Chinese officials are sending mixed messages regarding the grain situation. Everything is OK but we have to work hard and hope new seeds and science will magically increase production.
A "voice of China" broadcast transcribed on the MOA website tries to dispell concerns about short supplies and rising prices.
The Minister of Agriculture, Chen Xiaohua, said that there have been extraordinary efforts to alleviate the effects of this year's natural disasters (drought in the southwest, freezes in the spring, flooding this summer) with clear results.
Nevertheless, he says everyone needs to work hard to make sure the fall grain harvest is a good one. China has to achieve grain production of at least 500 million metric tons every year.
Not that he's worried about the harvest. He says grain area is up this year and the crops are on a generally good trend.
Minister Chen reminds us that China has had six straight years of increases in grain production. In view of China's national conditions (no scope for increasing land area), he says the country has to rely on science and technology. S&T has accounted for exactly 51% of agricultural [production?] increase in recent years. Good quality seeds accounted for 40% of increased grain production.
Still, there's a lot of work to be done. Chen says there are research problems to be overcome in good quality seeds and extension work needs to be improved. It's necessary to raise the scientific level of farmers' planting and rely on "new-style" farmers. He makes an opaque reference to "improved law" which may refer to better intellectual property protection.
The article then turns to the issue of rising grain prices. It says the average price of rice, wheat, and corn is up 12.3% this year. But the vice chairman of the National Development and Reform Commission declares there will be no big increase in Chinese grain prices in the second half of the year.
The vice chairman assures us that--due to the 6 consecutive big harvests--China has plentiful grain stocks equivalent to 40% of annual consumption. And this year "conditions are generally good." Moreover, the government has taken measures to cool the market, including auctioning off grain reserves and cracking down on hoarding. He says the grain prices stabilized since June.
But then the vice chairman tells us that rising grain prices are not a bad thing because they increase farmers' incomes and encourage them to plant grain.
But we don't want prices to increase too much (sorry farmers). When queried about the effect of rising international prices on China, the vice chairman is dismissive. He reminds us that China remains mostly self-sufficient in wheat, rice, and corn, importing only about 1% of needs. Therefore, the rising international prices will not affect the China price in a major way.
Tuesday, August 31, 2010
Monday, August 30, 2010
Worried about the rice crop
This summer's heavy flooding washed out significant portions of the early rice crop and in some places rice had to be re-planted. Apparently worried about this fall's rice crop, the State Council held a special meeting on August 11 and announced special measures to support the late-season rice crop.
Harvesting late-season rice on a farm in Jiangxi Province. Those guys in blue jeans don't look like farmers.
On August 25, the Ministry of Agriculture announced special policy measures to support fall grain production in nine major rice-producing provinces: the three northeastern provinces and six southern provinces. Extra subsidy funds have been handed down to the provinces and they are being used in various ways to subsidize fertilizer and pesticides to promote plant growth at the key stage and prevent plant diseases and pest damage. The amount is apparently not announced, but the MOA press office says it learned that 10 million yuan was allocated in Jiangxi Province to add 10% to the annual "awards" given to major grain-producing counties. Hubei, Anhui, and Liaoning are giving subsidies for fertilizer and pesticide purchases. Heilongjiang is utilizing plant protection teams, rice grower cooperatives, new fertilizer application machinery and airplanes.
The Ministry of Agriculture held a meeting to tell everyone to implement the policies, to get the money to farmers and into the field as fast as possible. They are supposed to organize teams to teach farmers how to treat plant diseases and apply fertilizer. In Zhejiang, officials bought fertilizer in bulk and distributed it directly to farmer cooperatives in villages. In Guangxi, agriculture officials assigned 14 work-teams to each part of the province. In Heilongjiang, provincial-lvel officials set up county-level technical guidance teams that are supposed to give training through local cooperatives.
Harvesting late-season rice on a farm in Jiangxi Province. Those guys in blue jeans don't look like farmers.
On August 25, the Ministry of Agriculture announced special policy measures to support fall grain production in nine major rice-producing provinces: the three northeastern provinces and six southern provinces. Extra subsidy funds have been handed down to the provinces and they are being used in various ways to subsidize fertilizer and pesticides to promote plant growth at the key stage and prevent plant diseases and pest damage. The amount is apparently not announced, but the MOA press office says it learned that 10 million yuan was allocated in Jiangxi Province to add 10% to the annual "awards" given to major grain-producing counties. Hubei, Anhui, and Liaoning are giving subsidies for fertilizer and pesticide purchases. Heilongjiang is utilizing plant protection teams, rice grower cooperatives, new fertilizer application machinery and airplanes.
The Ministry of Agriculture held a meeting to tell everyone to implement the policies, to get the money to farmers and into the field as fast as possible. They are supposed to organize teams to teach farmers how to treat plant diseases and apply fertilizer. In Zhejiang, officials bought fertilizer in bulk and distributed it directly to farmer cooperatives in villages. In Guangxi, agriculture officials assigned 14 work-teams to each part of the province. In Heilongjiang, provincial-lvel officials set up county-level technical guidance teams that are supposed to give training through local cooperatives.
Saturday, August 28, 2010
Meat Inspections for Sale
This brief report describes meat dealers in a rural town market getting pork carcasses stamped "inspected" after handing over 30 yuan (about $4). It is purportedly a sort of citizen's report from a middle school student in Henan Province's Xiping County but it could have been planted in the press by officials preparing to crack down on the meat industry.
The writer said he went to the town market early in the morning on the day before Spring Festival. He observed a young man stop his small truck outside a meat vendor's shop. The young man stamped two hog carcasses with a blue insignia saying "passed inspection", took 30 yuan from the meat vendor and moved on. The writer's suspicions were aroused by this "instant inspection" since the young man did not test or inspect the meat and he wore no uniform or official identification. The writer asked the meat vendor who the young man was, and the vendor replied that he was from the county animal inspection office.
The writer then followed the "inspector's" truck and saw the same procedures repeated: stamp the meat "inspected," issue a receipt and collect 30 yuan.
The writer asked a meat vendor, “Is that young man actually from the county city animal inspection office?”
He answered, “Oh, he often comes, everybody knows him.”
The writer probed further, “Why doesn’t he inspect the meat before stamping it?”
The reply: “It’s customary; for a small fee you don’t need inspection.”
The writer then asked, ”Was there inspection before?”
The vendor: “Very seldom saw any testing equipment.”
The writer says that in the past he was always confident in the meat he purchased if it had a stamp from the animal inspection department. But now he feels very afraid after seeing how the process works.
This may or may not have been written by a rural middle school student, but either way it probably does reflect the common practice of buying inspections and certifications.
In a series of postings in an online pork industry forum, a poster explained that the animal health inspection is only one of several stamps that can be applied to pig carcasses (others may declare the meat unsuitable for fresh consumption). A meat inspector posted a response describing the procedures, but another poster said there are lots of bad people who don't follow the rules. One poster declared that stamps declaring meat safe are just a way for the government to accumulate wealth. Another poster pointed out that you can't tell whether a pig has a disease by looking at it.
Products are faked and duplicated all the time in China. Why not rubber stamps and certificates? Is China now "paying the piper" (by sacrificing food and product safety, "tofu" construction, etc.) for years (centuries?) of tolerating fakes and forgeries?
The writer said he went to the town market early in the morning on the day before Spring Festival. He observed a young man stop his small truck outside a meat vendor's shop. The young man stamped two hog carcasses with a blue insignia saying "passed inspection", took 30 yuan from the meat vendor and moved on. The writer's suspicions were aroused by this "instant inspection" since the young man did not test or inspect the meat and he wore no uniform or official identification. The writer asked the meat vendor who the young man was, and the vendor replied that he was from the county animal inspection office.
The writer then followed the "inspector's" truck and saw the same procedures repeated: stamp the meat "inspected," issue a receipt and collect 30 yuan.
The writer asked a meat vendor, “Is that young man actually from the county city animal inspection office?”
He answered, “Oh, he often comes, everybody knows him.”
The writer probed further, “Why doesn’t he inspect the meat before stamping it?”
The reply: “It’s customary; for a small fee you don’t need inspection.”
The writer then asked, ”Was there inspection before?”
The vendor: “Very seldom saw any testing equipment.”
The writer says that in the past he was always confident in the meat he purchased if it had a stamp from the animal inspection department. But now he feels very afraid after seeing how the process works.
This may or may not have been written by a rural middle school student, but either way it probably does reflect the common practice of buying inspections and certifications.
In a series of postings in an online pork industry forum, a poster explained that the animal health inspection is only one of several stamps that can be applied to pig carcasses (others may declare the meat unsuitable for fresh consumption). A meat inspector posted a response describing the procedures, but another poster said there are lots of bad people who don't follow the rules. One poster declared that stamps declaring meat safe are just a way for the government to accumulate wealth. Another poster pointed out that you can't tell whether a pig has a disease by looking at it.
Products are faked and duplicated all the time in China. Why not rubber stamps and certificates? Is China now "paying the piper" (by sacrificing food and product safety, "tofu" construction, etc.) for years (centuries?) of tolerating fakes and forgeries?
