Saturday, June 12, 2021

Sprawling 5 Year Plan for Xinjiang

China's 14th five-year plan for Xinjiang Uighur Autonomous Region envisions great opportunities for development and westward-facing trade in the region--and the plan makes it clear that it has Xi Jinping's personal stamp of approval. The plan promises huge material economic progress, and it includes measures to ensure it is not impeded by social instability or threats to the communist party's leadership. The plan calls for expanding vocational training schools, reeducating ethnic minorities, and creating Islam with Chinese characteristics. 

The Xinjiang plan is an exhausting catalogue of projects that goes on for pages and pages. They include high-tech industry clusters; petroleum- and coal-based chemicals; steel and nonferrous metals; upgrades of textiles and agricultural processing; new energy and e-commerce; industrial clusters and industry parks sprinkled across the desert; new roads, rails and canals crisscrossing the region; hordes of tourists; build new cities and schools; and a reformed string of army-run "production corps" settlements that "maintain border stability." This plan--like others published this year--reveals obsessions with "security," resistance to risks, industry "agglomeration," "clusters," "supply chains" and "industry chains." 

Development of Xinjiang is a strategy for shifting the momentum of development westward--the plan describes it as "a national chess move for the new era." Chinese planners view Xinjiang as a westward-facing conduit for trade with Central, South, and West Asia. The plan describes Xinjiang as a core region in the "silk road economic belt," a "highly open border region" and a corridor for trade with the central and eastern regions of China. 

The importance of Xinjiang development is reflected by promises of policy support and the plan's advocacy of the "Xinjiang aid counterpart" initiative which presses government organizations and state-owned companies to provide various kinds of support, open branches, offer technical assistance and travel to Xinjiang. 

In agriculture, cotton is Xinjiang's most prominent crop--the region produced 87 percent of China's cotton last year. However, the region's priority is to keep cotton output steady and focus on maintaining a slight surplus in the region's wheat production.

The plan calls for upgrading cotton quality, concentrating cotton production in the best-suited areas, building big contiguous cotton fields with roads and irrigation, increasing uptake of improved cotton strains to 98 percent by the end of the plan, and increasing mechanization of cotton production to 80 percent.

Xinjiang's cotton is about 2,500 miles away from most of the textile industry (which requires a  transportation subsidy not mentioned in the document) so the plan calls for bringing the textile industry to the cotton. Xinjiang will boost the local yarn-spinning and dyeing industries as well as a labor-intensive industry development plan that includes garment manufacturing. Textile industry plans emphasize production of synthetic fiber--presumably linked to the petrochemical industry plans for Xinjiang. 

The plan targets tree fruit and nuts for expansion, including red dates, walnuts, almonds (巴旦木 in Chinese…it’s a long story), grapes, apples, pears, apricots, new plums, and medlars. Agricultural processing industry is another target industry for creating jobs and adding value to local crops. The plan includes instructions to improve the quality of the naan (flat bread) industry, tree fruit, wine, tomato processing, dairy, horses, herbal medicines, chilled aquatic products (in the desert?!) and regional specialties like camel milk and buckthorn. 

The plan includes a fleeting endorsement of an ongoing initiative to artificially alter the weather (which has alarmed some of China's neighbors).

Livestock will also be boosted in Xinjiang. Beef, sheep and dairy are mentioned first, but pork is also targeted for development (in a purportedly Muslim "autonomous region"). In a seemingly "back to the future" recommendation, Xinjiang will promote "courtyard vegetable production" to increase the supply of vegetables. Other crops mentioned are oilseeds and sugar beets. 

The Xinjiang Production Corps is an archipelago of military settlements and farms strung across the region. The corps is involved in many industries, but it has a significant role in mechanizing cotton production and increasing use of improved varieties. The plan's paragraph on the corps doesn't mention cotton or textiles. The plan says we should "view the army as a game of chess" and calls the corps "...a stabilizer for border security, a melting pot that gathers people of all ethnic groups, and a demonstration area for advanced productivity and culture." 

Agricultural and sideline product processing and export-oriented industrial clusters are planned for four locations. Textile and garment import-export processing, export processing districts, border trade and western-oriented opening industry bases will be created in Xinjiang. An International Textile Product Garment Trade Center is planned for the capital, Urumqi. Other export-oriented industries planned include electronics assembly, Chinese herbal medicine, shoes and hats, toys, wigs, bags, and leather goods. 

