80% Decline in Pigs in County Survey by Journalist

A journalist found swine inventories were only 5-to-20 percent of normal in 7 of 10 Chinese counties visited this month. This and several other surveys dug out of the Chinese internet reveal the degree to which hog numbers were decimated by African swine fever and the real challenges facing recovery. Facts on the ground are in sharp contrast to propaganda about rebounding production being trumpeted by Chinese news media.

The article, "Inventories have fallen again in 10 major nationally-known swine-raising counties! At the end of the year inventories have fallen 75% since June in Xiangtan, Longyan, and Qionglai" was originally published by Nong Cai Bao Dian's (农财宝典) livestock news based in Guangdong Province (the site now appears to be inaccessible). The journalist followed up an earlier report on swine numbers in these counties by checking official statistics and interviewing local industry people. The journalist described her data as "rough" estimates and emphasized that they were only for reference.

A summary of the journalists' findings are shown in the table below. Bobai county in Guangxi and Gao'an City in Jiangxi Province were hit hardest, with the stock of finishing hogs just 5-10% of normal in Bobai and 10% of normal in Gao'an. Sow numbers were just 5% of normal in those two regions. Fujian's Nanping City was least-impacted with its inventory at 70-80% of normal. Shandong's Ju'nan County has 20-50% of its normal hog inventory. Seven of the ten counties had hog inventories at 20% or less of normal. These translate to declines in swine numbers of 80-95% in most of the counties, more than double the 40-percent national decline reported by the Ministry of Agriculture and Rural Affairs.

Estimated swine inventories in 10 Chinese counties/cities, December 2019
		Previous annual production (head)	Current inventory as percent of normal
Province	County/city		Finishing hogs	Sows
Guangxi	Bobai County	2.2 mil	5-10%	5%
Guangdong	Sihui City	1.2 mil	10%	10%
Guangdong	Huazhou City	na	10-20%	10-20%
Guangxi	Luchuan County	1 mil	5-20%	20-25%
Shandong	Ju'nan County	2 mil	20-50%	20%
Jiangxi	Gao'an City	2.66 mil	10%	5%
Sichuan	Qionglai City	1.38 mil	10-20%	20%
Hunan	Xiangtan County	1.75 mil	20%	20%
Fujian	Longyan City	4.5 mil	20-40%	20-30%
Fujian	Nanping City	1.45 mil	70-80%	70-80%
Estimates by Nong Cai Bao Dian journalist Zeng Huiling.

The counties are not nationally representative. Most are in southern provinces which appear to have been hit hardest by the epidemic. Only one county in Shandong was north of the Yangtze River.

Swine-producing counties surveyed by Nong Cai Bao Dian journalist:
Numbers are current swine inventory as percent of "normal"

The reporter found that hog production has failed to revive or has even deteriorated over the last six months in a number of counties. In Guangxi's Bobai county the reporter heard that farmers were hesitant to resume pig production due to fears of a second outbreak, lack of financing, and inability to buy breeding pigs due to strict approval requirements. In Guangdong's Sihui County, the reporter heard that some farmers were receiving help from big companies in restoring production, but recovery was judged to be "not optimistic" with less than 10% of sows remaining. Huazhou in western Guangdong used to have 1,000 sow farms, but only 100 are "testing the water" with a "gambling mentality." Pigs have survived so far in Huazhou, but farms are not expanding as they maintain a cautious attitude.

In Guangxi Province's Luchuan County recovery of production is active among scaled-up farms. In Ju'nan County of Shandong Province, recovery is also limited to large-scale farms, as small and medium farms have largely quit the market due to lack of financing and inability to resist disease. In Gao'an County of Jiangxi farmers are deterred by the high price of sows and may resume production after the spring festival. In Qionglai City, Sichuan Province a pair of 2000-head farms encountered problems when they restocked their farms. The high price of piglets and fear of disease outbreaks are also cited as deterrents to farmers in Qionglai. In Longyan City, Fujian Province, there has been a lot of activity, but no real success in restoring production. In Nanping City, Fujian, the decline in production was less severe than in the other counties surveyed, but most farms have kept their herds stable between June and December.

An Internet search verified several inventory numbers reported by the journalist and one apparent error was discovered, but no official statistics could be found online for most of the counties. China conducted an agricultural census in 2017 that would provide a baseline for evaluating the impact of African swine fever, but no detailed data have been published nationally or by provinces. One exception is Longyan City's statistical bureau which published a detailed report with several tables about local pig farms.

Xiangtan County's statistics bureau surveyed the local swine industry and reported a 20-percent year-on-year decline in hog numbers and a 23-percent decline in sow numbers in the third quarter of 2019--much slower than the 80-percent declines reported by the journalist. The bureau noted that its decline was slower than an 87-percent decline in sow numbers contained in a report by a Tsinghua University professor (from 40 million at the beginning of 2018 to under 5 million in July 2019). The bureau said Xiangtan's supply and demand for pork were "balanced," but it also described local production capacity as "seriously deficient." The report said hog prices were up 230 percent from a year earlier, piglet prices were up 300 percent, and pork prices were up 270 percent. The bureau said medium and small farmers were deterred by disease risk, environmental pressures, and risk of price fluctuations. Backyard farmers had basically quit the market under disease pressure, the Xiangtan report said. Farms with 200-500 head mostly could not afford required manure treatment equipment, and larger farms needed to upgrade old facilities. Land is an obstacle to expansion. Some abandoned industrial sites are available to build pig farms, but the cost of cleaning up the sites is often prohibitive, the Xiangtan report said.

An October report by the government production cost survey team in Lin'yi Prefecture, Shandong Province found that the swine inventory in Ju'nan County had declined greatly, falling from 1 million to 526,000 hogs--broadly consistent with the journalist's report. The Lin'yi report said just 10,000 sows remained in Ju'nan County--the fewest ever.

A futures company's early-December tour of farms and slaughterhouses in Henan Province--the largest pig-producing province and a region not covered by the journalist's survey--found that small farmers had been largely forced out of business by the peak disease period between October 2018 and January 2019. The manager of a large slaughterhouse estimated that Henan's swine inventory had shrunk by 60 percent--much faster than the 40-percent reported by the province's official statistics. In some parts of Henan, inventories are estimated to have fallen by 60-to-90 percent. One 18,000-head farm lost half its herd. One nucleus breeding farm was hit hard by the epidemic and was recently bought by a farming company from south China. A manager of a large farming and slaughter company in Henan said the disease situation remained pessimistic.

Henan province experienced scattered ASF outbreaks in November 2019 that spread from north to south, wiping out about 60 percent of swine on farms with 100-to-500 head. According to the futures company report, the virus is reportedly less deadly than last year and is often mixed with other infections such as blue ear disease. Farmers in Henan are not clearing out entire farms in a panic as they did last year; instead they are culling selectively--a strategy known as "extraction." Farms have switched from grinding and mixing feed on-farm to buying complete formulated feed because they fear contaminated grain could infect their farm. Soozhu.com noted the recent outbreak in Henan in a commentary, anticipated that disease could spread more during the winter months, and argued that extraction is only feasible for large farms while smaller scattered farms still need to be completely depopulated when there is an ASF infection.

The futures analysts' tour heard that large farms and about 20 percent of small farms have been active in reviving hog production. Small farms held about 70 percent of swine in Henan before ASF but now their share was estimated to be 30 percent. Farms began retaining gilts for breeding earlier this year and are now farrowing, but their litters are small and breeding success is about 60 percent. The success rate in restocking farms varies from 40-50 percent to 70 percent. Disease risk, cash flow, and high prices for piglets and sows are deterrents. A farm in Anyang City that lost all but 400 of its 3600 sows during the epidemic says it hopes to restore its inventory of sows and finishing hogs to 30 percent of normal in 2020. One Henan farmer said not many hog farmers have switched to raising poultry because pig farmers cannot easily adapt to the feed, techniques, and housing requirements for poultry. In another part of Henan, the futures analysts were told that 60-70 percent of farmers had switched to poultry-raising.