Thursday, August 19, 2010
Liaoning corn production down 22.6% last fall
I just came across the Liaoning Province price bureau's report on 2009 corn production costs which was published in April. The report, based on a survey of 211 corn farmers, provides perhaps the best source of information on last year's corn harvest in northeastern China. It also reveals some interesting details about corn production, including rising land rents and seed prices that erase the benefits of rising subsidies.
According to the report, the entire northeast was affected by drought last summer and fall, and Liaoning was the most seriously affected. The drought impacts were less serious in Jilin and moderate in Heilongjiang. In the spring, Liaoning had good rainfall and soil moisture, but hot, dry weather in the summer affected pollination and led to low yields and ears with few kernels.
The survey shows that province-wide corn yield was down 19% in 2009. The average in the survey was 374.51 kg, down from the previous year’s 462.44 kg. The report says that corn production was down 80% in two counties not included in the survey.
Liaoning’s corn production in 2009 is reported to be about 9.2 mmt, down from 2008's 11.89 mmt (a decrease of -2.69 mmt or -22.6%).
Jilin production was 18.1 mmt, down from 20.83 mmt (-2.7 mmt, -13.1%); Heilongjiang’s production for 2009 had not been announced (when the report was issued in April), but was estimated down 3.3% from 2008's 18.22 mmt (I calculate this is -0.6 mmt).
That’s a total of 6 mmt decrease in the three northeastern provinces. That would be 3%-to-4% of national production. The report doesn't say anything about corn production in other regions.
The report has some other interesting details about corn production costs. Total costs were up 5% in 2009.
Land costs increased by 17 yuan per mu, or 10%. The report explains that more farmers want to hold on to their land instead of renting it out because of the rising subsidies and grain prices in recent years. So there is more competition for land and the fees for renting land have been increasing.
In 2009, average corn subsidy income increased 11.63 yuan. The imputed land cost (based on local rents) averaged 184.86 yuan, which I calculate to be US$164 per acre, well above average land rent in the U.S. midwest.
The average land cost increase of 17 yuan is slightly greater than the increase in subsidies of 11.6 yuan. Officials' attempts to benefit farmers with subsidy payments are an uphill battle. All the benefits are erased by rising costs which may be prompted by the subsidization of factors of production (land) and inputs (seeds) that are inelastically supplied.
Seed costs were up, mainly due to rising seed prices. Surveys of the seed trade show rising prices for a couple of popular seed varieties. Some farmers are using more expensive seeds that have a higher germination rate that require about half the volume of seeds per mu compared with conventional seeds.
The survey reports a cost for insurance for the first time. Subsidized insurance for corn is now available in Liaoning. The farmers participate voluntarily and pay 20% of the premium. Local and provincial authorities pay 80%. The cost is 25-to-27 yuan per mu, of which the farmers pay less than 7 yuan on average.
More farmers are using formula fertilizer to replace traditional diammonium. The price of formula fertilizer was down a lot, and use increased 2.78 kg/mu from last year. total fertilizer cost fell 6.26 yuan, down 4.55%.
Labor cost increased due to the outmigration of laborers. The local daily wage increased from 50 to 60 yuan. Farmers are doing more of the labor themselves to replace hired workers.
The corn price was up 10%, but the lower yield meant that gross income was down. Deducting the higher costs meant that corn farmers in Liaoning got lower profits this year.
According to the report, the entire northeast was affected by drought last summer and fall, and Liaoning was the most seriously affected. The drought impacts were less serious in Jilin and moderate in Heilongjiang. In the spring, Liaoning had good rainfall and soil moisture, but hot, dry weather in the summer affected pollination and led to low yields and ears with few kernels.
The survey shows that province-wide corn yield was down 19% in 2009. The average in the survey was 374.51 kg, down from the previous year’s 462.44 kg. The report says that corn production was down 80% in two counties not included in the survey.
Liaoning’s corn production in 2009 is reported to be about 9.2 mmt, down from 2008's 11.89 mmt (a decrease of -2.69 mmt or -22.6%).
Jilin production was 18.1 mmt, down from 20.83 mmt (-2.7 mmt, -13.1%); Heilongjiang’s production for 2009 had not been announced (when the report was issued in April), but was estimated down 3.3% from 2008's 18.22 mmt (I calculate this is -0.6 mmt).
That’s a total of 6 mmt decrease in the three northeastern provinces. That would be 3%-to-4% of national production. The report doesn't say anything about corn production in other regions.
The report has some other interesting details about corn production costs. Total costs were up 5% in 2009.
Land costs increased by 17 yuan per mu, or 10%. The report explains that more farmers want to hold on to their land instead of renting it out because of the rising subsidies and grain prices in recent years. So there is more competition for land and the fees for renting land have been increasing.
In 2009, average corn subsidy income increased 11.63 yuan. The imputed land cost (based on local rents) averaged 184.86 yuan, which I calculate to be US$164 per acre, well above average land rent in the U.S. midwest.
The average land cost increase of 17 yuan is slightly greater than the increase in subsidies of 11.6 yuan. Officials' attempts to benefit farmers with subsidy payments are an uphill battle. All the benefits are erased by rising costs which may be prompted by the subsidization of factors of production (land) and inputs (seeds) that are inelastically supplied.
Seed costs were up, mainly due to rising seed prices. Surveys of the seed trade show rising prices for a couple of popular seed varieties. Some farmers are using more expensive seeds that have a higher germination rate that require about half the volume of seeds per mu compared with conventional seeds.
The survey reports a cost for insurance for the first time. Subsidized insurance for corn is now available in Liaoning. The farmers participate voluntarily and pay 20% of the premium. Local and provincial authorities pay 80%. The cost is 25-to-27 yuan per mu, of which the farmers pay less than 7 yuan on average.
More farmers are using formula fertilizer to replace traditional diammonium. The price of formula fertilizer was down a lot, and use increased 2.78 kg/mu from last year. total fertilizer cost fell 6.26 yuan, down 4.55%.
Labor cost increased due to the outmigration of laborers. The local daily wage increased from 50 to 60 yuan. Farmers are doing more of the labor themselves to replace hired workers.
The corn price was up 10%, but the lower yield meant that gross income was down. Deducting the higher costs meant that corn farmers in Liaoning got lower profits this year.
Monday, August 16, 2010
Feed Industry Structural Change
On July 11, a meeting of 30 experts from the Ministry of Agriculture and provincial feed and livestock industry associations and bureaus was held in Suzhou to review the feed industry's situation in the first half of 2010.
The director of the feed office of the Ministry's animal husbandry department said commercial feed production in the first half of 2010 was 66.3 mmt, up 4.6% (2.9 mmt) from a year earlier. (Another industry report I received today said the National Bureau of Statistics' estimate of feed industry output (for above-scale firms) was a much higher 76 mmt, and it was up 28%.)
Detailed types of feeds:
Hog feed 23.66 mmt, up 18.7% (+3.7 mmt)
Layer feed 12.95 mmt, up 2.7%
Broiler feed 21.08 mmt, up 5.3%
Fish feed 4.63 mmt, down 25.2%
Ruminant feed 2.91 mmt, up 24.2%
Other feed 1.08 mmt, up 9.6%
The hog industry experienced widespread losses but feed production increased anyway. Feed for aquatic products was down in the first half of the year due to weather that delayed production for about a month. The peak season for fish and shrimp production is in the third quarter. Poultry feed production was said to be "stable." Dairy feed production recovered strongly from the melamine crisis.
The article doesn't discuss the implications for the corn market, but we'll consider them here. What does this imply for the corn supply-demand situation? This is only commercial feed production, but these numbers don't appear to support a story of "massive increases in feed demand turning China into a permanent corn exporter." The increase in feed production is only 3-to-4 mmt. If about half of that increase was composed of corn, 2 mmt would amount to about 2%-to-4% of total corn use, not an earth-shaking change.
The details of the article about the meeting reveal substantial structural change in the hog industry and the feed industry. The hog industry has shifted to larger-scale "standardized" farms as small farms are pushed out. Disease problems are cited as a factor pushing this process.
The increase in scale of hog farms has shifted hog feeding practice. Traditionally, farmers purchased concentrate feed that contained soymeal and other nutrients and additives which they mixed with corn and other feeds they obtained locally. The new generation of hog farms purchase formula feeds that mix all the ingredients in a complete feed. The meeting noted that concentrate and additives for hogs have been falling while formula feed has been rising.
According to statistics, in 2010, first half, hog formula feed production was up 18.7% year-on-year. Formula feed and now accounts for about 80% of commercial feed production, up 3 percentage points from 2009 and 10 points from 2008.
The meeting discussed the shift toward large feed companies and vertical integration of feed companies with hog farms and meat companies. Production by large conglomerate enterprises is growing 25-30%, mainly due to three factors:
1. local policy support for large companies,
2. some companies (slaughter, meat) joining together with feed companies,
3. enthusiastic investment looking for long term gains.
Meanwhile, small and medium companies have problems with competitive pressure from big companies and lack of capital to make needed renovations, and low technology content. Small companies are having a hard time coping with rising costs of corn and other raw materials.
