Cloud-based Farming Scams Proliferate in China

Four Chinese government departments issued a warning about “cloud-based" farming scams ahead of the lunar new year holiday this week. 

The warning posted jointly by the Ministry of Agriculture and Rural Affairs, Bank Supervision authority, public security bureau, and State Administration of Market Supervision alerted Chinese citizens that cloud-based cattle, fish, tea, and vegetable farming frauds have become rampant. The Ministry of Agriculture issued a similar warning about cloud-based farming frauds last September.

A "cloud cattle farm" in Ningxia Autonomous Region
featured on China Central TV (reposted on Youtube).

One scheme featured in a November article invited investors in Shanghai's posh Xuhui District to invest RMB 5000 to own a cow on an overseas farm with the promise of high returns. Investors were invited to view videos of the farm and monitor their cow's daily life on a video feed. One investor raised his investment to RMB 3 million before he learned that "his" cattle had been bought back by the company in exchange for coupons giving him ownership of 60,000 pounds of beef he had no way of redeeming. The company let him put the beef up for sale on consignment but there were no takers. Shanghai police found that the farm did not actually exist and the video footage had been borrowed from elsewhere. 

According to this week's warning, the frauds often hype science and technology-based farming and other hot topics like rural life, organic ecology, smart agriculture using forged videos and pictures of farms and ranches to fabricate or exaggerate the actual production conditions. They promise low risk and unrealistic high returns. The fraudsters use the Internet and mobile apps to conduct operations and collect and disburse funds. Some operate like a ponzi or multi-level marketing scheme by paying off early investors with money from later investors or inducing participants to recruit more people to join to expand the pool of funds. 

Illustration from a November article warning against
fraudulent online farming investment schemes.

Ironically, China's agriculture departments have used similar fraudulent approaches to promote agricultural ventures for decades. The Internet is littered with shiny images of space-age-looking farming ventures. Agricultural officials constantly hype high-tech farming practices by installing highly subsidized equipment and facilities on model farms and demonstration villages. They then bring in teams of village officials on sponsored tours to observe the new techniques. Officials then borrow money to build the facilities in their home villages which promptly fail because they are unviable without subsidies received by model farms. Failed techniques and farming enterprises have been promoted with staged, doctored, or photoshopped images since the Great Leap Forward and Dazhai, including schemes to feeding wheat straw to cows, communal livestock-raising compounds decimated by disease, seed subsidies used to push lousy seeds from a local monopoly, fake farmer cooperatives set up by officials to meet quotas or run by companies to get tax breaks, intercropping corn and soybeans, and countless abandoned greenhouses.

China's 2024 Ag Imports Shrank in Value

China's agricultural imports declined 7.9 percent during 2024 to reach $215 billion, according to data posted on the customs administration website. The 2024 value was lower than each of the 3 preceding years. Agricultural exports were up 4.1 percent to reach $103 billion.

Source: Data from China Customs Administration December reports.

The top two agricultural import categories by value both declined. Soybeans ($52.75 billion in 2024) fell 10.9 percent, and meat ($23.38 billion) fell 15.1 percent. Cereal grain imports ($15 billion) were down 28 percent and fish & shellfish imports ($18.5 billion) were down 6.2 percent. Edible oils imports ($10.6 billion) were down 17.8 percent. Fruit, rubber, cotton and wool and beverage imports were up for the year.

The decline in value of imports partly reflected a decline in prices. Customs reported that the volume of soybean imports for calendar year 2024 reached a record 105 million metric tons, up 5.6 million metric tons from the previous year according to the customs report. The volume of several other import categories declined less than their value. Imports of cereal grains reached 50.19 million metric tons, 8.9-mmt less than the previous year. Meat imports totaled 6.7 million metric tons, down 9.7 percent from the previous year.

The volume of China's corn imports was down 13.5 mmt, nearly cut in half from 2024, while wheat and rice imports were down less than 1 mmt each. Barley and sorghum imports were up from the previous year. Imports of palm oil were down 1.5 mmt and imports of soybean oil and rapeseed oil posted smaller declines. Beef imports were up 140,000 metric tons, but imports of other types of meat were all down from the previous year. Imports of fish and dairy were also down. 

A year ago China's customs data was apparently doctored to make the soybean import total come in just under 100 mmt for 2023. There seems to have been no such shenanigans this year. China Grain Net's analysis of the 2024 trade numbers acknowledged that soybean imports had broken through 100 mmt and commented that soybean imports fulfill demands of the common people in view of China's land resource limits and pressure on environmental resources. China Grain Net went on to acknowledge that reliance on imports challenges China's national food security "...in the current context of intensified competition among major powers and increasing uncertainty in the external environment."