Slaughterhouse managers and pig traders in Henan told the futures analysts that pork demand dropped sharply as prices soared in October. One said the decline in pork price during November reflected a decline in demand, not an increase in supply. There was a bump in pork consumption as weather turned colder during December, but the slaughterhouse official is pessimistic about sales of traditional cured pork products this winter due to the high prices.

Poverty and Grain Concerns Top Rural Agenda

Winning the "war on poverty" is China's rural policy priority for next year, but worries about grain supplies received a surprising amount of attention at the "rural work meeting" for Chinese officials held last week. Trade with the United States does not appear to have been formally discussed, but the urgency to increase rural income and bolster profits for grain producers emphasized at the meeting appear to clash with China's commitment to import more U.S. commodities.

Officials were instructed to shore up rural infrastructure and water supplies, clean up village sanitation and housing, and improve rural education, health care, social insurance and public services. Poverty alleviation efforts are elevated as China rushes to achieve an "all-round moderately well-off (小康) society," an objective first articulated 40 years ago by Deng Xiaoping, amplified by Xi Jinping, and due to be achieved in 2020 according to communist party dogma. The party secretary of the State Council poverty alleviation office chaired this year's rural work meeting for the first time, presumably to stress the priority of anti-poverty work.

Anti-poverty efforts were prioritized in this year's "number one document" and cadres will double down on the job next year as they rush to ensure that the 2020 "well-off" objective is achieved. At a separate poverty alleviation work meeting held last week, it was reported that 2019 targets were met by reducing the impoverished population by 10 million and raising 340 counties above the poverty level. At the rural work meeting cadres were warned that they should be on guard to prevent people and places from slipping back into poverty.

Increasing rural income by moving people out of hopelessly impoverished regions and promoting rural industries are the core tasks. Companies have been instructed to help poor villagers start pig farms, fruit orchards and promote other business in impoverished areas and "actively" encourage entrepreneurs to launch business start-ups. The Agricultural Development Bank has special funds to buy up grain and cotton produced in regions targeted for poverty alleviation. Efforts will be made to create rural brands and sell products from impoverished regions via e-commerce and other new channels.

Other instructions were to "stabilize" employment of migrant workers, encourage returning migrants to start businesses and to strengthen efforts to recover their unpaid wages. These were also priorities during the 2009 economic slowdown and seem to indicate that the lower tier of workers have been hit hard by China's current economic slowdown and financial pressures on their employers.

Minister of Agriculture Han Changfu's comments on grain production at the rural work meeting suggested leaders are worried that the country's grain output is on a knife's edge. After reciting statistics about China's record grain harvest, Minister Han warned officials that grain production capacity is "still not stable." Han put officials on alert against declining earnings from grain crops and other persistent problems. In some regions, Han warned, local officials have not prioritized grain production and output has fallen.

In 2020 China will strengthen the role of grain production targets in job evaluations of provincial officials as part of the "governors' grain bag responsibility system." China will increase transfer payments to grain-producing counties, "improve" agricultural subsidy policies, continue subsidies for rice, corn and soybeans, and continue the minimum price policies for wheat and rice. The program to build high-standard fields and irrigation will move toward completion, and Han warned officials to improve monitoring and prevention capabilities to deal with probable outbreaks of fall army worms, droughts and floods. Han admonished officials to keep corn area stable as corn supply and demand become tighter, to continue the soybean revitalization plan, and actively increase supplies of high quality rice and wheat.

Officials were also instructed to accelerate the recovery of pork production, fully implement the "mayors' market basket responsibility system" for guaranteeing pork supplies, and carry out pork industry support measures. Building storage and transportation infrastructure for meat and other perishables is a related infrastructure initiative.

The collective land ownership in the countryside will be maintained, and collective property rights reform pilots will be advanced.

What China Said about Phase I and Ag Products

China's reporting on the Phase I trade agreement's agricultural purchases from the United States has been limited to comments at a December 13 press conference made by Vice Minister of Agriculture Han Jun and other officials.

The 11-pm press conference featured sub-cabinet officials: the deputy director of the National Development and Reform Commission and vice ministers of commerce, finance, and agriculture. Officials emphasized that negotiations with the United States were based on principles of equality and mutual respect. They revealed that the agreement includes chapters addressing intellectual property rights, technology transfer, food and agricultural products, financial services, exchange rates and transparency, trade expansion, bilateral assessments, and dispute settlement. They told journalists that the text of the agreement will be released after completion of legal reviews and translation checks, and a time, place and other arrangements for signing the agreement would be determined later. They said negotiations at the working level continue and a phase II agreement depends on implementation of phase I.

The officials said nothing concrete about tariffs, only that both parties committed to withhold the tariff increases that had been scheduled for December 15 and this would be a transition from raising tariffs to lowering them. A question from Reuters--the only one not from State media outlets--about waiving 50-percent tariffs on agricultural products did not receive a direct answer.

According to NDRC Deputy Ning Jizhe, the in-depth discussions by China and the U.S. resulted in an agreement that is beneficial for resource allocation and structural adjustment in both countries. Vice Minister of Commerce and Deputy Trade Negotiator Wang Shouwen said the agreement will strengthen intellectual property right protections, improve the business environment, expand market access, and give stronger protection of legal rights for all companies operating in China, including foreign enterprises.

Ning Jizhe said China would greatly increase purchases of high-quality and market-competitive agricultural products from the U.S., but the details would not be announced until the agreement is released. Ning's references to "quality" and "market-competitive" were probably inserted to fend off challenges from other trade partners.

Vice Minister of Agriculture Han Jun gave a rundown of the agriculture part of the agreement in a 7-minute response (T.V. video and text here) to a question about whether China's agreement to import more U.S. agricultural products would harm Chinese industry. Han's remarks emphasized that China did not give up ground in the negotiations on agriculture. He reminded listeners of China's growing need for food imports, emphasized benefits for Chinese agricultural exporters, and insisted that imports would not harm Chinese farmers nor threaten "food security" objectives. Han began and ended his remarks with assurances that negotiations with the U.S. were conducted on principles of equality, mutual benefits, and "win-win cooperation," an oblique way of saying that negotiators did not sacrifice China's farmers to get an agreement with the Americans.

Vice Minister Han emphasized that Chinese negotiators had "fought to achieve actual benefits" by expanding market access for Chinese agricultural exports. Han cited the U.S. announcement that it would finalize rules to open its market to Chinese cooked chicken products and catfish as a beneficial result, noting that China is one of only three countries allowed to export catfish to the United States. Han said the United States will also announce procedures for importing Chinese fragrant pears, citrus, and dates, and the U.S. agreed to resolve the automatic detention of Chinese fish and shellfish products as soon as possible. Han described these a "breakthroughs" in solving decade-old problems.

Han said "there is no doubt" China will substantially increase its imports of U.S. agricultural products after the agreement is implemented. He recited figures showing rapid growth in China's ag imports, noted the complementarities between the U.S. and Chinese economies, and insisted that these imports will fill deficits in supply and demand and do not pose a threat to Chinese farmers.

Han gave soybeans as an example, saying China's imports account for 85 percent of China's soybean supply and estimated the import volume at "around 90 million tons" this year. Han said China will expand imports of some U.S. agricultural products that are "urgently needed to stabilize markets" in China, such as pork and poultry. He cited China's recent lifting of its ban on U.S. poultry imports. "Undoubtedly," Han said, "these imports will not put pressure on Chinese agriculture."