The meeting discussed the many large companies investing in the industry. There are now 18 companies with capacity of 1 million metric tons or more. In 2009 the top 30 companies capacity was 43% of the total.
The meeting stressed the technology, human resources, service and innovation of large companies, which "pulls along" the industry's smooth development. Several companies are cited for developing comprehensive problem-solving, individualized services for customers. Large companies are able to raise capital through public offerings and attracting joint venture partners.
Feed safety was also stressed. The meeting attendees claim that companies (large ones) are acquiring a higher awareness of safety issues. The MOA feed office director stressed that raw materials are the key to maintaining feed quality and safety. Feed raw materials are diverse, sources are complex, requiring firms to self-monitor. To avoid product quality problems, they must manage the entire process from feed production to sales; each province must form expert teams and strictly audit companies' production qualifications.
The director of the feed office of the Ministry's animal husbandry department said commercial feed production in the first half of 2010 was 66.3 mmt, up 4.6% (2.9 mmt) from a year earlier. (Another industry report I received today said the National Bureau of Statistics' estimate of feed industry output (for above-scale firms) was a much higher 76 mmt, and it was up 28%.)
Detailed types of feeds:
Hog feed 23.66 mmt, up 18.7% (+3.7 mmt)
Layer feed 12.95 mmt, up 2.7%
Broiler feed 21.08 mmt, up 5.3%
Fish feed 4.63 mmt, down 25.2%
Ruminant feed 2.91 mmt, up 24.2%
Other feed 1.08 mmt, up 9.6%
The hog industry experienced widespread losses but feed production increased anyway. Feed for aquatic products was down in the first half of the year due to weather that delayed production for about a month. The peak season for fish and shrimp production is in the third quarter. Poultry feed production was said to be "stable." Dairy feed production recovered strongly from the melamine crisis.
The article doesn't discuss the implications for the corn market, but we'll consider them here. What does this imply for the corn supply-demand situation? This is only commercial feed production, but these numbers don't appear to support a story of "massive increases in feed demand turning China into a permanent corn exporter." The increase in feed production is only 3-to-4 mmt. If about half of that increase was composed of corn, 2 mmt would amount to about 2%-to-4% of total corn use, not an earth-shaking change.
The details of the article about the meeting reveal substantial structural change in the hog industry and the feed industry. The hog industry has shifted to larger-scale "standardized" farms as small farms are pushed out. Disease problems are cited as a factor pushing this process.
The increase in scale of hog farms has shifted hog feeding practice. Traditionally, farmers purchased concentrate feed that contained soymeal and other nutrients and additives which they mixed with corn and other feeds they obtained locally. The new generation of hog farms purchase formula feeds that mix all the ingredients in a complete feed. The meeting noted that concentrate and additives for hogs have been falling while formula feed has been rising.
According to statistics, in 2010, first half, hog formula feed production was up 18.7% year-on-year. Formula feed and now accounts for about 80% of commercial feed production, up 3 percentage points from 2009 and 10 points from 2008.
The meeting discussed the shift toward large feed companies and vertical integration of feed companies with hog farms and meat companies. Production by large conglomerate enterprises is growing 25-30%, mainly due to three factors:
1. local policy support for large companies,
2. some companies (slaughter, meat) joining together with feed companies,
3. enthusiastic investment looking for long term gains.
Meanwhile, small and medium companies have problems with competitive pressure from big companies and lack of capital to make needed renovations, and low technology content. Small companies are having a hard time coping with rising costs of corn and other raw materials.
The meeting discussed the many large companies investing in the industry. There are now 18 companies with capacity of 1 million metric tons or more. In 2009 the top 30 companies capacity was 43% of the total.
The meeting stressed the technology, human resources, service and innovation of large companies, which "pulls along" the industry's smooth development. Several companies are cited for developing comprehensive problem-solving, individualized services for customers. Large companies are able to raise capital through public offerings and attracting joint venture partners.
Feed safety was also stressed. The meeting attendees claim that companies (large ones) are acquiring a higher awareness of safety issues. The MOA feed office director stressed that raw materials are the key to maintaining feed quality and safety. Feed raw materials are diverse, sources are complex, requiring firms to self-monitor. To avoid product quality problems, they must manage the entire process from feed production to sales; each province must form expert teams and strictly audit companies' production qualifications.
Fight over house demolition in Henan
On June 30, authorities demolished the houses of ten villagers on the outskirts of Xinyang, a city in Henan Province. The county housing bureau demolition team, composed of dozens of uniformed workers, produced no documents authorizing them to demolish the houses. The villagers were rousted from their houses and one villager claims he didn't even have a chance to retrieve his clothes.
Villagers argue with demolition team workers
This is an example of low compensation for land discussed on yesterday's post about a new regulation on land compensation.
The villagers were unhappy because authorities were paying them only 41 yuan per square meter in compensation. One man named Yi claimed that this amount is the standard from ten years earlier. He said he's getting 10,000 yuan ($1,464) for his 400 square-meter house, but prices have gone up a lot since ten years ago.
The situation reveals the vulnerabilities of poor people when laws and regulation are ambiguous and property rights not strictly defined. The villager named Yi Yongyong showed the reporter documents establishing his rights to the property. The land use certificate, dating from 1992 and stamped by the provincial peoples government, actually bore the name of his two younger brothers, not his own name. It specified an area for house construction of 232 square meters, but Mr. Yi claimed he was compensated for 400 square meters.
A demolition team worker fights with a villager.
The demolition team could not produce any documents or administrative orders authorizing them to demolish the houses, and one team member told the reporter they actually didn't know whether there were any such documents. They were told to go see the housing bureau's demolition office if there were any problems.
Mr. Yi, the aggrieved villager, went to the demolition office to show his certificates. The worker there said it was an unclear situation. He said his office was not responsible for demolition procedures or land use certificates.
On July 13, the Ministry of Land Resources issued a “Notice on advancing work on requisitioned land management” which said all local areas should strictly follow all procedures and give notice before demolition. It also requires that each place must set up a mechanism for adjusting the land compensation standard every 2-to-3 years according to economic development level and local per capita income.
This didn't help the villagers in Xinyang. The reporter said the houses had been leveled, dust filled the air, and an excavator was still at work when he got there. Demolition team members were scuffling with irate villagers. They tried to prevent the reporter from conducting interviews and blocked him from taking photos.
One 80-year-old man was livid about being forced out of the house his grandfather had built. He said he was homeless and would have to go live in a cave.
A villager points to his demolished house
Villagers argue with demolition team workers
This is an example of low compensation for land discussed on yesterday's post about a new regulation on land compensation.
The villagers were unhappy because authorities were paying them only 41 yuan per square meter in compensation. One man named Yi claimed that this amount is the standard from ten years earlier. He said he's getting 10,000 yuan ($1,464) for his 400 square-meter house, but prices have gone up a lot since ten years ago.
The situation reveals the vulnerabilities of poor people when laws and regulation are ambiguous and property rights not strictly defined. The villager named Yi Yongyong showed the reporter documents establishing his rights to the property. The land use certificate, dating from 1992 and stamped by the provincial peoples government, actually bore the name of his two younger brothers, not his own name. It specified an area for house construction of 232 square meters, but Mr. Yi claimed he was compensated for 400 square meters.
A demolition team worker fights with a villager.
The demolition team could not produce any documents or administrative orders authorizing them to demolish the houses, and one team member told the reporter they actually didn't know whether there were any such documents. They were told to go see the housing bureau's demolition office if there were any problems.
Mr. Yi, the aggrieved villager, went to the demolition office to show his certificates. The worker there said it was an unclear situation. He said his office was not responsible for demolition procedures or land use certificates.
On July 13, the Ministry of Land Resources issued a “Notice on advancing work on requisitioned land management” which said all local areas should strictly follow all procedures and give notice before demolition. It also requires that each place must set up a mechanism for adjusting the land compensation standard every 2-to-3 years according to economic development level and local per capita income.
This didn't help the villagers in Xinyang. The reporter said the houses had been leveled, dust filled the air, and an excavator was still at work when he got there. Demolition team members were scuffling with irate villagers. They tried to prevent the reporter from conducting interviews and blocked him from taking photos.
One 80-year-old man was livid about being forced out of the house his grandfather had built. He said he was homeless and would have to go live in a cave.
A villager points to his demolished house
Sunday, August 15, 2010
City banks lured to countryside
Since a major banking reform in 1994, commercial banks have mostly abandoned rural areas. In recent years, authorities have been trying different ways to get rich urban banks to start making more loans in the countryside.
In Shandong Province urban banks have expanded their rural business to cover about half of the province's rural areas. Under the "guidance" and "encouragement" of the provincial branch of the China Bank Regulatory Commission, Shandong's urban banks began a "collective down to the countryside" campaign.
Shandong has 14 commercial banks, the most of any province. Authorities divided up the province geographically according to different indicators (GDP and bank interest per capita, number of small and medium businesses) and determined where banks were needed. Local governments were "invited" to help solve the problem by offering banks inducements to operate in rural areas; inducements include putting government funds on deposit in the banks and cutting taxes on banks.
