Dim Sums: Agricultural Markets in China

Dozens of Chinese news reports have called attention to high tomato prices over the past month. The large number of similar reports coming out at the same time is an effort to shape public opinion about the Government's control of prices, heading off any discontent that could lead to social instability during a sensitive time.  Chinese news media are not free to report on any trend or events they deem to be important. This blog has previously discussed how China's  State-controlled media is expected to shape public opinion . The large number of articles appearing at the same time, using the same language indicates that articles on tomato prices represent a coordinated effort by propaganda authorities to address this issue.  The tomato price reports seem to have begun in mid-December with an article in  Southern Daily   noting vigorous discussion over whether vegetables have become unaffordable . Since then, dozens of articles have appeared in news outlets a...

China has been experimenting with agricultural price index insurance, a new approach to mitigating the risk of price fluctuations. A recent description in Economic Reference News highlights a pilot for vegetable producers initiated in Zhangjiagang, a prefecture in northern Jiangsu Province. The price index insurance product is offered by Peoples Insurance Company of China (PICC) with 90 percent of the premiums paid by prefecture and township governments. A basis price is set--apparently the commodity's wholesale price during the same period in the previous year. If the current period's price falls below the basis price, the producers receive a compensation payment from the insurance company based on the price shortfall. The Zhangjiagang pilot is for leafy cabbage-type vegetables grown in the summer when they are in short supply. The basis price is set using average price data provided by local price bureau surveys every 10 days. Last year the insurance company paid out 80,...

Chinese officials pretend that acquiring hardware--laboratories and fancy equipment--assures food safety, but it doesn't. The equipment is worthless without skilled technicians to operate it. The long-entrenched Chinese strategy is to hold splashy opening ceremonies to impress visitors followed by neglect after the visitors have gone home. A reporter from a Nanjing newspaper visited the city's biggest vegetable-supply area to check on the system for ensuring that vegetables have no toxic pesticide residues. Local farmers pointed out a building which bore a sign that identified it as the "Nanjing City vegetable base testing lab" sponsored by the Nanjing municipal agricultural commission. The building was locked up and passersby told the reporter that no one had been to the building for a long time. The reporter peeked in the windows and saw a few pieces of equipment that appeared to be unused. Demonstrating testing for visiting officials at a vegetable company...

Last week a task force from the Ministry of Agriculture's economic and market information office offered some policy suggestions to deal with some grim problems that have popped up in China's agricultural sector. The task force identified a problem with "upside down" domestic and international prices for cotton, sugar, and dairy sectors. "Upside down" apparently means that Chinese prices are far above international prices. The task force described the cotton and sugar markets as clearly "distorted" because Chinese prices are higher than international prices. They implicitly place the blame on international prices for being too low rather than blaming their price support for keeping Chinese prices artificially high. The task force says that imports are "pressuring" the domestic market and preventing authorities from selling reserves at a favorable price. The task force offers vague suggestions: that China continue its cotton and sug...

The Ministry of Agriculture has issued an emergency notice on addressing the problem of unsellable napa cabbages . The program launches a "patriotic cabbage campaign" that involves twisting arms to make sure surplus cabbages get sold. This follows the successful "patriotic potato campaign" held in mid-October. Around the time of the National Day holiday (Oct. 1) there was a large volume of potatoes with no buyers in Inner Mongolia, Gansu, and Shaanxi Province. In order to reduce farmers' losses, the Ministries of Agriculture and Commerce called on city people in Beijing, Tianjin, Guangzhou, Nanjing and other big cities to buy potatoes from Inner Mongolia. "Some people began calling this the 'patriotic potato campaign.'" Following this great success, on November 24 the Ministry of Agriculture issued the new notice calling for measures to help farmers in Shandong and Hebei Provinces sell their unsold cabbages. The notice calls for each prov...

In a sharp reversal from last year's crisis of high vegetable prices, the latest crisis this month is a glut of vegetables. Lots of news stories tell about farmers who can't sell their vegetables even at rock-bottom prices. On April 26, the Ministry of Commerce released a set of 13 policy measures to address the "hard to sell" vegetable problem. The first two measures involve arm-twisting of supermarket chains. In each locality officials will "guide" supermarkets to buy "hard to sell" vegetables directly from farmers. Supermarkets engaged in the "farmer-supermarket linkage" program will be reminded of their social responsibility. They will buy produce at "reasonable" prices and set up special sale counters for the "hard to sell" vegetables. In agricultural demonstration areas large wholesale markets and marketing enterprises will play a leadership and demonstration role by buying and selling "hard to sell" ve...