The plan will continue the ethnic employment strategies that have prompted foreigners to ban Xinjiang goods. A paragraph on vocational training and employment targets "surplus workers in rural and urban areas" and poor people. The plan includes an initiative to train 200,000 people for technical jobs in construction over 3 years and to achieve a goal of increasing urban employment by 450,000 per year. Another initiative is a "dynamic reset" for urban households with zero-employment. The plan calls for enrolling all junior high school graduates in vocational education. Another paragraph calls for construction of high quality vocational training schools in counties and cities with relatively large populations, and programs to improve quality of teachers. 

Although it's a plan for the "Uighur Autonomous Region," the "Uighur" ethnic group is never mentioned in the 50-page document except in the title. The phrase "Chinese nationality" (中华民族) appears 14 times and "unity" (团结) appears 34 times. According to the plan's prologue, Xinjiang has laid a foundation for development by strengthening "...each ethnic group’s sense of gain, happiness, security...[with] social stability and people living and working in peace and contentment." Yet the plan intones that the region must "persist in maintaining social stability as an overriding political task."

The plan promises to protect freedom of religion, upgrade places of worship and support religious schools. But religion must follow Chinese law, and "infiltration" and "crime" will not be tolerated. The plan requires "Sinification of Islam." Clerics who collaborate ("patriotic religious figures") are promised rewards if they educate religious believers in national, civic and legal awareness and "play a role in critical situations." The plan promises to crack down on religious extremists and continue to deepen de-radicalization. Socialist adaptation for religious people must be improved.

Elsewhere the plan calls for better propaganda education of the masses to unify the people. In education, historical facts and archaeological objects are to be "used effectively" to convince students that members of all ethnic groups that happen to live within the boundaries of communist China have a "common history." 

The plan is rounded out by demanding stronger communist party leadership, an unrivaled leadership role for party committees, party leaders as role models, and grass roots party organizations as "citadels in battle."

Thursday, June 10, 2021

Heilongjiang Farmers Get Grain Subsidies a Month Early

China's Heilongjiang Province announced that grain subsidies will be paid a month earlier than usual this year. Producer subsidies for corn, soybeans, and rice will be issued to Heilongjiang farmers by the end of August based on area they planted in the three crops. 

Heilongjiang accounts for about 10 percent of China's grain output, and it produces the biggest surplus of grain to supply to other provinces. The producer subsidy policy is meant to encourage Heilongjiang farmers to produce by offsetting the province's low prices to generate better net returns.

The amount of the subsidies will not be determined until August, but officials indicated the corn subsidy will be raised from last year while the soybean subsidy will be held steady. Last year's corn subsidy was 38 yuan per mu, and the soybean subsidy was set at 238 yuan per mu to stimulate more soybean production. This year the priority has switched to boosting corn output, with corn prices soaring and record corn imports. Last year's rice subsidy was 136 yuan per mu for rice grown with surface water and 86 yuan per mu for rice irrigated with groundwater.

Heilongjiang farmers will report area actually planted in the crops last year (in 2020), so this year's payments will not reflect changes in this year's crop planting. Farmers are believed to be  planting about 4-5 percent more corn this year in response to the boom in corn prices. Government officials will verify the planting reports by July 20, determine the amount of the subsidy by August 15, and make payments by August 30. 

Farmers can't get subsidies for land reclaimed without authorization, and they can't double-dip by collecting subsidies for land for which they're receiving subsidies for growing corn for silage or land idled by the "grain for green" environmental program. 

The terms  are set by a Heilongjiang 2020-2022 corn and soybean producer subsidy work program and a similar Heilongjiang work program for rice producer subsidies.

Wednesday, June 9, 2021

China ag inflation? Oink...gurgle

Stratospheric Chinese hog prices helped float prices of feeds and meat upward last year, but sinking hog prices this year may be exerting a downward gravitational pull on other prices as hog farmers fall underwater.

Hog prices reported by China's National Bureau of Statistics (NBS) in May 2021 were more than 50 percent below their early January level and are now below breakeven levels for wean-finish farms and at or near the breakeven point for farrow-finish farms in China. Farmers have been selling hogs in a panic as prices fall in the offseason for Chinese pork consumption. Last week's Beijing Xinfadi wholesale market report said mainly large carcasses are arriving--super-sized "second-time fattening" hogs--but very small carcasses are also arriving as farmers slaughter immature animals to cut their losses. Another industry report commented that a fattened hog brought 3000 yuan in profit last year, but now loses 1000 yuan. 

Source: China National Bureau of Statistics, raw material purchase prices.

