At a July 22, 2015 executive meeting of the State Council, Premier Li Keqiang emphasized the necessity of transforming China's agricultural model. Instead of viewing "agriculture" as a compartmentalized activity for peasants, Li wants officials to treat agriculture as an industry that operates like a factory and is linked with processing and marketing sectors.
Premier Li told a story that reveals the medieval view of agriculture that still prevails among many Chinese officials. Li recalled being confused during a visit to Canada ten years ago when his Canadian hosts spoke of "agricultural industry" (directly translated "农业工业" according to the article, which is not a common Chinese term). Li wondered, "How can 'agriculture' also be 'industry'?" In China, "agriculture" and "industry" have always been two separate and compartmentalized parts of the economy.
When the Canadians took Li on an agricultural tour, he understood what they were talking about. He saw that Canadian farms were linked into a complete chain from choosing seeds, to planting, cultivation and harvest, processing, and marketing of crops. Li--an economist by profession--was enthused over this discovery: "Farm products move through a series of links in the industry chain and are eventually sold all over the world!"
This concept of agriculture as one of many links in an industry chain (产业链) is what Chinese officials call "agricultural industrialization" (农业产业化). This is part of the broader--and older--concept of "agricultural modernization" (农业现代化). This year Premier Li is making a renewed push to consolidate farms, develop value-added processing of farm products, and improve technical and financial services to farms.
Premier Li put the Canadian agricultural industry concept into practice when he was governor of Henan Province a decade ago. He observed that rural people could not easily boost their income by growing grain, so he formulated a plan to add value to products by developing grain processing industries like flour-milling and frozen dumpling manufacturing. (Although it's not mentioned here, the Shuanghui meat company based in Henan was also a beneficiary of the Province's food-processing industry strategy.) Grain processing in farming regions is getting a big push nationwide this year (even though these industries suffer from excess capacity).
Most of Li's discourse emphasized the importance of consolidating farmland into "appropriate scale" operations while "respecting the wishes of farmers." The appropriate scale farms include multiple forms, such as specialized grain farmers, "family farms" that cultivate a farm large enough to utilize a husband and wife's labor, share-holding cooperatives that pool village land and give villagers dividend-paying shares, and "land trusts."
Li emphasizes that consolidating land is the best way to increase incomes for rural people. Villagers can earn rent or dividends from new-style farms that cultivate their land, plus they can earn wages from working as hired hands on these new farms. Implictly, this institutional change intends to let rural people (农民) continue to receive the returns to land and labor while a set of new entrepreneurs will orchestrate all this and enjoy profits (i.e. the return to capital or entrepreneurship).
Li also emphasized the importance of raising the productivity of sub-standard fields. The northeastern region is losing its valuable black topsoil, soil is becoming acidified, and industrial pollution has contaminated farmland. An easy way to raise the productivity of land is to eliminate ridges between fragmented plots, said Li. He claimed to be heartbroken when he saw the amount of land wasted in a recent tour of Yunnan and Guizhou where "palm-sized" plots are common.
While he doesn't drill down to explain incentives for investment, presumably it's up to the government to raise soil productivity. Peasants (农民) with insecure rights to their land skimped on investing in it, instead mining the soil to extract as much production as possible--with encouragement from a government obsessed with "food security." These new-type farms have even less-secure rights to the land they farm--Li insists that villagers must be assured that they can get their land back if they want after the land has been rented out. Why would they be good stewards and make long-term investments to maintain the land's productivity if they might have to give it back to the peasants next year?
So China is embracing an approach to agriculture that views farms as production units akin to factories. This embrace of "factory farming" is happening at the same time many in developed countries have romantic notions of returning to the subsistence-type farming and heritage breeds that China is leaving behind.
Saturday, July 25, 2015
Friday, July 24, 2015
Anticorruption Drive Pushes Market Orientation
China's anticorruption drive led to a big drop-off in orders for fruit during its first year. This exposed an unhealthy reliance on government sales, and hopefully will spur farmers to pay more attention to what consumers want.
As the fruit harvest approached in August 2014, Shanghai fruit producers faced an estimated 10%-20% decline in sales. The problem was that government departments they normally can count on for a big chunk of their sales weren't buying. According to the leader of a grape-producers' cooperative, government units normally bought 30% of their product in bulk either to give as gifts or distribute to their employees as a type of fringe benefit. With officials being careful scrutinized for their handling of public funds during the anti-corruption drive launched by Xi Jinping, government officials are afraid to get caught using public money for anything questionable. So nearly all sales to government units vanished.
Last fall, another article reported that fruit producers in Yanqing County, another place in the Beijing hinterland, were similarly worried that government units had stopped buying their apples and grapes. The director of the county fruit marketing center said normally more than half of the grapes are sold to government units, but there had been no orders after the communist party issued its "eight rules" to rein in official waste and corruption. Many fruit producers and farmer cooperatives had been able to sit at home and wait for big orders of a dozen boxes at premium prices from officials, but last year the orders stopped.
Fearful of anti-graft inspectors, one Beijing official told the reporter that he and his colleagues are now careful not to spend any public funds on fruit. He said, "Now we spend our own money to buy gifts."
A description of the strawberry industry in Changping County on the outskirts of Beijing boasted that 80 percent of the county's strawberries were sold in bulk to government units.
The articles describing the collapse of sales to the government viewed it as a development that might prod farmers to break their unhealthy reliance on connections with officials for sales. The Shanghai article described the government sales as a cloak of marketization and a "crutch" that was actually moving the industry further from a "real" market. The journalists viewed this as a painful, but necessary step toward a market-oriented fruit industry. Instead, said the journalists, farmers need to do market research and find out what consumers want.
In Shanghai and Yanqing, local leaders were said to be taking steps to increase direct connections between fruit producers and consumers by launching pick-your-own promotions, setting up a e-commerce platform, and marketing fruit in residential communities.
