Wednesday, October 18, 2017

China Food Export Assistance Program Expands

China is expanding a food export promotion program that it agreed to stop subsidizing last year.

China's "food and agricultural export quality and safety demonstration district" (出口食品农产品质量安全示范区) program aims to assist food processors and their farmer-suppliers in reaching international standards so they can break into international markets. The program is overseen by China's import and export inspection and quarantine bureau (国家质量监督检验检疫总局) and is implemented by provincial and local government departments. The inspection and quarantine agency selects rural districts across the country to join the program. Local officials help food processing and trading companies and surrounding farmers in a "production base" adopt international standards, obtain certifications, and eliminate toxic chemicals and pharmaceuticals from food and agricultural products.
Ceremony for founding of a food and agricultural export demonstration district.

The program has been underway in China for a number of years. Last month, China's inspection and quarantine agency announced 78 new agricultural and food export demonstration bases approved in 2017. The list was posted along with a list of 289 previously-approved export demonstration bases. The agency also has an online directory of the demonstration bases with a brief description of each. Export demonstration districts are located in every province. Each district features different products. The bases approved this year include garlic, onions, mushrooms, broccoli, carrots, chicken, eggs, pork, beef, mutton, deer products, apples, apple juice, pears, peaches, kiwis, tangerines, lemons, mangoes, tomato paste, strawberries, blueberries, peppers, grapes, dates, chestnuts, shrimp, pet food, herbal medicine, flowers, rabbits, honey, fish, shrimp, rice, flour, sweet corn, tea, yams, peanuts, cooking oil, and mineral water.

In 2016, the U.S. Trade Representative announced that China had signed an agreement to terminate subsidies for a “Demonstration Bases-Common Service Platform” which sounds exactly like this program. The United States challenged the program as a violation of China's World Trade Organization commitment to forego export subsidies. Regarding last year's agreement, one Congressman said, "Trade is crucial for the agriculture industry in my California district...Our growers play by the rules and we expect the same from our trade partners."

Many provincial governments have announced their newly approved food export bases since last month. Shaanxi Province's announcement says it aims to have 20 export bases with annual production of US$1 billion by 2020. The program's objective is to expand the province's food and agricultural exports. The province hopes to create 1 or 2 large food-exporting companies with sales of $100 million and 10 food exporters with sales of $50 million. The demonstration bases are centered on food and agricultural processing and trading companies with participation by a "production base" composed of farmers in a surrounding county or prefecture. The program is supported by coordinated efforts of multiple provincial or local government agencies. The Shaanxi program specifies roles for provincial agricultural, commerce, and environmental protection departments, food and drug administration, technical supervision bureau, and local authorities.

Shaanxi's announcement called for "strengthening support" with a provincial industrial development fund as the primary source. Support includes setting up online databases of international standards; subsidizing certifications for Good Agricultural Practices, HACCP, organic, and domestic "green food" and "pollution free" programs; assistance for participation in international exhibitions and trade shows; testing for pesticides and veterinary drugs; training programs for farmers and company personnel; product and chemical testing labs; publicizing standards; and giving awards and punishments for compliance with standards. The program features establishment of traceability systems and record-keeping for food products and for chemical inputs and veterinary drugs.
Provincial official explains food and ag export demonstration district organization work to local officials.

Hunan Province announced nine new food export demonstration districts. The provincial inspection and quarantine bureau's party secretary said the province's agricultural exports had risen rapidly under the 7-year-old demonstration base program. He said 60 percent of the province's ag and food exports come from the demonstration bases, and Hunan's ag and food exports rose from $485 million in 2009 to over $1.3 billion in 2016. Hunan's food exports through August this year are up over 11 percent. In Changsha County, a pilot program has linked producers with a food retailer that sells products abroad through its international procurement system. Hunan aims to further expand food exports, including a plan for "backbone" companies to penetrate Mongolia, Central Asia, and Russia through the "One Road One Belt" initiative.

Dalian Prefecture in Liaoning Province has five national-level food export demonstration districts featuring grain processing, fruit, chicken, horseradish, seafood, edible fungus, vegetable products, and eggs, as well as a provincial-level poultry export district. Enterprises in the districts account for 70 percent of Dalian's food and agricultural exports. The Wafangdian demonstration district reportedly accounts for 70 percent of China's apple exports to the United States. Dalian exported 61,000 metric tons of poultry last year and accounts for most of China's frozen poultry shipments to Hong Kong. The local inspection and quarantine service gives priority for inspection and testing to demonstration district products, uses standardized procedures to test for chemical residues, heavy metals, and toxins; conducts quality monitoring of export companies in the districts. The Dalian government promises greater financial support for investment in inspection and testing capacity in both government departments and companies in the demonstration districts. Lab testing fees will be subsidized and financial awards will be given to farmers and companies.

Sunday, October 15, 2017

China Rice Glut Struggle

Officials in China worried about warehouses crammed with low-quality rice are contemplating how to adjust their price support policy.

At a September 29 State Council news conference on rural affairs, Han Jun, head of China's Central Rural Work Leadership Group, said that pressure from excess supply of rice has become evident over the last three years and the disposal of excess inventories is a "problem that urgently needs to be solved."

Because the government sets a minimum price that holds the Chinese price above international prices, Han explained, a perverse phenomenon has appeared: imported rice enters the Chinese market, while Chinese rice goes into government reserves.

In 2017, authorities reduced minimum prices for the three main types of rice for the first time since the program was introduced in 2004. Han explained that this year's cut in minimum prices is a signal that supply is greater than demand.

Han said the government had purchased over 50 million metric tons (mmt) of rice and wheat at minimum prices each year since 2014, about 20 percent of the rice and wheat produced in China. Han Jun estimated the excess supply of rice in 2015 at 18.75 mmt (about 9 percent of rice produced). He estimated the excess supply of wheat at 16 mmt (about 13 percent of wheat produced).

A rice market analyst interviewed by China Central Broadcasting last month speculated that the minimum price program for rice could be eliminated as early as next year (2018). A second analyst said excess supply of rice is evident, and estimated China's national rice inventory at 120 mmt (about 60 percent of annual production). With 20 mmt being added to inventories each year, and sales of inventories going at a slow pace, the inventory keeps piling up, the analyst said.

In comments on prospects for the summer grain harvest made in May, the director of the State Administration of Grain commented that “the grain supply is overall loose” and “wheat and rice inventories are at a relatively high level. The director warned that some local areas have imbalances that need to be resolved. He warned of a 5-mmt shortage of storage space for summer grain crops in Jiangsu, Anhui, Jiangxi, Hunan, and Hubei Provinces. The director also warned that the quality of some grain held in storage for a long time had declined.

The Grain Administration director also noted pressure from imported grains. He also observed that consumer demand is shifting toward higher quality grain. Consequently, prices for high quality rice are rising, but reserves hold large volumes of common rice that is not in demand.