Han said China could import some wheat, corn, and rice from the United States after the phase I deal is implemented, but he was quick to point out that the volume of these imports would be "very limited" by tariff rate quotas. Han said imports of wheat, corn and rice would be moderate volumes that fill shortfalls in China's supply and demand. Han was quick to pledge that "national food security" would be the bottom line, insisting China would maintain its goal of basic self-sufficiency in grains and "keep the Chinese peoples' food bowls tightly in their own hands."

Han praised the agreement for addressing long-standing issues in agriculture and expressed optimism that it would lay a foundation for solving additional issues. Vice Minister Han concluded with an assessment that the agreement’s implementation will further deepen China-U.S. cooperation and strengthen the role of agriculture as a pillar in bilateral relations.

Nearly all commentary on agricultural impacts in Chinese news media regurgitated tariff numbers and excerpts from Han's remarks. One article added a paragraph with several reasons why the phase I deal would not have much impact on markets before the end of the year. Unnamed market analysts said African swine fever is expected to depress demand for corn and soybean meal through May; relatively large import volumes of sunflower seed meal is being used as a substitute in poultry feed; a release of rice reserves is substituting for corn in southern provinces; and farmers in Hebei and Henan Province have large volumes of new-crop corn on hand they will likely sell in the spring. However, the analysts also point to several other factors supporting corn and soy meal prices: declining temporary reserves of corn, low soy meal stocks held by crushing plants, and relatively low inventories of corn and soy meal held by private traders.

Ag Minister Visits Syngenta, Huawei Labs

Huawei and ChemChina are key players in building an agricultural industry based on technological innovation, according to China's agriculture minister.

In November, the Ministry of Agriculture and Rural Affairs website featured visits by Minister Han Changfu to Beijing research centers operated by the two companies to tout China's hope for technology to overcome challenges such as pest pressures, increasingly scarce and unreliable workers, and chaotic supply chains.

Han Changfu visits Syngenta research center. Photo: Ministry of Agriculture and Rural Affairs.

Minister Han first visited a plant-breeding lab and greenhouse at a Beijing research center operated by Syngenta, the Swiss seed and agrochemical giant acquired by the State-owned China National Chemical Corporation, aka ChemChina in 2016--China's biggest-ever overseas acquisition. According to the article, Syngenta's resources have been integrated into Chinese agriculture since it was acquired by ChemChina. Han hoped the company's investments in R&D and hoped would play a role in high-quality agricultural development, attack key problems and bottlenecks, and render technical assistance to farmers.

Minister Han emphasized the central communist party leadership's keen interest in agricultural technology and institutional innovation. He praised ChemChina as a large state-owned enterprise with a long history of engagement in agriculture with many achievements, and expressed hope that the company would make a major contribution to accelerated modernization of agriculture. The Minister specifically cited ChemChina's plant protection product for wheat scab and noted the importance of addressing pest and disease risks to maintain the quantity and quality of crop production.

There was no mention of the $12-billion debt load taken on in the Syngenta acquisition that has reportedly held up a planned merger of ChemChina with Sinochem. China's ambassador to Switzerland reportedly labeled the deal a "mistake" and suggested the Swiss could have their company back if they wanted it. Nor was there discussion of how ChemChina--the country's largest pesticide and fungicide producer--would be affected by the Ministry's initiative to curb pesticide use.

Minister Han's second visit was to a Huawei R&D Center in Beijing where he learned about the prospects for utilizing 5G technology for agriculture, e-government, and big data during his visit to a "Huawei Strategic Vision Showroom." Han learned about application of 5G in Norway fish farms that use underwater UHD cameras to monitor the fish, increasing the precision of management and reducing personnel requirements. A second example was the use of blockchain in a pilot traceability project for rice in Jilin Province.

Han envisions Huawei as a leader in "smart" agriculture, internet of things, and rural data platforms. He asserted that "rural revitalization" cannot be achieved without informatization, artificial intelligence, and big data in agriculture. This all assumes that the workers remember to turn the machines on and replace the batteries, the electricity doesn't go out, everyone knows how to interpret the data on the screens, and the drones don't get stuck in the trees.

China's Plan to Restore Pork Supplies by 2021

Chinese officials plan to restore normal pork production by 2021 via a crash farm-building campaign and other measures that include ordering local officials to ensure local pork self-sufficiency, reconfiguring the slaughter industry, and setting up rigid pork supply pipelines. At the same time, officials plan to address chronic problems by shoring up disease prevention and dotting the countryside with tanks to collect millions of tons of manure and diseased carcasses.

The Ministry of Agriculture and Rural Affairs circular, "Three-year plan to speed up recovery of hog production" issued on December 4 calls for achieving a small rebound in pork output by the end of 2019, rebuilding production capacity by the end of 2020, and restoring normal pork supplies in 2021.

The announcement aimed to impress local officials with the program's importance by citing Xi Jinping's many "important directives and instructions" and "clear requirements" issued by Li Keqiang. It follows a series of teleconferences and meetings where farmers in the northeastern region were instructed to resume producing pigs and southern provinces were ordered to "stop the decline as soon as possible," and "consultations" were held with leaders of important pig-producing provinces. The news media have been ordered to write articles that restore the confidence of pig farmers by reporting on effectiveness of government policies and giving examples of successful recovery.

At a November 30 national livestock work conference, Vice Premier Hu Chunhua proclaimed that restoring pork supply would be a top priority of this year's rural work, declared that China must rely on domestic production for its pork needs, and ordered local officials to develop the livestock industry. The Vice Premier chaired a December 1 "market basket responsibility system" meeting where he ordered city leaders to strive for at least 70% local self-sufficiency in pork and develop arrangements with pig-producing counties to fill the balance of city pork supplies. Pork surpluses are envisioned in northeastern provinces, the north China plain, and south central provinces. The southwestern and northwestern provinces are expected to be self-sufficient in pork. Marketing will shift from transporting pigs to transporting pork.

Local officials were warned that the task of restoring pork supplies is "extremely huge" and pork production still faces many difficulties and challenges. Local officials were admonished to strengthen their "sense of responsibility and sense of urgency" and to "do everything possible" to increase pork production by the end of the year and to ensure pork supplies for the new year, spring festival, and "two meetings" of communist party leaders in March.

Officials were sternly warned to take seriously 18 policy support measures, getting a "firm grasp" on pork production in the same way officials "firmly grasp grain production." The policy measures are an impossibly broad set of objectives: build "standardized" pigs farms, shut down sub-standard slaughter facilities, stop feeding restaurant waste to pigs, build modern slaughterhouses in production areas, prevent disease, and protect the environment.

