China's rice and wheat were designated as "crops that must be protected" (必保品种) in the communist party's "Document Number one" issued early in 2019, and "absolute security in food grains" has been a recurring buzz word in official speeches this year. Shortly after the document was released, officials announced that the minimum purchase price for rice would be held steady this year after two years of reductions and much rhetoric last year about "marketizing" grain policy. In addition, rice growers are promised generous subsidies. Yet authorities are also prioritizing disposal of "huge" stockpiles of rice and targeting marginal areas for cut-backs in rice-growing.
An article this month posted on many web sites (implying backing by propaganda officials) advised rice farmers that China has many subsidies to support them and advised farmers to seek out subsidies available in their area. Subsidies include:
- The minimum purchase price for rice set at early indica rice 2400 yuan/mt, middle-late indica rice 2560 yuan/mt, japonica rice 2600 yuan/mt.
- Rice growers can also receive a direct payment based on the amount of rice they plant. The amount and mechanism is set by local authorities using funds issued to provinces by the central government. The subsidy was reported to be 250 yuan per mu (about $560 per hectare) in 2018.
- A subsidy for large-scale farmers ("large" threshold generally is 50 mu or 3.3 hectares) is set by local governments. This subsidy varies from 40 to 100 yuan per mu.
- Subsidized insurance against disasters--farmers pay no more than 20% of the premiums.
- Subsidized insurance for rice seed producers.
- A subsidy for leaving rice land fallow (on land contaminated with heavy metal or with shrinking aquifers) or rotating rice with corn, soybeans, rapeseed. Heilongjiang Province's subsidy is 500 yuan per mu. Pilot regions cover 2 million hectares.
- A transfer payment of 5 to 80 million yuan is made to local governments of major grain-producing counties to bolster their finances. In addition, five "super grain producing counties" are chosen in each of 13 major grain-producing provinces--based on production and marketing statistics-- to get additional payments earmarked for supporting the grain industry.
- Heilongjiang has a new pilot program for "intelligent rice-soaking" equipment to promote germination of seeds. The subsidy is 1 yuan/kg or 4 yuan/mu.
Officialdom's concern about maintaining rice production seems to clash with dour reports on China's rice market. One such report that appeared in November after last fall's harvest bemoaned weak prices, difficulty selling rice, and financial losses by large-scale rice growers.
A March 2019 article in Chinese official news media estimated that China has a "huge" inventory of "policy-type" rice of 140 mmt after several years of production exceeding 210 mmt. Since 2013, the State has purchased 30 mmt or more of rice each year but sold off only a cumulative total of 40 mmt, and the article estimated that the stocks-to-use ratio is now 70%. Rice can generally be held only 2-to-3 years before it becomes discolored, loses its taste and becomes vulnerable to mold and sprouting, the article said, and warned that illegal sales of aging grain is a threat to food safety. According to Chinese Academy of Social Sciences Professor Li Guoxiang, “Most aging rice is auctioned to trading and feed enterprises, and use of the grain is difficult to supervise, posing a food safety hazard.” A proposal to use rice stocks to make fuel ethanol offered during China's National Peoples Congress session in March said much of the stockpile is unfit for human or animal consumption due to mycotoxins and heavy metals.
A massive audit of grain stocks currently underway will quantify “problem rice.” A January 17-18, 2019 meeting of grain and commodity reserve workers said this year’s priority will be disposal of “irrational” reserves. Several new methods for auctioning rice reserves have been introduced, but sales during 2018 were down 1.7 mmt from the previous year.
Inside a rice warehouse in China |
China's National Grain and Oils Information Center's (CNGOIC) first estimates of rice supply and demand for the 2019/20 market year indicate that China's rice supply will again exceed consumption by 16 million metric tons, which implies another increase in the stockpile (the Center does not publish estimates of grain stocks). CNGOIC expects a decline in 2019 output of 5.46 mmt due to a modest reduction in area planted. Small increases in consumption of rice for feed and industrial use will be partially offset by a 200,000-mt decline in food use. The most notable change is a forecast of 4 mmt in rice exports and a decline in rice imports to 3.5 mmt which would make China a net exporter of rice following a number of years as the world's top importer. (Most of CNGOIC's balance sheet is in rough rice values, but imports and exports reported in customs data are almost entirely milled, and CNGOIC appears to make no adjustment to make these values consistent with the rest of the balance sheet.)
USDA's PS&D also anticipates an increase in China's rice exports to 3 mmt during 2019/20, but USDA expects China to remain a net importer with imports of 4 mmt. USDA expects China to remain the largest importer of rice during 2019/20 while China also will be the 6th-leading exporter. USDA estimates suggest China's 3-mmt of rice exports will have increased more than ten-fold from 271,000 mt during 2015/16.
Top 10 rice importing and exporting countries, 2019/20 | ||||
(Thousand metric tons) | ||||
Rice importers: | Imports | Rice exporters: | Exports | |
China | 4,000 | India | 12,500 | |
Philippines | 2,700 | Thailand | 10,000 | |
Nigeria | 2,400 | Vietnam | 6,500 | |
European Union | 2,000 | Pakistan | 4,000 | |
Cote d'Ivoire | 1,600 | United States | 3,207 | |
Saudi Arabia | 1,350 | China | 3,000 | |
Iraq | 1,300 | Burma | 2,800 | |
Senegal | 1,250 | Cambodia | 1,300 | |
Iran | 1,200 | Uruguay | 775 | |
South Africa | 1,050 | Paraguay | 600 | |
Source: USDA Production, Distribution, and Supply data. |
During January-March 2019, China was still a net importer of rice, but exports were up 42% from a year earlier and imports were down 25%. Thailand is China's largest rice supplier after imports from Vietnam fell 90% y-o-y. The precipitous decline in rice from its leading supplier of imports until last year is apparently due to strict Chinese inspection requirements as China's phytosanitary concerns about imports once again arise at the same time its domestic market is facing a glut. Meanwhile, China's rice imports from Pakistan doubled.
While China's rice exports were up 42% by volume from a year earlier, their value was up only 4%. Sales of cheap medium grain rice to Egypt ($280/mt) led the growth while exports of pricey medium grain ($780/mt) to South Korea dropped 50%. Turkey and Papua New Guinea were the other top destinations for China's medium grain rice.
Source: China Customs website, based on dollar value. |
China's top destinations for long grain rice exports were Cote d'Ivoire, Cameroon, and Guinea, also at bargain prices of about $280-$300/mt.
Source: China Customs website, based on dollar value. |
However, China's large rice shipments to Egypt and Cote d'Ivoire at bargain prices surely reflect sales of excess reserves as part of China's rice de-stocking process. The $280/mt unit value of the exports to these countries works out to be RMB 1900/mt--less than the opening prices of RMB 2100/mt at China's auctions of rice reserves and far below market prices in China. Medium grain rice reserves would have been purchased at farm-gate prices of RMB 3100/mt during 2014-16 and RMB 2600/mt during 2017-18. These prices for un-milled rice also exceed the apparent prices received for exports this year.
The quantum leap in China's rice exports to 4 mmt for 2019/20 projected by CNGOIC also surely reflects aspirations to dump part of China's stockpile overseas in a way that prevents further downward pressure on prices in China. This comes at the same time India is also subsidizing rice exports purchased by its own price support program. Developing countries appear to be replaying agricultural policy history of the mid-20th century when North America and Europe did precisely the same thing.
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