time subsidies" given to compensate farmers for high input prices each of the last 3 years. The subsidies were given out in 2-to-4-billion-yuan tranches in an ad hoc manner, multiple times in 2021 and 2022. Last year's document instructed officials to "perfect the mechanism for offsetting increases in farm input prices." This year it has become a new subsidy program. 

The "dynamic input subsidy" echoes a similar "comprehensive input subsidy" that began in 2006 to help farmers cope with rising costs of fuel and fertilizer. That subsidy also began in an ad hoc manner, given out as an emergency during the farming season, then institutionalized. Authorities then announced a dynamic mechanism to link the subsidy to increases in fertilizer and fuel prices--exactly the same as the instructions in this year's document. The earlier subsidy ballooned from 12 billion yuan to 107 billion yuan between 2006 and 2012. It proved ineffectual and was folded into a single "land fertility" subsidy along with seed subsidies and a grain producer payment. 

This year's document also includes an instruction to continue the land fertility subsidy, but there is no instruction to ensure that the subsidy funds are actually used to improve fertility.

This year's instruction to raise the minimum price for wheat previously appeared in documents for 2009-2013. Then it switched to "continue implementing the minimum price policy for wheat and rice." The increase in minimum prices prompted a WTO challenge from the U.S. initiated in 2016 (which China lost). The 2017 document's instruction to "rationally adjust the minimum price" reappeared in the 2023 and this year's document.

A proposal in this year's document to explore a mechanism for rich grain-consuming provinces to financially compensate poor grain-surplus provinces has been around for at least 15 years.

Another blast from the past is the instruction in this year's document to pursue a 3-year action plan to develop tea oil and oilseeds grown on trees to reduce reliance on imported oilseeds. The tea oil strategy was pursued in the 1980s, failed and disappeared down the memory hole. Another big initiative during the mid-2000s was to grow jatropha trees to produce nuts that would be used to produce oil for biodiesel fuel. Jatropha trees were planted all over the mountains of western China but the plan soon collapsed. 

The new document's instruction to support development of high-oil soybean varieties is also familiar. There have been a series of soybean revitalization programs since the early 2000s that called for efforts to develop and disseminate high-oil soybean seed varieties to make domestic soybeans more attractive to crushers. Most Chinese soybeans are rich in protein but low in oil content, making them only profitable for use in tofu and other food products.

Other language that keeps reappearing includes orders to crack down on smuggling of agricultural products, protection of "black soil," and to increase use of organic fertilizer. 

Why do Chinese officials keep regurgitating the same policies? Copy-paste is a much easier and less risky approach than thinking up and debating new policies. Communists have a deep memory hole, and all history must validate the success of the State's policies. Policy failures are never discussed in Chinese books. Moreover, China's agricultural cadres all yearn to be promoted to escape backwater agricultural assignments, so the cadres who saw the policy fail 10 years ago are no longer around when the policy is reintroduced. 

Sunday, January 28, 2024

China Relied on Brazil for 27% of Ag Imports

When China says it is "diversifying" its sources of agricultural imports, it really means they are shifting purchases from the United States to Brazil. During calendar year 2023 Brazil had a 27-percent share of China's agricultural imports while the United States had a 15-percent share. This reversed the two countries' positions back in 2014 when the U.S. share was 24 percent and Brazil's was 19 percent. 
Source: Analysis of China customs data

Brazil had a 69-percent share of China's soybean imports in 2023, up from 62 percent the previous year. Brazil's share of corn imports went from 0 to 47 percent in one year after China approved Brazil as a corn supplier in late 2022. Brazil's share of China's sugar imports was 50 percent, and Brazil's shares were 46 percent for poultry, 41 percent for beef, 28 percent for pork, and 28 percent for cotton. 