This month, a new food marketing campaign is being launched that intends to transform the way agricultural products are marketed to consumers. The national ag product community marketing project is spearheaded by the national vegetable marketing association with support from the Ministry of Commerce. The project plans to set up e-commerce platforms, payment systems, and delivery services to deliver fruits, vegetables, rice, flour, and oils directly to homes in residential communities. The project--an implementation of the "Internet + action plan" issued in May by the Ministry of Commerce--aims to supplant the traditional "wet markets" and shops.
As the fruit harvest approached in August 2014, Shanghai fruit producers faced an estimated 10%-20% decline in sales. The problem was that government departments they normally can count on for a big chunk of their sales weren't buying. According to the leader of a grape-producers' cooperative, government units normally bought 30% of their product in bulk either to give as gifts or distribute to their employees as a type of fringe benefit. With officials being careful scrutinized for their handling of public funds during the anti-corruption drive launched by Xi Jinping, government officials are afraid to get caught using public money for anything questionable. So nearly all sales to government units vanished.
Last fall, another article reported that fruit producers in Yanqing County, another place in the Beijing hinterland, were similarly worried that government units had stopped buying their apples and grapes. The director of the county fruit marketing center said normally more than half of the grapes are sold to government units, but there had been no orders after the communist party issued its "eight rules" to rein in official waste and corruption. Many fruit producers and farmer cooperatives had been able to sit at home and wait for big orders of a dozen boxes at premium prices from officials, but last year the orders stopped.
Fearful of anti-graft inspectors, one Beijing official told the reporter that he and his colleagues are now careful not to spend any public funds on fruit. He said, "Now we spend our own money to buy gifts."
A description of the strawberry industry in Changping County on the outskirts of Beijing boasted that 80 percent of the county's strawberries were sold in bulk to government units.
The articles describing the collapse of sales to the government viewed it as a development that might prod farmers to break their unhealthy reliance on connections with officials for sales. The Shanghai article described the government sales as a cloak of marketization and a "crutch" that was actually moving the industry further from a "real" market. The journalists viewed this as a painful, but necessary step toward a market-oriented fruit industry. Instead, said the journalists, farmers need to do market research and find out what consumers want.
In Shanghai and Yanqing, local leaders were said to be taking steps to increase direct connections between fruit producers and consumers by launching pick-your-own promotions, setting up a e-commerce platform, and marketing fruit in residential communities.
This month, a new food marketing campaign is being launched that intends to transform the way agricultural products are marketed to consumers. The national ag product community marketing project is spearheaded by the national vegetable marketing association with support from the Ministry of Commerce. The project plans to set up e-commerce platforms, payment systems, and delivery services to deliver fruits, vegetables, rice, flour, and oils directly to homes in residential communities. The project--an implementation of the "Internet + action plan" issued in May by the Ministry of Commerce--aims to supplant the traditional "wet markets" and shops.
Monday, July 20, 2015
China Hog Output Plummets; Prices Soar
China's hog production is plummeting. The National Bureau of Statistics report on economic data for the first half of 2015 showed that pork production was 25.74 million metric tons, down 4.9 percent from the first half of 2014. The number of hogs slaughtered during January-June totaled 334 million, down 5.1 percent from last year.
The number of hogs in inventory at the end of June 2015 was 417 million, down 48 million from the 465 million reported at the end of 2014. The 48-million decline in Chinese hog numbers over six months is more than all the hogs in Brazil, equal to three-fourths of the U.S. swine inventory or a third of hogs in the EU.
The pork output number for the second quarter was down 7.5 percent year-on-year, twice as fast as the 3.1 percent y-o-y decline in the first quarter of 2015 (implied by the numbers released for the first six months and for the first quarter).
According to Ministry of Agriculture data, the number of pigs slaughtered at "designated slaughterhouses" during June 2015 was down 15 percent from June last year. The MOA reported that the June 2015 hog inventory was down 10 percent year-on-year, and the sow inventory was down 15 percent.
The meat output figures released by NBS imply that production of other meats--poultry, beef, and lamb--was up 2.8 percent in the first half of 2015.
The decline in hog numbers reflects a number of influences--high corn prices, excess capacity, weak demand, and strict enforcement of environmental regulations that is shutting down pig farms in many localities.
With shrinking supplies, prices have started to surge. According to the National Development and Reform Commission, the average Chinese hog price bottomed out at 12.18 yuan per kg in March 2015 and shot up 40 percent to 17.06 yuan per kg July 15.
In early July, Chinese retail pork prices were up about 5.5 percent from a year ago, according to National Bureau of Statistics retail food price data. Prices of other meats were more-or-less steady from last year.
Chinese pork prices have been going bullwhip-style through mini-cycles over the last several years. It's unclear whether this is another temporary surge or if prices are on a trajectory to hit stratospheric highs reached in 2011. With a lot of pork around the world looking for a home, a surge of imports could choke off this price rally.
| Item | Jan-June 2015 | Change from a year ago |
| Million metric tons | Percent | |
| Pork output | 25.7 | -4.9 |
| Hogs slaughtered | 334.4 | -5.1 |
| Hog inventory | 417.4 | -6.0 |
| Source: China National Bureau of Statistics | ||
The number of hogs in inventory at the end of June 2015 was 417 million, down 48 million from the 465 million reported at the end of 2014. The 48-million decline in Chinese hog numbers over six months is more than all the hogs in Brazil, equal to three-fourths of the U.S. swine inventory or a third of hogs in the EU.
The pork output number for the second quarter was down 7.5 percent year-on-year, twice as fast as the 3.1 percent y-o-y decline in the first quarter of 2015 (implied by the numbers released for the first six months and for the first quarter).
According to Ministry of Agriculture data, the number of pigs slaughtered at "designated slaughterhouses" during June 2015 was down 15 percent from June last year. The MOA reported that the June 2015 hog inventory was down 10 percent year-on-year, and the sow inventory was down 15 percent.
