Monday, November 20, 2017

China GMO Testing Lab Consolidation, Privatization is Mulled

Chinese authorities are thinking about consolidating GMO testing labs and turning them into genuine third-party testing organizations, according to a report in China Business Journal yesterday.

One of the motivations for the consolidation is last year's exposure of a GMO testing lab's falsification of testing records and employee qualifications to pass a 3-year audit.

There are currently 42 testing centers for GMO plants and animals on the Ministry of Agriculture's list. However, the qualifications of several have already lapsed, and a dozen more are up for renewal in 2017 and 2018. No preparations have been made to audit several testing centers whose qualifications will soon be up for renewal.

One researcher told China Business Journal that there are plans to weed out weak labs, and he speculated that the number of testing centers could be whittled down to as few as 10.

There are also plans to make the GMO testing centers independent third party organizations. Currently, all the accredited testing centers are laboratories affiliated with the agricultural system--institutes in central or provincial academies of agricultural science, seed management labs, and environmental monitoring organizations. While they are not directly under the Ministry of Agriculture, these entities receive funds from the Ministry's budget to pay for offices, labs and equipment. As they are not truly independent of the Agriculture Ministry, the Chinese public may not fully trust their evaluations of experimental trials for GMO crops and animals sponsored by research institutes with government funds.

Many of the testing centers fear they could not survive as truly independent third party organizations responsible for their own profits and losses. Centers would have to raise their fees substantially to cover the costs of labs and equipment if they were not funded by government budget allocations. Current fees of 1000 yuan for a new variety test could rise to 7000-8000 yuan, one researcher surmised. Moreover, highly qualified professionals needed for effective testing prefer working in a government unit due to social welfare benefits and other superior conditions. As private enterprises, third party labs would have a hard time attracting such professionals.


Sunday, November 19, 2017

Soybean Excess Capacity; Russia Big Potential Supplier?

A Chinese soybean industry executive complained about the sector's chronic excess capacity and predicted that Russia would be the main supplier of China's future soybean demand growth.

The comments were made by Shi Yongge, the vice-chairman on China's Jiusan Grain and Oils Industry Group at a global oilseed conference hosted in Guangzhou by the Dalian Commodity Exchange last week. Mr. Shi praised the role of China's supply side reform initiative in reviving domestic soybean production this year, but he worried about the sustainability of the shift in planted area away from corn to soybeans. Mr. Shi expects China's soybean imports to reach 93 mmt this year, over 90% of soybeans used in the country.

Mr. Shi raised concerns about excess crushing capacity in China. Much of the capacity has been built along the northern coast, and he thinks the northeast region is about to follow suit. China's domestic soybeans are increasingly oriented toward food protein products like tofu and soy sauce, Shi said.

Mr. Shi also worried about domination of the soybean market by ten companies that have 70% of the crushing capacity. They include state-owned, foreign-invested, and private companies, including COFCO, Wilmar, Jiusan, Sinograin, and Bohi. He thinks competition will heat up and financial losses will return next year when new capacity comes online.

Mr. Shi pointed out that China is the largest soybean-consuming country, and whoever meets China's demand will win the market. He surmised that Russia would be the top supplier of China's soybean demand in coming years because of its geographic location and "secure transportation." He cited greater investment opportunities in China-Russia trade in view of the "One Road One Belt" initiative (which promotes trade with countries between China and Western Europe, including Russia).

Chinese farmers have been growing soybeans and other crops in Russia for 15 years or more. The flow of soybeans from Russia into China did pick up in the last few years, but is still relatively tiny, at 300,000-to-400,000 metric tons annually over the past three years. Russia was the Number-six soybean supplier to China during the 12 months that ended in September 2017. In comparison, customs statistics say China received over 45 million metric tons of soybeans from Brazil and 36 mmt from the United States. Imported soybeans from Canada more than doubled over the last three years, but imports from Russia did not increase significantly.