Other countries that were leading suppliers of China's agricultural imports included Thailand, Australia, New Zealand, Canada, and Indonesia with shares of 4-to-6 percent during 2023--still way behind the U.S. and Brazil. Russia, Argentina, and Chile each supplied 2-to-3 percent. The entire Southeast Asian region had a 15.6-percent share, similar to the U.S. share. The European Union had a 10-percent share. All of Africa supplied a combined 2.4 percent and South Asia supplied 1.4 percent.

Monday, January 22, 2024

Chinese Minister Restarts U.S. Cooperation

China's Minister of Agriculture and Rural Affairs Tang Renjian met U.S. Secretary of Agriculture Tom Vilsack in Washington January 18 to resume the Joint Committee on Cooperation in Agriculture (JCCA), a forum for discussing exchanges between the United States and China that had been dormant since 2015. During the same trip Tang also visited Mexico and the Dominican Republic to discuss closer agricultural exchanges with developing countries on the U.S. doorstep.

Chinese Minister of Agriculture and Rural Affairs Tang Renjian
met U.S. Secretary of Agriculture Tom Vilsack January 18. Source: China MARA.

In the official USDA news release about his meeting with Minister Tang, Secretary Vilsack emphasized China's role as an export market, noting that he discussed market access issues with Minister Tang and expressed hope that the bilateral relationship will expand and improve market access opportunities for U.S. farmers and ranchers in China. The USDA statement also said discussion included "tackling climate and food security challenges" and sustainable agricultural systems. 

China's Ministry of Agriculture and Rural Affairs' Chinese language web site features an article about the Washington meeting with more detail and a more positive spin than the USDA statement. According to the Chinese article, Minister Tang endorsed the JCCA as a channel for promoting bilateral exchange and promised to "cherish, care for, and operate this mechanism in a stable manner." The description of Tang's comments was more expansive than the USDA statement, calling the restarting of the JCCA "after a 9-year hiatus" as a "landmark event in the history of Sino-US agricultural relations." The Chinese statement pledged that China was willing to work with the U.S. to "pragmatically promote China-U.S. cooperation to take new steps and work together to stabilize food and agricultural development."

The Chinese article mentioned that Minister Tang brought up "climate smart agriculture," food security, and "people to people exchanges" (all favorite topics of Xi Jinping) in the discussion, while Secretary Vilsack brought up trade facilitation. According to the Chinese account the two sides agreed to establish working groups on food security, nutrition and health. 

The Chinese account also reveals that Chinese Ambassador Xie Feng attended the meeting, Tang held afternoon meetings with U.S. commercial groups, and Tang requested a meeting with the U.S. Trade Representative's chief agriculture negotiator.  

The Washington meeting was out of step with China's agricultural diplomacy since last year which has featured a stream of meetings with developing countries where Chinese officials pledged aid and cooperation as a fellow "developing country" to build relations based on a shared importance of agriculture and rural poverty alleviation. It's also unusual for the Chinese agriculture minister to travel abroad. 

Before arriving in Washington Minister Tang made visits to Mexico and the Dominican Republic that were squarely in line with China's agricultural diplomacy strategy. On January 11, Minister Tang met his Mexican counterpart for the 7th meeting of an agricultural working group under a China-Mexico Intergovernmental Standing committee where they discussed climate smart agriculture, food security and promoting rural prosperity. Tang praised growth in China-Mexico trade of agricultural commodities. The article twice mentioned another Xi Jinping favorite, "Agricultural Cultural Heritage." Reflecting China's S&T interests, Tang pointed to exchanges of germplasm and biotechnology research as achievements in China-Mexico cooperation and he visited the International Corn and Maize Improvement Center and the National Fisheries and Aquaculture Research Institute in Mexico. 

Minister Tang met Mexican ag minister January 11 in Mexico City.
Source: MARA web site.

During his January 14-15 visit to the Dominican Republic Tang scored a meeting with the President and held bilateral talks with the Dominican ag minister. Here the Chinese article mentions the "Belt and Road" framework for developing agricultural relations and discussed rice and tropical crops, two favorite crops for China's agricultural diplomacy with developing countries. There were discussions of launching a bilateral agricultural cooperation mechanism between China and the Dominican Republic.