High hog prices and generous subsidies during 2020 spurred aggressive hog farm expansion, feverish entry, and an erosion of productivity. Feed prices were driven higher, and production costs soared. The price of substitutes for pork--from tofu to beef--were also driven higher. 

The NBS purchasing price data indicate that upward momentum has dissipated for ag prices in China since hog prices began their decline. Prices of corn, soybean meal, and cotton are well above year-earlier price levels--when China was exiting its covid-19 lockdown--but ag prices appear to have peaked during January-March and show little or no upward momentum in May 2021.

Source: China National Bureau of Statistics, raw material purchase prices.

Ministry of Agriculture wholesale price data show beef prices started to slide over the last couple of months. Chicken prices peaked briefly in late 2019 (when pork prices were at their peak) and have fluctuated relatively little over the past year.  
Source: China Ministry of Agriculture and Rural Affairs, wholesale prices.

China's inflationary momentum has shifted to industrial commodities. Year-on-year rises in industrial prices are exaggerated by "base effects" (i.e., industrial prices were depressed a year ago during March-May 2020). Prices of copper, steel rebar, aluminum, and pvc have been on the rise this year, but prices seemed to peak in May as these prices also downshifted late in the month. 

Source: China National Bureau of Statistics, raw material purchase prices.

Chinese analysts think hog prices may bottom out by July-August after the stock of super-size pigs has been cleared out. A diarrhea epidemic that killed off piglets in February may tighten the supply of fattened hogs by late summer, just when seasonal demand starts to rebound. 

Today Chinese officials trotted out recycled plans to stabilize the pork industry by improving the national buffer stock of frozen pork reserves. Twelve years ago an elaborate "hog price alert" stabilization plan was introduced by the same government departments following a disease-driven 2007-08 spike in hog prices. The 2009 plan was supposed to do all the things the same officials are promising today: publish a dozen or so statistical indicators to give farmers more accurate market expectations, issue "early warnings", and trigger government purchases and sales based on the hog-corn price ratio to tamp down gyrations in sow numbers and smooth price fluctuations. Nearly all of the promised data series quickly vanished. The Ministry of Agriculture recently mentioned that it plans to abandon the hog-corn price ratio as a profitability measure.

Why isn't the government swooping in now to buy up the surplus pork? Maybe because analysts estimate that 1.7 million metric tons of import frozen pork are already held in reserves. The commercial value of these reserves has sunk along with market prices. The freezers may already be jammed full of pork. Assuming reserves were purchased on credit officials are surely financially underwater on the reserves they bought last year and unable to finance new purchases to sop up the excess pork in the domestic market now. 

Monday, May 31, 2021

Chinese Swine Farms: "Transformation" and Higher Costs

Big Chinese swine companies are transforming the industry by replacing rudimentary "backyard" brick piggeries with huge automated barns, but the hefty overhead costs of the new farms are also boosting hog production costs. Consequently, falling hog prices are hitting their breakeven level faster than expected. That could put a brake on the industry's expansion and create a permanent opportunity for imported pork in China's market.

On May 17, an official from China's livestock and veterinary bureau claimed the country's swine inventory has almost fully recovered from its dramatic shrinkage during the 2018-19 African swine fever (ASF) epidemic. But he also warned that the steady drop in hog prices this year has put Chinese farmers perilously close to financial losses.

The cadre of swine companies--despite being privately owned--delight Chinese officials who love big things they can subsidize and manipulate. On May 19, Vice Minister of Agriculture Ma Youxiang met with 14 big swine-farming companies where he celebrated the swine industry's rapid recovery from the ASF epidemic. Ma exhorted swine-farming companies to lead the pig recovery and to assist small and medium farmers. Vice Minister Ma also warned companies to strengthen industry "self-discipline" and to resist temptation to violate laws and regulations, suggesting distrust of these industry "dragon heads." Ma ordered local officials not to let up on their work to promote recovery of pork supplies and to prevent spread of ASF. 

Vice Minister Ma acknowledged that African swine fever is still a "very big risk"--a subtle change from regular assurances over the past year that ASF was under control. Ma also warned of rapidly falling profits for farmers and an erosion of sow productivity. 

A field trip to Guangdong and Guangxi Provinces published in early May found that the industry there had recovered to 60-70 percent of its pre-ASF inventory--a lot of progress but less than the Ag Ministry's optimistic assessment. Three of the big swine companies reported that they contract with thousands of independent farmers to fatten hogs for a fixed payment. Reports on disease were mixed. Some companies reported few problems, while others reported pockets of serious outbreaks during the winter months. In Guangxi Province around the Fangcheng port, 70-80 percent of farms had been infected by ASF. One company said infections had been as high as 40-50 percent during the winter in Shandong and Henan Provinces. Disease problems included ASF transmitted by illegal vaccines, PED, FMD, and PRRS.