The meat output figures released by NBS imply that production of other meats--poultry, beef, and lamb--was up 2.8 percent in the first half of 2015.
The decline in hog numbers reflects a number of influences--high corn prices, excess capacity, weak demand, and strict enforcement of environmental regulations that is shutting down pig farms in many localities.
With shrinking supplies, prices have started to surge. According to the National Development and Reform Commission, the average Chinese hog price bottomed out at 12.18 yuan per kg in March 2015 and shot up 40 percent to 17.06 yuan per kg July 15.
In early July, Chinese retail pork prices were up about 5.5 percent from a year ago, according to National Bureau of Statistics retail food price data. Prices of other meats were more-or-less steady from last year.
Chinese pork prices have been going bullwhip-style through mini-cycles over the last several years. It's unclear whether this is another temporary surge or if prices are on a trajectory to hit stratospheric highs reached in 2011. With a lot of pork around the world looking for a home, a surge of imports could choke off this price rally.
Saturday, July 18, 2015
China Signals Corn Price Liberalization?
Some Chinese market analysts see a signal of imminent corn price liberalization in an obscure document posted on a Chinese Ministry of Agriculture web site last week.
The text consisted of two paragraphs on agricultural commodity price liberalization buried in a Ministry of Agriculture response to a policy recommendation offered by a National Peoples Congress member from Zhejiang Province. The main focus of the document is on cropland-consolidation policies, but two cryptic paragraphs offer an unusually incisive evaluation of Chinese agricultural price-intervention policies and sets forth a general blueprint for reduced interference that will allow market forces to have the "decisive role" demanded by top Chinese leaders. Rice and wheat will continue to have minimum prices, but prices of other major commodities--corn, soybeans, rapeseed, and cotton--will be determined by market forces.
The document briefly recounts the 30-year history of gradually liberalizing farm prices. It notes that the government no longer directly sets any farm prices after it stopped setting tobacco prices at the end of 2014. After withdrawing from direct price-setting of grains in 2004, the government installed a system where prices are basically set by market supply and demand but the government intervenes to stabilize prices when needed. A minimum procurement price system was set up for rice (in 2004) and wheat (in 2006) that was intended to set a floor under market prices. "Temporary reserve" policies to support prices were set up for corn, soybeans, rapeseed, and cotton in 2008. The MOA document says that raising the support prices each year contributed to food security by boosting grain production to a new level, but the document acknowledges that Chinese prices rose above global prices when there was a "major shock" in international grain prices.
According to the MOA document, "The next step [in the liberalization process] is for the National Development and Reform Commission to adopt differing policies for different commodities."
Global Business News (第一财经) described the MOA document as an "Historic transition in grain price intervention" and emphasized the benefits for hard-pressed downstream users of corn and relief for the dangerously-stressed grain reserve system. The article elaborated on the problems faced by corn users as a result of the huge gap between domestic and imported corn prices, noting that domestic prices of 2400 yuan per metric ton at Guangzhou are 800-900 yuan higher than the cost of imported corn.
The Global Business News journalist emphasized that downstream industries can no longer bear the high costs of Chinese corn. The journalist reported that Wen's Group, the largest pork and poultry-producing company in China, had "no choice but to import sorghum" with domestic corn prices so high and "very little" access to corn import quotas. High corn prices are passed on in the form of higher pork prices. The surge in Chinese pork prices in the last two months puts the meat's price at about double that in foreign countries.
The journalist says marketization of prices is needed because "Chinese people not only eat more expensive grain than people in developed countries, but their pork is more expensive too." He adds that Chinese consumers are threatened by "zombie meat" because high prices lead to rampant meat smuggling. He also cites COFCO's fuel ethanol division: facing rising corn costs and stagnant/declining fuel prices, it reportedly lost 300-to-350-million yuan in the first half of 2015 and turned to use of cassava "from domestic and international sources" to manufacture its ethanol.
Global Business News says liberalization of prices will also benefit Sinograin--the government's reserve-holding company--which has run out of space to store all the grain it has purchased to support prices. Sinograin has had to hire local granaries to store the grains which cannot be properly supervised. One of the contractors, a rice-milling company in Anhui Province, was caught issuing IOUs for grain purchased from farmers. The company used grain purchased for reserves on Sinograin's behalf for its own processing and trading activities and ended up with no funds to pay farmers. Sinograin quickly investigated and rectified the situation, but the article warns that additional incidents could occur and it's Sinograin is in effect "sitting on a volcano."
Futures Daily emphasized that the current policies need to change because they put pressure on domestic industries, result in high government costs, distort production structure and marketing and result in "all sorts of strange phenomena across the board" in agricultural markets. Futures Daily reports that many market analysts interpret the "spirit" of MOA document as a signal that the temporary reserve policy for corn will be removed.
In a daily newsletter, JCI (one of China's premier ag market analysis companies) makes a similar judgment that the MOA document means that corn prices will be fully liberalized after the 2015 harvest. They anticipate that temporary reserve purchases and subsidies for industrial processors will both be abandoned this year, and the domestic corn price will align with the international price.
The rumored liberalization is consistent with what officials are calling the "deep reform" of agriculture this year. Most of the attention is on restructuring agriculture by consolidation of land, improving financial and technical services for commercial-scale farms. The initiative reflects a conclusion that Chinese agriculture must become more competitive by raising productivity and hence reducing unit costs. More cost-competitive Chinese farms, in theory, could survive at prices aligned with those in the global market. Authorities probably wanted to move in this direction gradually over 5 years or so, but the mounting pressures on processors, surging meat prices, rampant smuggling, imported sorghum and barley rushing in, soaring budgetary/financial pressure and a creaking grain reserve system on the brink of collapse may have forced officials into action sooner than planned.