Sunday, November 12, 2017

China MOA S&D November 2017

China Ministry of Agriculture's monthly S&D report sees supply pressure from domestic corn reserve sales and surging soybean imports putting downward pressure on markets. Cotton supplies are "tight" as government reserves shrink below a year's supply.

The China Agricultural Supply and Demand Estimates (CASDE) for November 2017 was released Nov. 9, with few changes from the previous month. The 2016/17 corn market year is now complete, and CASDE estimates that demand exceeded supply by 11.2 million metric tons (mmt). The only change in the corn balance sheet from last month was a slight increase in imports to 2.46 mmt. In fact, over the course of the year CASDE made few changes in its corn S&D for 2016/17.

A year ago, in its November 2016 report, CASDE estimated that corn supply would exceed demand by 3.8 mmt during 2016/17. The main change since that report is the raising of its initial low-ball estimate of production (213.6 mmt) to the official output statistic of 219.55 mmt. In November 2016 CASDE forecast 2016/17 corn imports at just 1 mmt, as they thought domestic corn prices had fallen low enough to choke off import demand. Over the course of the year, CASDE ratcheted its corn import estimate upward to the current 2.46 mmt.

China corn supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 36,760 36,768 35,100 35,100
Harvested area 1000 ha 36,760 36,768 35,100 35,100
Yield Kg/ha 5,973 5,971 5,986 5,986
Production MMT 219.75 219.55 210.11 210.11
Imports MMT 2.30 2.46 1.50 1.50
Consumption MMT 210.72 210.72 215.62 215.62
--Food MMT 7.82 7.82 7.89 7.89
--Feed MMT 133.03 133.03 135.03 135.03
--Industrial use MMT 58.25 58.25 61.3 61.3
--Seed MMT 1.61 1.61 1.57 1.5
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.15 0.08 0.3 0.3
Surplus MMT 11.00 11.21 -4.31 -4.31

In the coming market year 2017/18, CASDE estimates that China's corn demand will exceed its supply by 4.3 mmt. Corn production is estimated at 210.1 mmt, down 8.4 mmt from last year. Consumption for 2017/18 increases by less than 5 mmt over the previous year, driven by modest growth in both industrial and feed use. Again, CASDE has a low import number of 1.5 mmt for 2017/18. The CASDE authors anticipate that the corn market will be characterized by excess supply due to pressure from large government corn reserves and the "normalization" of auction sales. (In fact, auctions of corn from government reserves were halted in November so as not to depress corn prices as sales of the new crop move into their peak season.) CASDE left its estimate of average wholesale corn prices in production regions unchanged, at 1550-1650 yuan per metric ton. CASDE estimates the price of imported corn arriving in southern China at 1650-1750 yuan per metric ton.

CASDE has also had to ratchet its estimate of soybean imports upward over the course of the year. This month CASDE reports that 2016/17 soybean imports totaled 93.5 mmt. A year ago, CASDE had forecast 2016/17 soybean imports at 86 mmt. (USDA's WASDE similarly ratcheted its China soybean import estimate up from 86 mmt a year ago to 93.5 mmt this month, but USDA's 3-mmt forecast of China's corn imports a year ago was very close to the actual number.)  CASDE had to also raise its estimate of soybean crush over the course of the year as imports boomed. The final 2016/17 soybean import volume is up 12 percent from the year before.

China soybean supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 7,208 7,208 8,194 8,194
Harvested area 1000 ha 7,202 7,202 8,194 8,194
Yield Kg/ha 1796 1796 1823 1817
Production MMT 12.94 12.94 1494 1489
Imports MMT 92.87 93.49 94.50 95.97
Consumption MMT 106.83 108.11 109.21 110.56
--Crushing MMT 91.76 92.90 93.08 94.38
--Food MMT 11.18 11.18 12.04 12.04
--Seed MMT 0.64 0.64 0.64 0.64
Loss and other MMT 3.25 3.39 3.45 3.5
Exports MMT 0.12 0.12 0.22 0.22
Surplus MMT -1.14 0.01 -0.25 0.08