Veterinary Bureau "Inspector" Xin Guochang credited an increase in "above scale" farms for "upgrading" the industry. The Guangdong-Guangxi field trip report confirmed the rapid expansion of the swine-farming companies. Three companies had a combined 75,000 sows in the region. One company said it had doubled its sow inventory from 20,000 to 40,000 since last fall and accounts for 40 percent of Guangdong's slaughtered hogs. The field trip report said that smaller backyard farms had exited in large numbers since the ASF epidemic. One company said the number of contractor farms had been cut in half. In one area, the number of slaughterhouses had also been cut in half. The companies planned further expansion by the end of 2021.

A March 2021 social media discussion about whether you can earn more money raising pigs than as a migrant worker advised readers that breeding sows and producing piglets is a high-input, high return and high risk segment that requires a lot of technical know-how and investment. This is the segment the big companies specialize in. In contrast, fattening weaned pigs to market weight, either as a contractor or an independently operated farm, requires mainly physical labor--feeding, cleaning and shoveling manure--during the 5.5-month production cycle. The writer advised those who have the know-how to consider working for a company on salary if you don't mind being cooped up on a farm for a month at a time. Other posts noted that small hog farms don't make much money, don't qualify for subsidies, and are gradually disappearing. 

Inspector Xin of the veterinary bureau said China now has enough sows to produce 690 million fattened hogs. The rapid expansion has been achieved by holding back female pigs meant for the commercial herd to breed as sows. The field trip study team was told these "third generation" sows produce 10 pigs per litter versus 14-15 per litter for sows from the breeding herd. Xin claims that farms are culling these  low-productivity sows and replacing them with more productive sows. Companies visited on the Guangdong-Guangxi field trip, however, said 70 percent of sows held by big companies in Guangxi were commercial "third generation" gilts and the proportion was 60 percent in Guangdong. One slaughterhouse said 70 percent of pigs it processes are males because so many females are being retained to be bred as sows. 

High hog prices have prompted larger-than-usual slaughter weights. The average in Guangdong-Guangxi was reported to be 130-140 kg, up from 115 kg before ASF. Especially huge hogs of 150 kg are produced by a practice of "second-time fattening": farmers acquire hogs already at their usual slaughter weight and fatten them to even larger weights. At these heavy weights, feed conversion diminishes and buyers discount the price for high fat, but high hog prices made the practice feasible. One company contacted by the field trip said the practice was uncommon in their area, but another reported that 40 percent of hogs were "second-time fattened" in its area. 

One company reported an overlooked effect on sow productivity: sow conception rates were low this year due to disappearance of staff members during and after the February Lunar New Year holiday. One  post in the social media discussion of pig farm profits observed that most employees on company-operated farms are elderly "aunties and uncles" with little education or training. Other respondents said company-operated pig farms pay good salaries of 7,000-10,000 yuan per month and are offering enticements like on-farm karaoke, billiard tables, basketball courts, and free room and board to attract workers. Another propaganda meme features university graduates who took up pig farming.

Inspector Xin said there are signs that farms are losing money as recent hog prices of 18-19 yuan per kg approach the breakeven price for farms of about 17 yuan per kg. The breakeven price is 4.5-yuan higher than before ASF, Xin said, due to rising costs. The biggest Guangdong company told the field trip team its cost is 16-18 yuan per kg, while another company said its cost was 15.4 yuan. Costs for disease prevention are up. 

A Caijing article last week reported on the decline in hog prices to breakeven and noted that most pig-farming companies had reported weaker profitability for the first quarter of 2021. Caijing quoted a securities analyst who attributed the weaker performance to ASF outbreaks, rapid turnover of sows, and generally higher costs. A Chinese Academy of Agricultural Sciences expert told Caijing China's hog production costs are 17 yuan/kg versus 12 yuan/kg in foreign countries--a 40 percent difference. 

China's breakeven hog price of 17 yuan per kg should put a floor under Chinese hog and pork prices. If prices fall below the breakeven level, farms will come under financial pressure and cut back on production or quit the industry. This may restrain further expansion of the swine herd.