By now, they have 50 branches of urban banks operating in 44 counties covering 51% of Shandong's rural areas. Six districts have "full coverage." Interest rates on rural loans are said to be 30% higher than on urban loans and bank profits per capita are higher in rural areas.
Banks in Zaozhuang, Weifang, and Dongying have introduced innovative loans including land transfer loans, mortgages secured by greenhouses, and loans secured by cotton.
In Shandong Province urban banks have expanded their rural business to cover about half of the province's rural areas. Under the "guidance" and "encouragement" of the provincial branch of the China Bank Regulatory Commission, Shandong's urban banks began a "collective down to the countryside" campaign.
Shandong has 14 commercial banks, the most of any province. Authorities divided up the province geographically according to different indicators (GDP and bank interest per capita, number of small and medium businesses) and determined where banks were needed. Local governments were "invited" to help solve the problem by offering banks inducements to operate in rural areas; inducements include putting government funds on deposit in the banks and cutting taxes on banks.
By now, they have 50 branches of urban banks operating in 44 counties covering 51% of Shandong's rural areas. Six districts have "full coverage." Interest rates on rural loans are said to be 30% higher than on urban loans and bank profits per capita are higher in rural areas.
Banks in Zaozhuang, Weifang, and Dongying have introduced innovative loans including land transfer loans, mortgages secured by greenhouses, and loans secured by cotton.
Land compensation reform, sort of
As China urbanizes, rural land is often requisitioned by local authorities for urban development. Compensation is paid, but it is funneled through local authorities who skim off or misappropriate the money.
According to an article in China Economic Times July 30, the Chinese government took a significant step toward resolving this issue in July when the Ministry of Land Resources issued a “notice on further improving land requisition management work” that requires local financial departments requisitioning rural land to pay compensation directly to farmers instead of issuing funds through township or village governments. The idea is to prevent township and village officials from skimming off of misappropriating funds before the money gets to farmers.
Experts say this is a step forward in helping farmers and reducing corruption. A Renmin University professor describes it as a “...big step in affirming farmers’ property rights, their right to know and preservation of their asset ownership, and reducing intermediaries..."
Ye explains that the system is a legacy of the planned economy when everything was reported up from level to level and funds were passed down through the levels of township and village to farmer. This creates an "...inevitable phenomenon of misappropriation; this is an important source of rural conflict."
This is another example of how the township level of government--formerly the commune under central planning--is an anachronistic vestige of central planning that functions mainly to suck up funds. Administrative and financial reforms have been moving toward cutting out the township as a level of government. Is this another nail in its coffin?
A lawyer concerned with rural affairs points out that this reform is not quite as big a boon for farmers as it appears. He points out that this is only a regulation, not a law, and its contents are very general. It applies only to procedures of paying compensation, but doesn't address the amount of compensation paid. Even if they get the money the amount may be much less than the land's market value.
The amount of compensation, says the lawyer, is at the heart of rural-urban income differences. He explains that local governments rely on buying land at low prices (i.e. low compensation to farmers) and selling it or auctioning it at a high price. With few other sources of income, local governments get 30%-50% of their income from this land price spread. The lawyer said, as long as governments have no other stable, reliable sources of income, this practice will continue.
The lawyer said, "For many years we appropriated farmers’ land at low prices, sacrificing farmers’ interests for industry and commerce profits, now it’s time to compensate farmers."
The lawyer explains that the land departments only set the procedures; the finance departments and developers have the money. If governments have to pay more for land, they will raise the selling price too, which translates to higher real estate prices.
According to an article in China Economic Times July 30, the Chinese government took a significant step toward resolving this issue in July when the Ministry of Land Resources issued a “notice on further improving land requisition management work” that requires local financial departments requisitioning rural land to pay compensation directly to farmers instead of issuing funds through township or village governments. The idea is to prevent township and village officials from skimming off of misappropriating funds before the money gets to farmers.
Experts say this is a step forward in helping farmers and reducing corruption. A Renmin University professor describes it as a “...big step in affirming farmers’ property rights, their right to know and preservation of their asset ownership, and reducing intermediaries..."
Ye explains that the system is a legacy of the planned economy when everything was reported up from level to level and funds were passed down through the levels of township and village to farmer. This creates an "...inevitable phenomenon of misappropriation; this is an important source of rural conflict."
This is another example of how the township level of government--formerly the commune under central planning--is an anachronistic vestige of central planning that functions mainly to suck up funds. Administrative and financial reforms have been moving toward cutting out the township as a level of government. Is this another nail in its coffin?
A lawyer concerned with rural affairs points out that this reform is not quite as big a boon for farmers as it appears. He points out that this is only a regulation, not a law, and its contents are very general. It applies only to procedures of paying compensation, but doesn't address the amount of compensation paid. Even if they get the money the amount may be much less than the land's market value.
The amount of compensation, says the lawyer, is at the heart of rural-urban income differences. He explains that local governments rely on buying land at low prices (i.e. low compensation to farmers) and selling it or auctioning it at a high price. With few other sources of income, local governments get 30%-50% of their income from this land price spread. The lawyer said, as long as governments have no other stable, reliable sources of income, this practice will continue.
The lawyer said, "For many years we appropriated farmers’ land at low prices, sacrificing farmers’ interests for industry and commerce profits, now it’s time to compensate farmers."
The lawyer explains that the land departments only set the procedures; the finance departments and developers have the money. If governments have to pay more for land, they will raise the selling price too, which translates to higher real estate prices.
Wednesday, August 11, 2010
Clamping down on wheat prices
A post last month described the wild situation in the wheat market in Henan. A brief news item appearing on dozens of web sites August 9 says that since late July wheat prices have been falling in the area around Suqian in Jiangsu Province. The article originated from the grain bureau and appears to be an announcement that the government has called a halt to rising wheat prices.
According to "investigations of grass roots" wheat activity by local grain bureau personnel, the price paid by state-owned enterprises and companies with controlling ownership by the state is .94-.98 yuan/jin, down about .01-.02 yuan from the previous month. Prices gradually rose after new wheat came on the market, from .92 yuan to a peak of .99 yuan in late July.
Industry insiders give five reasons for the decline in prices which basically say that the government decided there was too much speculative purchasing and gaming of the price support program, so they called it to a halt.
1. "Macro control measures" by the state: wheat was released from reserves to increase market supply and cool off prices.
2. Local branches of the Agricultural Development Bank of China (the government's agricultural policy bank) are strengthening risk control and tightening up on lending (to grain purchasers).
3. Private grain companies have already stocked up on grain through earlier "panic buying."
4. Farmers' expectations of rising prices have been pricked, so now they're more willing to sell their grain.
5. Grain department employees are fulfilling their "guidance role," helping companies with risk management, advising on market prices, and guiding companies to "make reasonable purchases." In plain language, government grain officials visited all the grain companies and told them to "cool it."
According to "investigations of grass roots" wheat activity by local grain bureau personnel, the price paid by state-owned enterprises and companies with controlling ownership by the state is .94-.98 yuan/jin, down about .01-.02 yuan from the previous month. Prices gradually rose after new wheat came on the market, from .92 yuan to a peak of .99 yuan in late July.
Industry insiders give five reasons for the decline in prices which basically say that the government decided there was too much speculative purchasing and gaming of the price support program, so they called it to a halt.
1. "Macro control measures" by the state: wheat was released from reserves to increase market supply and cool off prices.
2. Local branches of the Agricultural Development Bank of China (the government's agricultural policy bank) are strengthening risk control and tightening up on lending (to grain purchasers).
3. Private grain companies have already stocked up on grain through earlier "panic buying."
4. Farmers' expectations of rising prices have been pricked, so now they're more willing to sell their grain.
5. Grain department employees are fulfilling their "guidance role," helping companies with risk management, advising on market prices, and guiding companies to "make reasonable purchases." In plain language, government grain officials visited all the grain companies and told them to "cool it."
Tuesday, August 10, 2010
Corn imports: permanent or temporary?
China's first significant imports of corn from the United States have been arriving. Is this the beginning of a new era of China as a corn importer, or is it a temporary phenomenon?
No one knows for sure, but an article by Cheng Guoqiang, an advisor to the State Council, sheds some light on the situation and what policymakers are thinking.
The article, published in a communist party publication on May 28, describes corn price increases as "abonormal price fluctuations." Cheng asserts that rising corn prices do not reflect a short supply of corn. China has plenty of corn in reserve, so he says. These "abnormal price fluctuations arise from a complicated mechanism."
Unfortunately, outsiders looking at official statistics will mistakenly conclude that rising prices reflect rising demand. The corn production estimate for last fall published in China's Statistical Abstract is 163.97 mmt, down just 1.2% from the previous year. However, Cheng makes no reference to the official number, instead citing other estimates that production was down about 10% nationally, and down 20%-25% in major production areas of the northeast.
A 10% decrease would be more than 16 mmt. If we suppose that the price-elasticity of demand for corn in China is -0.5, a 10% decrease in supply implies a 20% increase in price--not far off from the actual increase over the past year.