Tang did not visit neighboring Haiti, which is one of a dozen countries that still has diplomatic relations with Taiwan. Tang also bypassed old Chinese friend, Cuba, on his North American journey. 

Tang's visits to Mexico, Dominican Republic and the United States were all described in articles on the Chinese language web site of the Ministry of Agriculture and Rural Affairs. The English version of the site featured only the visit to Mexico with no mention of the trip to the United States. 

Thursday, January 18, 2024

China Pork Output Boom Outpaced Demand

China increased its pork output in 2023 to a near-record level. But prices plummeted, indicating the market didn't want that much pork. Analysts say the industry needs to downsize, but companies backed by friendly banks and officials are content to burn through cash until prices pop again.

China's National Bureau of Statistics reported that 726.6 million hogs were slaughtered in China during 2023, a 3.8-percent increase from 2022. The volume of pork produced was 57.94 million metric tons, a 4.6-percent increase from 2022. 

Last year's pork output was the largest reported in the Bureau's statistics since 2014. It exceeded the target of 55 million metric tons for 2025 set by the 5-year plan. Hog slaughter was the third highest ever reported. The only time China slaughtered more hogs was during 2013-14.

The numbers imply 79.7 kg of meat per hog, a 500-gram increase from the previous year and 2-kg more than in 2014. Heavier hogs are consistent with reports of widespread "secondary fattening"--purchasing mature hogs and raising them to even heavier weights--that has become common in China during the 4 years since the African swine fever epidemic. 

The Bureau's index of prices received by farmers showed that hog prices fell 14 percent during 2023. That was the biggest decline of any farm price. Fourth quarter 2023 hog prices were down 31 percent year on year. The drop in prices tells us that Chinese farms produced more hogs than the market wanted.

Tracking raw material purchase prices reported by the Bureau illustrates the long-term problem facing China's hog industry. After 6 years of wild gyrations during the trade war, African swine fever, and COVID-19, Chinese hog prices in December 2023 were almost the same as 6 years earlier in January 2018 (4 percent less to be precise: January 2018, 14.97 yuan per kg; December 2023, 14.3 yuan per kg). Meanwhile, prices of the main feed raw materials--corn and soybean meal--were up 33 percent over that same time period. Costs have risen but the price of hogs hasn't. 

Indexes calculated from average raw material purchase prices reported by China's National Bureau of Statistics.

Earlier this week Jiemian News reported that China's hog industry needs to reduce production capacity as companies incur mounting losses and run into cash flow problems. However, government officials and State banks have been ordered to backstop companies with unlimited credit, so there is little market discipline for overproduction.

With hog prices below the production cost, the more hogs companies produce the more cash they burn. Twenty-two of 32 publicly listed hog companies lost money in the first three quarters last year. Jiemian described reports of 370 million yuan in overdue debt incurred by Fujian hog farming company Aonong as an alarm bell for the industry. Companies are carrying substantial debt loads. Aonong has a debt-asset ratio of 89.4% and Tianbang has a ratio of 87%. Another company, Zhengbang, already went into bankruptcy reorganization.

One industry analyst told Jiemian that the industry needs to shed about 10 percent of its production capacity, but companies are hesitant to scale back because they want to maximize their gains if there is an upturn in prices. The expert estimated that there would be only a 5 percent reduction of capacity. There is little hope of a rebound in prices.

Muyuan inadvertently explained why companies are not being forced to cut capacity. Muyuan said State-run banks regard Muyuan as a "strategic customer", and they are willing to extend nearly bottomless credit at low interest rates. Muyuan obtains 70% of its credit from the Agricultural Bank of China, China Construction Bank, and Bank of China and still has a 30-billion-yuan line of credit. Last year Muyuan paid 4% interest on new bank loans. Muyuan's debt grew from 59.3 billion yuan to 78 billion yuan last year. 