A survey of Zhejiang Province rice farmers carried out in June 2017 by the province's Price Bureau found that local officials are struggling to set rice prices to balance various factors. Zhejiang is a highly urbanized province where much of the land is too mountainous to grow rice. Zhejiang produces only 36 percent of its grain needs. Because production costs are high in Zhejiang, the local government contracts with farmers to buy rice for local reserves at a premium price that exceeds the price in neighboring provinces, and it gives cash awards. If the price is not set high enough, farmers will shift their land into growing vegetables, melons, tree saplings, and raising shrimp. Some large-scale farmers abandoned their rented land. In one county, the number of large scale farmers fell half in two years--from 124 in 2015 to 64 this year. On the other hand, if the price is set too high the province will receive a flood of grain from other provinces and from overseas.

According to the Zhejiang Price Bureau, rice makes up 62 percent of the province's grain reserve, while wheat is 26 percent, corn is 8 percent, and soybeans and other grain make up 4%. Officials tend to buy early rice for the reserve because it is easy to store. Specialized rice farmers can make a profit growing two rice crops a year. Authorities buy a large proportion of the early rice crop, while farmers tend to use the late crop for their own consumption. Early rice comprises 26 percent of the reserve in Zhejiang even though it is not popular with consumers. Late rice is 11 percent of reserves and japonica rice 25 percent.

The Zhejiang Price Bureau says the province's grain reserves are "saturated," and the grain imposes a fiscal burden. One local grain reserve management company sold rice from reserves last year at 110 yuan per 50 kg, but new rice was purchased at 133 yuan per 50 kg. The financial losses incurred by these reserve companies are greater and greater, the Bureau's report said.

An official from Zhejiang's Grain Bureau said last month that consumers in Zhejiang have gained a preference for japonica rice purchased from neighboring Jiangsu Province in recent years. The official explained that Jiangsu rice tastes better than imported rice--which is predominantly indica rice.

The comments were made at a meeting of commercial officials from the Zhejiang, Jiangsu, and Shanghai where arrangements are made to trade goods among the three adjacent provinces. An official from Shaoxing City explained that his grain bureau has an arrangement to procure rice from Suqian and Nantong in Jiangsu. A grain official from northern Jiangsu said the government holds periodic meetings to arrange deals among grain-producing and consuming regions. His prefecture arranged sales of 400,000 metric tons of wheat and 1 million metric tons of wheat at meetings held last year. Farmers in his province have adopted rice varieties popular in southern Jiangsu and Shanghai to meet the demands. He said they had to build temperature-controlled storage units to convince Zhejiang buyers to take their rice.

The Shaoxing official also explained that local farmers are paid a bonus of 30 yuan per 50 kg for early rice (23 percent of this year's national minimum) and 20 yuan per 50 kg for late rice (14.7 percent of this year's minimum price) for delivering rice to local reserves. Farmers in Jiangsu's Suzhou City--which also produces less than 40 percent of its grain--also receive premium prices for growing japonica rice.

Tuesday, October 10, 2017

Xi Jinping's Rural Policy Thought

Recent communist party descriptions of Xi Jinping's thoughts and discourse on rural policies assure the comrades that their "Core Leader" is a genuine Marxist committed to maintaining state control over the major factors of production--land and credit. Furthermore, he wants to build the rural economy on bureaucratic organizations created during the failed collectivization of farms 50 years ago. Xi's "innovation" is to experiment with work-arounds for a countryside handcuffed to these institutions and to pour in generous subsidies to keep it afloat. Prices are more flexible under Xi, but farm prices can't be allowed to fall enough to create unrest. Resources are reallocated through vast bureaucratic "supply side adjustment" policies to address massive imbalances between supply and demand of commodities created by inflexible prices. Bureaucrats are expected to pass along all the subsidy cash without giving in to the temptation to steal it. The bottom line for all these policies is to keep the communist party firmly in control.

Chinese news media have been burnishing Xi Jinping's credentials and achievements as the country's top leader ahead of the 19th communist party congress this month which is expected to be grant him another 5-year term atop the party. Two recent meetings held in Beijing praised Xi's rural thoughts and his important sayings on agricultural and rural affairs during his first term as maximum leader. More insight comes from an essay in a communist party journal.

A forum on "Xi Jinping's Rural Thought and Foundational Practice" held September 25, 2017 in Beijing emphasized preservation of two sacred communist institutions: collective land ownership and cooperatives. These thoughts were summarized as "two relations":
  • "the relationship between rural people and the land": China must stick to collective ownership of rural land as the "bottom line" of reform, and explore methods of reforming farming business operations around that non-negotiable institution.
  • "the relationship between people and the market": rural people must enter the market  organized as members of cooperatives following a so-called "3-in-1" system of production cooperatives, cooperatives for input supply and marketing products, and rural credit cooperatives.
Xi favors a central role for the supply and marketing cooperatives (供销合作社) and rural credit cooperatives (信用合作社) which are actually sprawling bureaucracies masquerading as "cooperatives." These organizations were established 50 years ago to finance collective farms, supply them with inputs, and market their output. After rescuing them from bankruptcy during the last decade, the plan is to make these institutions key providers of financial and technical services to farmers.

The September meeting called for focusing on the collective economy to organize rural people so they can "break into the market economy together" and "provide their own public goods and services." "By integrating the collective economy with cooperative finance," the conference concluded, "rural grass roots communist party organizations can lead rural people jointly into wealth."

A 2-day July conference on rural policies hosted by the Ministry of Agriculture's Research Center for Rural Economy was attended by scholars and officials from top ministries, think tanks, and universities. The conference's description gushed over Comrade Xi Jinping's new theory, policy, and practice adapted to the new situation in China's countryside. Xi's "theory" amounts to buzzwords--"green", "supply side", "shared," "open," "precise"--that sound good but are never defined, so the words can mean whatever leaders want them to.

The July meeting identified institutional reforms of rural land and property rights, reform of the agricultural price formation system, reform of agricultural policy support, and innovations in agricultural business operations as Xi's achievements. Agricultural supply-side structural reform got initial results, transformation of the mode of agricultural development was accelerated, while "green" agricultural development, "shared" development, and "open" development also made progress. This meeting highlighted the beautification of the countryside and "clear results" from "precise" poverty alleviation that is industry-driven and ecological.

The institutional reforms entail efforts to scale up farms and make them more productive while maintaining collective land ownership. Farm business forms as alternatives to small-scale subsistence farms--such as family farms, land cooperatives, and land trusts--are necessitated as work-arounds when land cannot be bought, sold, or mortgaged and when property rights are vaguely defined. Reform of the price formation mechanism means abandoning price supports in favor of market prices and cash subsidies. Supply side reform is a program to undo huge market distortions created by the price supports (surpluses of corn, rice, and wheat that match the deficit of soybeans) without letting prices fall too far too fast. Similarly, the government was forced into "green" development by embarrassments such as bright green lakes, dead pigs floating in rivers, and cadmium-tainted rice. The massive environmental problems created by chemical fertilizer runoff, nonexistent regulation of livestock, and ignoring the hazards of farming, mining, and metal-smelting side-by-side got so bad they could no longer be ignored.