Cheng asserts that no one anticipated a poor corn harvest, but market advisory services were sending around reports and photos from crop tours showing fields in the northeast and ears of corn decimated by drought. This doesn't inspire much confidence in China's agricultural advisors and their so-called "early warning systems."
When evaluating China's corn market, it is important to keep in mind that the market had such a big surplus in the previous year that the government had to buy up 35 mmt of corn--over 20% of the harvest--to support prices. Cheng cites this price support policy as one of the factors putting upward pressure on corn prices.
Cheng brings out the speculation bogeyman. Farmers anticipated higher prices, and with less cash-flow pressure due to improved rural financial services, they were not under pressure to sell. Thus, they held their grain off the market. Purchasers, also anticipating rising prices, tried to stock up on corn.
Another factor cited by Cheng is poor logistics. He says that a certain number of rail cars are reserved for emergencies, which constrained the capacity to transport corn out of the northeast. This doesn't square with what actually happened. At times there was so much corn flowing south (helped by a transportation subsidy) that there was an unusualy inversion of prices between the south and north.
Cheng worries that rising corn prices could set off a chain of price increases in pork and other commodities that would feed inflationary expectations.
Cheng also warns that rising domestic corn prices create "import pressure."
Cheng warns, "We need to pay close attention to the possibility of large-scale import of corn" that could reduce corn prices and discourage farmers from planting corn next spring.
The article concludes with a series of recommendations about avoiding "over regulation of the market," moving more corn around the country through government channels, keeping reserves under centralized control. Cheng recommends that the government should "...strengthen import control, be on guard against impacts of foreign corn on the domestic market."
If China has a normal corn harvest this fall and prices start to drop, corn imports will prove to be a temporary phenomenon.
No one knows for sure, but an article by Cheng Guoqiang, an advisor to the State Council, sheds some light on the situation and what policymakers are thinking.
The article, published in a communist party publication on May 28, describes corn price increases as "abonormal price fluctuations." Cheng asserts that rising corn prices do not reflect a short supply of corn. China has plenty of corn in reserve, so he says. These "abnormal price fluctuations arise from a complicated mechanism."
Unfortunately, outsiders looking at official statistics will mistakenly conclude that rising prices reflect rising demand. The corn production estimate for last fall published in China's Statistical Abstract is 163.97 mmt, down just 1.2% from the previous year. However, Cheng makes no reference to the official number, instead citing other estimates that production was down about 10% nationally, and down 20%-25% in major production areas of the northeast.
A 10% decrease would be more than 16 mmt. If we suppose that the price-elasticity of demand for corn in China is -0.5, a 10% decrease in supply implies a 20% increase in price--not far off from the actual increase over the past year.
Cheng asserts that no one anticipated a poor corn harvest, but market advisory services were sending around reports and photos from crop tours showing fields in the northeast and ears of corn decimated by drought. This doesn't inspire much confidence in China's agricultural advisors and their so-called "early warning systems."
When evaluating China's corn market, it is important to keep in mind that the market had such a big surplus in the previous year that the government had to buy up 35 mmt of corn--over 20% of the harvest--to support prices. Cheng cites this price support policy as one of the factors putting upward pressure on corn prices.
Cheng brings out the speculation bogeyman. Farmers anticipated higher prices, and with less cash-flow pressure due to improved rural financial services, they were not under pressure to sell. Thus, they held their grain off the market. Purchasers, also anticipating rising prices, tried to stock up on corn.
Another factor cited by Cheng is poor logistics. He says that a certain number of rail cars are reserved for emergencies, which constrained the capacity to transport corn out of the northeast. This doesn't square with what actually happened. At times there was so much corn flowing south (helped by a transportation subsidy) that there was an unusualy inversion of prices between the south and north.
Cheng worries that rising corn prices could set off a chain of price increases in pork and other commodities that would feed inflationary expectations.
Cheng also warns that rising domestic corn prices create "import pressure."
Cheng warns, "We need to pay close attention to the possibility of large-scale import of corn" that could reduce corn prices and discourage farmers from planting corn next spring.
The article concludes with a series of recommendations about avoiding "over regulation of the market," moving more corn around the country through government channels, keeping reserves under centralized control. Cheng recommends that the government should "...strengthen import control, be on guard against impacts of foreign corn on the domestic market."
If China has a normal corn harvest this fall and prices start to drop, corn imports will prove to be a temporary phenomenon.
Chinese soybeans used mostly for food
The conventional view is that imported commodities compete head-to-head with domestic commodities. Inside China, the domestic soybean industry is often described as having been devastated by unfair competition from imports. The soybean industry is often held up as a scary example of what can happen if imports are allowed to take over the market.
An article from the May issue of China’s Agricultural Outlook magazine written by an analyst from China's feed industry association reveals a more nuanced view of China's soybean market. It has become largely segmented--non-GMO domestic beans are now mostly used for making soy-based foods while vegetable oil and soy meal are made almost exclusively from imported beans. Domestic and imported soybeans don't exactly compete head-to-head; each fills a niche in the market.
Food use of soybeans to make foods like tofu, soymilk, and protein powder (mostly using domestic beans that are non-GMO) is now 9 mmt, up from 7 mmt in 2002. The article says that food use accounted for about 50% of domestic soybean use in 2000 but is now up to 62%.
The balance sheet in the article shows that crushing of domestic soybeans (to make vegetable oil) fell from a peak of 8.88 mmt in 2002 to 4 mmt in 2009 (and just 2 mmt 2008 when support prices choked off demand for domestic beans).
In contrast, the article says that imported soybeans now account for 92% of crushing to make vegetable oil and soymeal.
The article says China’s soybean protein isolate production capacity was 495,000 mt in 2009, up 22.5% from the previous year. Included is Heilongjiang exports of 14,312 mt. The article continues, "Soybean protein powder mainly is exported to the U.S., Europe and Southeast Asia. Sales are good and supply can’t meet demand. The domestic market is also flourishing, especially for non-GMO soybean powder, soymilk powder…In 2009 some Heilongjiang companies were converting their factories or expanding into soybean powder production."
The diversion of Chinese soybeans to food uses doesn't mean that Chinese companies have abandoned soybean crushing. On the contrary, Chinese companies are adding soybean crushing capacity at a feverish pace. A post on this blog several months ago discussed a strategic plan to build Chinese vegetable oil companies that can compete with multinationals.
According to the article, in 2009, national crushing capacity increased 10 mmt, of which 8 mmt was by "central" enterprises (COFCO, Sinograin?), as well as foreign-invested enterprises building plants in coastal and inland areas. The article reports that some private companies in Heilongjiang also opened plants in coastal areas of Liaoning. At the end of 2008 China’s soybean crushing capacity had surpassed 87 mmt, but slightly less than half of this capacity is utilized (based on crush of 41.5 mmt).
The article sheds some light on why soybean imports are so big. The article reports that domestic oilseed production was down in 2009: soybeans down 6.7%, peanuts down 5.6%, cottonseed down 6.6%. Only rapeseed was up 11.6%.
The article says, “In 2010, oilseed production stagnated, [and] soybean oil and rape oil were [relatively low] due to effects of import limitation policies [italics added]. So to meet the rising demand for vegetable oil, 2010 imports of soybean set a record.
An article from the May issue of China’s Agricultural Outlook magazine written by an analyst from China's feed industry association reveals a more nuanced view of China's soybean market. It has become largely segmented--non-GMO domestic beans are now mostly used for making soy-based foods while vegetable oil and soy meal are made almost exclusively from imported beans. Domestic and imported soybeans don't exactly compete head-to-head; each fills a niche in the market.
Food use of soybeans to make foods like tofu, soymilk, and protein powder (mostly using domestic beans that are non-GMO) is now 9 mmt, up from 7 mmt in 2002. The article says that food use accounted for about 50% of domestic soybean use in 2000 but is now up to 62%.
The balance sheet in the article shows that crushing of domestic soybeans (to make vegetable oil) fell from a peak of 8.88 mmt in 2002 to 4 mmt in 2009 (and just 2 mmt 2008 when support prices choked off demand for domestic beans).
In contrast, the article says that imported soybeans now account for 92% of crushing to make vegetable oil and soymeal.
The article says China’s soybean protein isolate production capacity was 495,000 mt in 2009, up 22.5% from the previous year. Included is Heilongjiang exports of 14,312 mt. The article continues, "Soybean protein powder mainly is exported to the U.S., Europe and Southeast Asia. Sales are good and supply can’t meet demand. The domestic market is also flourishing, especially for non-GMO soybean powder, soymilk powder…In 2009 some Heilongjiang companies were converting their factories or expanding into soybean powder production."
The diversion of Chinese soybeans to food uses doesn't mean that Chinese companies have abandoned soybean crushing. On the contrary, Chinese companies are adding soybean crushing capacity at a feverish pace. A post on this blog several months ago discussed a strategic plan to build Chinese vegetable oil companies that can compete with multinationals.