The three top companies--Muyuan, New Hope, and Wens--produced a combined 100 million hogs in 2023, a record volume. Regarding Muyuan, one analyst pronounced, "Even if [the company] does not make money there is still no problem in ensuring that it does not collapse." 

The analyst points out that even if a company goes out of business its assets will likely be taken over by another company--i.e. no reduction in industry capacity. "The local government will provide certain support out of consideration for stabilizing production," the analyst explained. 

Small independent farmers with less access to credit may be forced to downsize. The Statistics Bureau's report said that the national inventory of hogs declined 4.1 percent during 2023.

"Many experts" told Jiemian that this winter's hog disease outbreaks could be the straw that breaks the camel's back. According to New Hope Group, another hog-farming giant, disease outbreaks came earlier than last year, affecting both company-operated farms and smaller independent farm contractors. Disease increases cost by reducing piglet survival rates, reducing success rate of sow breeding, increasing death losses of fattening hogs, and inducing farms to make additional expenditures to prevent and treat disease.

Interestingly, the U.S. pork industry is also in downsizing mode. Articles like the Wall Street Journal's "America Has Too Much Pork" cite plummeting sales to China as one of the reasons for American companies shuttering farms and processing plants. 

Saturday, January 6, 2024

China Rural Work Meeting: That 60s Show

Farmland protection and upgrades, food supply diversification, science and technology, disaster prevention and recovery, and preventing poor areas from falling back into poverty were the "clear requirements" ordered by Xi Jinping for 2024 at China's "rural work meeting" for 2024 held last month in Beijing. Xi Jinping's effort to present himself as Mao's successor can be detected in the meeting's revivals of Mao-era approaches to reconfiguring the countryside and keeping it under control.

The meeting celebrated "overcoming" "serious" natural disasters last year, producing another record grain crop, rapid income growth for farmers, and harmonious, stable rural society. That probably means none of those things actually happened and communist leaders are worried that the countryside could spin out of control. 

Working for food self-sufficiency was a clear theme. The meeting demanded that officials at all levels pledge to prevent farmland from being converted to other uses, called for restoring fertility in the once-rich black soil of the northeast, designing a system to promote agricultural science and technology, building productive and resilient farm fields, and monitoring poor regions to prevent recurrence of poverty. Last year's new ambition of making China an "agricultural powerhouse" was regurgitated. 

Animal husbandry officials study important directives issued by Xi Jinping at the 2023 rural work meeting.
Source: National Animal husbandry station.

Like Mao did during his reign, Xi is pushing fanciful programs to reconfigure China's countryside. 

A "Thousand Village Demonstration and Ten Thousand Village Rectification" (千村示范、万村整治) project to redesign villages and knit them together was prominent in the description of the rural work meeting. This project was promoted in Zhejiang Province when Xi was in charge there. The "thousand-ten thousand" campaign aims to redesign entire villages and to integrate multiple villages in a network of fields, infrastructure, and industry chains. Designs are made by university architects and planners to upgrade and relocate housing, make the village look scenic, concentrate farm fields, install roads/irrigation, include ecological ‘circular agriculture’ features, and integrate agriculture with industry. The project smells like the Mao-era "in agriculture learn from Dazhai" and the disastrous "Great Leap Forward" makeover of multiple villages into giant communes with common fields, dining halls, and industrial facilities. Examples of picturesque villages in Zhejiang--China's richest province--illustrating the project would be impossible to replicate nationally.

The "1000-10,000 project" aims to create picturesque, productive and
environmentally friendly villages designed by smart professors.

The rural work meeting also featured a "Maple Bridge Experience" project--a Mao-era initiative to settle disputes and conflicts at the village and township level. Xi endorsed the "Maple Bridge" approach to governing rural areas--named after a village in Zhejiang where it originated--as a national initiative. According to the description of Xi's endorsement during a visit to the countryside in November 2023, the "Maple Bridge" governance approach demands that conflicts be resolved on the spot in order to reduce the number of arrests and maintain public security. Its goal is to "vigorously promote the socialist rule of law culture", give full play to government legal advisors and public lawyers in drawing up legal documents and resolving administrative disputes. The initiative aims to change rural customs and inculcate respect for social order as a "rule of virtue." In other words, the communist party wants to quash any threats to its dominance of rural governance and smack down any uprisings among unhappy villagers before higher level officials have to deal with them. 