Calculations based on the customs data and production of domestic soybeans show soybean imports constituted 83.6 percent of China's soybean supply in 2024. Similar calculations show 7.1 percent import reliance for cereal grains and 6.5 percent import reliance for meat. 

Shrinking agricultural import values present a picture of weak consumer demand and economic deflation that present a more serious concern for China's rural economy. China Grain Net commented, "...under the condition of weak domestic grain demand, imports of low-priced grain from abroad may increase supply pressure, drag down grain prices and affect farmers' income from grain production."

The National Bureau of Statistics reported sharp declines in producer prices for grains and oilseeds for Q4 2024 (corresponding to the fall harvest season). Wheat prices were down 11 percent, corn prices were down 17.7 percent, rice was down 4.6 percent, and oilseed prices were down 3.9 percent from a year earlier. Cattle price plummeted 22.7 percent, sheep prices were down 9 percent, and poultry prices were down 2.3 percent. Hog prices were up 12.9 percent from a year ago, but the hog industry downsized by cutting slaughter 3.3 percent.

Preventing rural areas from relapsing into poverty was one of the watchwords for communist party officials stressed in last year's "Document No. 1" as well as the December 2024 rural work meeting. Officially, primary sector (agricultural) GDP grew 3.5 percent in 2024, falling behind the overall GDP growth rate of 5 percent and weaker than growth in manufacturing and service sectors. Fixed asset investment for the primary sector was up only 2.6 percent, despite much publicity about building "high standard fields." 

The National Bureau of Statistics reported that nearly 300 million rural people had non-farm employment during 2024, up 2.2 million (0.7 percent) from the previous year. The increase seems implausible given the contraction in construction and service sectors--two top employers of rural migrants. However, the increases of last two years have been among the slowest ever. Employment in rural areas grew only 0.1 percent in 2024 after declining 2.8 percent the previous year, suggesting an especially weak rural economy. 

Source: Calculated from China National Bureau of Statistics.

The dollar-value of average monthly nonfarm wages earned by rural people has been stagnant for four years as modest gains in wages are offset by depreciation of the Chinese currency against the dollar.

Source: Calculated from China National Bureau of Statistics data.

Ag Ministry Renews Corn-Soy Feed Reduction Program

China's Ministry of Agriculture and Rural Affairs has decreed that the country's livestock industry will reduce use of corn and soybean meal in feed as a strategy for reducing grain imports. However, the new decree mostly recycles ideas that have been pushed for the past 5 years...or even longer.

The Ministry's "Opinion on Implementation of the Livestock Industry Grain-Saving Action Plan" aims to attack animals' consumption of feed grains and protein meals on multiple fronts. Officials plan to promote adoption of precise low protein diets to cut back on use of soybean meal. The plan calls for fully utilizing non-grain feeds such as corn silage and alfalfa, adjusting the mix of livestock species to minimize feed grain use, boost efficiency, and cut production costs. The plan aims to reduce feed intake per animal by 7 percent from the 2023 level by 2030. 

At a news conference a Ministry official indicated the livestock feed action plan is part of the broader grain-saving and food waste reduction action plan issued by China's communist party leadership in November as part of so-called "Chinese-style modernization." 

This plan is the latest in a series of desperate measures issued since the trade war with the United States to cut back on imports of corn and soybeans, two commodities China imports from the U.S. in large volumes. 

• The campaign began in October 2018 with the Ministry's issuance of new feed standards that cut protein requirements in animal feed. 
• By 2021 the Ministry had created a database of feed ingredients and launched a program to replace and reduce use of corn and soybean meal in animal feed.
• In September 2022 the Ministry held a seminar where hog-producing and feed companies explained their achievements in using synthetic amino acids in feed to cut back on soybean meal use. 
• In April 2023 the Ministry issued a 3-year action plan to reduce soybean meal use in feed from 14% in 2022 to 13.5% by 2025.

A 2022 Ministry of Agriculture and Rural Affairs meeting said feed grains are "the most prominent contradiction" in national food security because demand is growing steadily. The meeting described the soybean meal reduction and substitution program as a necessary choice in view of "uncertainty of international supplies." Cutting imports has become even more urgent this year as corn and soybean prices plunge in China, undermining production incentives and potentially triggering unrest as rural incomes fall.