The breakeven price is roughly equivalent to a pork price of 27 yuan per kg (historically, China's wholesale pork price has been about 60-70 percent higher than hog prices). That's higher than Chinese wholesale prices that prevailed in 2019. The breakeven level is also 45 percent higher than the average C&F value of imported Spanish pork in April 2021 and 89 percent higher than the C&F value of imported U.S. pork. Thus, with a high cost structure Chinese swine farms will become unprofitable well before the price drops to be competitive with imported meat.

Sources: China Ministry of Agriculture and Rural Affairs; production cost reported by MARA;
import unit values from Chinese  customs data.

The Guangdong-Guangxi field trip report noted efficient feed conversion ratios of 2.5-2.8 for large companies (lower than the historical average of 3.1) and survival rates for piglets of 94-95 percent. However, the swine industry expert told Caijing that 40 percent of production costs are now in the production of sows and piglets. The Caijing article hammered on China's weakness in animal breeding and its lack of feed resources as chokepoints for the swine industry. 

A reflection of the changing cost structure is the Ag Ministry's announcement that analysts will phase out the hog-to-corn price ratio as the measure of farm profitability. Costs of feeder pigs, labor, manure management, facilities construction, and disease prevention have increased. The Ministry noted that manure management and disease prevention alone account for 150 yuan per head in cost. The Ag Ministry explained that the grain-hog price ratio was a good profitability measures in the past when hog farmers had no depreciation or interest expenses, used no hired labor, and spent minimal amounts on disease prevention.

The Ag Ministry says it is exploring intervention policies to stabilize the hog supply. In other words, they are looking at new subsidies to correct the problems of oversupply and entry of not-ready-for-primetime companies caused by the first round of subsidies launched in 2019. Watch for discovery of a swine disease in Europe or the United States, discovery of contaminated imported meat, an antidumping investigation, or new standards to clamp down on imported pork if prices keep falling.

Tuesday, May 18, 2021

Growing cities, shrinking farmland make officials sweat

With China's cities expanding at a rapid clip, the loss of farmland seems to have set off alarms among Chinese leaders, but statisticians are not allowed to report farmland loss.

Rapid urbanization was one of the most notable features in China's new population census data, released last week. China added 236 million to its urban population between 2010 and 2020, while its rural population shrank by 164 million. The population was 64 percent urban in 2020, up from 50 percent in 2010. 

Source: China's 7th population census.

Urbanization is a reversal of China's heritage as a nation composed primarily of rural peasants. The urbanization rate was only about 10 percent when the communist regime took over in 1949. Most people lived directly off the land, and only a small portion of the food supply was needed to feed city-dwellers. 

The urbanization rate began its long upward climb with "reform and opening" in the late 1970s. The  64-percent urban share of population in the 2020 census seems to have taken the statisticians by surprise. It was 3.3 percentage points higher than the 2019 urbanization rate reported last year by the National Bureau of Statistics. Now, with most people living in cities, most of the food must move through a huge, complex marketing system to feed the people. Chinese leaders worry that cities may be fed by imported food they can't control. Hence the slogan, "Chinese peoples' food bowls must be firmly in their own hands."

Source: China National Bureau of Statistics.

Case in point is Guangdong Province, China's most populous province (126 million people), teeming with migrants and working-age people, according to the new population figures. One commentary on the population census figures noted that now only a few of China's provinces produce more grain than they consume. Guangdong relies on 41 million tons of imported grain and purchases from grain-surplus provinces to fill its supply-demand deficit, according to a 2018 report by its grain bureaucracy. The commentator insisted that China must follow the road of "food security with Chinese characteristics" to keep China's food bowl firmly in its own hands, in view of "rigid growth in grain consumption" and depleted water and soil resources. 

On May 7, Premier Li Keqiang proclaimed, "Maintaining the food security of 1.4 billion Chinese people is a great contribution to the world." In his speech, Li gave "strict orders" to strengthen control of cropland use, resolutely curb the diversion of agricultural land to nonfarm uses, prevent planting of non-grain crops on land designated for grain production, and "strictly guard" the 1.8-billion mu (120 million hectares) "red line" for cultivated land. Li called for progress on the next 100 million mu (6.7 million hectares) of "high standard fields" resistant to droughts and floods. 

China Grain Net followed up Premier Li's remarks by listing directives to enforce the "strictest land protection system" issued since last December's Economic Work meeting that prioritized the "red line", "high standard field" construction, and protecting "black soil" in the northeastern provinces. The "Number one document" called for preventing loss of cultivated land and establishing a system to monitor land quality. The Minister of Agriculture announced "measures with long teeth" to protect farmland. A March 2021 meeting pledged funding to accelerate "high standard field" construction as a "major food security task." Last month, the Ministry of Natural Resources proposed a "field captain" system to monitor farmland and called for penalizing land conversions.