The key tasks for the hog production recovery are summarized as follows:

1. Start building farm projects before the end of the year using this year's subsidy funds and use 2020 funds to build projects and rush them into production as soon as possible. 
2. Order local officials to subsidize purchases of automated feeding equipment, and equipment for environmental control, disease prevention and control, and waste treatment using the agricultural machinery and equipment subsidy program.
3. Loosen bans on using farmland to build pig farms, waive the approval process for using village "construction land" for pig farms, and otherwise simplify land approvals.
4. Use hog county transfer payments to fund industry development, veterinary services, and marketing infrastructure. Issue ASF culling payments promptly. 
5. Expand a collateral loan pilot, issue subsidized working capital and construction loans for breeding farms and large-scale farms. Expand insurance for sows and finishing hogs. 
6. Create 120 replicable high quality demonstration farms to upgrade production. 
7. Choose 1 or 2 localities for pork-based poverty alleviation projects in provinces of Hunan, Hubei, Guangdong, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, and Shaanxi. Companies will collaborate with small and medium-scale farmers to expand pork output.
8. Urge local officials to ease up on local environmental bans on livestock farms by the end of the year and order local officials to stop declaring "pig-free" cities and counties.
9. Carry out environmental impact assessment of pig farms. Utilize an automated system and let farms of 5000 head or more start construction without having to wait for the final approval. 
10. Monitor disease and movements of pigs, stop feeding kitchen waste to pigs, pay out culling funds. 
11. Urge farmers to take responsibility for disease prevention by implementing isolation, chemical disinfection, biological immunity, and complete a "farm animal disease cleanup project." Support third-party testing and slaughter plant self-testing.
12. Regularize disease reporting, encourage farmers to inspect animals and promptly report disease. Punish concealment and intentional delays in reporting, false reports, and especially obstruction of reporting by others. Set up a reward hotline for ASF reporting. 
13. Urge localities to set up a complete province- and city-level animal disease administration, strengthen city and county veterinary lab capacity, launch and fund standardized grass roots animal disease prevention organizations, strengthen disease emergency team construction, fill in gaps in disease organization and personnel asap. In big livestock farming counties carry out a special employment plan for disease prevention personnel; employ 10,000 or so personnel.
14. Collect manure and utilize it. Set up centralized collection or facilities near fields. Solve the manure treatment problem for small and medium farms. By the end of 2020, raise the national livestock and poultry manure utilization rate to 75% or higher, and 95% of scaled-up farms should have manure treatment infrastructure and equipment.
15. Create a system of collection points for safely disposing of diseased hog carcasses. Design a spatial layout of disposal enterprises, ensure biosecurity in collection, transportation, and disposal of carcasses, distribute support funds and ensure the sustained operations of the disposal system.
16. Regulate and standardize hog slaughter. Shift slaughter enterprises to major production regions in the northeast, Huang-Huai region of northern provinces, and south central provinces. Starting from the current 5,000 slaughter enterprises, rectify small slaughter points and create 100 demonstration slaughter enterprises by 2020. Ensure that it becomes normal for slaughter facilities to carry out self-inspection of hogs and to have veterinary inspectors posted in facilities.
17. Strengthen R&D and technical services to farmers. Increase effort in ASF vaccine development. Demonstrate ASF control methods, promote use of effective control methods on large scale farms. Implement the subsidy for use of improved breeds and increase use of artificial insemination. Bring into play veterinary and livestock bureaucracy, industry associations, and a hog technology organization to increase farmer training and visits.
18. Promote direct links between production and sales areas. Urge net-deficit cities and coastal regions to maximize self-sufficiency and to form direct coordinated links with production regions to fill pork deficits. Adopt a "farm-slaughter link, direct supply" system, use a pilot electronic system to transmit animal inspection certificates and collect statistics monitoring pig movements. Ensure orderly marketing and transport of pigs using a point-to-point marketing system. 

Many of the measures aim to revive rigidities of the planned-economy: regional production quotas, fixed supply pipelines between regions and enterprises, Potemkin-style "model" farms and slaughterhouses, plans to populate an inspection and veterinary system with warm bodies, "point-to-point" transportation of pigs. Imposing rigidities of the planned economy will undermine the efficiency of China's pork industry which has been one of the country's most-privatized, agile, and flexible sectors. Officials chasing subsidies and responding to directives will eclipse problem-solving entrepreneurs, leaving the countryside dotted with derelict barns, underused slaughterhouses, and rusting equipment.

Most of these programs will probably atrophy within a few years as did these now-forgotten initiatives:

• a sow subsidy introduced in 2007 to induce farmers to keep their sows during downturns disappeared as cyclical gyrations it was designed to address just got worse.
• a 2009 hog price stabilization program with an elaborate system of statistical reports and price ratios with red-yellow-green zones to trigger sales of pork reserves and subsidies--also intended to eliminate price gyrations--is now mostly forgotten except for monthly reports of pig inventories, slaughter, and the hog-corn price ratio.
• a 2010 Ministry of Commerce plan to reconfigure the hog slaughter layout by eliminating half of "backward" capacity and building a hierarchy of city, county and township facilities was issued and quickly forgotten. Responsibility for slaughter oversight was handed to the Ministry of Agriculture a few years later.
• in 2011 all veterinary technicians had to take an examination to weed out unqualified people and provinces were ordered to include funding for county veterinary services in their budgets, yet poor or nonexistent local veterinary services were one of the reasons for the lightning-fast spread of African swine fever to every single province in half a year. 

Officials are also asking everyone to forget the series of laws, initiatives and action plans to close polluting pig farms that were the focus of hog industry policy during 2013-18 as a part of an environmental clean-up program--one of Xi Jinping's signature policies--and to build pig farms everywhere, as fast as possible.

And, of course, the news media are tasked with reporting nothing but good news about pork, so news media and statisticians have doubled down on their propaganda function and can no longer be believed. Rare honest assessments of the actual supply and demand situation are swamped by a flood of propaganda.

China-Africa: "Huge" Ag Cooperation Potential

China hosted African agricultural leaders for a forum this week where Chinese officials pledged to expand and deepen cooperation, investment, and trade with African agriculture over the next 3 years.

Photo from China Ministry of Agriculture and Rural Affairs.

According to China's Ministry of Agriculture and Rural Affairs, 500 representatives from African countries and international organizations attended the meeting hosted by the Ministry and the Hainan Provincial Government in the provincial capital of Sanya, December 9. Attendees heard speeches from China's Minister and Vice Minister of Agriculture and Rural Affairs, the Hainan governor, and African leaders. China's ag minister emphasized the "huge potential" for China-Africa cooperation in agriculture in the "new era" proclaimed by Xi Jinping. The focus of cooperation will be on food security, poverty alleviation, agricultural science and technology, agricultural modernization, and giving developing countries a stronger "voice" in global food and agricultural governance.

China's ag minister pledged to:

• expand investment in Africa by Chinese companies
• build demonstration farms
• expand cooperation with African research centers 
• host African technicians for 10,000 trainings in the next 3 years 
• boost annual China-Africa agricultural trade to $10 billion within a decade from its current level of $6.9 billion
• achieve basic food security for Africa by 2030

China's ag ministry signed a memorandum of understanding with the African Union Commission and the African Green Revolution Alliance. A "Sanya Declaration" calling for greater China-Africa agricultural cooperation was issued, and 11 project agreements were signed by government departments, international organizations, research units, and companies. 

According to China's ag minister,

• China's agricultural trade with Africa expanded more than 10-fold from 2000 to 2018
• Chinese enterprises have invested 15 billion yuan in Africa
• China has 115 agricultural projects valued at $5 million or more in two-thirds of African countries
• Chinese agricultural research institutes have agreements with African counterparts in 12 countries, and they send experts to Africa for 10,000 person-visits each year
• China has agricultural demonstration centers in 19 African countries
• There are 10 South-South research projects in African countries and over 300 agricultural experimental trial

The Chinese ag minister also met with delegations from African countries individually before the meeting. In his meeting with the South African delegation, he remarked that China's cooperation with South Africa is a model for further deepening. The Chinese minister remarked that he had recently attended the 10th anniversary of China-Africa FAO South-South Cooperation held in Uganda. The South African Minister of Land Reform and Rural Development expressed interest in collaboration on plant diseases. 

China Pig Bubble Bursts, Supply Still Short

Chinese pork prices have dropped about 20 percent in November. Most industry analysts seem to view the decline in pork prices as a temporary market correction, and they expect a moderate rebound because there is still a 15-to-20 mmt deficit in pork supply. Prices stabilized or started to increase again in nearly all provinces last week. An industry survey found that 60 percent of industry people expect a renewed increase in pork prices as preparations of traditional pork products to celebrate the new year begin in southern provinces.