In 2021, the agriculture ministry issued a list of recommended substitutes for corn and soymeal in swine and poultry feed that was comprised mainly of other commodities that would have to be imported. The list included wheat and rice (which are staple food grains...was it a coincidence that China suddenly imported huge quantities of broken rice in 2021 and '22?), wheat bran (already widely used), sorghum, barley and cassava (which are also imported for feed use), DDGS (which has limited quantities domestically, are vulnerable to mycotoxin contamination, and imports face antidumping duties), rapeseed meal (which can only be used in limited quantities and would require imports of rapeseed), cottonseed (high in fiber, mainly suitable for cattle and is produced thousands of miles away in Xinjiang), palm meal (imported from Southeast Asia), and highland barley (small quantities are grown in far western regions Tibet and Qinghai).

This year's action plan once again promises a feed and animal nutrition database. 

Last month the Ministry of Agriculture and Rural Affairs issued its latest report bragging about progress in cutting soybean meal out of feed. One of the projects is using restaurant waste to produce animal feed in 15 pilot cities. (Feeding table scraps to pigs used to be widespread--a real grain-conserving activity--but it was banned during the African swine fever epidemic 5 years ago). There are also two high-tech programs to create protein by fermenting industrial waste and using animal-based protein hydrolysates as feed.

Another project is to feed straw and stalks to cattle and produce grass-fed meat animals. These programs have been around since the 1990s and keep getting resurrected. Subsidies and action plans to grow more corn for silage and alfalfa have been underway for years. Trouble is, Chinese consumers have not been willing to absorb the increase in domestic beef supplies that has already occurred, and beef prices have been falling for two years. 

This blog has pointed out before that China's exports of amino acids have boomed since 2018--during the same years the agriculture ministry claims to have popularized substitution of amino acids in diets to replace soybean meal. If domestic use of amino acids is growing so much, how could exports boom? And why haven't soybean imports fallen if farmers and feed mills have cut use of soybean meal?

The agriculture ministry spokesperson claimed that China had already reduced soybean meal use in feed by 23.7 million metric tons since 2017. This number was reached by applying arithmetic to questionable Chinese feed industry data, but the reduction in soybean meal consumption does not square with the ministry's own estimates that indicate growth in China's production of soybean meal. The soybean balance sheets issued by the ministry's CASDE show an increase in soybeans crushed to produce soybean meal from 91.1 mmt in 2017/18 to 97.9 mmt in 2023/24, an increase of 8.8 mmt. These estimates suggest China's supply of soybean meal increased by about 4.7 mmt since 2017, the year before the anti-soybean-meal campaign began. China has not increased its exports of soymeal so the increased supplies must have been consumed in China.

The Ministry of Agriculture spokesperson told Economic Daily to expect lower corn imports in coming years. Import volumes hit new lows during August-November 2024, and the October import volume of 251,000 metric tons was the lowest since December 2019. Economic Daily estimated that calendar year 2024 corn imports would reach 14 million metric tons (mmt), down 13 mmt from the previous year. 

Economic Daily suggested that authorities will resume enforcing the tariff rate quota of 7.2 mmt. Imports were allowed to exceed the quota for the last 5 years. A Ministry of Agriculture official told Economic Daily that cumulative corn imports reached 100 mmt from January 2020 to September 2024. The official claimed that bumper harvests had reduced the need for corn imports, and he predicted 2025 imports could be within the 7.2-mmt quota. From now on, imported corn will be used to fill temporary deficits, Economic Daily said.

Economic Daily indicated that lower imports will boost "market confidence" and raise corn prices for China's farmers. The drop in imports beginning in August corresponds to industry news that officials issued orders to companies in processing zones last summer to stop importing corn. The drop in imports lines up with the beginning of China's corn marketing season, surely no coincidence. Chinese corn prices have nevertheless continued to drop after the harvest. Economic Daily expects corn prices to begin recovering after the spring festival. 

Source: China's customs data.

China Adds Dairy Capacity During a Milk Glut

Chinese dairy companies are investing in new facilities in the midst of a steep market downturn according to an article last month in Chinese business news outlet Yicai. The article suggests that the companies are pursuing a new business model, but a deeper dive suggests that addition of new capacity in an industry already suffering from excess capacity is directed by industrial policy to upgrade the industry and protect it from imports.

According to Yicai, 2024 was the most difficult year in recent history for dairy companies in China, with weak product demand and fierce price wars. Official statistics say output of dairy products for January-October 2024 was down 2.3% year-on-year. 

Despite the shrinking market and sinking prices Yicai observes that "many medium-size regional dairy companies have been quietly expanding production." The article lists examples. 