CASDE raised its estimate of 2017/18 soybean imports to 96 mmt this month, up from 94.5 mmt in October. Although CASDE reported some problems with the domestic crop due to heavy rains in Anhui and Henan Province (where beans are produced mainly for food use), CASDE authors said  downward price pressure on soybean markets is evident. CASDE reduced its estimate of domestic soybean prices about 4-5 percent (the only price estimate they cut) to 4175-4375 yuan per metric ton. CASDE estimates the C&F price of imported soybeans at 3050-3250 yuan per metric ton, unchanged from last month. The large gap between domestic and import prices reflects a premium for domestic beans that are presumed to be non-GMO and mainly for food processing use. The fat premium also provides strong incentive to surreptitiously divert imported (GMO) soybeans to food manufacturing use.

CASDE expects imports of vegetable oils to increase in 2017/18 to reach 6.3 mmt, up from 5.8 mmt during 2016/17. 

China edible oils supply and demand (Min Agriculture, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Production MMT 27.28 27.36 27.53 27.76
--Soy oil MMT 16.17 16.27 16.28 16.51
--Rapeseed oil MMT 5.76 5.74 5.71 5.71
--Peanut oil MMT 3.18 3.18 3.24 3.24
Imports MMT 5.8 5.78 6.20 6.28
--Palm oil MMT 3.2 3.34 3.75 3.75
--Rapeseed oil MMT 0.80 0.80 0.85 0.85
--Soy oil MMT 0.74 0.71 0.58 0.65
Consumption MMT 31.68 31.68 31.86 31.90
--Urban MMT 22.92 22.97 23.12 23.4
--Rural MMT 8.76 8.71 8.74 8.50
Exports MMT 0.17 0.17 0.13 0.17
Surplus MMT 1.24 1.29 1.70 1.96

CASDE made a slight reduction in 2017/18 cotton output due to heavy rain in central provinces that caused some cotton bolls to rot in the fields. Production was reduced by 30,000 metric tons. Imports are forecast at 1 mmt for 2017/18. CASDE estimates that China's cotton inventory was depleted by over 2.1 mmt during 2016/17 and will drop another 1.9 mmt during 2017/18. CASDE described China's cotton market as "tight" while the world supply is "loose."

China cotton supply and demand (Ministry of Ag, Nov 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Begin inventory MMT 11.11 11.11 8.94 8.94
Planted area 1000 ha 3,100 3,100 3,293 3,293
Yield Kg/ha 1,555 1,555 1,602 1,616
Production MMT 4.82 4.82 5.35 5.32
Imports MMT 1.11 1.11 1.00 1.00
Consumption MMT 8.09 8.09 8.22 8.22
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 8.94 8.94 7.06 7.03


China sugar supply and demand (Ministry of Agriculture, Nov. 2017)
Item Unit 2016/17 Oct 2016/17 Nov 2017/18 Oct 2017/18 Nov
Planted area 1000 ha 1351 1396 1472 1456
--sugar cane 1000 ha 1183 1225 1277 1267
--sugar beets 1000 ha 168 171 195 189
Yield




--sugar cane MT/ha 60 61.8 60 60
--sugar beets MT/ha 52.5 55.2 52.5 52.5
Sugar output MMT 9.29 9.29 10.47 10.35
--sugar cane MMT 8.24 8.24 9.23 9.15
--sugar beets MMT 1.05 1.05 1.24 1.2
Imports MMT 2.35 2.29 3.2 3.2
Consumption MMT 15 14.9 15 15
Exports MMT 0.12 0.12 0.07 0.07
Surplus MMT -3.48 -3.44 -1.4 -1.52

Friday, November 10, 2017

China Ag Imports Up 13% Through September

China imported $93.9 billion worth of agricultural products during January-September 2017, according to statistics released by China's Agriculture Ministry. The import value was up 13.4 percent from the same period a year ago. Agricultural exports totaled $53.3 billion, up 1.5 percent from last year. The agricultural trade deficit was $40.6 billion.