In January 2017, an essay by Minister of Agriculture Han Changfu in the communist party's journal Seeking Truth described Xi's "new thought, new theory, and new judgments" for rural policy.
Slogans that repeat certain words are the life blood of Chinese officials, including the oft-repeated pledge to subsidize the "three rurals" (rural people, the countryside, and agriculture). Minister Han recited three sets of three-character aphorisms that Xi Jinping used to explain his "three rural" commitment:
  • "Three musts" articulated at the 2013 rural work meeting: “For China to be strong, agriculture must be strong; for China to be beautiful, the countryside must be beautiful; for China to be rich, rural people must be rich.”
  • "Three cannots" pronounced during an inspection of an ethnic Korean area in Jilin Province during 2015: "We cannot at any time ignore agriculture; we cannot forget rural people; we cannot be indifferent to the countryside." 
  • "Three unwaverings" stated during a symbolic visit to Anhui's Xiaogang village: "Unwavering deepening of rural reform, unwavering development of the countryside, unwavering preservation of rural and harmonious stability.  
Minister Han praised Xi's ability to come up with pithy sayings that are easy to understand, such as, "At all times the rice bowl of the Chinese people must be held in their own hands," and "If you want to know whether our society has reached the stage of being moderately well off, take a look at the countryside." This communication skill is based on Comrade Xi's extensive experience working in the countryside, Minister Han said.

Minister Han's essay focused on assuring the rural peasantry that the communist party leadership is concerned about their interests and will not let them fall behind. In particular, the concern about narrowing income differences between rural and urban people means that leaders are very careful about decontrolling farm prices. They waited too long to cancel cotton and corn price supports, and they are being very cautious in reducing rice and wheat support prices because they are worried about the impact on rural incomes.

Communist party officials were warned in the July meeting and in Minister Han's essay to take their responsibility seriously and they were admonished to strengthen their sense of urgency and sense of mission to implement the party's rural policies. 

While not stated explicitly in these texts, Xi's signature anticorruption campaign may be his most critical initiative. Xi's campaign to reform communist party cadres down to the grass roots to restore the confidence of the common people in communist party rule is a struggle that began with rural tax and fee reform in the 1990s. Central authorities banned local tyrants from taxing villagers and instead started sending subsidies and budget transfers down to the countryside to win back the favor of the common people.

The Xi approach empowers a bureaucracy of men and women to make decisions about resource allocation and expects them to distribute billions in subsidies without succumbing to the temptation to skim off the money or use their power to solicit bribes and patronage. There have been a string of reports about rural officials disciplined for skimming subsidy funds and submitting fake reports to inflate their subsidies. Ahead of last week's National Day holiday, officials were warned against "high-end" consumption of expensive liquor, cars, palatial buildings, 5-star hotels, and extravagant office furniture.

The party's attention to the countryside is driven in large part by their worry that unrest in the countryside could produce a rural uprising or movement that could challenge their authority. This explains the Party's obsession with "organizing" farmers -- from the top down. Leaders fear truly spontaneous self-organized farmer organizations could morph into a competing political movement, so they are obsessed with incorporating cooperatives into trustworthy communist party-controlled bureaucracies. While the communist party has a nominal organization extending down to villages, the party's control of the countryside remains tenuous, with clans, business leaders, organized crime syndicates and religious groups having de facto power in many local areas.

Chinese explanations of Xi's rural policies emphasize that China needs unique and extensive policy interventions to address the unique problems in China, but the struggle between rural and urban interests is common to all industrializing societies. The United States had a disruptive agrarian movement during the 19th century which began as a farmer cooperative movement intended to help impoverished backward farmers gain equal footing in an era of rapid industrialization. It became a chaotic, sometimes violent, and politically forceful national movement--exactly what Chinese communists fear in their countryside today.

The American agrarian movement eventually morphed into rural populism that became a potent political force by the early 20th century and contributed to many reforms.  It could be argued that the disruption of the 19th century agrarian movement created the conditions for the strong economic and social position American farmers enjoy today -- and which Chinese leaders envy -- through advocacy for railroad regulation, a huge Department of Agriculture, education and technical assistance for farmers, extension services, subsidies and credit programs.

China's communist leaders are keeping a tight rein on all rural organizations and pouring subsidies into the countryside to avert the type of chaos and strife that dominated the 19th century countryside in the United States. But doesn't Marxist dialectical theory suggest that disruption and conflict are necessary to bring about a synthesis in order to improve the status of the oppressed?

If Marx was right, the obsession of China's "communists" with order and control may be dooming their rural population to eternal peasantry. Perhaps the Marxists of China should study a little Marxism instead of making up clever 3-character slogans to pass off as "thought."

Monday, October 2, 2017

Ag Officials Denounce Former Ag Minister

China Ministry of Agriculture officials pledged their disdain for the corruption and moral turpitude of disgraced Chongqing Mayor Sun Zhengcai at a meeting reported on the Ministry's web site.

The denunciations were made at a meeting for communist party leaders held on September 30 where Ministry of Agriculture officials pledged support for the central party leadership's decision to remove Sun Zhengcai from his position and expel him from the Party.

Sun spent much of his career in agricultural posts, so it is important for farming officials to pledge their assent for his censure. Sun Zhengcai has rural roots in Shandong, was trained as an agriculture researcher, was leader of Shunyi county on Beijing's outskirts during the 1990s, and he served as Minister of Agriculture under Premier Wen Jiabao during 2006-09. He was placed in charge of Chongqing after the removal of Bo Xilai and was seen as a rising star in the communist party before his removal in July.

Officials attending last week's meeting heard that the Ministry of Agriculture fully supports and has a deep understanding of the central Party leadership's decision to remove Sun from office and expel him from the Party. The Ministry pledged allegiance to "core" leader Xi Jinping's correct leadership and thought.

Sun Zhengcai was denounced at the meeting in the strongest of terms. He "shook the ideals and faith" of the party, "abandoned the party's purpose," "trampled on the party's political discipline and political rules," engaged in bribery, influence-peddling, bureaucracy and inaction. Sun's behavior "deviated from the party spirit," failed to "live up to the trust of the people," "caused major harm to the party," and had an extremely bad social impact.

Communist party cadres were warned to take a clear political stance, maintain their political direction, devote themselves to Comrade Xi Jinping's core party leadership, and respect the party's political discipline and rules. They should maintain their faith in Marxism, hold fast to the ideals of socialism and communism, serve the people with their whole heart and will, and constantly tighten their world view.

Tuesday, September 26, 2017

Are Pig Farmers Conscious of Environmental Protection?

An online commentator complained that China's pig farmers are dangerously irresponsible when it comes to pollution issues.

The commentator visited a relative in the countryside who started raising pigs a couple years ago. With prices at record-high levels last year, the relative was pleased that he had earned a lot of money. During his visit, the commentator noticed there were many pig farms, and quite a few dumped manure into the small river that runs through the village.

Knowing that China has been enforcing regulations to protect the environment by banning or limiting pigs in designated districts, the commentator asked his relative if he was under pressure.