Despite apparent nervousness about a shrinking farmland base, Chinese statisticians have been reporting growth in cropland area. Official data reported 95 million hectares of cultivated land during the 1990s, a total that was acknowledge to be underestimated due to farmers and villages under-reporting land to dodge taxes. The first agricultural census in 1996 included a special survey to measure the cropland base, and raised the total to 130 million hectares. The 2006 census found the cultivated land base had shrunk to 122 mil. ha. This decline apparently was not acceptable, as a new survey by the Ministry of Land Resources immediately discovered 135 million hectares of cultivated land which has been reported ever since. The 2016 agricultural census (released in 2018) reported the Ministry of Natural Resources cultivated land area statistic. The same statistic has been reported in each yearbook since then.

A commentary by China Grain Net last month warned that China's land resources are near their limit. The commentator estimated that food imports represented a shortage of agricultural land of more than 51 million hectares. The country cannot easily add to its cropland base, the commentator warned. The situation is worsened by the loss of organic matter in soil, erosion, hardening of soil, and acidification of soil through loss of potassium, calcium, and magnesium. According to the commentator, the pH rose above 5.5 in 35 percent of the soil in rice-growing provinces Jiangxi, Hunan, and Guangxi over the past 30 years, reducing productivity by 20 percent. A 2019 Agriculture Ministry soil classification found 22 percent of soil is low-yielding, 47 percent is medium, and 31 percent is high-yielding. The Ministry hopes to raise grain production by upgrading soil productivity.

Monday, May 10, 2021

Restaurant Garbage Replaced by Corn and Soybean Meal?

Did the Chinese government's ban on swill-feeding of pigs to prevent spread of African swine fever (ASF) in 2018 really stamp out the practice? Even if it didn't, the idling of food service establishments during 2020 surely cratered the supply of swill. Are grain-feeding swine farms now replacing swill-feeders?

The long history of feeding food scraps and other waste to pigs in China shifted into high gear as the country's food service industry boomed over the past two decades. Restaurants, cafeterias, and hotels collected table waste in drums and bags, then sold it to dealers who picked it up in small vans and delivered it to surreptitious farms hidden in villages on the outskirts of cities. There, the garbage is cooked in vats and fed to dozens or hundreds of pigs held in rudimentary pens and sheds.

Restaurant waste is delivered in barrels to be cooked down and fed to pigs.
These were photographed at a farm on the outskirts of Kunming, China, in 2014.

Over the past decade, Chinese authorities have been trying to shut down swill-feeding farms to prevent spread of disease, poor sanitation, and to eliminate pollution from these farms. China's Livestock Law prohibits feeding garbage unless it has been treated properly at high temperature. In 2010, China's State Council ordered city mayors to strengthen oversight of food waste. The government was prodded by embarrassing publicity about so-called "gutter oil"--a by-product of cooking garbage to feed to pigs. Localities issued regulations banning the practice and imposing penalties. In 2011, the government started setting municipal systems to collect food waste and use it to generate electricity or dispose of it properly, and $100 million was allocated to subsidize demonstration projects. 

A widely-published "investigation" by a Xinhua reporter in 2017 described seeing several garbage-feeding farms in Tianjin being demolished by authorities. Yet he managed to find another one still in operation which he described in detail. As recently as April 2018, a local news site in Beijing reported finding a farm in the Tongzhou suburb that raised thousands of pigs on waste trucked in daily from the city.

When African swine fever hit China in 2018, the government ordered that swill-feeding farms be shut down after the Ministry of Agriculture and Rural Affairs found that ASF was spread by feeding food waste to pigs. 

This propaganda comic says the barrel of restaurant garbage is uncontrolled;
the "swill pig" spreads disease and pollutes the environment.

In February 2019, Chinese news media circulated a report of two farmers in Sichuan's Jintang County who were arrested for raising 600 pigs on food waste after it had been banned the previous October. This was widely posted, presumably as a warning to farmers. Another warning posted on social media in August 2019 explained the dangers of garbage-feeding, its role in spreading African swine fever, the government's crackdown, and penalties for engaging in the activity. A February 2021 article explained that farmers could feed waste to pigs that they consume themselves, but feeding restaurant garbage to pigs is banned and local governments offer a reward for turning in violators. 