China's agricultural imports,
January-September 2017
Import value Growth from previous year
Billion
dollars
Percent
Ag total 93.9 13.4
Cereals 5.0 7.6
Oilseeds 32.3 19.6
Livestock products 18.8 6.5
Edible oils 4.1 15.9
Fruit 5.0 7.5
Cotton and yarn 2.5 44.1
Sugar 0.9 6.8
Vegetables 0.4 0.2
Fish and seafood 8.5 23.3

China is generating plenty of cash to pay for agricultural imports. Agricultural imports during Jan-Sep constituted just 6.8% of China's total import bill for the first three quarters of 2017. The $ 40.6 billion agricultural trade deficit made a small dent in the overall $ 307 billion trade surplus through September of this year.

As usual, oilseeds--$32.3 billion--were the dominant component of agricultural imports--accounting for about a third of the dollar value. Oilseed imports are up nearly 20 percent this year, so far. Livestock products were the second-largest chunk, with $18.8 billion. Every category of agricultural imports was up this year, and many were up in double-digit percentage growth.

Imports of each category of oilseeds and vegetable oils are up sharply this year. While officials struggle to engineer rebounds in domestic soybean and rapeseed production, imports continue to meet China's seemingly insatiable demand for grease.
China imports of oilseeds and edible oils, Jan-Sept 2017
Item
Imports
Growth from last year

Mil.
tonnes
Percent
Soybeans
71.45
16.8
Rapeseed
3.65
23.5
Palm oil
3.485
13.1
Rapeseed oil
0.614
20.1
Sunflower and safflower
0.497
31.8
Soybean oil
0.545
38.2

China imported 20.3 million tonnes of cereal grains in the first three quarters of 2017, up 12.2 percent from last year. Imports of wheat are up 25 percent this year. The demand for imported wheat reflects the poor quality of the 2016 crop and tight supplies of good quality wheat. Rice imports are up 16 percent, due to the persistent gap between Chinese and world prices. China has been aggressively exporting rice as well this year: its rice exports are up nearly 3-fold from last year to 888,000 tonnes.

China's imports of corn are down 23.6 percent this year to 2.28 mmt for Jan-Sep, as the Chinese government tries to force-feed the market with its bulging reserves. Distillers grains imports were down 86 percent, due to antidumping and countervailing duties slapped on this feed ingredient a year ago. Imports of sorghum--used mainly as a feed ingredient--are down 25 percent, but barley and cassava imports remain strong.

China imports of grains and other major agricultural commodities, Jan.-Sept. 2017
Item
Imports, Jan-Sep
Change from a year ago

Million tonnes
Percent
Wheat
3.63
25.6
Corn
2.28
-23.6
Rice
2.98
16.3
Barley
6.96
80.3
Sorghum
4.24
-25.3
DDGS
0.375
-86.1
Cassava
6.10
3.4
Cotton
1.08
16.8
Yarn*
1.432
1.3
Sugar
1.83
-29.9
*Yarn is a substitute for cotton.

China has been trying to force-feed its cotton reserves to its domestic market for several years to unwind a price support program that went awry--much as it is doing now for corn. According to the Ag Ministry China's cotton imports are up 16.8 percent so far this year, as cotton supplies are reportedly tightening in China. Cotton imports of 1 million tonnes are slightly above the tariff rate quota of 890,000 tonnes. Yarn imports--which have no quota restriction--are 1.4 million tonnes so far this year.

Sugar imports, also the target of new Chinese antidumping duties, are down 30 percent from last year. The sugar duties apply to imports outside of the 1.9-million tonne tariff rate quota. This year's imports of 1.8 million tonnes through September are close to the quota amount.

China's pork imports are down in 2017 as domestic prices have fallen from record levels reached in the first half of 2016. Imports of pork and pork offal were each 921,000 tonnes during the first three quarters of 2017, still historically high. Beef imports were up 14.7 percent, to 503,000 tonnes. China's opening of its market to U.S. beef had a minimal role--customs statistics say imports of U.S. beef totaled about 520 tonnes--0.1 percent of the total for this year through September. Imports of milk powder surged 23 percent to 820,000 tonnes.
China meat imports, Jan-Sep 2017
Item
Imports, Jan-Sep
Change from a year ago

1000 tonnes
Percent
Pork
921
-28.0
Pork offal
921
-15.4
Beef
503
14.7
Mutton
188
2.8
Milk powder
820
23.5


China's top agricultural export items were fish and seafood ($15.4 bil), vegetables ($11.1 bil.), fruits ($4.5 bil), and livestock products ($4.6 bil).