The average carcass price at the Beijing Xinfadi wholesale market on November 24 was down 23 percent from its October 29 peak of 26 yuan per 500g, erasing about half of the 58-percent increase during October. The price is still 135 percent higher than its year-earlier level of 8.5 yuan per 500g.

Chinese news media are thick with propaganda about farmers rebuilding production capacity. Ministry of Agriculture officials at a press conference last week instructed news media to report good news to restore the confidence of hog farmers. A Chinese Academy of Ag Sciences official recited the party line that production has already begun to rebound and the overall meat supply is stable as increases in supply of poultry, beef and lamb and imports have filled in the deficit.

While officials spread the mantra of stability, the situation on the ground suggests an industry still on a knife's edge, with panic-selling and new disease risks tipping the market into a downturn despite a yawning supply gap that consumers are learning to live with.

Most analyses give a shout-out to government policies for reviving hog production, yet pork supplies are still tight. Slaughterhouses are operating at about 15 percent of capacity and some have idled their facilities due to heavy financial losses. Beijing's Xinfadi wholesale market is still receiving about 40 percent fewer hog carcasses weekly than a year ago. Likewise, pork trade volume in four Shanghai wholesale markets is also down 40 percent from a year ago. Last week, MARA officials acknowledged that restoring pork supplies is a time-consuming process and said their objective is to restore pork production capacity to 80 percent of normal by the second half of 2020.

Two analysts revealed that government officials have been informally ordering companies and slaughterhouses to speed up slaughter, stop hoarding pork, release their frozen pork inventories into the market, and refrain from raising prices at the end of the year. "This news spread all over the country," one analyst said. A BRICS analyst said it is unclear how much frozen pork companies are holding. At last week's press conference MARA officials said they were investigating pork inventories.

Indeed, increased sales of frozen pork are cited as another factor in the price drop. Normally, fresh and frozen pork are largely separate markets but frozen pork has been putting downward pressure on all pork prices. Note: these are inventories stored up by companies early in the year when panicked farmers were sending pigs to slaughter en masse--not government reserves.

Analysts say consumption has been dropping in response to high pork prices as consumers and food service establishments learn to cope with high pork prices. Xinfadi market's weekly report says 10 percent or more of carcasses had been returned to suppliers at the end of the day in October even though the number available was low.

Farmers have been raising bigger hogs in response to high prices, but they began to slaughter them in November when they saw prices start to fall (and, after all, they can't keep on growing forever). One analyst remarked that the market couldn't absorb the big hogs. Carcasses are larger than usual, which MARA officials said added "15 kg of meat" per carcass, filling in part of the supply deficit. However, Xinfadi's report remarked that the "big hog" trend produced a surfeit of fatty carcasses that are hard to sell. The fatty carcasses were often the ones sent back to the supplier.

Analysts report that farmers in scattered localities have resumed panic-slaughter of animals over worries about plunging prices and scattered disease outbreaks. Only two ASF outbreaks have been officially reported in November and three were reported in October, but one analyst commented that unconfirmed reports of disease outbreaks have been more numerous. The analyst worried that farmers had become complacent after several months with ASF apparently under control and had become lax in biosecurity measures. Another analyst commented that the onset of cold weather and big differences between day and night temperatures leads to outbreaks of other diseases. Two of the officially-reported ASF outbreaks were found in trucks carrying pigs into Guangxi Province and Yunnan Chongqing, pointing to the persisting risk of spreading the virus around the country.

At last week's press conference a Hong Kong reporter asked MARA officials about rumors of recurrences of ASF in Jiangsu and Shandong Provinces and wanted to know how officials would ensure no new spread of the virus. The officials said they knew about these outbreaks and had confirmed that they were not ASF. They were mixed infections of other diseases which officials said they had dealt with.

China Ag Bank Pumps Funds to Keep Farms Afloat

The Agricultural Development Bank of China (ADBC) has been pumping money into China's agricultural sector by financing most of the grain and cotton marketed this year and lending for poverty alleviation, land improvement, marketing infrastructure, agricultural industry parks, "leading enterprises," and agricultural science and technology. The bank is one more seldom-noticed example of a Chinese economy increasingly propped up by debt.

With downward pressure on many commodity prices, ADBC loans are holding up sagging crop markets. In a press conference last month, the bank's president touted ADBC's role in maintaining food security by announcing that ADBC lent 170.4 billion yuan ($24.3 billion) to finance purchases of 124 million metric tons of grain and oil in the first three quarters of 2019--up 87 percent from last year. The ADBC president acknowledged that the bank financed 75 percent of wheat sales this year and 71 percent of early rice purchases. These shares were up from 49 percent last year. The boom probably reflects the 31 million metric tons of wheat purchased through the minimum price program--the largest total since 2008. Early rice production was down sharply this summer as farmers cut back on double-cropping, but officials still had to support the price with purchases at the minimum price.

The fall grain harvest happens in the fourth quarter, and the bank has announced that it has 160 billion yuan ($22.8 billion) of "money waiting for grain" to finance procurement of this year's fall grain crop. That's slightly more than last year when the bank financed half of fall grain purchases. Five rice-growing provinces have already begun minimum-price purchases of their fall rice crops which news media credit for price rebounds. Minimum-price purchases of medium grain rice are expected to begin in northeastern provinces after an audit of warehouses is complete. Markets are watching carefully to see whether big rice provinces Hunan and Jiangxi launch the program.

There is no longer a formal price support for corn or soybeans, but ADBC finances purchases for government reserves when the market looks weak. There were rumors in October that the government was considering purchasing corn for reserves, but nothing concrete. Officials are probably monitoring downward pressure on corn prices to determine whether they need to intervene as more grain is sold by farmers and demand remains soft due to the decimated pig herd and weak starch production. Chinese soybean prices fell to their lowest point in 5 years last weekend, but China's grain reserve company swooped in to make additional purchases--almost certainly financed by ADBC--to spark a rebound in prices.

The Agricultural Development Bank of China (ADBC) was carved out of the Agricultural Bank of China (ABC) in a 1994 reform that created specialized banks to carry out government policies, thus freeing up ABC and other state-owned banks to focus on commercial-oriented lending. ADBC's primary function historically was to finance the marketing of grain, edible oils, and cotton by state-owned enterprises. (Other policy banks focus on financing infrastructure and foreign trade.) ADBC is financed mainly by selling bonds. ADBC is one of the top three bond-issuers in China with 4.45 trillion yuan in bonds outstanding.

ADBC's outstanding loan balance has been doubling every five years--from 1.2 trillion yuan in 2008 to 2.5 trillion yuan in 2013, and 5.1 trillion yuan at the end of 2018. The ratio of the loan balance to the total value-added of China's agriculture, forestry and fishing has more than doubled from about 35 percent in 2004 to 75 percent in 2018--an indicator that loans have grown at a faster pace than the agricultural sector.

Source: ADBC annual reports and National Bureau of Statistics web site.

Here's another indicator of how ADBC's loan portfolio has grown. In 2005, ADBC's loan balance was about $10 billion less than the U.S. Farm Credit System's $106 billion. The ADBC loan balance surpassed that of FCS in 2008 and has continued soaring over the last decade. By 2018, ADBC's loan balance of $777 billion exceeded the FCS loan balance by 180 percent.

Source: Annual reports of Agricultural Development Bank of China and U.S. Farm Credit System.

ADBC lends mainly to grain trading and processing enterprises to make sure farmers do not have difficulties selling grain or receive IOUs in payment--occurrences that were common in the 1990s. Grain, cotton and oilseed procurement accounted for the biggest chunk of ADBC's portfolio in 2018 with a loan balance of about $265 billion. Poverty alleviation loans are now a close second, with a loan balance of about $192 billion last year. A little less than half the anti-poverty loans are for infrastructure, and they also include lending earmarked to buy grain, oil and cotton in poor regions.