Shandong Province's agricultural exports surged by over 30% in 2010 to nearly $14 billion . Customs statistics from Shandong show exports of vegetables totaled $4 billion, and were up 75%. Garlic exports doubled in value to $2.2 billion, accounting for half of the vegetable total. Shandong Province is by far the leading province in agricultural exports, so these statistics will reflect changes in national totals. This surge in exports is remarkable given the concern about tight supplies and rising prices last year. It illustrates China's addiction to exports and a compartmentalization of the domestic and export markets. Standard economic theory would predict that short domestic supplies and rising prices would divert products from exports to the domestic market, yet China's exports soared despite bad weather, urban encroachment of farmland, and double-digit increases in labor and land costs. Rising domestic vegetable prices and lack of vegetable supply in major cities be...

Last week, the Farmers Daily contained a long article explaining why vegetable prices increased in 2010 . The article notes that the rapid increase in prices attracted a lot of attention and prompted the central government to issue a series of 16 policies to address the issue. According to the authors, a clear understanding of the reasons for rising prices is necessary in order to make good policies. Many factors contributed to rising prices. While some regions had unusual weather last year and urbanization gobbled up land, the article insists that supply and demand are basically balanced. Ministry of Agriculture statistics show that acreage planted in vegetables went up 8 million mu last year. Rather, the article points to rising costs in each stage of the supply chain as the main reason. The author argues that rising costs are not unreasonable and points out that profits need to be spread evenly among the various actors--farmers, traders, retailers--to preserve a stable long-term sup...

The Ministers of Commerce and Agriculture announced a new campaign to improve city vegetable supplies by pushing forward the "Farmer-Supermarket Counterpart" program. This is an arrangement in which supermarket chains buy fresh produce directly from farmer cooperatives. By cutting out the middlemen (traders, brokers, wholesale markets), farmers should get a higher price and supermarkets reduce their cost. Ideally, supermarkets form stable long-term supplier relationships with cooperatives, sign contracts at fixed prices, provide standards and technical training, and help the cooperatives develop brand names for their products. Retailers exert more control over producers and it becomes easier to trace products back to their source. Earlier this year it was announced that the "farmer-supermarket counterpart" would be expanded, and another meeting was held in October 2009 The program's Chinese name, nong chao dui jie (农超对接), is hard to translate. Above, I translat...

An article from the Xinhua News Service suggests that the rising price of vegetables is a signal that China's economy is entering a new era of high costs. According to Sun Jitao, one of the 30,000 or so traders at Beijing's Xinfadi wholesale market, business is getting worse for vegetable traders. By noon, Sun had sold about a third of the vegetables from his truck. He may make 1000 yuan in a day but he has to split it with seven partners. With the rising purchase cost of vegetables, plus packing, transportation and labor, it's not uncommon to lose money on a truckload. Another trader named Wu selling home-grown ginger complains about the rising cost of production. She said laborers were paid about 7 yuan per hour last year, and this year they can't find workers at 9 yuan per hour (about $1.30). She says it now costs over 8000 yuan to plant one mu of ginger. She says recent government policy measures led to a drop in ginger prices. She thinks people who bought ginger a...

Hubei Province has plans for cities to store up a 5-to-7-day supply of vegetable reserves . This bright idea, intended to "stabilize" vegetable prices, was inspired by rising vegetable prices this spring and summer. According to the article, there was a shortage of vegetables this spring due to drought and floods in the south, and vegetable prices are 84% higher than in 2007. In the peak seasons of April-May and August-September, Hubei has to bring in 6 million tons of vegetables from other provinces at higher prices than local prices. This program is part of the "vegetable basket" program that has been in place since the early 1990s. Muncipal leaders are responsible for ensuring that their cities have sufficient supplies of vegetables, fruits, and meats. A provincial "vegetable basket risk fund" will be established to finance interregional vegetable sales at certain times. Strict plans will be made to guarantee that cities have minimum supplies of vegetab...

In May there was a lot of attention on garlic as one of the commodities with soaring prices. At the time, there was some expectation that the price would fall after newly harvested garlic came on the market. The government introduced a 2-million-yuan fine for anyone caught speculating or hoarding. Two months later, garlic prices have risen even higher. According to a July 19 article , since mid-June the price has gone up 21.2% as of July 18 to 6.57 yuan/jin ($.97/jin or $1932/mt). In an earlier post on this blog, the price was about $.50 per lb. in May . The upward momentum in garlic price is still strong. The price increased 17 days in a row during July. Bad weather during the winter and spring cut the harvest. According to government surveys in Shandong's Jinxiang County, production there is down 13% this year. Traders anticipated the production shortfall and in the winter started trying to contract with growers to buy their harvest in advance. The price per mu went from about 2...