"What pressure?" the puzzled pig farmer replied.

The city relative clarified: "Pressure from environmental protection?"

The pig-farmer scoffed at the question. "Environmental protection has nothing to do with me. None of the villages around here are in districts that ban pig-farming," he said.

Alarmed by the numerous pig farms and the foul odor coming from his home village's river, the commentator warned that his relative and many pig farmers like him have a fundamental misunderstanding of China's environmental protection policy.

Chinese officials have designated three types of areas: districts where pig-farming is forbidden (禁养区); districts where pig-farming is limited (限养区); and districts suitable for pig-farming (适养区). The commentator said that a "suitable" district cannot ignore restrictions on manure disposal; nor can farms in those districts raise unlimited numbers of pigs. He also claimed that pig-farming can continue in districts where it is forbidden (no wonder farmers are confused), but environmental standards are higher than before.

The commentator claimed that pig farmers are basically unaware of environmental issues and rebuked them for having an attitude that, "There's no one watching me, so what's wrong with me making money from raising pigs?" He called this a dangerous and irresponsible practice that he hopes pig farmers will change.

Sunday, September 24, 2017

China's Attack on Imported Infant Formula

Chinese propagandists are using pseudo-scientific testing to undermine consumers' confidence in foreign infant formula.

On September 6-7, 2017, a Chinese Central TV (CCTV) "Consumer Advocate" program announced that 66 percent of foreign infant formula brands failed to meet Chinese standards, while all domestic brands passed the tests. News reports that Japanese and U.S. brands failed the tests were repackaged with the title "These Foreign Milk Powders Might Not Meet Standards; Does Your Family Buy Them?" and posted on dozens of Chinese web sites, such as the communist party's "red net".

A commentary on the nationalist Global Times web site followed up with, "Lesson from Chinese Milk Powder Counterattack," describing the testing results as the Chinese infant formula's "Normandy invasion," a sign that the industry has recovered from its 2008 melamine crisis "Dunkirk."
CCTV announced that 66% of infant formula ordered from overseas did not comply with Chinese standards.

The testing followed a March 15, 2016 "consumer day" CCTV broadcast aimed at undermining "blind confidence" in imported milk powder--CCTV reporters had found that 80% of young parents interviewed preferred foreign brands of infant formula over domestic brands. CCTV's initial round of testing of foreign infant formula purchased through Chinese e-commerce web sites found that 40 percent of foreign milk powder did not meet Chinese standards for iron, iodine, selenium, and manganese, and 15 percent did not meet standards for vitamin content. CCTV said the March 15 test results generated a lot of discussion, but CCTV acknowledged that consumers still were not convinced. Consumers wondered whether there is a problem with China's standards and how foreign and domestic brands really compare.

CCTV claims they addressed these questions by the new round of testing over the last six months. They selected six brands of Dutch, German, American, and Japanese infant formulas purchased through e-commerce sites and three Chinese brands purchased at a supermarket in Beijing. The products were tested by Chinese government labs for 52 different items, including energy, protein, and fat, vitamins, minerals, aflatoxin, melamine, and presence of microorganisms. The three Chinese brands, Dutch and German brands complied with Chinese standards on all 52 items, but the two Japanese and the two American brands were each slightly outside the acceptable ranges on 2 or 3 of the 52 items. The Japanese brands were low in vitamin K and iodine, and the American brands had iron content that exceeded the Chinese standard.

CCTV portrays its testing as scientific, with discussion of samples and photos of white lab coats, test tubes and blurry photos of test reports and standards. However, the testing is not at all scientific. CCTV admits they cherry-picked the Chinese brands--they intentionally chose three (Wandashan, Feihe, and Sanyuan) that were not implicated in the 2008 melamine adulteration scandal. They did not test products of big companies like Yili, Mengniu, and Bright, so the results do not reflect all Chinese infant formula brands. There are also conflicts of interest. The testing was overseen by the Chinese dairy association and the alliance of state farm dairy companies. CCTV described these as "third party organizations," yet both organizations promote Chinese dairy companies. Each of the three Chinese companies tested is part of the State Farm system, and The Sixth Tone pointed out that Feihe is one of the companies CCTV agreed to promote as part of a "National Brand Plan."

Moreover, the foreign products tested were produced to meet standards of other countries. The foreign infant formula samples were bought through e-commerce sites that procure infant formula in foreign countries and deliver them to Chinese customers. Thus, the foreign products were not manufactured to comply with Chinese standards, but the Chinese products were manufactured for the Chinese market.

CCTV insisted that China needs to have its own standards to fit its own conditions. For example, a professor explained that China needs a higher level of iodine than Japan because Japanese people get sufficient iodine from seafood. CCTV displayed grotesque images of children with iodine deficiencies.

Sixth Tone reported that most Chinese citizens remained skeptical of the CCTV testing, citing one online sarcastic comment thanking CCTV for "recommending these six foreign brands." New York-based Duowei News asserted that "this type of patriotic propaganda will fail to achieve the communist government's hopes and will become a source of ridicule."

Tuesday, September 19, 2017

China Biofuel Dreams

Chinese authorities have set ambitious goals for biofuel use that call for nationwide use of fuel ethanol in automotive gasoline by 2020, scaling up of cellulosic ethanol production by 2025, and attaining a world-leading position in biofuels. The plan entails quintupling ethanol production in three years, and implies that China's history of non-grain biofuel flops will be reversed.

The "Implementation program for promotion of biofuels and expansion of bio-ethanol as automotive fuel" jointly issued by 15 Chinese ministries and commissions, led by the National Development and Reform Commission and the Energy Bureau on September 13, 2017 was described as having "great practical and strategic significance." By 2020, automotive use of bio-ethanol fuel will be expanded nationwide from the handful of pilot provinces currently using it. The document also urges development of cellulosic ethanol and advanced biofuels to achieve a world-leading position in biofuels by 2025.

Biofuel initiatives have waxed and waned in China for two decades--in sync with market conditions for corn, the main raw material. The first fuel ethanol plants in China were opened 15 years ago during an earlier corn glut. All were built in grain-producing areas to process massive stockpiles of corn and wheat with a hefty cash subsidy for every ton produced. As grain supplies became tight again in 2006, the National Development and Reform Commission banned additional grain-based ethanol plants and began to phase out the subsidy. Now China once again has a even higher stockpile of moldy corn built up by maintaining an ill-considered support price program, and officials are once again in ethanol-expansion mode.

The need to dispose of the corn stockpile dovetails with China's ambition to be a global leader in combating climate change, and promises less reliance on imported petroleum. The use of "clean" biofuels is meant to mollify Chinese residents choking on fumes from vehicle exhaust. The promise to develop cellulosic ethanol from crop straw, stalks, and trees aims to utilize rural wastes that traditionally were burned in peasants' stoves over the winter but are now burned in the fields after harvest, covering the countryside with clouds of smoke.