"Agricultural modernization" is the third chunk of loans described in the 2018 annual report, with a smaller balance of about $31 billion. These include loans for marketing system development ($6.5 billion), so-called "dragon head" agricultural business enterprises ($4.7 billion), high-standard farmland projects, support for agricultural industry parks and "protected zones" for key commodities, and agricultural S&T. ADBC has loans to support "new-style" scaled-up farms. ADBC recently announced intentions to lend 50 billion yuan to support hog production over the next three years. ADBC finances transportation of grain from north to south.

Historically, China's banking system has siphoned money out of the countryside via peasants making deposits in postal savings banks and credit cooperatives which then deposit the funds in city-based banks or real estate and industrial investments. ADBC is reversing that tide by sending some of that same money from bond-buyers (probably commercial banks) back to the countryside, but it would be more efficient to develop self-contained credit markets in the countryside. One of ADBC's current initiatives is to jump-start "marketized" lending in the countryside by capitalizing loan guarantee entities run by provincial governments intended to reduce risk of bank lending to private grain traders and processors.

In theory, ADBC's money pipeline to the countryside is one of the few mechanisms to reduce the massive inequality in China. But the system has built-in incentives for corruption--a lot of the money was stolen by corrupt officials and unscrupulous warehouse operators--and one wonders whether the lending is unsustainable. ADBC claims its non-performing loan ratio is only 0.4 percent but it seems unlikely that loans for moldy, poisoned or nonexistent grain, fields producing crops that are falling in price, and apartment complexes for elderly peasants can be paid back. Moreover, the ADBC reflects the Chinese communist tendency to rely on behemoths. ADBC is itself a behemoth and one of its stated strategies is to help other creations of central planners--COFCO, Sinograin, the Supply and Marketing Cooperatives, and a State investment company--to "play a leadership role in the market" and stabilize market expectations.

China Subsidizes Soybean Revitalization

"Imports are cheaper; so why is the government spending 17 billion yuan to subsidize soybean-planting?" was the title of a recent article in No. 1 Business News (Di Yi Caijing). The article didn't really answer the question, but a few calculations show that increase in subsidies paid to increase soybean output this year is almost equal to their purchase price. Moreover, the price is dropping as the market for Chinese soybeans appears to be saturated.

In the article, China's Ministry of Agriculture and Rural Affairs lauded success of the "soybean revitalization plan" ordered up by this year's "Number 1 Document." The Ministry expects this year's soybean output to increase to 17.2 million metric tons (mmt) from last year's 16 mmt. The plan's objective was to reduce reliance on imported soybeans by 1 percentage point in 2020 and another percentage point by 2022. The Ministry projects a slight increase in imports from 83.1 mmt in 2018/19 to 84 mmt in 2019/20, but the Ministry projects a slight decrease in soybean consumption in 2019/20 to ensure that the increased self-sufficiency target is met. (Actually, the Ministry's decrease in soybean consumption of less than 1 percent still seems over-optimistic in view of the large reduction in the number of swine due to African swine fever.)

The marginal subsidy cost of increasing soybean output is even more outrageous. A Ministry official attributed the increase in China's soybean output to soybean producer subsidies of 17 billion yuan (about $2.4 billion) and 80 million yuan (about $11.4 million) in transfer payments made to soybean-producing counties. That works out to nearly 1,000 yuan (about $140) in subsidies per metric ton produced.

At the current average purchase price for soybeans the crop would be worth 58.8 billion yuan, so the 17 billion yuan in subsidies equal 29 percent of the value of this year's soybean crop.

This year's soybean subsidy works out to an average of 1875 yuan ($268) per hectare, 125 yuan per mu, or $109 per acre. The subsidy payment is made only in northeastern provinces, so the national average is much lower than the subsidy levels in the northeast. According to another article, the average soybean subsidy in northeastern provinces averaged more than 300 yuan per mu in 2018 and was as high as 560 yuan/mu in parts of Jilin Province. (It is unclear what soybean subsidies are paid in regions outside the northeast.)

The Ministry of Agriculture and Rural Affairs official said this year's soybean subsidies were increased by 4 billion yuan from last year. That means the Chinese government spent an additional 4 billion yuan to increase soybean output by 1.2 mmt, which represents a subsidy price tag of 3,333 yuan ($476) per additional metric ton. That's 97 percent of the current farm gate price of 3,421 yuan ($489) per metric ton. The average landed value of imported soybeans (before tariffs and taxes) during 2018/19 was 2821 yuan ($408) per metric ton. The cost of imported soybeans would be 3,130 yuan/mt with the 1-percent tariff and 10-percent VAT.

The market for the additional soybeans is weak. Nearly all domestic soybeans are used for food processing, and the National Grain and Oils Information Center estimates that only 2 mmt of domestic Chinese soybeans will be used by crushing plants to make oil and meal in 2019/20. According to one market report last week, the increase in soybeans available is putting downward pressure on prices. The government's grain reserve corporation, Sinograin, has been buying up soybeans to prop up the price, but another report says prices per metric ton have nevertheless fallen about 40 yuan to 60 yuan since new soybeans started coming on the market in Heilongjiang Province. Analysts worry that a commitment to purchase more U.S. soybeans could put further downward pressure on prices.

The futures price for domestic soybeans has been trading at about 5-to-15 percent below year-ago prices. In October last year Sinograin went into the market to buy soybeans when the price was 3800 yuan but the price soon crashed anyway. The average price fell to 3150 yuan in December 2018--a 17-percent decline. The futures price now--in November 2019--is teetering at 3380 yuan, slightly below year-ago prices. Will the price crash again this year?

Closing prices at Dalian commodity exchange. 

No. 1 soybean contract for non-GMO soybeans delivered in northeast China.

Officials also emphasize the importance of diversifying soybean imports. However, China purchased 74 percent of its imported  soybeans from Brazil during 2018/19, up from 48.5 percent in 2016/17--that does not sound like diversification. No. 1 Business News says that China can control trade to ensure a steady supply via foreign investment, cooperation, and other measures. Officials acknowledge that most soybeans are grown on the American continent but say the "one belt one road" initiative can help diversify by promoting production in regions suited for growing soybeans such as Russian, Ukraine, Kazakhstan, and Africa. However, China's soybean imports from belt and road countries were stagnant in 2018/19 and they together supplied less than 1 percent of China's soybean imports.

Northeast China Attempts Pork Production Recovery

On-the-ground investigations emphasize that northeastern farms have begun to restore hog production after at least half of the region's swine were lost to last year's African swine fever (ASF) virus and panic-selling. The region is still severely short of pigs, but its slaughterhouses are shipping thousands of carcasses to southern regions where production has not rebounded at all. The facts and figures the report cites suggest there has been only marginal progress in restocking farms, and individual farmers who accounted for the bulk of production pre-ASF are mostly still on the sidelines or raising chickens now.

A report from Huatai Futures is based on interviews with farmers, breeding companies, traders and slaughterhouses in northeastern provinces of Liaoning, Jilin, and Heilongjiang--apparently in October 2019. Another online article and an assessment of a drop in hog prices in early November report similar information.

This chart claims to show the percentage loss in hog inventories (blue bars) in 7 districts of 

Liaoning and Jilin Provinces and the percentage recovery of swine production (red bars) in each district. 

Source: http://cj.zhue.com.cn/xingye/2019/1030/345925.html

The northeastern provinces were the first in China to be hit by ASF in August 2018 and the epidemic peaked last fall and winter. All farms were severely impacted, especially individually-operated farms. In districts of Liaoning and Jilin provinces hog inventories fell to varying degrees--from 50 percent to as much as 80 percent (see chart above). In Liaoning the number of swine held by small, independent farmers is down 60 to 80 percent from last year, while swine held by large-scale farms is down 30 to 50 percent.