According to the article, in 2009, national crushing capacity increased 10 mmt, of which 8 mmt was by "central" enterprises (COFCO, Sinograin?), as well as foreign-invested enterprises building plants in coastal and inland areas. The article reports that some private companies in Heilongjiang also opened plants in coastal areas of Liaoning. At the end of 2008 China’s soybean crushing capacity had surpassed 87 mmt, but slightly less than half of this capacity is utilized (based on crush of 41.5 mmt).
The article sheds some light on why soybean imports are so big. The article reports that domestic oilseed production was down in 2009: soybeans down 6.7%, peanuts down 5.6%, cottonseed down 6.6%. Only rapeseed was up 11.6%.
The article says, “In 2010, oilseed production stagnated, [and] soybean oil and rape oil were [relatively low] due to effects of import limitation policies [italics added]. So to meet the rising demand for vegetable oil, 2010 imports of soybean set a record.
Sunday, August 8, 2010
Early puberty caused by milk powder?
An article in New Capital Times discussed accusations by a handful of parents that infant formula caused the early onset of puberty in infants and young children. There is no conclusive link between early puberty and milk powder, but experts say it's possible there is a connection. The parents blame the formula since their babies didn't eat anything else that could have caused the phenomenon. This incident is not related to the melamine incident.
A food safety expert asserted that hormones were not likely added in the manufacturing process. The chairman of the China Dairy Association agreed, noting that hormones would not add any value to the milk powder so there would be no incentive for manufacturers to add them.
The dairy association chairman explains, "Hormones are not a permitted additive in milk powder. They can be detected with lab equipment, but tests are not currently required." He wondered if the hormones were introduced in the milk itself at the farm level. (Great detective work!) He suggests that manufacturers should test the milk they receive.
A professor from China Agricultural University explains that milk powder standards in China do not require testing for hormones. Hormones are considered to be a drug.
The reporter went to some Beijing supermarkets to check on the situation. The problem seems to be linked to a brand called Shengyuan (Synutra). He found this type of powder for sale and being promoted in some stores. In a store in Fengtai District he was told that many consumers prefer to buy imported formula (after the melamine incident).
The dairy association head noted that foreign countries differ in their regulation of hormones. Some allow it; some don't. So you could get hormones from imported formula.
A food safety expert asserted that hormones were not likely added in the manufacturing process. The chairman of the China Dairy Association agreed, noting that hormones would not add any value to the milk powder so there would be no incentive for manufacturers to add them.
The dairy association chairman explains, "Hormones are not a permitted additive in milk powder. They can be detected with lab equipment, but tests are not currently required." He wondered if the hormones were introduced in the milk itself at the farm level. (Great detective work!) He suggests that manufacturers should test the milk they receive.
A professor from China Agricultural University explains that milk powder standards in China do not require testing for hormones. Hormones are considered to be a drug.
The reporter went to some Beijing supermarkets to check on the situation. The problem seems to be linked to a brand called Shengyuan (Synutra). He found this type of powder for sale and being promoted in some stores. In a store in Fengtai District he was told that many consumers prefer to buy imported formula (after the melamine incident).
The dairy association head noted that foreign countries differ in their regulation of hormones. Some allow it; some don't. So you could get hormones from imported formula.
Pork sellers go on strike
Lately there has been lots of news about workers striking in China, but now pork merchants have gone on strike. The incident provides a close-up look at the recent rebound in pork prices and how it is affecting the market.
Empty pork stalls in a Shaoguan market.
In the city of Shaoguan in Guangdong Province, operators of pork stalls in the city's meat and vegetable markets went on strike last week. A reporter went to several markets and found the pork sections completely empty except for one operated by the city's food company. A stall operator sitting on the sidewalk outside the "East is Rising" market told the reporter that all 100 pork stalls had decided to shut down the previous day.
The pork sellers accuse a local boss of securing a monopoly of the city's four slaughterhouses and forging a new sales agreement that more than doubles the cost of slaughtering pork. Previously, farmers' pigs were slaughtered for a fee of 46.5 yuan per head, but recently the fee was raised to 100 yuan. This raises the costs for the retail sellers and they claim they can barely earn enough to pay the rent on their stalls. So they decided to go on strike.
After the strike was announced, residents rushed to the market to buy pork. One stall keeper said every stall sold about 2 heads of pork in two hours. Restaurants have had to go to a neighboring city to buy pork.
The slaughterhouses claim that there are many reasons for pork going up in price. Some of the pork in Shaoguan comes from neighboring provinces, Hunan and Jiangxi. Flooding in Jiangxi has made transportation difficult, reducing the supply. Because of the hot weather, more pigs die en route to the slaughterhouse, also reducing the supply. Higher feed prices have driven up the price of hogs. Interestingly, there was a similar strike in Guangzhou in 2007 when hog prices were soaring.
The city government called in representatives of the pork vendors, the slaughterhouses, and traders to negotiate a truce. An agreement was reached late at night to cut the fee back to the previous amount.
The reporter went to the markets again the next day and found that most of the stalls were still closed. A stall keeper on his motorcycle outside a market had just returned from the slaughterhouse. He told the reporter that their purchase price had only been reduced by a few cents and they were still unhappy. They could understand if flooding or feed prices drove up prices, but they won't tolerate monopoly.
A worker at a slaughterhouse said the price might be reduced somewhat, but certainly not back to the previous level.
The vendor at the city-owned pork stall opened late that day. He told the reporter, "Kindergartens and cafeterias don't have any pork to serve. There has to be a compromise."
Empty pork stalls in a Shaoguan market.In the city of Shaoguan in Guangdong Province, operators of pork stalls in the city's meat and vegetable markets went on strike last week. A reporter went to several markets and found the pork sections completely empty except for one operated by the city's food company. A stall operator sitting on the sidewalk outside the "East is Rising" market told the reporter that all 100 pork stalls had decided to shut down the previous day.
The pork sellers accuse a local boss of securing a monopoly of the city's four slaughterhouses and forging a new sales agreement that more than doubles the cost of slaughtering pork. Previously, farmers' pigs were slaughtered for a fee of 46.5 yuan per head, but recently the fee was raised to 100 yuan. This raises the costs for the retail sellers and they claim they can barely earn enough to pay the rent on their stalls. So they decided to go on strike.
After the strike was announced, residents rushed to the market to buy pork. One stall keeper said every stall sold about 2 heads of pork in two hours. Restaurants have had to go to a neighboring city to buy pork.
The slaughterhouses claim that there are many reasons for pork going up in price. Some of the pork in Shaoguan comes from neighboring provinces, Hunan and Jiangxi. Flooding in Jiangxi has made transportation difficult, reducing the supply. Because of the hot weather, more pigs die en route to the slaughterhouse, also reducing the supply. Higher feed prices have driven up the price of hogs. Interestingly, there was a similar strike in Guangzhou in 2007 when hog prices were soaring.
The city government called in representatives of the pork vendors, the slaughterhouses, and traders to negotiate a truce. An agreement was reached late at night to cut the fee back to the previous amount.
The reporter went to the markets again the next day and found that most of the stalls were still closed. A stall keeper on his motorcycle outside a market had just returned from the slaughterhouse. He told the reporter that their purchase price had only been reduced by a few cents and they were still unhappy. They could understand if flooding or feed prices drove up prices, but they won't tolerate monopoly.
A worker at a slaughterhouse said the price might be reduced somewhat, but certainly not back to the previous level.
The vendor at the city-owned pork stall opened late that day. He told the reporter, "Kindergartens and cafeterias don't have any pork to serve. There has to be a compromise."
Policy hogs vs market hogs
"Policy Hogs" vs. "Market Hogs": Confused Hog Cycle," which appeared on many hog industry websites Aug. 5, criticized the government's extensive policy intervention for displacing market forces as the driving factor in the hog industry.
The author notes that on one hand the government issued ten policy support measures that increased the supply of pork and put downward pressure on hog prices. On the other hand, the government has been buying up pork for reserves to alleviate the surplus created by its support policies. The author refers to the policies as counterproductive and sarcastically notes the result is that "both hands keep busy."
The industry has a 3-to-5-year cycle where farmers make money one year then lose for three. But, the article asserts, the support policies have broken the cycle. Instead of making decisions based on the hog-grain price ratio, investors have been attracted by subsidies. "Now there is no way for the market to eliminate a surplus." The author describes policies as "confusing the market cycle."
The author reveals some little-known problems with hog industry support programs.
A direct payment of 100 yuan per breedable sow was issued to farmers, but the funds were allocated based on numbers of sows reported up from the local level to the Ministry of Finance. According to a Henan official, the subsidy was stopped this year because the numbers are seriously inflated. A Ministry of Agriculture official told the reporter that subsidies were paid for 60 million sows in 2008 but there were actually only 40 million.
This blog reported several weeks ago on problems with sow insurance. The "policy hogs" article also reports that insurance companies are losing money on sow insurance because they are experiencing a high frequency of claims and high costs. An official with a meat company in Henan says that some small farmers file a claim on a dead hog, then lend the carcass to a neighbor so he can file a claim on the same hog.