Sunday, November 5, 2017

China Meat Imports Creep Further Inland

As China opens a broader swathe of its territory to meat imports, its livestock producers need to raise their game. So warns a commentary posted on a Chinese pork industry web site last month.

Last year, this blog reported that Chinese authorities have been approving dozens of new entry points for meat imports since a 2015 bulletin called for a more tightly regulated and standardized approach to control sanitation and potential disease transmission. Most of these points were located along China's coast. Last month, a commentary on the Soozhu.com site called attention to dramatic growth of meat imports arriving at newly-approved inland entry points like Zhengzhou, the first entry point for meat approved in Henan Province and the first inland entry point approved, hundreds of miles from China's coast.

According to Zhengzhou Daily, the entry point was set up through collaboration of many companies, including Shuanghui (owner of Smithfield Foods), Congpin (another major pork company), Beijing Xin'ao (company set up by Beijing's municipal government to build the 2008 Olympics park), and a meat inspection company. According to plans the district hopes to receive meat from 23 countries, including Australian beef, pork from the U.S. and Denmark, and poultry from the U.S. and Brazil.

The Zhengzhou meat entry point now reportedly has 75 companies engaged in business. Top companies this year include Hebei Kangyuan Muslim Food Co which uses 30,000 mt or more beef and lamb annually, and Chongqing Hengdu Agriculture Group which imports 25,000 mt or more of beef. The head of Chuying Agro-Pastoral Group claims that flying in meat to Zhengzhou rather than trucking it from the Qingdao port saves his company 1 yuan per kg in domestic transportation and intermediate costs.

Zhengzhou represents the Chinese leadership's strategy of shifting the locus of growth from coastal cities to China's under-developed central and western regions. Zhengzhou does not have an ocean or river port and is not at an international border crossing. The One Belt One Road strategy of forging trade links with countries on China's western and southern borders is a related driver of the strategy.

Other inland meat entry points approved in the last two years include Luohe (Shuanghui's headquarters, also in Henan); a bonded logistics center in Lanzhou; Xinjiang border crossings with Kazakhstan, Tajikistan, and Mongolia; Xian's inland port; and Zhoushan in Zhejiang Province.

While imports arriving at the inland ports are growing at a rapid pace, they still account for a tiny share of China's meat imports. Zhengzhou is the top inland meat entry point, with import volume expected to surpass 30,000 metric tons in 2017. In comparison, the Tianjin and Shanghai customs districts each received over 1 million metric tons of meat and edible offal last year.

The commentary mentions that JD.com recently signed an agreement with Smithfield that will make it easier for consumers to buy pork products directly from overseas.

The (unnamed) author of the commentary acknowledges that domestic pork producers cannot help but worry about the impact of imports on their profits. However, he admonishes Chinese meat producers that the rising tide of imports at inland locations is another reminder that farmers in China must raise their technical prowess, reduce costs, and become more internationally competitive.

Saturday, November 4, 2017

China Wants to Certify Food Safety in Global Market

Despite its abysmal reputation in food safety, China now thinks it deserves a stronger say in certifying the safety of food in international trade.

In an October 10 article in Economic Information Daily, the chief of Zhejiang Province's Ningbo district inspection and quarantine bureau complained that Chinese food exporters face an "invisible wall" of multiple certifications required to sell products in overseas markets. These include process certifications like HACCP and ISO9001, organic standards, halal and kosher certifications, and social responsibility certifications. He complained that certifications are monopolized by foreign organizations who charge high fees, often fail to obey rules, and impose a heavy burden on Chinese food-exporting companies.