The rumored corn price liberalization is welcomed, and the MOA document reflects more lucid economic thinking than is typical of this relatively conservative corner of the Chinese bureaucracy. However, a snap liberalization this year would be adventurous and could have huge consequences. The abandonment of temporary reserve purchasing for cotton and soybeans resulted in plummeting prices for both commodities over the past year. Target price subsidies were not sufficient to prevent cotton and soybean production from falling this year, but that's partly because the high price of corn continued to suck resources away from cotton and soybeans. A liberalization of corn prices would alleviate this imbalance. However, there is no subsidy program to replace the temporary reserve for corn. And corn is China's largest crop--its output and number of producers are more than ten times those of cotton, soybeans, or rapeseed. This year's abandonment of rapeseed temporary reserve purchasing left it up to provincial authorities to figure out how to subsidize producers.
The rumored broad-brush liberalization does not address how the huge existing stocks would be disposed of. Progress has been slow in drawing down cotton stocks and corn reserve auctions have not seen much success this summer. If corn prices are allowed to plummet, there would be no hope of recovering the acquisition and holding costs of its corn reserve which is likely far above 100 million metric tons. Taking a loss and selling the corn into the market at a discount would push market prices for corn down even faster.
It's too soon to evaluate the impact of this rumor, but there will surely be more to come over the next four months.
The text consisted of two paragraphs on agricultural commodity price liberalization buried in a Ministry of Agriculture response to a policy recommendation offered by a National Peoples Congress member from Zhejiang Province. The main focus of the document is on cropland-consolidation policies, but two cryptic paragraphs offer an unusually incisive evaluation of Chinese agricultural price-intervention policies and sets forth a general blueprint for reduced interference that will allow market forces to have the "decisive role" demanded by top Chinese leaders. Rice and wheat will continue to have minimum prices, but prices of other major commodities--corn, soybeans, rapeseed, and cotton--will be determined by market forces.
The document briefly recounts the 30-year history of gradually liberalizing farm prices. It notes that the government no longer directly sets any farm prices after it stopped setting tobacco prices at the end of 2014. After withdrawing from direct price-setting of grains in 2004, the government installed a system where prices are basically set by market supply and demand but the government intervenes to stabilize prices when needed. A minimum procurement price system was set up for rice (in 2004) and wheat (in 2006) that was intended to set a floor under market prices. "Temporary reserve" policies to support prices were set up for corn, soybeans, rapeseed, and cotton in 2008. The MOA document says that raising the support prices each year contributed to food security by boosting grain production to a new level, but the document acknowledges that Chinese prices rose above global prices when there was a "major shock" in international grain prices.
According to the MOA document, "The next step [in the liberalization process] is for the National Development and Reform Commission to adopt differing policies for different commodities."
- For food grains--rice and wheat--the minimum purchase price policy will continue, but the policy will no longer build in expectations of ever-rising prices, and the role of minimum prices as a tool for boosting income will be weakened. For wheat and rice, a combination of price intervention and subsidy payments will be used.
- For corn, soybeans, rapeseed, and cotton--"commodities that have elastic demand, longer industry chains, and are more closely attuned to international markets"--there will be more attention to the "decisive role of the market" in price formation. According to the document, sustained, healthy industry development will be promoted as market price signals guide production and adjust supply and demand.
Global Business News (第一财经) described the MOA document as an "Historic transition in grain price intervention" and emphasized the benefits for hard-pressed downstream users of corn and relief for the dangerously-stressed grain reserve system. The article elaborated on the problems faced by corn users as a result of the huge gap between domestic and imported corn prices, noting that domestic prices of 2400 yuan per metric ton at Guangzhou are 800-900 yuan higher than the cost of imported corn.
The Global Business News journalist emphasized that downstream industries can no longer bear the high costs of Chinese corn. The journalist reported that Wen's Group, the largest pork and poultry-producing company in China, had "no choice but to import sorghum" with domestic corn prices so high and "very little" access to corn import quotas. High corn prices are passed on in the form of higher pork prices. The surge in Chinese pork prices in the last two months puts the meat's price at about double that in foreign countries.
The journalist says marketization of prices is needed because "Chinese people not only eat more expensive grain than people in developed countries, but their pork is more expensive too." He adds that Chinese consumers are threatened by "zombie meat" because high prices lead to rampant meat smuggling. He also cites COFCO's fuel ethanol division: facing rising corn costs and stagnant/declining fuel prices, it reportedly lost 300-to-350-million yuan in the first half of 2015 and turned to use of cassava "from domestic and international sources" to manufacture its ethanol.
Global Business News says liberalization of prices will also benefit Sinograin--the government's reserve-holding company--which has run out of space to store all the grain it has purchased to support prices. Sinograin has had to hire local granaries to store the grains which cannot be properly supervised. One of the contractors, a rice-milling company in Anhui Province, was caught issuing IOUs for grain purchased from farmers. The company used grain purchased for reserves on Sinograin's behalf for its own processing and trading activities and ended up with no funds to pay farmers. Sinograin quickly investigated and rectified the situation, but the article warns that additional incidents could occur and it's Sinograin is in effect "sitting on a volcano."
Futures Daily emphasized that the current policies need to change because they put pressure on domestic industries, result in high government costs, distort production structure and marketing and result in "all sorts of strange phenomena across the board" in agricultural markets. Futures Daily reports that many market analysts interpret the "spirit" of MOA document as a signal that the temporary reserve policy for corn will be removed.
In a daily newsletter, JCI (one of China's premier ag market analysis companies) makes a similar judgment that the MOA document means that corn prices will be fully liberalized after the 2015 harvest. They anticipate that temporary reserve purchases and subsidies for industrial processors will both be abandoned this year, and the domestic corn price will align with the international price.