According to one estimate, the target for nationwide use of a 10% ethanol blend at the current gasoline production level implies an fuel ethanol production level of 12 mmt--nearly four times the volume now produced (2.1 mmt in 2015, according to the five-year plan for renewable energy). That, in turn, would require 36 mmt of corn as raw material. It is unclear how China can reach this target in three years. China has never produced more than 2.5 million metric tons of fuel ethanol in the industry's 15-year history. 

Two years ago, industry reports indicated that ethanol production ground to a near-halt due to a perfect storm of the removal of subsidies, low gasoline prices (the fuel ethanol is set as a proportion of the gas price in China) and artificially high corn prices. Since then the corn price has dropped by nearly half and ethanol producers have been able to ramp up production again, but output is a little more than half of the 4-mmt target set for 2020 in the current five-year plan for renewable energy.

China's corn inventory is estimated to be around 200 mmt by most news media reports in the country. Scientists happily point out that China has huge amounts of moldy and contaminated grain unsuitable for feed or food that could be used to make fuel ethanol, while the by-product distillers grains can be used as livestock feed. These optimistic pronouncements don't seem to account for the even higher concentration of molds and toxins in the distillers grain by-products that would make it unusable. This would seemingly leave a stockpile of toxic byproduct equal to two-thirds the original volume of grain used for ethanol production.

China's initiative to make biofuel from non-grain raw materials is not new either. Ten years ago when global grain prices were soaring China's 11th five-year plan for 2006-2011 called for making biofuel from nongrain materials, including sweet sorghum, potatoes, cassava, and jatropha trees (for biodiesel). Early sweet sorghum projects undertaken by state-owned Chinese companies and a multinational fizzled due to the cost and timing of procuring and transporting huge volumes of sorghum. A cassava-based ethanol plant in Guangxi Province opened in 2008 shut down by 2011 when it faced soaring raw material costs and resistance from fuel retailers. Local cassava farmers could not supply raw materials as planned, and cassava had to be imported from Thailand and Vietnam. Planned cassava-based plants in Zhejiang and Guangdong Provinces were never built. A project to grow cassava for ethanol is being set up in CambodiaJatropha trees covering hillsides in southwest provinces were abandoned years ago because they don't pollinate easily and lacked sufficient water.

This decree likely came from leaders eager to position China as a global leader in the fight against climate change. Did they consider the history of missed targets and abandoned projects? Can anyone explain why the results will be better this time?

Monday, September 11, 2017

China Subsidizes Crop Rotations, Land Idling

China is expanding subsidies for crop rotations and land-idling to rehabilitate degraded farmland and conserve moisture in marginal agricultural areas. At a press conference last week, a Ministry of Agriculture spokesman explained the program--a continuation of a plan initiated in 2016.

The spokesman explained that intensive use of farmland has degraded the quality of land and resulted in pollution. The exploratory pilot program aims to establish a rotation and fallowing system within 3-to-5 years that will restore fertility and reduce environmental degradation. The 2017 rotation and fallow pilot program covers 12 million mu in 9 province and 192 counties--5.84 million mu more than last year. This year's program will be supported by 2.56 billion yuan in central government funding, nearly twice as much as last year. The funding will be used to compensate farmers for reduced income while land is idle and to cover the cost of officials administering the program.

The farmland rotation-fallowing program is mainly aimed at cutting back excess corn production, but it also relieves stress on severely degraded land in marginal areas, polluted regions, and areas where groundwater is severely depleted.

The Ministry said corn planting was reduced by 30 million mu (2 million hectares) in 2016, and soybean planting rose by 10 million mu (666,667 ha). Corn planting is expected to fall by another 20 million mu (1.33 million ha) this year, alleviating the corn surplus, the Ministry said.

Corn-soybeans are the main rotation promoted by the program, targeted for 1 million mu in Jilin Province and 2.5 million mu in Heilongjiang Province. Rotating corn and soybeans is expected to reduce chemical fertilizer use by 30% (versus continuous corn), the spokesman said.

There are four "auxiliary" rotations promoted in various regions:
  • corn with potatoes and other tubers
  • seed corn with forage crops (corn for silage, alfalfa, rape for grazing, sweet clover, and rye grass)
  • corn and minor grains/beans (millet, sorghum, oats, red beans, drought resistant minor grain and beans)
  • corn and oilseeds such as peanuts, sunflowers, peonies for oil

The rotation-idling program also includes three cadmium-contaminated districts of Hunan Province where a 100,000-mu isolation area will be established. Soil will be treated by applying lime, tilling the earth, and/or planting cover crops to absorb pollutants. No food crops can be harvested in the area until contamination is below tolerances.

In regions in Hebei and Heilongjiang Provinces where underground aquifers have been severely depleted, 1 million mu will be idled during the dry season and planted in rain-fed corn, potatoes, and drought-resistant minor grains and beans during the wet season.

In Guizhou and Yunnan Provinces, 40,000 mu of environmentally fragile land will be idled for up to 3 years. In the northwestern Province of Gansu land subject to wind erosion, desertification, and salinization will be idled and measures will be taken to preserve moisture.

The Ministry of Agriculture emphasized that compensation will be paid to ensure that farmers' income will not be reduced from idling or rotating crops that earn lower returns. The compensation for farmers will be 800 yuan per mu for idling land that could bear two crops a year, and 500 yuan for a single-season fallow. Compensation is roughly equal to the rental rate for land, the Ministry spokesman said.

The Ministry encouraged local governments to combine the rotation-fallow pilot with other pilot or demonstration programs that they might be eligible for in order to obtain more aid. Other programs include green high-yielding, high-yielding districts; poverty-alleviation key counties; and agricultural sustainable development demonstration programs.

Sunday, September 10, 2017

2016 China Soybean Subsidy 118.58 yuan/mu

The 2016 soybean subsidy is 118.58 yuan per mu for China's Heilongjiang Province, China's top soybean-producing province, according the Heilongjiang Price Bureau. This payment--based on the soybean crop produced last fall--is paid out as part of the target price subsidy program which has operated on a pilot basis from 2014 to 2016. Funds will be issued to county finance departments and state farm bureaus in the province and paid to farmers by September 15, 2017 (nearly a year after the crop was harvested, and 5 months after this year's crop was planted). The subsidy equals roughly $111 per acre when converted to U.S. dollars at the current exchange rate.

The amount is consistent with previous reports of 120 yuan/mu. The target price subsidy was 150 yuan/mu in 2015.

The target price subsidy equals approximately 28 percent of the crop's gross value. (With an average yield of 120 kg/mu and average price of 3.6 yuan/kg, the gross value of the 2016 crop was about 420 yuan/mu.)

A new soybean subsidy per acre planted will replace the target price subsidy for the 2017 crop.

Wednesday, September 6, 2017

China: Let Them Raise Donkeys


China's approach to "precise poverty alleviation" focuses on starting up industry chains to pull poor people out of poverty, both at home and abroad.

At first glance, the "International Symposium on Donkey Industry Development" held last month in Shandong's Dong'e County sounds like a joke to those of us unaware of the value of donkeys, but it was quite a serious occasion with millions of dollars at stake.