Legitimate restaurant garbage collection and treatment programs are still in the pilot stage. The locality of Jiaxing in Zhejiang Province just announced a pilot program to produce electricity from biogas generated from restaurant waste. This locality has been a hotspot for model pig farms since it launched 10,000 dead pig carcasses into Shanghai's river 8 years ago.

A November 2018 article, "The State's Ban on Swill-Feeding Pigs to Ensure Swine Safety is Correct, but How Will So Much Waste be Treated?" wondered how China's huge volume of food waste could possibly be treated if swill-feeding farms were shut down. The article cited an estimate that the country produced nearly 100 million metric tons of restaurant waste in 2017 and another estimate that only 10 percent of restaurant waste was properly disposed of and treated. The author said there were many barriers to disposing of restaurant waste in a safe and sanitary way (including "illegal interests"--presumably profits enjoyed by criminal networks from selling "gutter oil" and pigs). 

The flip side of the article's concern is: If swill-feeding farms were shut down, would conventional grain-feeding farms replace the lost supply of swill pork? 

Swill-feeding could account for a significant proportion of China's pork output. If China's food service industry generated nearly 100 million metric tons of waste in 2017, let's guess conservatively that 20-to-50 mmt of that waste is fed to pigs (the rest is oil extracted for "gutter oil," inedible plastic, napkins, styrofoam, chopsticks, and stuff that rots or is actually disposed of). 

In comparison, China's feed industry association says 98 mmt of commercial swine feed was produced in 2017--which presumably does not include swill. That's about equal to the estimated volume of restaurant waste and could mean that a substantial portion of China's pork was fed swill pre-ASF. If swill-feeding farms are now replaced with conventional farms, that could translate to a 20-to-50 mmt shift from swill to commercial swine feed, requiring about 12-to-30 mmt of corn and 4-10 mmt of soybean meal as ingredients.

It's not clear whether swill farms were entirely closed down by regulators. People who flout rules and may be connected with criminal organizations are probably not easily scared off by fines and newspaper articles. But the closure of food service businesses during 2020 surely shrank the supply of swill when school and workplace cafeterias, hotels and restaurants were largely shut. China's food service business has been slow to rebound from Covid lockdowns. Moreover, the scarcity and high price of piglets surely cut back on the profitability of swill-feeding as well.

If the swill-feeders accounted for a lot of pork production, that could explain why so little commercial hog feed was produced pre-ASF. If they have been shut down now, it could explain why the demand for corn and soybeans is so vigorous if grain-feeding farms are replacing swill-feeders. This also raises the possibility of a resurgence in swill-feeding as the food service sector recovers, which might accelerate  the decline in hog prices to their break-even level.

Friday, May 7, 2021

Solving China's Cow Problem

Livestock should have the same status as grain in China's food security efforts, according to an Economic Daily article published last week. The article--which cited difficulties maintaining meat supplies, "social resistance" to high prices, and great pressure from imported meat--was reposted on numerous state-controlled news media sites, indicating it was a message from the propaganda gnomes.

The Economic Daily article observed that beef and mutton supplies have not kept up with growing demand. The article cited a 5-year action program for developing beef and mutton production issued by the Ministry of Agriculture and Rural Affairs (MARA) as an important new effort to ensure meat supplies and tamp down meat price fluctuations. The MARA "action program" document blames a poor industry base, long production cycle, and outdated production methods for failing to keep up with growing consumer demand for beef and mutton. 

An assessment by the Chinese Academy of Agricultural Sciences in December 2020 praised the beef industry as a "bright spot" and a "pillar industry" in the rural economy, but criticized lack of progress in developing specialized breeds, failing to conserve and utilize indigenous cattle breeds, backward production methods, high production costs, unscientific fodder management, and a preponderance of low-grade, low-value, and homogeneous beef products. 

The MARA beef and mutton plan's wide-ranging objectives include upgrading cattle and sheep breeding and protection of native breeds; maintaining balanced stocking rates in traditional pastoral regions while utilizing new regions, grazing animals on hillsides in mountainous southern provinces; replacing grain with fodder production in marginal cropping regions; luring private companies to rural regions to promote beef farming businesses that incorporate households; upgrading the processing and distribution by setting up beef-oriented industrial parks and sheep industry clusters; matching up production regions with meat-buyers; and improving disease control.

A beef production "community" in the mountains of Guizhou Province. 7 farmers rent space for 130 cattle in the blue-roofed barn built on a terraced mountain. This is an "ecological" farming project.