The rumored liberalization is consistent with what officials are calling the "deep reform" of agriculture this year. Most of the attention is on restructuring agriculture by consolidation of land, improving financial and technical services for commercial-scale farms. The initiative reflects a conclusion that Chinese agriculture must become more competitive by raising productivity and hence reducing unit costs. More cost-competitive Chinese farms, in theory, could survive at prices aligned with those in the global market. Authorities probably wanted to move in this direction gradually over 5 years or so, but the mounting pressures on processors, surging meat prices, rampant smuggling, imported sorghum and barley rushing in, soaring budgetary/financial pressure and a creaking grain reserve system on the brink of collapse may have forced officials into action sooner than planned.
The rumored corn price liberalization is welcomed, and the MOA document reflects more lucid economic thinking than is typical of this relatively conservative corner of the Chinese bureaucracy. However, a snap liberalization this year would be adventurous and could have huge consequences. The abandonment of temporary reserve purchasing for cotton and soybeans resulted in plummeting prices for both commodities over the past year. Target price subsidies were not sufficient to prevent cotton and soybean production from falling this year, but that's partly because the high price of corn continued to suck resources away from cotton and soybeans. A liberalization of corn prices would alleviate this imbalance. However, there is no subsidy program to replace the temporary reserve for corn. And corn is China's largest crop--its output and number of producers are more than ten times those of cotton, soybeans, or rapeseed. This year's abandonment of rapeseed temporary reserve purchasing left it up to provincial authorities to figure out how to subsidize producers.
The rumored broad-brush liberalization does not address how the huge existing stocks would be disposed of. Progress has been slow in drawing down cotton stocks and corn reserve auctions have not seen much success this summer. If corn prices are allowed to plummet, there would be no hope of recovering the acquisition and holding costs of its corn reserve which is likely far above 100 million metric tons. Taking a loss and selling the corn into the market at a discount would push market prices for corn down even faster.
It's too soon to evaluate the impact of this rumor, but there will surely be more to come over the next four months.
Saturday, July 11, 2015
Imported Soybeans Used by Food Processors
In recent years, China's soybean industry became compartmentalized: imported GMO soybeans are used in the edible-oil crushing industry while domestic non-GMO soybeans are used for foods like tofu and soybean milk. As Chinese soybean production falls, there are indications that use of
imported soybeans is spilling over into the food processing sector.
A June article on a Chinese website noted that food processors--including some large fast food chains--began using imported soybeans in 2012 as they became cheaper than domestic soybeans. The price advantage of imported soybeans was about 1000 yuan per metric ton in 2014. Now, says the article, "people are worried that imported GMO soybeans are going directly into their stomachs."
The article explains that soybean crushing plants directly purchase imported soybeans in most of the 20 or so ports where the beans enter China. However, there is an open market for soybeans at two ports--Qingdao and Lianyungang--where imported soybeans are mixed with domestic beans. Soybean traders from surrounding areas have been coming there to buy soybeans. Traders from several cities in Anhui reportedly buy imported soybeans for use in tofu and other soybean food products. Others use them for making soybean products like the strips of tofu in hot and sour soup.
"Anhui Province's soybeans are only available after they're harvested and the price for soybeans from the Northeast is too high, so when cheap soybeans are available we have to use them," said a trader from Huainan City quoted in the article. He said the imported soybeans have been in use for years and there has been no problem from people eating them.
A recent soybean market analysis reports very similar information about growing use of imported GMO soybeans in food processing over the past two years.
However, this is an issue of high Chinese soybean prices--not GMOs. The soybean market analysis also notes that shipments of non-GMO soybeans from Russia have been arriving in Heilongjiang Province this year, with prices about 200 yuan/ton less than Chinese soybean prices in that region. Some manufacturers of soybean foods and soy sauce have been using the Russian beans. Reports last year revealed that Chinese farmers growing soybeans in Russia had shipped more of their beans back to China after the crash of the Ruble.
This phenomenon is the result of China's policy that supports corn prices at an artificially high level. The high corn price induces farmers to switch their land from soybeans to corn, thus creating an oversupply of corn and a short supply of domestic soybeans. Tofu-makers have to either bid against each other for a shrinking supply of domestic non-GMO soybeans or find alternatives. A type of Anhui soybean favored by processors reportedly sells for 5000 yuan per metric ton. The "target price" for Heilongjiang soybeans is 4800 yuan per metric ton. Imported GMO soybeans sell for 3200 yuan per metric ton or less, and imported non-GMO Russian soybeans sell for 3600-3800 yuan.
The supply of domestic soybeans looks set to decline further. A crop tour of China's northeastern provinces last month estimated that area planted in soybeans declined 25% in 2015 while corn area increased 5%. The 60.5 yuan per mu "target price subsidy" for soybean farmers in the northeastern provinces was not enough to induce them to grow more. In Henan and Anhui, there is no soybean subsidy. According to a soybean market report last week, soybeans have disappeared in some regions of Henan and Anhui Provinces. However, an early-maturing variety grown in Hubei Province is getting a lot of attention and sells for a very high price.
A June article on a Chinese website noted that food processors--including some large fast food chains--began using imported soybeans in 2012 as they became cheaper than domestic soybeans. The price advantage of imported soybeans was about 1000 yuan per metric ton in 2014. Now, says the article, "people are worried that imported GMO soybeans are going directly into their stomachs."
The article explains that soybean crushing plants directly purchase imported soybeans in most of the 20 or so ports where the beans enter China. However, there is an open market for soybeans at two ports--Qingdao and Lianyungang--where imported soybeans are mixed with domestic beans. Soybean traders from surrounding areas have been coming there to buy soybeans. Traders from several cities in Anhui reportedly buy imported soybeans for use in tofu and other soybean food products. Others use them for making soybean products like the strips of tofu in hot and sour soup.
"Anhui Province's soybeans are only available after they're harvested and the price for soybeans from the Northeast is too high, so when cheap soybeans are available we have to use them," said a trader from Huainan City quoted in the article. He said the imported soybeans have been in use for years and there has been no problem from people eating them.
A recent soybean market analysis reports very similar information about growing use of imported GMO soybeans in food processing over the past two years.