Another complaint is that certifications are not mutually recognized, leading to duplication in certifications for different markets. Countries don't trust each others' certifications (i.e. other countries don't trust Chinese certifications).

The article suggested that China need not passively accept the dominance of foreign certifiers. The article called for creating "native" certification brands that will have international influence and strengthen China's voice in the international certification market. A Zhejiang University professor quoted in the article predicted that China will soon develop influential certification companies that will be on an equal footing with foreign certification organizations and give China a voice in certification. He suggested giving awards to successful certifiers. The article called for leveraging the "One Belt One Road" campaign, the Asian Infrastructure Investment Bank, and trade agreements to boost the position of Chinese companies in quality certification and testing.

While the article appears to be the opinion of a local official, it probably signals a new campaign to boost China's influence in the setting and enforcement of international standards for food safety. The communist party leadership's "document no. 1" on rural policy issued in January included exhortations for China to "actively participate in the setting and revision of international trade rules and international standards" and to work toward achieving "mutually recognized certifications for agricultural products." The no. 1 document also called for expanding exports of agricultural products--language that has appeared in most of the rural policy documents since 1984.

This new initiative is consistent with China's general pursuit of a more assertive and influential role in international affairs to break the perceived dominance of Anglophone and European countries. Recent Chinese documents on strategy for "international cooperation" in agriculture set similar objectives of playing a more influential role in international bodies like the WTO, Codex Alimentarius, and the international animal disease organization that set the rules for international trade.

China is already insisting that international standards must be adapted to its unusual consumption habits and other peculiarities--see this year's revision of Chinese standards for infant formula. Unique Chinese standards will, of course, demand Chinese organizations will be necessary to certify foods for import to China. Once that is accomplished it's a short step to insist that Chinese certifiers and labs be accredited for oversight of Chinese exporters in China and in other countries where they are investing.

Tuesday, October 31, 2017

China Cuts Wheat Price for First Time

China announced a reduction in its minimum price for wheat to RMB 2300 per metric ton for next year's (2018) crop. This is the first time the minimum price for wheat has been cut since the program was started in 2006. Authorities had raised the minimum price a cumulative 64 percent over 7 years from 2007 to 2014, then held it steady at 2360 per metric ton over the last four years. Minimum rice prices were cut for the first time in 2017. 
The Chinese government has purchased over 20 million metric tons of wheat each of the last four years to maintain the minimum price. According to China's Grain Reserve Corporation, 23.8 mmt of wheat was purchased from the 2017 wheat crop as of Sept. 30. That equals 18.5 percent of the entire wheat crop and one-third of the 72.1 mmt total of all wheat procured.

By removing large volumes of wheat from the market and storing it, Chinese authorities are holding the price far above the price that would be dictated by supply and demand. Authorities acknowledge that they are holding large stockpiles of wheat, but have not revealed how much they have.

Authorities called for "improvement" of the minimum purchase price policy for wheat and rice in the "Document No. 1" released at the beginning of the year. A propaganda report on price reforms during Xi Jinping's administration issued this month hailed progress toward market-determined prices and singled out agricultural commodities and irrigation water among five remaining commodities and services needing further market reforms (others were electric rates, natural gas, transportation, and medical services). The propaganda report explained that this year's reduction in minimum prices for rice were a signal that reform is needed to deal with rising rice and wheat inventories, divergence between domestic and international prices, and reduced market vitality. The report promised reforms of the minimum price program to make it more responsive and flexible.

After the modest 2.5-percent reduction just announced, the wheat price in China would be still about $9.44 per bu., about double the price received by U.S. farmers for winter wheat this year. It is also far above the U.S. Gulf price.

The Ministry of Agriculture's September commodity S&D report said wheat imported at the 1-percent in-quota tariff cost RMB 2140 per metric ton during September, 820 yuan less than the price of good quality domestic wheat. Imports of wheat for January-August 2017 totaled 3.18 mmt. The Ministry's report described wheat markets as having tight supplies and rising prices, "due to the relatively good quality of this year's wheat crop, active purchasing by processors, and support by market intervention purchases."