China has been trying to develop ruminant production for decades, but shortage of pasture and forage crops and the long production cycle for cattle have been barriers. In most of China, cattle were traditionally kept for their value as draft animals, and they were only eaten when no longer productive in field work. Rapid farm mechanization eliminated many oxen and water buffalo. About 10 years ago, a campaign to eliminate water buffalo in the south central region as carriers of schistosomiasis also eliminated a lot of ruminants.

These are not new ideas. Back in 1995, China's Agricultural Yearbook described a plan for a "structural shift" in livestock production and consumption from pork to cattle. The idea was to replace pigs--which consume large amounts of grain--with cattle that consume inedible stalks, straw and other fodder to conserve feed grain--called "straw for beef" at the time. The recent December 2020 Chinese Academy of Agricultural Sciences article echoed this strategy by describing beef cattle as "grain-conserving" livestock and complained that China's huge supply of straw and stalks is not utilized as cattle fodder--the same mismatch that motivated the "straw for beef" campaign three decades ago.

The 1995 Agricultural Yearbook reported that tens of millions of yuan were allocated to set up 100 model cattle counties in the early 1990s. The 2021 beef and mutton plan also features money for model farms and model counties. Economic Daily describes beef and sheep-raising methods in parts of Inner Mongolia that have hosted model farms for decades. 

The 1990s beef plan focused on the central plains, northeast and southwestern mountainous areas--the same ones targeted by the 2021 "action program." The 1990s plan called for incorporating sheep in the initiative, but the 2021 plan emphasizes both sheep and beef. 

There are some differences in the new plans. Old plans subsidized imports of foreign breeding stock--often Simmental or Angus. This year's animal breeding plans emphasize the need to protect China's indigenous breeds from extinction and to incorporate them in forming hybrids of foreign and domestic breeds.

The 1990s plan promoted corn production in the northern regions and use of sugar cane fiber in the south to feed cattle and sheep. Foreign exchange was set aside to import material and equipment to ammoniate fodder. In 2021, corn is China's biggest crop and still doesn't meet the demand, but corn for silage is still promoted as a cattle feed. In 2016 there was a national campaign to cut back on corn production in the same semi-arid, mountainous regions targeted for cattle and sheep production in a "crescent" region stretching from Heilongjiang in the northeast to Yunnan in the southwest. Other fodders promoted are alfalfa and oat hay. 

During the 2000s, ruminants were included in more 5-year plans that featured "modernization" and "standardization" of livestock, although beef cattle and sheep got less attention than crisis-hit pigs and dairy. The 2006 plan launched subsidies for breeding stock, vaccinations, and upgrades of processing and marketing. Last week's Economic Daily commentary emphasized that "increased attention" did not necessarily mean subsidies. The MARA plan features lots of planning and coordination, with a demand that local officials take on their "responsibility" for "market basket" food supplies--that means most of the subsidies are given by local governments. The plan calls for subsidies for breeding farms, protection of indigenous breeds, and artificial insemination; financial transfers to fund programs in cattle- and sheep-producing counties; pilot programs to make bank loans using live cattle as collateral; subsidized insurance; and support for model farms, industrial parks and associated infrastructure.

China has few state-owned actors in the beef and sheep industry. The MARA plan calls for prodding big companies to set up business in poor regions, forging alliances between breeding companies and research institutions, nurturing prominent companies with branded meat products, and organizing clusters of sheep-related companies. 

The Guizhou beef-farming "community" is built for people of the Miao ethnic minority. Many beef projects are billed as poverty alleviation efforts.

The chart below illustrates China's difficulties in beef production. Statistics showed steady progress in beef output until 2017. China's Ag Ministry projected continued growth to 2024 in its first ten-year projections released in 2014. However, the progress turned out to be an illusion. China's third agricultural census discovered the number of beef cattle was actually 20 percent less than statistics had shown. Statisticians revised beef production data to account for the deflated cattle population, wiping out the growth in beef output. 

Statistics show production edging upward again in the last few years, and the latest MARA projections issued last month show renewed optimism, with beef output growing to 8 mmt in 2030.

Source: China Ministry of Agriculture, China Agricultural Outlook Reports.

While high pork prices have attracted attention over the past two years, beef and mutton prices have been stubbornly high and rising for a dozen years.

Source: China Ministry of Agriculture; USDA.

Source: China Ministry of Agriculture; IMF primary commodity prices.

While beef industry plans put forth in the early and mid-2000s included aspirations to boost meat exports by conforming to internationally-accepted standards and regulations promulgated by "developed countries." China's latest plans acknowledge that its livestock products have costs double those in the world market and are consequently uncompetitive. China's aspiration now is to formulate standards unique to China's own needs.