However, this is an issue of high Chinese soybean prices--not GMOs. The soybean market analysis also notes that shipments of non-GMO soybeans from Russia have been arriving in Heilongjiang Province this year, with prices about 200 yuan/ton less than Chinese soybean prices in that region. Some manufacturers of soybean foods and soy sauce have been using the Russian beans. Reports last year revealed that Chinese farmers growing soybeans in Russia had shipped more of their beans back to China after the crash of the Ruble.
This phenomenon is the result of China's policy that supports corn prices at an artificially high level. The high corn price induces farmers to switch their land from soybeans to corn, thus creating an oversupply of corn and a short supply of domestic soybeans. Tofu-makers have to either bid against each other for a shrinking supply of domestic non-GMO soybeans or find alternatives. A type of Anhui soybean favored by processors reportedly sells for 5000 yuan per metric ton. The "target price" for Heilongjiang soybeans is 4800 yuan per metric ton. Imported GMO soybeans sell for 3200 yuan per metric ton or less, and imported non-GMO Russian soybeans sell for 3600-3800 yuan.
The supply of domestic soybeans looks set to decline further. A crop tour of China's northeastern provinces last month estimated that area planted in soybeans declined 25% in 2015 while corn area increased 5%. The 60.5 yuan per mu "target price subsidy" for soybean farmers in the northeastern provinces was not enough to induce them to grow more. In Henan and Anhui, there is no soybean subsidy. According to a soybean market report last week, soybeans have disappeared in some regions of Henan and Anhui Provinces. However, an early-maturing variety grown in Hubei Province is getting a lot of attention and sells for a very high price.
Friday, July 10, 2015
China Re-engineers Farm Subsidy System
Chinese authorities have launched a reform of their decade-old farm subsidy program that will divert funds for grain subsidies to "new-style" large-scale farm operations that don't currently get subsidies. Most subsidy funds will still go to villagers for their contracted land, but those subsidies are redesigned to make sure they plant grain on the subsidized land. The details on how the subsidies will be given are left up to authorities in five pilot provinces.
The reform was initiated in an obscure document issued by the Ministries of Finance and Agriculture May 22, 2015. The reform focuses on so-called "three subsidies":
Pilot counties will be chosen in 5 provinces--Shandong, Anhui, Hunan, Sichuan, and Zhejiang--to experiment with the reform during 2015. Other provinces can experiment with the reforms as long as their pilots are confined to a limited geographic region. The experience will be evaluated in 2016 to determine whether the reform should be spread nationwide.
The MOF/MOA document gives general guidance about how new subsidies should be implemented, emphasizing that they should be adapted to local conditions. One chunk of funds will subsidize "appropriate scale grain operations" that include large grain farms, family farms, cooperatives, land trusts, companies renting land from villages, and organizations providing technical services. It will divert 20% of "general input subsidy" funds for this purpose, supplemented by a fund for large grain farmer subsidies. Any increases in grain subsidy funds will go to the large farmer subsidy fund. The document emphasizes that these funds will be used to begin establishment of a nationwide farm credit system that will eventually cover all grain-producing areas. The initial measures will be loan guarantees and interest subsidies that cover no more than half the interest on loans. Cash subsidies may be given to nongovernmental organizations that provide technical services to farmers (probably machinery cooperatives and pest-control teams).
The second tranche of subsidies will go to the traditional targets: village households with land contracting rights. This will include 80% of the general input subsidy funds, the direct payment for grain producers and the improved seed subsidy. Farmers must agree not to leave their land idle and the productivity of their land must not decline (the language is ambiguous: "地力不降低"). They will not get subsidies for land used for greenhouses, livestock farms, trees, or nonfarm uses. The subsidies will be used to "strengthen farmers' consciousness of ecological protection."
Sichuan announced that the recipients of "appropriate scale grain producer" subsidies would be producers of wheat, rice, corn, potatoes, soybeans, highland barley, and buckwheat, including large grain farmers (粮食大户), family farms (家庭农场), farmer cooperatives (农民合作社), and nongovernmental providers of technical services (农业社会化服务组织), and agricultural companies (农业龙头企业). Each type of farm has a different minimum size threshold for receiving the subsidies, and the thresholds are slightly larger in the Chengdu region--there are 10 thresholds in all, ranging from 30 mu (5 acres) to 1000 mu (165 acres). The pilot will cover the entire province.
Households with contracted land in Sichuan were to receive their "cropland fertility protection subsidy" payment in their bank account by the end of June. Subsidies for "appropriate scale" operations can take various forms, including establishment of a loan guarantee system, interest subsidies, and aid for provision of technical services.
Shandong Province announced that subsidies will be more targeted and full mobilize farmers' enthusiasm for planting grain after its subsidy reform. The subsidies for households will be 125 yuan per mu ($121 per acre) of wheat planted. The subsidy for large farms of 50 mu or more will be 60 yuan per mu ($58 per acres) with an upper limit of 125,000 yuan ($20,000).
In Shandong, the subsidies for wheat and corn seeds will be folded into the single subsidy for wheat area planted. The cotton seed subsidy will no longer be given separately; it will be folded into the new "target price" subsidy for cotton. The peanut seed subsidy will continue for a year with expanded coverage.
Shandong's household farm subsidies will be used for a long list of environmentally friendly measures, including reduction of chemical fertilizer and pesticide use, supplying silage for ruminant animals, eliminating burning of straw, deep-ploughing fields, developing water-saving agriculture, integrating agricultural water and fertilizer industries, water-saving livestock production, and even rural garbage and sewage treatment. There are no details about subsidies for large farms in Shandong.
The themes of restructuring agriculture, improving financial services, and dealing with environmental problems were featured in a July 1 communist party study session for agricultural officials led by Party Secretary and Ministry of Agriculture Han Changfu. He instructed officials to do a good job in pilot programs for land transfer, grasp the "historic opportunity" to transform the mode of agricultural development. "Important instructions from the central leadership" were given to guide the orderly transfer of cropland, increase support for new-style farming operations, and actively and safely guide industrial and commercial investment in the agricultural sector.