 Online Donkey Exchange kick-off held in December 2016.
The online donkey exchange set up in the same city last December--the first online donkey trading platform in China!--also sounds like a satirical article from The Onion, but it also is a serious venture. This "Internet + Donkey" model aims to bring the little fellows into the era of "big data", with an expectation of 300 donkeys traded daily and eventually becoming a center for global donkey trade.

"Revitalizing the Chinese donkey industry is our responsibility to donkey farmers for 'precise poverty alleviation,'" said Qin Yufeng, president of the Dong'e E'jiao company that hosted both the symposium and online donkey exchange. President Qin was keynote speaker at the donkey symposium, serves as head of the donkey exchange, was inaugurated head of an international donkey technology alliance founded at the symposium, and heads the Chinese Animal Husbandry Industry Association's donkey section.

Mr. Qin continued: "Investment in donkey-farming and trade is a win-win for everyone: farmers escape poverty, local government gets more revenue, trading is enlivened, businesses are started up- and downstream, and jobs are created."
Farmers display awards at a donkey exhibition in northeastern China

Why donkeys? Dong'e (东阿) County is the home of a traditional Chinese medicine called E'jiao (阿胶, named after the county), a gelatin made from donkey skins which purportedly has all kinds of benefits and is high demand in China. Output (of authentic medicine) is limited by the number of donkeys in China which has fallen by about 50 percent since the 1990s as farms mechanize. To make matters worse, donkeys reproduce slowly due to low fertility and a long gestation period. With the shortage of raw material for a product in high demand, the price of both e'jiao and donkey skins has soared.

Dong'e E'jiao, the Shandong company that makes the medicine, set up the donkey exchange and sponsored the international symposium, which President Qin hopes will "break through a raw material bottleneck for the company."

The company and/or the county seems to have some clout. Shandong province declared donkey-farming a key industry for poverty alleviation. Liucheng Municipality in Dong'e County has been developing the industry since 2015 and last year had 207 scaled-up donkey farms and 100 poverty-alleviation donkey farms. Liucheng aspires to be a nationally-recognized breeding base with 1 million black donkeys by 2020. Tongtiankai City has the county's first donkey market with 120 vendors, and aims to be China's central collection point for commercial donkeys.

Despite these efforts, China's demand for donkeys has outstripped domestic supply. Traders have been combing the globe in search of skins and hoofs, and Africa has been a prime destination. Traders bought up so many donkeys that Niger and Burkina Faso banned donkey exports last year. Henan Province officials made overtures to South African counterparts about a donkey investment deal, but smuggling--often by criminal syndicates--has caused an uproar in South Africa. The Chinese embassy issued a statement earlier this year denying involvement of Chinese companies in the trade and asked the press to stop reporting stories about the topic.

Now China wants to organize the donkey trade under the banner of One Belt One Road. Chinese companies will go forth into poor remote regions of South and Central Asia and Africa, doing business, building agricultural industrial parks, sharing technical and market information, and creating industry chains that enrich farmers.

These themes were prominent at the International Donkey Industry Academic Exchange Meeting held in Dong'e last month. The meeting hosted experts from 16 countries to form a blueprint for development of a global donkey industry, discuss breeding, health, animal welfare, and commercial supply chains for donkeys, and their potential economic value. A "Dong'e Consensus" issued at the meeting called for governments to devote more attention to donkeys in research and international exchanges. The symposium launched an international alliance for donkey industry technology and set up a $10 million fund to support donkey research.

Earlier this year, a province in northwest Pakistan announced a sustainable donkey development program aimed at attracting Chinese investment as part of the China-Pakistan Economic Corridor, one of the most prominent segments of the Belt and Road initiative. Pakistani officials’ described the program to “export donkeys to the government of China” with language seemingly drawn from the Chinese blueprint. It will feature new office buildings, dormitories for workers, investment in machinery and equipment, and a “rigorous breeding program” to meet market demand.

Tuesday, September 5, 2017

China Livestock Farm Closures Proceed

213,000 livestock farm closures during the first half of 2017 were featured in a news conference held by China's Ministry of Environmental Protection last month that reported progress on a “Water Pollution Prevention Action Plan.”

Local authorities across China have been ordered to designate zones where livestock farms are banned, where they are limited, and zones suitable for livestock farms. Commercial-scale farms must close or move out of the zones where they are banned--near bodies of water, drinking water sources, residential communities, and scenic areas. If they want to continue operating, farms must invest in facilities to collect animal waste, re-use waste water, and utilize manure for biogas and organic fertilizer.

According to a report on the news conference by the China Livestock Farming Alliance, 49,000 livestock-farming-ban zones covering 636,000 square km have been designated nationwide. So far this year 213,000 livestock and poultry farms have been closed or moved from livestock-ban zones, and the rest are due to be closed or moved by the end of 2017. Fourteen provinces (Shanxi, Jilin, Heilongjiang, Hunan, Guangxi, Hainan, Tibet, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, Xinjiang) have not completed their delineation of livestock-ban zones and progress is slow on closing and moving farms.

Livestock companies such as Wen’s Group, New Hope Liuhe now have to devote 20%-30% of spending on new farm construction to environmental protection. The bigger the company the more attention they have to give to environmental protection. Sichuan Province’s environmental protection bureau published a list of the province’s key enterprises for monitoring that included livestock companies like Wen's, West Hope, Tian Zhao Group, and Tieqi Lishi Group.

With the deadline for completing the farm closures five months away, local governments are under greater scrutiny and more likely to use more aggressive means to close or move farms.

Some localities--primarily in Zhejiang and Fujian Provinces--have gone to the extreme of declaring pig-free villages (无猪村) and towns. In Pingchuan Town, in a mountainous area of western Fujian, the county government declared last year that all of the town's villages would be pig-free. After eight months of hard work by village cadres, 175 pig farms with 20,000 pigs in five villages have been closed. Now the "water is clean, the land is green," and one villager declared, "It's much better now, and we no longer have that horrible smell!" Elsewhere in Fujian, in pig-free Xingang Town the communist party secretary has given up raising pigs and is now planting fruit trees on land rented from neighbors. He began raising pigs 20 years ago when the government urged villages to take up pig-farming as a sign of advanced economic development.

The top priorities for dealing with the livestock pollution problem was the southeastern river systems, the Yangtze River basin, and large cities Beijing, Tianjin, and Shanghai. Now attention is turning to a new set of regions. On July 31, an environmental inspection team was posted in Shandong Province, a major livestock-producing province. Local governments there have been issuing plans for designating livestock-ban zones and closure or removal of farms.

A propaganda piece on a Shandong TV station shows pigs and ducks being hauled away and farms being dismantled. A lady named Zou closed her pig farm after the party secretary paid multiple visits. The villagers are willing to close their farms once they realize the significance of the pollution problem, the news report said. Teams are guiding the farmers to switch to other businesses like growing mushrooms, ginger, and garlic.