• "Adopt-a-Cow" announced opening of a giant 20,000-head dairy farm in Gongzhuling  (a small city in Jilin Province that has been a site chosen for splashy agribusiness projects since the 1990s) to supplement another 25,000-head farm.
• In November Weigang Dairy announced a new dairy product manufacturing facility in Rizhao, Shandong with a 300,000-ton capacity that will supply products in a 300-km radius in Shandong and Jiangsu Provinces. 
• That same week Xinjiang Tianrun Diary announced the opening of the first phase of a 150,000-ton processing project in Dezhou, Shandong.
• In early November, Yantang Dairy announced plans to invest 610 million yuan in a 600-ton-per-day dairy plant in Jieyang, Guangdong Province.

Yicai explains that the expansions are being undertaken by small and medium regional dairy companies who hope to supply fresh milk products to local markets. In doing so, they aim to supplant giant companies that sell room-temperature products to a national market. 

Yicai's explanation regurgitates a strategy of boosting fresh milk products repeated over and over for at least 10 years in China's dairy industry. The latest version asserts that the COVID-19 pandemic boosted new marketing channels that prompted Chinese consumers to shift their preferences toward fresh milk. New preferences for healthier and higher quality milk products are also part of the narrative. 

Dairy section of a Chinese supermarket. Source: 36kr.com.

Several months ago 21st Century Business Herald peddled this narrative in a long article, "With Excess Capacity and Intensified Competition, Dairy Companies are Turning to Low-Temperature Milk." The article explained that pasteurized fresh milk was predominant in the early days of China's dairy industry, but ultra-high temperature (UHT) milk took over the market in the 2000s due to the low cost of storing and transporting it at room temperature in a country that had few cold chain facilities. Now, the article claimed, consumers want fresh milk products again. The article cites statistics showing growth of fresh milk product sales despite this year's "vortex of falling volume and prices" and went on for pages claiming advantages of fresh milk and high-end products such as organic and skim milk and observed that nearly all Chinese dairy companies are introducing such products. The 21st Century Business Herald article hinted at a strategy of emerging competition in the industry as companies adjust their regional target markets similar to Yicai's explanation of new investments during an industry downturn.

A September 2024 article in State media, "Big Dairy Country: How to Accelerate the Transition to a Strong Dairy Country," went on for several pages trumpeting claims that China's dairy industry is now at the same level of those in developing countries before admitting that China has had a milk glut for two years as production outpaced consumption. Several pages later the article reveals why so many articles discuss fresh milk: the communist party's "No. 1 Document" for 2024 included a directive to promote consumption of fresh milk, adjust standards for liquid milk and standardize labels for reconstituted (UHT) milk. The article also cited a national nutrition and health committee issued a document recommending adding more soybeans and milk to Chinese diets and a special action plan issued by China's dairy association to stimulate milk consumption. (sounds familiar..."Got Milk" anyone?)

Earlier in 2024 an article in The Paper implied the directive in the No. 1 Document reflected growing demand for quality milk products, but an official quoted in that article explained that the real intent behind a directive to regulate labeling of reconstituted milk was to encourage use of domestic milk. He explained that the labeling regulation is meant to discourage companies' practice of mixing imported milk powder with domestic milk to increase protein content of their products. The official also admitted that the No. 1 Document's directive to promote fresh milk consumption was meant to sop up excess supplies of domestic milk. 

The "Big Dairy Country" article cited a July announcement by China's Ministry of Agriculture and Rural Affairs that subsidies would be given for purchasing raw milk and milk powder made by spraying, for cost-saving dairy farming models, and orders were issued to local governments to offer more credit and insurance support to dairy farms to prevent them from culling their herds. The article gives examples of provincial subsidies to sustain large sophisticated dairy farms and companies through the downturn while eliminating less-productive farms and cows. Measures include 1.4 billion yuan (about $200 million) to help Inner Mongolia's dairy farms and 8,000 yuan per ton of milk powder sprayed; 2,000 yuan per cow for farms of 100 head or more in Xinjiang; and similar measures in Shandong, Heilongjiang and Hebei Provinces. Heilongjiang Province subsidized dairy companies 100 yuan for every ton of milk procured in the first half of 2024 plus a bonus subsidy for increasing their procurement volume from the previous year. Inner Mongolia has had such a subsidy since 2022.

 The article interviewed experts and officials who suggested even more measures to re-engineer the dairy industry, increase production of cheese, whey powder, and cattle forage, boost consumption through dietary recommendations and student milk programs, and convince people to consume more pasteurized fresh milk and cheese.

Sichuan Province's dairy association met December 27 to set a guidance price
for milk procurement of 4.44 yuan per kg in the first half of 2025.