Last week, the chief economist of the National Bureau of Statistics claimed there was no evidence that "hot money" was flowing into markets for agricultural commodities like garlic. One of his points was that garlic is sold as a fresh good that couldn't be stored. Recent news articles probing the situation show that the garlic market is highly competitive, surprisingly sophisticated and capital-intensive. Actually, after garlic is harvested much of it is purchased by dealers who place it in temperature-controlled warehouses. The garlic is held until the peak consumption season during the mid-autumn and spring festivals. During the fall and winter months, all the garlic in the retail market comes from such warehouses. An article about Cangshan County in Shandong Province , one of the leading garlic-producing areas, reports that the area has 180,000 metric tons of storage space and 20,000 mt of space was added this year. A garlic farmer in Cangshan, Shandong Province. Cangs...

Greenhouses and chemical fertilizer have helped Chinese farmers to produce huge amounts of vegetables nearly year-round. The result was higher incomes for farmers and fresh vegetables at any time of year for Chinese consumers. Greenhouses cover the countryside in Shouguang A March 15 article from the overseas Chinese newspaper, World Journal , reveals the hidden costs of heavy long-term use of Nitrogen fertilizer. Reporters visited a village in Shouguang in Shandong Province, the center of greenhouse production in China. In the 1980s and early 1990s, officials introduced farmers to this new production strategy as a demonstration project. In some areas, the countryside has been turned white, covered with plastic greenhouses with few open fields. Groups come from all over the country to see how they do it. The reporters visited 48-year-old farmer Li Yufeng. She recalls how the farmers were amazed at the fat cucumbers produced with nitrogen fertilizer in 1989. She said, cucumbers no longe...

China is emphasizing large-scale production that standardizes varieties and techniques, introduces branded products, and consolidates scattered plots into big fields. The latest big project is to create large-scale vegetable farms. Watch out California! The Ministry of Agriculture launched a new plan to set up a nationwide network of 400 standardized vegetable farming areas over the next two years. At a rally held in Yinchuan, capital of Ningxia Hui Autonomous Region in northwestern China, the director of the MOA's crop production office said MOA will set up 200 standardized vegetable farming areas (the Chinese word is "yuan," or garden) that have fields of 200 mu (33 acres) or more, and another "open-field" vegetable farms with fields of 1000 mu (165 acres) or more. In these projects the production will be standardized (using same varieties and production methods), pest and disease control will be unified, and all vegetables will be grown for the market (not fo...

According an online report , a forum on the "Farmer-Supermarket Linkage" program was held in Beijing on October 29, where the Ministries of Commerce and Agriculture signed memoranda of cooperation with Wal-Mart. This project promotes direct purchases of produce by supermarket chains from farmers (actually cooperatives or distribution centers run by farmers). Wal-Mart announced that it plans to involve 1 million Chinese farmers in its “farmer-supermarket linkage” project by the end of 2011. Since 2007, Wal-Mart has established 11 direct purchasing bases in 7 provinces. The bases cover an area of 150,000 mu [10,000 hectares] and 200,000 farmers directly benefit [10 farmers per hectare!] Wal-Mart’s International Business chief told a reporter, “The farmer-supermarket linkage program is representative of Wal-Mart’s development strategy in China. We want to bring our world-wide experience in farm product operations into China’s supply chain, spread scientific crop-production, envi...

Little of China’s massive fixed asset investment has found its way into the agricultural sector. But authorities are now encouraging investment through subsidies for machinery purchases and a number of other strategies that include building infrastructure, breeding stations, barns, bioenergy facilities, and other fixed assets. They typically include modest subsidies split among central, provincial, and local governments and enticements to private agribusiness companies. Many of these campaigns fall under the rubric of developing “modern agriculture.” One of these campaigns is “facilities agriculture” which seems to encompass mainly building greenhouses to produce vegetables. It includes construction of various kinds of greenhouses, demonstration projects, breeding stations, and technical training. “Facilities agriculture” was featured in the 11th 5-year plan and the “Decision” of the 3rd plenum of the 17th party congress in October 2008. Campaigns to build greenhouses have been around ...

China's CPI still seems to indicate "inflation" in food prices, but most prices seem to be on the way down. The August CPI overall shows 4.9 percent inflation and meat 8 percent. Average retail prices through September reported on the Price Bureau web site show that prices are falling and close to their year-earlier levels. An article on the Ministry of Agriculture web site refers to plummeting hog prices in "Hog Industry Black September" and uses language like "disaster" and "landslide" to describe the hog price situation. As reported earlier on this blog, prices are falling below break-even levels and there is a growing sentiment among farmers to start reducing hog inventories. Vegetable oil prices are still above year-earlier levels, but falling: Pork and cooking oil experienced the biggest price hikes in 2007. Looking at Chinese cabbage (Da bai cai) as an example of a quite different food commodity, we see a spike around the February wint...