In 2008, when the market was short of pork and prices were soaring, the Ministry of Commerce imported a large quantity of pork from the United States. The author says industry sources told him the imported pork was unsaleable because domestic prices had fallen by the time the pork arrived. The government pressured several companies to "eat" the losses by purchasing the pork at the original (high) price so the government would not have to bear a loss on the pork.
According to one company official quoted in the article, “The government should promote market openness and competition, nurture the industry’s healthy development, strengthen epidemic management, control hog resources, strengthen regulation of competition, and maintain food safety, but not blindly adjust the price.”
The article makes note of the vast amount of investment in China's pork industry from companies and investment banks--investors "coming to the pig pen to dig for gold."
Agfeed Inc. reportedly promised prospective U.S. investors in promotional materials, "Come invest in China's hog industry, make 90% returns!" Goldman Sachs' logic was that China has "the most mouths in the world and the most stomachs," therefore investments in Chinese food companies have to make money. The article cites several examples of investments in massive hog production projects by both foreign and domestic investors. The author says a real estate developer in Henan asked him for advice regarding how to invest in hog production.
The keen attention focused on China's food industry is a concern for Chinese officials. The soybean industry's reliance on imports and foreign investment is a precedent often cited in China as a negative example to be avoided. This article says officials are wary of foreign investment becoming dominant in the pork industry as well. (See earlier post, "Beware of American Pork!") The concern cited here is that the government lost its "guidance power" in the soybean industry. The government needs to have large domestic companies it can poke and prod to accomplish its policy goals.
The author notes that on one hand the government issued ten policy support measures that increased the supply of pork and put downward pressure on hog prices. On the other hand, the government has been buying up pork for reserves to alleviate the surplus created by its support policies. The author refers to the policies as counterproductive and sarcastically notes the result is that "both hands keep busy."
The industry has a 3-to-5-year cycle where farmers make money one year then lose for three. But, the article asserts, the support policies have broken the cycle. Instead of making decisions based on the hog-grain price ratio, investors have been attracted by subsidies. "Now there is no way for the market to eliminate a surplus." The author describes policies as "confusing the market cycle."
The author reveals some little-known problems with hog industry support programs.
A direct payment of 100 yuan per breedable sow was issued to farmers, but the funds were allocated based on numbers of sows reported up from the local level to the Ministry of Finance. According to a Henan official, the subsidy was stopped this year because the numbers are seriously inflated. A Ministry of Agriculture official told the reporter that subsidies were paid for 60 million sows in 2008 but there were actually only 40 million.
This blog reported several weeks ago on problems with sow insurance. The "policy hogs" article also reports that insurance companies are losing money on sow insurance because they are experiencing a high frequency of claims and high costs. An official with a meat company in Henan says that some small farmers file a claim on a dead hog, then lend the carcass to a neighbor so he can file a claim on the same hog.
In 2008, when the market was short of pork and prices were soaring, the Ministry of Commerce imported a large quantity of pork from the United States. The author says industry sources told him the imported pork was unsaleable because domestic prices had fallen by the time the pork arrived. The government pressured several companies to "eat" the losses by purchasing the pork at the original (high) price so the government would not have to bear a loss on the pork.
According to one company official quoted in the article, “The government should promote market openness and competition, nurture the industry’s healthy development, strengthen epidemic management, control hog resources, strengthen regulation of competition, and maintain food safety, but not blindly adjust the price.”
The article makes note of the vast amount of investment in China's pork industry from companies and investment banks--investors "coming to the pig pen to dig for gold."
Agfeed Inc. reportedly promised prospective U.S. investors in promotional materials, "Come invest in China's hog industry, make 90% returns!" Goldman Sachs' logic was that China has "the most mouths in the world and the most stomachs," therefore investments in Chinese food companies have to make money. The article cites several examples of investments in massive hog production projects by both foreign and domestic investors. The author says a real estate developer in Henan asked him for advice regarding how to invest in hog production.
The keen attention focused on China's food industry is a concern for Chinese officials. The soybean industry's reliance on imports and foreign investment is a precedent often cited in China as a negative example to be avoided. This article says officials are wary of foreign investment becoming dominant in the pork industry as well. (See earlier post, "Beware of American Pork!") The concern cited here is that the government lost its "guidance power" in the soybean industry. The government needs to have large domestic companies it can poke and prod to accomplish its policy goals.
Thursday, August 5, 2010
Hog Market Recovery
China's hog market was in free fall from December until June. Hog market reports were grim reading until the last two weeks. Suddenly, after being mired in losses for months, on July 29 the National Development and Reform Commission announced that the hog-corn price ratio has rebounded to the profitable range.
An article from Hunan reports that, on July 19 at a meat counter in Changsha’s Red Flag market, the price for a ham was 21 yuan/kg, up 3 yuan in half a month. The live hog purchase price in Hunan was 600 yuan per 50 kg (12 yuan/kg), up 120 yuan (1.4 yuan/kg).
Photo from Hunan Daily.
The Ministry of Agriculture (MOA) is eager to take credit for the rebound. An article cites the government's reserve purchases of frozen pork, MOA's "early warning" system monitoring of the sector, publication of inventory, slaughter and price statistics, and its "guidance" for producers in structural adjustment. According to MOA, because farmers had such good information they did not slaughter sows as in past downturns (specifically, 2006).
Other analysts cite serious disease problems in the first half of the year as a factor that depressed prices. Disease killed a lot of feeder pigs. Foot and mouth is cited most. A serious new threat is type-O foot and mouth, which just appeared in China for the first time this year and 11 outbreaks have been reported in 8 provinces this year. There were also 5 counties where blue ear disease outbreaks were reported.
Floods in southern China are cited as restricting supply currently.
Others point to a normal cyclical process. Some sows were culled, but not huge numbers as in the 2006 downturn. Slaughter during the first half of 2010 was up 4% year-on-year. Sow inventories are down down 3.1% from last year at this time, and down 4.7% from December. Apparently the excess inventory has been liquidated.
One interesting strategy is revealed by a Hunan farmer who has a pen with huge 150-kg hogs. He told a reporter that he delayed slaughtering them during the low-price period, waiting for a rebound.
MOA also touts its other policies, including sow subsidies, sow insurance and its "standardized farm construction" plan which allocated 3 billion yuan in investment funds to build large-scale hog farms and associated infrastructure. They also allocated 990 million yuan for fine breed subsidies, and organized work meetings on breeding system improvement.
But maybe the subsidies are responsible for the surplus of hogs. In Wangcheng County of Hunan, a reporter describes a livestock production zone where farmers keep their pigs together, built with government subsidies for "standardized" hog farms and "awards" for hog-surplus counties. The manager reports that with help from the subsidies the farm held out through the period of low prices, losing 1 million yuan, and now plans to expand its 2600 head to 4000 head.
At the same time, small-scale "backyard" farmers have dropped out. According to MOA statistics for Hunan, 53% of its hogs were raised on farmers with 50 or more head in 2009, up from just 17% in 2000.
Will the small farmers come back? Another manager of a large farm in Hunan complains that he lost 100,000 yuan per month during the first half of the year. He worries that more farmers will be attracted to the industry when they hear the price is rising again.
There is also upward pressure on prices from rising feed costs. The corn price rose 16 months in a row and is up 16% from a year ago. Maybe the quantum leap to large-scale farms increased corn demand, pushing corn prices up.
Hog prices are expected to rise as the peak season arrives after September. At a new electronic hog exchange in Hunan opened last year, hog contracts for August are trading at 12.05 yuan and 13.3 yuan for December.
The consensus seems to be that price increases will be moderate; not a huge inflationary jump as happened in 2007. One official, queried on this, replied, "no way!" This time, he says, sow inventories were liquidated in a "reasonable" manner.
An article from Hunan reports that, on July 19 at a meat counter in Changsha’s Red Flag market, the price for a ham was 21 yuan/kg, up 3 yuan in half a month. The live hog purchase price in Hunan was 600 yuan per 50 kg (12 yuan/kg), up 120 yuan (1.4 yuan/kg).
Photo from Hunan Daily.
The Ministry of Agriculture (MOA) is eager to take credit for the rebound. An article cites the government's reserve purchases of frozen pork, MOA's "early warning" system monitoring of the sector, publication of inventory, slaughter and price statistics, and its "guidance" for producers in structural adjustment. According to MOA, because farmers had such good information they did not slaughter sows as in past downturns (specifically, 2006).
Other analysts cite serious disease problems in the first half of the year as a factor that depressed prices. Disease killed a lot of feeder pigs. Foot and mouth is cited most. A serious new threat is type-O foot and mouth, which just appeared in China for the first time this year and 11 outbreaks have been reported in 8 provinces this year. There were also 5 counties where blue ear disease outbreaks were reported.
Floods in southern China are cited as restricting supply currently.
Others point to a normal cyclical process. Some sows were culled, but not huge numbers as in the 2006 downturn. Slaughter during the first half of 2010 was up 4% year-on-year. Sow inventories are down down 3.1% from last year at this time, and down 4.7% from December. Apparently the excess inventory has been liquidated.
One interesting strategy is revealed by a Hunan farmer who has a pen with huge 150-kg hogs. He told a reporter that he delayed slaughtering them during the low-price period, waiting for a rebound.