Another news item reports that local governments in Shandong are under pressure to meet the environmental requirements, but warns farmers not to panic. According to this item, the directive only applies to pig farms selling 500 or more head or specialized households selling 50-500 head. Local officials cannot designate pig-free zones or declare "pig-free villages" without a solid basis for doing so, the news item said. The farm closures also cannot disrupt the supply of meat, eggs, and poultry.

Wednesday, August 16, 2017

Infant Formula Registration Shake-Out

A new registration system for milk powder products in China is aimed at paring down the bewildering number of formulas and brands that crowd retail shelves, news media say.
Milk powder products in a Chinese supermarket.

New regulations announced last October require milk powder producers to register with China's Food and Drug Administration before the regulations come into force January 1, 2018. Companies will be permitted to register no more than 9 milk powder products: up to 3 milk formula lines, each with up to 3 formula products. Companies with R&D, inspection capacity, and their own production equipment are permitted to register.

CFDA recently announced approval of 89 milk formula products submitted by the first set of 22 companies to register. Two more rounds of registration are expected before the January 1 deadline.

China Economic Times says the regulation is aimed at reducing the excessive number of brands and products. Statistics show there were 103 infant formula producers offering 2000 different formulas in the Chinese market. Some companies paste labels on cans of milk powder produced by others.

The so-called "strictest new policy" does not allow companies to market products through agents, prohibits sticking labels on products, limits raw material to cow and goat milk, requires companies to use their own production processing facilities and demands that fresh milk used in powder must come from the company's own "production base."

A Peoples Daily article earlier this year, "Are Domestic Dairy Companies Ready?" suggested that the regulation is aimed at consolidating and strengthening the domestic infant formula industry as the two-child policy allows more births which creates greater demand for the product. According to the article, domestic companies are not benefiting as expected from vigorous demand.

By weeding out weak and untrustworthy suppliers, the regulation is expected to raise the profile of remaining domestic suppliers. Peoples Daily suggests that the regulation is intended to weed out companies whose business focuses solely on marketing, leaving companies that produce quality products. According to Peoples Daily, 200-300 small and medium companies already quit the industry in 2016, largely because of the new registration requirements. They expect more exits.

The new regulations are to be applied equally to foreign and domestic suppliers. According to Southern Metropolitan News, some observers were surprised that foreign brands accounted for only 20 percent of the initial set of approved formula products. Some industry insiders think the regulations are tilted toward strengthening the position of domestic companies in an industry where foreign brands are most popular. An industry association official says that foreign companies have taken longer to register because they have less knowledge about the process and it takes them longer to assemble and notarize paperwork. Others say many companies are holding back and watching to see how the leading companies cope with the new requirements.

Southern Metropolitan News suggests that some companies were eager to be in the first batch of approved companies to gain approval from consumers. Others say the first set of companies are not necessarily the best ones and they expect any advantage from being among the first to register will fade quickly.

Thursday, August 10, 2017

China MOA S&D August 2017

There were few changes in supply and demand estimates by China's Ministry of Agriculture in August with harvests for major crops about to begin in coming months.

The 2016/17 estimate of corn imports was raised by 200,000 mt to 1 million metric tons. According to MOA, the corn auctioned from reserves has not met demands of processors, so some switched to imports. As of yesterday's auctions, 40 mmt of corn had been auctioned from China's reserves since May. However, the MOA balance sheet estimates that the supply of corn for 2016/17 will still exceed consumption by 9.7 mmt.

MOA revised its estimate of 2017/18 corn  yields downward due to pest problems in certain areas--although the yield is still historically high. Corn production for 2017/18 will fall to 210.7 mmt, and consumption will exceed supply by 3.17 mmt in the coming market year, according to the MOA estimates.

China corn supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 36,760 36,760 35,496 35,496
Harvested area 1000 ha 36,760 36,760 35,496 35,496
Yield Kg/ha 5,973 5,973 5,970 5,936
Production MMT 219.57 219.57 211.91 210.7
Imports MMT 0.8 1 1 1
Consumption MMT 210.72 210.72 214.57 214.57
--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 60.25 60.25
--Seed MMT 1.61 1.61 1.57 1.57
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.15 0.15 0.3 0.3
Surplus MMT 9.50 9.70 -1.96 -3.17

MOA made no changes in the soybean S&D.

China soybean supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 7,208 7,208 8,196 8,196
Harvested area 1000 ha 7,202 7,202 8,196 8,196
Yield Kg/ha 1796 1796 1797 1797
Production MMT 12.94 12.94 14.73 14.73
Imports MMT 91.55 91.55 93.16 93.16
Consumption MMT 106.16 106.16 108.63 108.63
--Crushing MMT 91.09 91.09 92.50 92.50
--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 3.25 3.45 3.45
Exports MMT 0.13 0.13 0.22 0.22
Surplus MMT -1.81 -1.81 -0.97 -0.97

Chinese authorities have sold off 2.15 mmt of their cotton reserves as of August 4. MOA adjusted 2016/17 cotton consumption up by 100,000 to reflect the success in selling cotton into the market. Estimated cotton imports were raised to 1.05 mmt. The 2016/17 ending inventory was adjusted downward by only 40,000 mt to 9.09 mmt.

Estimated cotton output for 2017/18 was adjusted upward to 5.28 mmt on both increased area and higher yield. Imports will be only 1 mmt, and consumption will exceed supply. The ending inventory will fall further to 7.46 mmt in 2017/18.

China cotton supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Begin inventory MMT 11.11 11.11 9.13 9.09
Planted area 1000 ha 3,100 3,100 3,200 3,293
Yield Kg/ha 1,555 1,555 1,594 1,602
Production MMT 4.82 4.82 5.10 5.28
Imports MMT 1.00 1.05 1.00 1.00
Consumption MMT 7.79 7.89 7.74 7.9
Exports MMT 0.01 0.01 0.01 0.01
End Inventory MMT 9.13 9.09 7.49 7.46

MOA raised its estimate of 2016/17 soybean oil imports to accommodate increased demand from a growing stream of rural-urban migrants discovered by the National Bureau of Statistics in its report on economic growth for the first half of 2017. Exports of edible oils were raised due to increases in sales of specialty oil products.