Speeches by the Minister and Vice Minister to a national meeting on livestock modernization also called for accelerating the transformation of livestock from backyard modes to "appropriate scale" and nurturing new-style livestock operations.
The General Agricultural Development program--a program to leverage investment in basic agricultural infrastructure like digging irrigation canals, building roads, and leveling fields--was revised to include new-style farms alongside the traditional village-wide or township projects.
The subsidy reform reflects orders from top officials to push forward the restructuring not only of farming but also the administrative system designed to oversee it. Since the "household responsibility" reform of the late 1970s, the village land-contracting system has been the basis for carrying out most agricultural policies. Officials have now been pushed into a new reform that will remold farming into larger-scale, more commercial-oriented entities. A new approach to overseeing these new-style farms and giving them services is needed. At the same time, officials have been forced to come to terms with decades of maximizing production without regard to environmental consequences or future productivity of land.
The reform was initiated in an obscure document issued by the Ministries of Finance and Agriculture May 22, 2015. The reform focuses on so-called "three subsidies":
- a "general input subsidy" for grain producers
- a direct payment to grain producers
- subsidies for "improved seeds" for rice, wheat, corn, soybeans, rapeseed, cotton, peanuts, and highland barley.
Pilot counties will be chosen in 5 provinces--Shandong, Anhui, Hunan, Sichuan, and Zhejiang--to experiment with the reform during 2015. Other provinces can experiment with the reforms as long as their pilots are confined to a limited geographic region. The experience will be evaluated in 2016 to determine whether the reform should be spread nationwide.
The MOF/MOA document gives general guidance about how new subsidies should be implemented, emphasizing that they should be adapted to local conditions. One chunk of funds will subsidize "appropriate scale grain operations" that include large grain farms, family farms, cooperatives, land trusts, companies renting land from villages, and organizations providing technical services. It will divert 20% of "general input subsidy" funds for this purpose, supplemented by a fund for large grain farmer subsidies. Any increases in grain subsidy funds will go to the large farmer subsidy fund. The document emphasizes that these funds will be used to begin establishment of a nationwide farm credit system that will eventually cover all grain-producing areas. The initial measures will be loan guarantees and interest subsidies that cover no more than half the interest on loans. Cash subsidies may be given to nongovernmental organizations that provide technical services to farmers (probably machinery cooperatives and pest-control teams).
The second tranche of subsidies will go to the traditional targets: village households with land contracting rights. This will include 80% of the general input subsidy funds, the direct payment for grain producers and the improved seed subsidy. Farmers must agree not to leave their land idle and the productivity of their land must not decline (the language is ambiguous: "地力不降低"). They will not get subsidies for land used for greenhouses, livestock farms, trees, or nonfarm uses. The subsidies will be used to "strengthen farmers' consciousness of ecological protection."
Sichuan announced that the recipients of "appropriate scale grain producer" subsidies would be producers of wheat, rice, corn, potatoes, soybeans, highland barley, and buckwheat, including large grain farmers (粮食大户), family farms (家庭农场), farmer cooperatives (农民合作社), and nongovernmental providers of technical services (农业社会化服务组织), and agricultural companies (农业龙头企业). Each type of farm has a different minimum size threshold for receiving the subsidies, and the thresholds are slightly larger in the Chengdu region--there are 10 thresholds in all, ranging from 30 mu (5 acres) to 1000 mu (165 acres). The pilot will cover the entire province.
Households with contracted land in Sichuan were to receive their "cropland fertility protection subsidy" payment in their bank account by the end of June. Subsidies for "appropriate scale" operations can take various forms, including establishment of a loan guarantee system, interest subsidies, and aid for provision of technical services.
Shandong Province announced that subsidies will be more targeted and full mobilize farmers' enthusiasm for planting grain after its subsidy reform. The subsidies for households will be 125 yuan per mu ($121 per acre) of wheat planted. The subsidy for large farms of 50 mu or more will be 60 yuan per mu ($58 per acres) with an upper limit of 125,000 yuan ($20,000).
In Shandong, the subsidies for wheat and corn seeds will be folded into the single subsidy for wheat area planted. The cotton seed subsidy will no longer be given separately; it will be folded into the new "target price" subsidy for cotton. The peanut seed subsidy will continue for a year with expanded coverage.
Shandong's household farm subsidies will be used for a long list of environmentally friendly measures, including reduction of chemical fertilizer and pesticide use, supplying silage for ruminant animals, eliminating burning of straw, deep-ploughing fields, developing water-saving agriculture, integrating agricultural water and fertilizer industries, water-saving livestock production, and even rural garbage and sewage treatment. There are no details about subsidies for large farms in Shandong.
The themes of restructuring agriculture, improving financial services, and dealing with environmental problems were featured in a July 1 communist party study session for agricultural officials led by Party Secretary and Ministry of Agriculture Han Changfu. He instructed officials to do a good job in pilot programs for land transfer, grasp the "historic opportunity" to transform the mode of agricultural development. "Important instructions from the central leadership" were given to guide the orderly transfer of cropland, increase support for new-style farming operations, and actively and safely guide industrial and commercial investment in the agricultural sector.
Speeches by the Minister and Vice Minister to a national meeting on livestock modernization also called for accelerating the transformation of livestock from backyard modes to "appropriate scale" and nurturing new-style livestock operations.
The General Agricultural Development program--a program to leverage investment in basic agricultural infrastructure like digging irrigation canals, building roads, and leveling fields--was revised to include new-style farms alongside the traditional village-wide or township projects.