MOA also touts its other policies, including sow subsidies, sow insurance and its "standardized farm construction" plan which allocated 3 billion yuan in investment funds to build large-scale hog farms and associated infrastructure. They also allocated 990 million yuan for fine breed subsidies, and organized work meetings on breeding system improvement.
But maybe the subsidies are responsible for the surplus of hogs. In Wangcheng County of Hunan, a reporter describes a livestock production zone where farmers keep their pigs together, built with government subsidies for "standardized" hog farms and "awards" for hog-surplus counties. The manager reports that with help from the subsidies the farm held out through the period of low prices, losing 1 million yuan, and now plans to expand its 2600 head to 4000 head.
At the same time, small-scale "backyard" farmers have dropped out. According to MOA statistics for Hunan, 53% of its hogs were raised on farmers with 50 or more head in 2009, up from just 17% in 2000.
Will the small farmers come back? Another manager of a large farm in Hunan complains that he lost 100,000 yuan per month during the first half of the year. He worries that more farmers will be attracted to the industry when they hear the price is rising again.
There is also upward pressure on prices from rising feed costs. The corn price rose 16 months in a row and is up 16% from a year ago. Maybe the quantum leap to large-scale farms increased corn demand, pushing corn prices up.
Hog prices are expected to rise as the peak season arrives after September. At a new electronic hog exchange in Hunan opened last year, hog contracts for August are trading at 12.05 yuan and 13.3 yuan for December.
The consensus seems to be that price increases will be moderate; not a huge inflationary jump as happened in 2007. One official, queried on this, replied, "no way!" This time, he says, sow inventories were liquidated in a "reasonable" manner.
Tuesday, August 3, 2010
Secretary Hu's Letter to the students
In Richard McGregor's new book, The Party, Warren Buffett is quoted as saying he has never met a real communist in China. While virtually everyone in China has abandoned the ideology, the party still plays an important role in mobilizing the people who matter to do what the leadership has decided is important. It acts as a vast behind-the-scenes network that is probably more similar to the role of Freemasons in early U.S. history than Democrats or Republicans.
A recent Xinhua news service report, apparently announcing a campaign to mobilize students to bolster "modern agriculture," provides a glimpse of how the party continues to operate in much the same way it always has. It revives some elements of the cultural revolution: sending students down to the countryside and rebelling against parents' wishes in order to serve the motherland. It even incorporates a descendent of the state farm system where thousands of students were sent in the 1960s to act as cannon fodder against an expected Russian Invasion.
General Secretary Hu Jintao visits China Agriculture University.
On May 4 (this date commemorates the student protest movement in 1919 over China's raw deal in the Versailles treaty), students and faculty of China Agriculture University gathered to study a letter from General Secretary Hu Jintao (he's referred to as president for foreigners but in China he's the secretary of the party). General Secretary Hu visited China Agricultural Unversity last year on May 4. In April of this year, the students sent a letter to Hu reporting on their diligent study and practice over the past year in response to his challenge.
To their great delight, General Secretary Hu sent a letter of reply, which was read at the May 4 meeting. The letter emphasized that solving "the three rural problems" [agriculture, rural people, rural economy] is of the utmost importance to the entire communist party, and putting "agricultural modernization" into practice is a basic task for the country's modernization. Spreading agricultural science and technology on "a wider stage" is a great responsibility of agricultural university students. "We cannot just enter and leave the rural areas, we must strengthen them and help them prosper."
At the meeting it was noted that the university has signed an agreement with the state farm system to send graduates to Beidahuang, a food conglomerate run by the descendents of state farms on the border with Russia.
A student named Li rose to give his testimony: "At first I wanted to stay in Beijing to work, and my parents wanted me to stay in the city too, but the central committee's support for 'three rural' policy absorbed me."
The article says that Li found the living and working conditions in Beidahuang quite satisfactory after a visit last year and decided to go to the grassroots to build the industry.
Li continues, "I am a seed planted by the agricultural university, ready to live up to the general secretary's hopes. I will use my knowledge and wisdom in the motherland's vast land during my fleeting youth."
A professor Sun gushes, "While the general secretary's letter is not long, its contents are abundant and it's full of encouragement and hope. From these words we can see his concern for 'three rural' problems and his expectation that agricultural universities and institutes will develop. As professors, our great responsibility is to use science and technology to develop agriculture."
Ke Bingsheng, president of the university wraps up by reminding everyone of their responsibility to deepen educational reforms, cultivate talent, and provide good service to the countryside.
A recent Xinhua news service report, apparently announcing a campaign to mobilize students to bolster "modern agriculture," provides a glimpse of how the party continues to operate in much the same way it always has. It revives some elements of the cultural revolution: sending students down to the countryside and rebelling against parents' wishes in order to serve the motherland. It even incorporates a descendent of the state farm system where thousands of students were sent in the 1960s to act as cannon fodder against an expected Russian Invasion.
General Secretary Hu Jintao visits China Agriculture University.
On May 4 (this date commemorates the student protest movement in 1919 over China's raw deal in the Versailles treaty), students and faculty of China Agriculture University gathered to study a letter from General Secretary Hu Jintao (he's referred to as president for foreigners but in China he's the secretary of the party). General Secretary Hu visited China Agricultural Unversity last year on May 4. In April of this year, the students sent a letter to Hu reporting on their diligent study and practice over the past year in response to his challenge.
To their great delight, General Secretary Hu sent a letter of reply, which was read at the May 4 meeting. The letter emphasized that solving "the three rural problems" [agriculture, rural people, rural economy] is of the utmost importance to the entire communist party, and putting "agricultural modernization" into practice is a basic task for the country's modernization. Spreading agricultural science and technology on "a wider stage" is a great responsibility of agricultural university students. "We cannot just enter and leave the rural areas, we must strengthen them and help them prosper."
At the meeting it was noted that the university has signed an agreement with the state farm system to send graduates to Beidahuang, a food conglomerate run by the descendents of state farms on the border with Russia.
A student named Li rose to give his testimony: "At first I wanted to stay in Beijing to work, and my parents wanted me to stay in the city too, but the central committee's support for 'three rural' policy absorbed me."
The article says that Li found the living and working conditions in Beidahuang quite satisfactory after a visit last year and decided to go to the grassroots to build the industry.
Li continues, "I am a seed planted by the agricultural university, ready to live up to the general secretary's hopes. I will use my knowledge and wisdom in the motherland's vast land during my fleeting youth."
A professor Sun gushes, "While the general secretary's letter is not long, its contents are abundant and it's full of encouragement and hope. From these words we can see his concern for 'three rural' problems and his expectation that agricultural universities and institutes will develop. As professors, our great responsibility is to use science and technology to develop agriculture."
Ke Bingsheng, president of the university wraps up by reminding everyone of their responsibility to deepen educational reforms, cultivate talent, and provide good service to the countryside.
Sunday, August 1, 2010
Soybean imports through the roof
According to Chinese customs statistics, June imports of soybeans totaled 6.2 million metric tons. The cumulative total for January to June was 25.8 mmt, up 16.8% year-on-year. A report on a grain bureau web site forecast that the huge 48 mmt import total for 2009/10 would grow to over 50 mmt in 2010/11.
The key to this growth is that imported soybeans are cheaper than domestic beans. A support price for Chinese beans made them artificially expensive, raising the cost of oils and soy meal made from them and reducing sales. Many domestic soybean-crushing plants are idle.
According to the report, as of July 19 domestic soybeans had an average price of 3536 yuan/mt, while imported beans were 3400 yuan/mt. The appreciation of the Chinese currency is one of the factors cited in eroding the price-competitiveness of domestic beans.
The vice-secretary of the Heilongjiang soybean association says about half of his province's 100 soybean crushing plants are idle and experiencing heavy losses. According to him, the situation is much worse than last year.
The situation may be about to improve. According to the report, U.S. and South American soybeans for August will rise to $455-457 CNF, which means RMB 3750-3770, higher than the purchase price of domestic soybeans.
The soymeal market is also on the rebound. It reached its low point in May. Feed mills have low stocks of soy meal and are now restocking, putting upward pressure on meal prices.
The key to this growth is that imported soybeans are cheaper than domestic beans. A support price for Chinese beans made them artificially expensive, raising the cost of oils and soy meal made from them and reducing sales. Many domestic soybean-crushing plants are idle.
According to the report, as of July 19 domestic soybeans had an average price of 3536 yuan/mt, while imported beans were 3400 yuan/mt. The appreciation of the Chinese currency is one of the factors cited in eroding the price-competitiveness of domestic beans.
The vice-secretary of the Heilongjiang soybean association says about half of his province's 100 soybean crushing plants are idle and experiencing heavy losses. According to him, the situation is much worse than last year.
The situation may be about to improve. According to the report, U.S. and South American soybeans for August will rise to $455-457 CNF, which means RMB 3750-3770, higher than the purchase price of domestic soybeans.
The soymeal market is also on the rebound. It reached its low point in May. Feed mills have low stocks of soy meal and are now restocking, putting upward pressure on meal prices.