Breeding animals were especially vulnerable to ASF. A string of breeding farms operated by a company in Jilin Province's Songyuan district lost 100,000 sows. One large breeding farm shrank from 26,000 head to 4,000 and has since rebuilt its inventory to 5,000 head. Since March this year, many finishing farms have held back female swine to use as sows, a factor that has contributed to the shortage of hogs available for slaughter. In Liaoning, the government will subsidize half of the cost of imported swine breeding stock and 500 yuan of the cost of breeding swine brought in from other provinces.

Instead of going through a 2-year process of expanding breeding herds to supply commercial finishing farms, many farms are taking a shortcut by holding back females from their finishing herds to use as sows. This process reportedly began in March and the first litters are coming on the market.

With few hogs available, slaughterhouses are operating at less than 20 percent of capacity. One company said it is now slaughtering 1,000 head daily, a fifth of its usual volume. A meat company in Jilin Province said it has been slaughtering 500 head per day, less than a third of its 1600-head capacity. A second company in Jilin said its slaughter fell as low as 750 head per day and is now 1300, still well below its usual 2300-head volume (and as high as 5000 head per day during the peak holiday season).

This chart shows daily capacity utilization by designated hog slaughterhouses in China 

during 2018 (blue line) and 2019 (red line). 

These are probably unpublished data from the Ministry of Agriculture and Rural Affairs.

Source: http://cj.zhue.com.cn/xingye/2019/1030/345925.html

Meat companies are offsetting losses from slaughtering expensive hogs by selling frozen meat from inventory. The Jilin company says it loses 30-to-40 yuan on each hog it slaughters, but its three plants have been selling 50 metric tons of frozen meat from storage each month. One company says it has 2,300 metric tons of frozen pork in storage, but another report says inventories of frozen meat are running low. The 30,000 metric tons of national pork reserves released last month nationwide had a minor impact on pork supplies.

Hogs are highly profitable. The cost of fattening pigs is estimated at about 13 yuan per kg, while the price for live hogs was reported to be around 35 yuan/kg (when the survey was conducted). With these profits and a limited supply of piglets available, the price of piglets has soared even faster than the price of finished hogs. One company reported an 1,100-yuan sale price for 15-kg piglets--which works out to 73 yuan per kg. The average piglet price in late October was reported to be 1760 yuan in the northeast and 1860 yuan nationwide. One commentator complained that the high price of piglets prevents individual farmers from re-stocking their farms. Another commentator--who identifies himself as a farmer who "listens to farmers"--complains that big companies are making money selling frozen meat they bought from farmers at cheap prices and forcing independent farmers out of business.

With the price of an additional kilogram of hog weight far exceeding feed costs, farms are fattening hogs to 135 to 140 kg, up from usual slaughter weights of 115-120 kg. Individual farmers are raising even fatter pigs of 150-200 kg. (Traditionally, Chinese slaughter weights have been highest in northeastern provinces because corn is cheapest there.) One slaughter plant said its equipment is not set up to accommodate such large animals.

Farms in the northeast that feel confident of low disease risk are expanding. These include mainly large farms confident in their strong biosecurity measures and newly-built farms in regions that were not hit by ASF. In particular, companies are targeting eastern Liaoning Province where the geography is viewed as favorable to disease control. In contrast, no rebound in production is taking place in places like northern Liaoning and patches of Heilongjiang Province that are still vulnerable to ASF. In southern provinces, it is said that neither companies nor individual farmers are willing to restock their farms because disease risk is still too high.

Individual farmers who used to raise 500 to 1000 hogs at a time have mostly stayed on the sidelines because sporadic outbreaks of ASF continue in some areas. Although officials have not made any official announcements, rumors of "dead pigs" in the northeast early this month raised fears of a renewed outbreak. About 30 to 50 percent of individual farmers have switched to raising poultry.

Consumption of pork is down sharply in the northeast. According to one estimate, pork consumption in Liaoning Province is down 40-to-50 percent from normal years, and down 70 percent in poor regions. A supermarket chain in Liaoning said its pork sales dropped beginning in July and August. Sales are down 40 percent in its Shenyang stores and 50 percent in its Anshan outlets. Chicken sales are up 20 percent and prices have also risen. Increased sales of chicken and beef do not offset the decline in pork sales.

About half of the carcasses produced by the northeast region's slaughterhouses are shipped south, where prices are higher. A Jilin Province meat company says it sends 15-to-20 large trucks packed with carcasses to Guangdong/Guangxi each day.  Hunan/Hubei, and Shanghai/Zhejiang are also destinations. Smaller trucks carry pork to closer markets. Another slaughterhouse says it sends 200-to-300 carcasses a day to Jiangsu Province and sent 260 head to Shandong.

Thousands of miles to the south in a Shanghai market, a pork vendor said he now pays 52 yuan per kilogram for pork, three times the 16 yuan/kg he used to pay. He used to sell 6 or 7 half-carcasses daily, but now he sells only one. He grinds up unsold meat to make dumplings that he sells elsewhere.

Fight for Carcasses Drives Pork Prices Higher

The price of a lean hog carcass was three times its year-earlier price in Beijing's Xinfadi wholesale market on October 29, 2019. The Xinfadi market's weekly report described the nationwide competition for carcasses that is driving the price upward at an accelerated pace this month.

A daily average of 1,450 swine carcasses arrived in the Xinfadi market during the week of Oct. 19-25. The daily supply was up from its low point during the National Day holiday week early in the month, but it was 33 percent less than the 2,350 carcasses supplied daily during the same week in 2018. According to a monthly report for September, the number of carcasses arriving at Xinfadi during July was the largest in 5 years, but tight supplies resulted in a noticeable decline in carcasses arriving during August and September.

According to the reports, Beijing's market competes for carcasses transported all over the country. Most of the carcasses in the Beijing market come from the three northeastern provinces of Liaoning, Jilin, and Heilongjiang, hundreds of miles away. Some carcasses come from Yunnan Province--thousands of miles away in the southwestern corner of China. For a time in July, Yunnan was the main source of carcasses for the Beijing market because it had the lowest prices, but rising prices in Yunnan during August reduced the flow of carcasses from that provinces. Only a few carcasses come to the Xinfadi market from nearby Hebei Province and Inner Mongolia.

A September report said hog supplies in the northeast began to recover in March, but prices went up because transportation problems limited the number arriving in Beijing. The September Xinfadi report expected prices to decline after transport problems were resolved, but the rise in prices actually accelerated to an unprecedented pace in October.

Last week's report explained that prices are now rising because provinces in southern China--where production has not rebounded--have also been buying carcasses from northeastern provinces and Hebei.

The report said that increased slaughter weights are also limiting the supply of pork. Carcasses in the market are said to be about 33-40 percent heavier than usual weights. The delay of slaughter represented by heavier hogs not only reduces the number of carcasses available, but the added weight of these big hogs has a higher-than-usual proportion of fat and not that much more muscle than hogs. Thus, the market is now receiving a surplus of fatty carcasses and the premium for a lean carcass has doubled to 2 yuan or more per 500g since August, up from 1 yuan earlier in the year. Last week the price of fatty carcasses went down and the premium for a lean carcass went as high as 3.5 yuan/500g last week, but that trend appears to have reversed this week.

The Xinfadi market report says consumer demand for pork has fallen as the price has soared. Despite the limited number of carcasses available, about 10 percent are unsold and returned each day--sometimes 20 percent are returned. A September report said consumption by cafeterias and restaurants had declined the most, while purchases by consumers had not changed that much. The monthly report for September, however, said purchases by food service and individual consumers had dropped 30 percent.