The subsidy reform reflects orders from top officials to push forward the restructuring not only of farming but also the administrative system designed to oversee it. Since the "household responsibility" reform of the late 1970s, the village land-contracting system has been the basis for carrying out most agricultural policies. Officials have now been pushed into a new reform that will remold farming into larger-scale, more commercial-oriented entities. A new approach to overseeing these new-style farms and giving them services is needed. At the same time, officials have been forced to come to terms with decades of maximizing production without regard to environmental consequences or future productivity of land.
Thursday, July 2, 2015
Chinese GMOs: Scientists On the Offensive
Last month, Chinese scientists struck back against consumer fears about genetically modified crops. One scientist gave a speech designed to boost confidence in genetic engineering at a food safety forum held in Beijing. At another meeting last month a scientist noted that China has numerous genetically modified corn varieties that could pass the country's multistage approval process within 3-to-5 years.
At a "media training camp" on food safety sponsored by China's State Council, Professor Luo Yunbo, dean of Food Science at China Agricultural University, emphasized that this is the "biological century," and predicted that biotechnology will play a major role in food, environment, health and medicine. Luo emphasized that biotechnology is more predictable and efficient than conventional breeding.
Luo dispelled three rumors that have been circulating on the Internet in China. A French study claiming to find more tumors on rats fed genetically modified corn was retracted by the journal that published it. Many Chinese people think Americans don't eat GMOs, but in fact nearly all the corn and soybeans consumed in the United States are genetically modified. It's not true that no GMO foods are available in Europe and Japan--the foods don't have to be labeled if they contain less than 1% GMO material in Europe and less than 5% in Japan. (In mainland China there is a zero tolerance.) Luo also dismissed other rumors as nonsense--that genetically modified corn makes Chinese men infertile, and that GMO cotton induced 200,000 Indian farmers to commit suicide.
Professor Luo called for educating the public about genetic engineering so that genetically modified foods will have good prospects for development.
Caijing news reported on the speech by Professor Wang Guoyang of the Chinese Academy of Agricultural Sciences given at a June 24, 2015 conference on research and application of Bacillus thuringiensis (Bt). Professor Wang said Chinese seed companies are seeking safety certificates for a number of genetically-modified pest-resistant corn varieties. He estimated that the new seeds could be commercialized in 3 to 5 years after navigating the multiple stages of approval: lab research, intermediate trials, environmental release, production trials and application for safety certificates.
There is great demand among farmers for pest-resistant varieties because insects like corn borers and army worms destroy an estimated 30 million metric tons of the corn crop annually. During 2012, Caijing said an army worm infestation that began in the northeast affected 50 million mu of corn fields, including 640,000 mu where the crop was completely destroyed.
Caijing pointed out that severe pest pressures prompted adoption of Bt cotton in 1999. The pest-resistant cotton was almost universally adopted in eastern China, allowing production to rebound after being devastated during the 1990s.
Caijing notes that China's Ministry of Agriculture has set priorities for commercializing GMO crops: first, nonfood crops like cotton; then crops like corn for feed and industrial processing; and finally food crops--presumably rice and wheat.
According to Caijing, MOA is moving toward commercialization of genetically modified pest-resistant corn. In June 2014, the Ministry of Agriculture reportedly launched a "research on industrialization of genetically modified pest-resistant corn" task force to set up a system to move new GMO corn varieties through the stages of approval to ultimately commercialize their use in China. The task force was to begin work in January 2015 and complete its work by the end of 2017.
At a "media training camp" on food safety sponsored by China's State Council, Professor Luo Yunbo, dean of Food Science at China Agricultural University, emphasized that this is the "biological century," and predicted that biotechnology will play a major role in food, environment, health and medicine. Luo emphasized that biotechnology is more predictable and efficient than conventional breeding.
Luo dispelled three rumors that have been circulating on the Internet in China. A French study claiming to find more tumors on rats fed genetically modified corn was retracted by the journal that published it. Many Chinese people think Americans don't eat GMOs, but in fact nearly all the corn and soybeans consumed in the United States are genetically modified. It's not true that no GMO foods are available in Europe and Japan--the foods don't have to be labeled if they contain less than 1% GMO material in Europe and less than 5% in Japan. (In mainland China there is a zero tolerance.) Luo also dismissed other rumors as nonsense--that genetically modified corn makes Chinese men infertile, and that GMO cotton induced 200,000 Indian farmers to commit suicide.
Professor Luo called for educating the public about genetic engineering so that genetically modified foods will have good prospects for development.
Caijing news reported on the speech by Professor Wang Guoyang of the Chinese Academy of Agricultural Sciences given at a June 24, 2015 conference on research and application of Bacillus thuringiensis (Bt). Professor Wang said Chinese seed companies are seeking safety certificates for a number of genetically-modified pest-resistant corn varieties. He estimated that the new seeds could be commercialized in 3 to 5 years after navigating the multiple stages of approval: lab research, intermediate trials, environmental release, production trials and application for safety certificates.
There is great demand among farmers for pest-resistant varieties because insects like corn borers and army worms destroy an estimated 30 million metric tons of the corn crop annually. During 2012, Caijing said an army worm infestation that began in the northeast affected 50 million mu of corn fields, including 640,000 mu where the crop was completely destroyed.
a corn field in Liaoning Province stripped of leaves by army worms in 2012
Caijing pointed out that severe pest pressures prompted adoption of Bt cotton in 1999. The pest-resistant cotton was almost universally adopted in eastern China, allowing production to rebound after being devastated during the 1990s.
Caijing notes that China's Ministry of Agriculture has set priorities for commercializing GMO crops: first, nonfood crops like cotton; then crops like corn for feed and industrial processing; and finally food crops--presumably rice and wheat.
According to Caijing, MOA is moving toward commercialization of genetically modified pest-resistant corn. In June 2014, the Ministry of Agriculture reportedly launched a "research on industrialization of genetically modified pest-resistant corn" task force to set up a system to move new GMO corn varieties through the stages of approval to ultimately commercialize their use in China. The task force was to begin work in January 2015 and complete its work by the end of 2017.