China edible oils supply and demand (Min Agriculture, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Production MMT 27.06 27.06 27.21 27.28
--Soy oil MMT 15.96 15.96 16.05 16.05
--Rapeseed oil MMT 5.76 5.76 5.71 5.71
--Peanut oil MMT 3.18 3.18 3.24 3.24
Imports MMT 5.6 5.72 6.2 6.2
--Palm oil MMT 3.25 3.25 3.75 3.75
--Rapeseed oil MMT 0.75 0.75 0.85 0.85
--Soy oil MMT 0.58 0.70 0.58 0.58
Consumption MMT 31.46 31.68 31.63 31.86
--Urban MMT 21.5 22.92 21.65 23.12
--Rural MMT 9.96 8.76 9.98 8.74
Exports MMT 0.13 0.17 0.13 0.13
Surplus MMT 1.07 0.93 1.66 1.49


China sugar supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 1351 1351 1472 1472
--sugar cane 1000 ha 1183 1183 1277 1277
--sugar beets 1000 ha 168 168 195 195
Yield




--sugar cane MT/ha 60 60 60 60
--sugar beets MT/ha 52.5 52.5 52.5 52.5
Sugar output MMT 9.29 9.29 10.47 10.47
--sugar cane MMT 8.24 8.24 9.23 9.23
--sugar beets MMT 1.05 1.05 1.24 1.24
Imports MMT 3 2.6 3.2 3.2
Consumption MMT 15 15 15 15
Exports MMT 0.07 0.07 0.07 0.07
Surplus MMT -2.78 -3.18 -1.4 -1.4

Rice and Wheat Support Price Policies Up for Reform

A Chinese official signaled that a major reform or even elimination of the country's price floor policy for wheat and rice may be on the horizon, but an official media outlet assured farmers that they need not worry about a drastic policy change that will curb their rising incomes.

In remarks at a rural policy forum held in Beijing, Han Jun--head of the Central Communist Party's Rural Leadership Group--praised the grain price support policies for their role in ensuring food security and protecting farmers' incomes, but he raised concerns about unintended consequences in the current market environment where international prices are far below China's domestic support price levels. Han despaired that the government's financial burden is overwhelming as it holds massive inventories of grain and sells reserves for less than the acquisition cost. High prices in China have eroded the international competitiveness of its commodities, and the gap between Chinese and international prices has prompted a surge of imports and smuggling. Han commented that this cannot continue, and the support price program has now reached a point where it is not immune to change.
Han observed that purchases of grain for government reserves strayed from the original intent of intermittently stabilizing markets to becoming the predominant sales channel. Controlled prices and surging government purchases have decoupled supply from demand and created structural grain surpluses. Han pointed to corn as the commodity with the most pressing problems: in 2014, purchases for the government's "temporary reserve" accounted for 88 percent of corn produced in the northeastern provinces. In 2015--the corn program's final year--reserve purchases ballooned to 125 percent of corn produced in the northeastern provinces as corn from other regions was trucked in to take advantage of the government-set price. Han said 100 million metric tons of corn substitutes imported from 2014 to 2016 were partly responsible for the unintended growth in excess corn reserves. He also cited price supports for prompting smuggling of rice.

Reform of the minimum price program for rice and wheat would be the latest phase of a series of "marketized" price reforms that have been "very smooth," with "results better than expected," Han said. Price reforms began with the abandonment of support price policies for cotton and soybeans in 2014, continued with the reduction of the corn support price in 2015 and the corn price support elimination in 2016. Rapeseed support prices were abandoned in 2015 and excess rapeseed oil reserves have been disposed of, Han said.

Han did not give any details on the prospects for policy changes or when they might take place. The next clue about the program's future may be this fall when Chinese authorities customarily announce the wheat floor price for the following year in late September or early October. There was speculation about the possible end of the minimum price program ahead of last October's announcement, and looks like there will be again this year.

The day after Han's comments were reported, a commentator on the "voice of rural China" assured listeners that they need not worry about rumors about the end of grain price policies, because no changes have been announced by the government. The commentator suggested that rumors circulate because the government doesn't provide any information about their intentions. The commentator then argued for the necessity of agricultural price reforms, assured farmers the government would carefully consider the impact of policy changes on "farmer friends," and warned farmers that short-term pressure is a necessary impact of market competition.

Dr. Han did not mention his past endorsement of the policy strategy that created the problems. In a 2010 interview with Farmers Daily, Han said it was necessary to raise farm prices every year to ensure that farmers could earn a healthy net return as their production costs rose, and high farm prices could be seen as a way of "industry repaying agriculture." Back in 2010, he proclaimed that the world was in an era of permanently high prices.

Seven years ago Han said, "When China has a shortage of grain, the world cannot meet China's demand." This week Han implied that the world is supplying China with too much grain.

Wednesday, August 2, 2017

China Ag Imports Outpace Exports in H1 2017

The Ministry of Agriculture reports that China's agricultural imports surged to $61.2 billion in the first half of 2017, while agricultural exports were $34.9 billion. The value of imports was 14.5 percent ahead of the same period last year, and exports were up 3 percent. Oilseeds were the largest agricultural import category, valued at $20.8 billion in H1 2017. China also imported $2.7 billion in edible oils. Oilseed and edible oil imports were both up more than 26 percent from last year. Livestock imports were $12.4 billion, up 6.5 percent from a year ago. China has trade surpluses in aquatic products and vegetables. (The statistics do not report a number of processed foods, beverages, and live animals.)

China agricultural imports and exports, January-June 2017
Category Imports y-o-y change Exports y-o-y change

Bil. $ percent Bil. $ percent
Agricultural products 61.22 14.5 34.92 3
Cereal grains 3.29 -2.8 0.36 74.1
Cotton 1.29 56.1 --
Sugar 0.7 43.2 --
Oilseeds 20.83 26.2 0.85 16.3
Edible oils 2.72 26.8 0.1 47.8
Livestock 12.38 6.5 2.93 11.3
Aquatic products 5.1 18.7 9.83 2.1
Vegetables 0.26 6.1 7.28 7.3
Fruit 3.38 -0.3 2.71 -6.3

Grain imports were valued at $3.3 billion in H1 2017, and totaled 13.7 million metric tons. Wheat and barley imports were up sharply, but corn and sorghum imports plunged. The volume of rice imports was up 6.5 percent to 2.1 mmt.

Imports of distillers dried grains--hit with antidumping duties imposed by China--sank 77 percent from a year ago. Cassava imports fell 6.5 percent.

China imported 769,000 metric tons of cotton and 1.7 million metric tons of cotton yarn. Sugar imports were up 5.9 percent.

The volume of soybean imports was up 16.2 percent to 44.8 mmt during H1 2017. Rapeseed imports totaled 2.6 mmt, and rose 32 percent from last year. Palm oil, rapeseed oil, and soybean oil imports were up sharply, but sunflower seed oil imports dropped.

Pork imports declined as domestic pork prices fell this year to levels substantially lower than record-highs reached in 2016. Beef, lamb, and milk powder imports were up in H1 2017.

China imports of agricultural products, January-June 2017
Item Imports y-o-y change
1,000 tonnes percent
Cereal grains 13,157 1
Wheat 2,653 48.2
Corn 736 -74.7
Rice 2,136 6.5
Barley 4,521 110
Sorghum 2,990 -26.1
Distillers grains 342 -77.8
Cassava 4,267 -6.5
Cotton 769 24
Cotton yarn 1,732 9.4
Sugar 1,414 5.9
Soybeans 44,808 16.2
Rapeseed 2,635 32.1
Palm oil 2,181 16.9
Rapeseed oil 479 21.3
Sunflower oil 352 -25.1
Soybean oil 361 92.5
Pork 662 -13.1
Pork offal 626 -8.0
Beef 327 10.6
Lamb 146 4.6
Milk powder 563 9.9