China's booming agricultural imports are dominated by soybeans and vegetable oils. Not all of this vegetable oil import is new demand; some of it is displacing rapeseed oil, the traditional oil consumed in central China. Corn oil, a byproduct of corn processing, is also prominent on China's supermarket shelves now.
Rapeseed oil used to be the main oil consumed in Wuhan, capital of Hubei province. Yet an online article bemoans the fact that rapeseed oil now has virtually zero market share in Wuhan. Ten years ago, Wuhan people mainly consumed rapeseed oil, but it was unrefined, murky, and considered to be unhealthy. Now mixed oils, salad oil, soybean, palm, and corn oils dominate the market. Rapeseed oil is now mainly consumed in the countryside. It is said to be seldom used now in hot pot in Hubei and neighboring provinces and oil factories only include small amounts in mixed oils.
The weak demand for rapeseed oil translates to weak demand for rapeseed and a lot of excess capacity among rapeseed crushers in the province. This year, the government is supporting the price of rapeseed through purchases for reserves.
The article seems to be propaganda announcing an effort to regain market share for rapeseed oil in Hubei's supermarkets. It points out that palm oil can contain 51% polyunsaturated fat while “double low” (low erucic acid and low glucosinolate) rapeseed oil can reduce cholesterol and risk of heart disease. It claims that rapeseed oil's nutritional content is equivalent to that of olive oil, the "king of vegetable oils." Four "quality" rapeseed oil companies are in negotiations with Wuhan supermarkets. The province’s agriculture department is planning to allocate subsidies of 2 million yuan to support Hubei quality rapeseed oil as they try to break into the city’s supermarkets.
Monday, May 25, 2009
Wheat price announced; clamp-down on "circular grain"
A few days ago, the NDRC, MOF, MOA, Grain Bureau, ADBC, Sinograin jointly issued the “2009 minimum price procurement implementation plan for wheat”. Hebei, Jiangsu, Anhui, Shandong, Henan, Hubei the main wheat producing provinces minimum procurement price for 2009 produced wheat at 3rd-grade prices are white wheat: .87 yuan/500g; red and mixed wheat .83 yuan/kg. The time period for procurement prices is from May 21 to September 30. These prices were announced in October 2008.
The minimum procurement price is paid to farmers directly delivering grain to warehouses. The price is for wheat produced in 2009. The price difference for different grades is .02 yuan. In other provinces besides the 6 identified above, it is up to the provincial governments to decide whether to offer the minimum price procurement.
To prevent "circular grain" problems, the central and local grain reserve designated companies are not allowed to directly or indirectly purchase minimum-price grain that has been auctioned.
"Circular grain" is a practice that came to light last fall when some folks noticed that the Henan grain bureau said they purchased an improbable amount that was 80% of the province's grain production. The usual amount and the target was less than 50%. Warehouses were gaming the system by "auctioning" old grain, then buying it back at the minimum purchase price. This is one of the issues that prompted the big check of grain reserves going on right now.
The minimum procurement price is paid to farmers directly delivering grain to warehouses. The price is for wheat produced in 2009. The price difference for different grades is .02 yuan. In other provinces besides the 6 identified above, it is up to the provincial governments to decide whether to offer the minimum price procurement.
To prevent "circular grain" problems, the central and local grain reserve designated companies are not allowed to directly or indirectly purchase minimum-price grain that has been auctioned.
"Circular grain" is a practice that came to light last fall when some folks noticed that the Henan grain bureau said they purchased an improbable amount that was 80% of the province's grain production. The usual amount and the target was less than 50%. Warehouses were gaming the system by "auctioning" old grain, then buying it back at the minimum purchase price. This is one of the issues that prompted the big check of grain reserves going on right now.
Wednesday, May 20, 2009
Hog Policy Problems
In 2007, Chinese officials began sprinkling around subsidies for hogs and rolled out a series of schemes to engineer a recovery of the hog sector. A subsidy for sows was doubled to 100 yuan per head, a subsidy for sow insurance premiums was introduced, subsidy payments were made to counties that are big suppliers of pork, the corporate income tax was waived for enterprises in the hog business, big plans to build "livestock production zones" and massive integrated hog production complexes were rolled out. Thousands of breeding pigs were flown in from the United States.
By the end of 2008, hog inventories and pork production were up more than 5%. The increase in pork production amounted to about 4.4 extra pounds for each person in China.
The results of the policies are mixed. Officials are pleased that pork supplies have rebounded so fast, but supply has grown faster than demand. Prices have been in free fall most of this year, erasing profits. The Ministry of Agriculture's average wholesale price has fallen each week since January, a cumulative decrease of nearly 30%.
Discussion at a meeting in Guangdong Province this month revealed some reservations about the hog policies. Farm managers and officials observed that profit is the main driver of investment in livestock production. When prices were high in 2007, profits were also high, attracting a lot of new investors. There were highly-publicized investments by real estate companies, an information technology tycoon, investment banks, feed companies, and COFCO.
One farm manager says the subsidies are incidental to the profits that drive investment. His farm received 500,000 yuan in subsidies last year, but they spent over 10 million yuan for purchases of breeding stock. He argues that government support should go to downstream sectors that stabilize pork demand and improve marketing; they shouldn't distort production.
Others complain that a large portion of the subsidies allocated by higher levels of government never reaches farmers. In Guangdong, environmental concerns are rising and many communities have banned hog farms to control pollution. Some officials complain that the central government pressures them to boost the hog industry, going against these environmental concerns. Officials also worry that they would be held responsible for any disease outbreaks coming from a larger hog population in their county. One guy describes the subsidies as a banquet thrown by the central government for farmers in which local governments have to pay the bill.
By the end of 2008, hog inventories and pork production were up more than 5%. The increase in pork production amounted to about 4.4 extra pounds for each person in China.
The results of the policies are mixed. Officials are pleased that pork supplies have rebounded so fast, but supply has grown faster than demand. Prices have been in free fall most of this year, erasing profits. The Ministry of Agriculture's average wholesale price has fallen each week since January, a cumulative decrease of nearly 30%.
Discussion at a meeting in Guangdong Province this month revealed some reservations about the hog policies. Farm managers and officials observed that profit is the main driver of investment in livestock production. When prices were high in 2007, profits were also high, attracting a lot of new investors. There were highly-publicized investments by real estate companies, an information technology tycoon, investment banks, feed companies, and COFCO.
One farm manager says the subsidies are incidental to the profits that drive investment. His farm received 500,000 yuan in subsidies last year, but they spent over 10 million yuan for purchases of breeding stock. He argues that government support should go to downstream sectors that stabilize pork demand and improve marketing; they shouldn't distort production.
Others complain that a large portion of the subsidies allocated by higher levels of government never reaches farmers. In Guangdong, environmental concerns are rising and many communities have banned hog farms to control pollution. Some officials complain that the central government pressures them to boost the hog industry, going against these environmental concerns. Officials also worry that they would be held responsible for any disease outbreaks coming from a larger hog population in their county. One guy describes the subsidies as a banquet thrown by the central government for farmers in which local governments have to pay the bill.