China Food Security: Self-Sufficiency and Free Trade

China's food security strategy insists on self-sufficiency, yet China also claims to advocate liberalized global food trade, according to a white paper on China's food security released October 14, 2019.

The paper recites vague phrases like "keeping Chinese peoples' food bowls tightly in their own hands," a mantra that has been repeated as in speeches and communist party documents since Xi Jinping's ascension to party chief in 2013. The Chinese version of the white paper has an emphasis on self-reliance that is largely scrubbed out of the English translation. The Chinese version advocates a "path to food security with Chinese characteristics" (中国特色粮食安全之路) that is translated as "food security in China" in the English version.

The food security policy is stated in a series of opaque phrases that call for China to remain self-sufficient in grain most of the time by ensuring domestic production capacity while allowing for undefined "moderate" imports.

China's food security strategy, in Chinese and English
确保谷物基本自给,  口粮绝对安全	ensuring basic self-sufficiency of grain, absolute security of staple food
确立了以我为主,  立足国内	self-sufficiency based on domestic grain production
确保产能	guaranteed food production capacity
适度进口	moderate imports
科技支撑	technological support

Key measures for maintaining China's production capacity are encapsulated in another inscrutable couplet, "藏粮于地, 藏粮于技" (storing grain in the ground, storing grain in technology) translated as "sustainable farmland use and innovative application of agricultural technology to increase farmland productivity." Strict zoning, control of land use and government planning are featured measures. The paper claims that Chinese technology has achieved most of the dramatic increase in food output over the last 20 years.

The paper rattles off a series of statistics showing impressive gains in food availability, nutritional outcomes, and grain yields since 1996. Indeed, China's food availability and nutritional outcomes have vastly improved, and statistics have met or exceeded objectives set in the 1990s.

A third section of the paper boasts that China is playing a more assertive world in global food markets. According to the paper, China:

• is an "active promoter" of liberalized food trade
• has "worked hard to fulfill its WTO commitments"
• has opened its food market to imports and foreign investment
• is playing an active role in setting global food standards and rules governing food trade
• aims to address global food insecurity through multilateral organizations
• is setting up new mechanisms to promote trade through its "one belt, one road" initiative. 

The "new" food security policy is a more vague statement of a 1996 white paper, "The Grain Issue in China," that specified a 5 percent limit on imports in normal years for a specific list of grains, beans, potatoes, and soybeans. That limit was cast aside and soybeans were excluded from "grain" after soaring soybean imports blew through the 5-percent limit. The "new" policy uses vague language about "moderate imports," basic self-sufficiency and absolute security that are not clear in Chinese or English. Since 2013, the policy has not set a concrete self-sufficiency criterion, nor has it specified commodities.

The vagueness gives the policy an elasticity that allows officials to interpret it any way they want, depending on the circumstances and audience. With no numerical target, they can never miss it. The more assertive global role in reshaping food trade is a new addition to the post-2013 food security policy that aspires to give China a "voice" in global food markets and represents a subtle challenge to the United States whose government and companies China believes unfairly dominate markets and rule-setting at present.

While the 2019 white paper emphasizes government control and planning as key to food security, it also acknowledges that raising prices and cutting taxes on farmers were critical to improving incentives for farmers. The white paper does not consider the possibility that privatizing farmland might awaken rural credit markets and give farmers incentives to make their own investments in farmland instead of waiting for subsidized programs to do it.

China's white paper neglects to count the cost of its food security policies. Spending on agricultural programs has soared. Farm spending reported to the WTO rose from $30 billion in 2002 to over $200 billion in 2016. Most of the expenditure is on so-called "green box" programs that are exempt from WTO-imposed limits on farm spending. The most prominent are the program to build "medium and high standard fields" and irrigation infrastructure. In 2016, three direct payments to grain producers were lumped into one, renamed a "land fertility payment", and moved into the "green box." Payments to corn, soybean and rice growers are also kept hidden from prying foreigners and falsely declared "blue box" measures so they can also be exempt. This year's direct payment to soybean growers in Heilongjiang Province is equal to about half of the gross value of the crop.

China claims to have "reformed" its support price program for wheat to make market-oriented purchases predominant, but this year's government purchases amounted to 30 mmt out of 70 mmt of wheat procured. In Anhui Province half of the wheat marketed this year was purchased through the minimum price and the local news paper claimed the support price effectively raised prices for farmers by 10 percent.

The white paper trumpets China's success in "reforming" support price programs for corn, soybeans, rapeseed, and cotton. These were ill-conceived, costly programs begun in 2008-10 that exported instability to world markets by prompting import surges followed by years of suppressed imports as officials sought to offload massive stockpiles. The full cost of these programs is not counted in its reporting to the WTO. In the most egregious example, the 167 mmt of corn sold from the "temporary reserve" stockpile the last three years cost an estimated $31.7 billion, including costs of storage, interest and losses incurred by selling grain at prices 18% to 38% below their purchase cost. This is how China "works hard to fulfill its WTO commitments."

The 1996 white paper promised to reduce waste of grain, but holding excessive grain stocks--another core "food security" policy--is hugely wasteful. Large areas of land and chemical inputs are used to produce grain that is stored in hundreds of warehouses where it rots or is eaten by rats and insects. Authorities have kept secret the results of a nationwide audit of grain reserves carried out this year, but there are hints that much of the grain is poisoned by mycotoxins and heavy metals. After the audit authorities published admonitions that grain reserves must not threaten "food safety."

China's 1996 white paper promised to reduce crop production costs, but instead the self-sufficiency policy has resulted in soaring costs and prices of Chinese food commodities. China's wheat price, for example, has drifted far above U.S. wheat prices. China's wheat price was more than double the U.S. price in 2016 and was 80% higher in 2018. The difference is maintained by China's price floor and tight control on imports using a restrictive import quota system.

The 2019 white paper celebrates China's rise in meat consumption. While authorities have myopically sought to stabilize grain markets at huge cost, the country's livestock production is routinely rocked by boom-bust cycles, diseases like avian influenza and African swine fever, and food safety crises like the melamine adulteration of milk. Grass roots veterinary services and animal health have been neglected for decades. Gyrations in the Chinese livestock market also spill over into the world market by creating unanticipated ebbs and flows in China's demand for imported meat.

The 1996 self-sufficiency policy directly led to environmental costs that remained hidden for years. The 1996 white paper called for farming "wasteland" on mountainsides, grassland, and river bottoms, which had to be reversed later via a subsidy to retire erodible land. The 1996 paper also called for cultivating abandoned factory and mining sites--an initiative that ignored the possibility that such sites are often polluted with lead, cadmium, and arsenic. Authorities hid the contamination of rice with cadmium from metal smelting for years. Subsidized chemical fertilizer and pesticides led to excessive use, huge run-off and eutrophication of rivers and lakes.

"Enlarging irrigated areas" was a solution offered by the 1996 white paper, but underground aquifers were pumped dry to grow wheat in north China and rice in Manchuria. Land is now being retired in both regions to cope with the problem. High prices guaranteed by a price support prompted farmers to plow up grasslands to plant corn. All these problems were created by China's food security policy despite a principle of "realizing sustainable development" promised in the 1996 white paper.

The white paper presumes that the communist party's policy is the only way for China to be food-secure. However, several East Asian neighbors achieved dramatic improvements in living standards years before China. In the years after World War II, U.S. advisors designed land reforms, farmer cooperatives, and rural credit systems in Japan, South Korea, and Taiwan, laying a foundation for improvements in farm production. U.S. advisors were invited to China in the 1940s by the Nationalist leadership, and might have helped develop the mainland's agriculture decades earlier if civil war had not brought their efforts to a halt. Communist China leaders today are still working on many of the same agricultural problems identified by U.S. advisors during the 1940s.