In another hyperlink to the Mao era, Xi Jinping's "New Journey" (新征程) slogan recited at the rural work meeting, is surely meant to evoke Mao's "Long March" (长征程)--the Chinese phrases differ by only one character.

Xi Jinping hopes to emulate Mao and his fanciful "Da Zhai road" for farmers. 

"Modernization" has long been a watchword of Chinese communists, but it has morphed into Chinese-style modernization (中国式现代化) as the objective of rural work. Adding "Chinese-style" evokes Xi's nationalistic outlook and probably reflects China's new efforts to sell its governance style as transferable to other developing countries. 

Mao's "In agriculture learn from Da Zhai" left behind a dilapidated countryside
that had to be rescued by Deng Xiaoping's "reform and opening." Yet there are 
signs Xi Jinping wants to revive the principles of Mao's unrealistic approach.

Monday, January 1, 2024

China's animal protein consumption rising

China's pork consumption is outperforming other types of animal protein, according to the country's household survey--a result that seems inconsistent with depressed prices in the country's pork industry.

The survey data from 2013 to 2022 show a dip in pork consumption during 2020 when China had a severe pork shortage due to an African swine fever outbreak. Then pork consumption snapped back in 2021 as the sector recovered and rose even higher in 2022--a year when much of the country was under lockdown. The recent strong growth contrasts with flat consumption from 2013 to 2018.

Source: China national household survey data compiled from China Statistical Yearbooks.

China's consumption of other animal proteins is generally on the rise too, but quantities are smaller than for pork. 

  • Poultry consumption rose by 3.7 kg/person in 2020 as consumers sought out substitutes for expensive pork that year. Since then poultry consumption has dropped by 1 kg but is still higher than any year before 2020.
  • Egg consumption also had a strong 3-kg bump during 2018-20 and kept growing during 2021-22. 
  • Fish and shellfish consumption increased 2.2 kg in 2020 and has plateaued since then. 
  • Dairy consumption doesn't show much of a trend. Dairy spiked in 2021 and dropped in 2022. 
  • Per-capita consumption of beef and mutton is still low and on a pretty steady rising trend.
In the overall consumption picture, 
  • Consumption of meat/eggs/fish/dairy rose from about 60 kg to 83 kg between 2013 and 2021, then dropped to 82 kg in 2022. 
  • Consumption of cereals was 123.7 kg and consumption of vegetables was 108.2 kg in 2022. 
  • The declining trend in consumption of cereal grains reversed, rising by 13.5 kg during 2019-21 then dropped by 6.4 kg in 2022. 
  • Vegetable consumption rose about 10 kg from 2019 to 2021, then dipped slightly in 2022.
Source: China national household survey data compiled from China Statistical Yearbooks

Rural households appear to have caught up with urban households in consumption of pork, poultry, and eggs during 2021-22. Rural consumption of pork actually outpaced urban consumption in 2022. Rural consumption of fish and beef/mutton is still lower than that of their urban cousins. 
Source: China national household survey data compiled from China Statistical Yearbooks

These numbers should be interpreted with caution since the household survey has historically been inconsistent with aggregate production data. The survey only records purchases for at-home consumption--it excludes consumption in cafeterias and restaurants. Lockdowns during most of 2022, cessation of travel, and closure of cafeterias and restaurants may have boosted at-home consumption, but there were extended times when Chinese residents couldn't even go to markets to buy food either. The survey is based on detailed diaries of all food purchased/consumed by a large sample of households--did they keep up this activity during the months of lockdowns in their homes or quarantine hotels?