Sunday, December 10, 2017

Donkey Poverty Alleviation Led by Inspection Bureau

A donkey development project illustrates one of the Chinese communist party's strategies for rural poverty alleviation. Inspection and quarantine bureaus--responsible for inspecting imports and exports--have been instructed to take on side projects to help poor farmers as a political task. Communist party organizations are using their connections to mobilize resources in order to accomplish a task that would be conducted by NGOs or specialized aid agencies in most countries.

According to the Yunnan Province inspection and quarantine bureau, the unit's communist party organization led a program to bring economic development to Xinle Village, a small community of 1546 people with an average of just 0.61 mu (one-tenth of an acre) of land per person. The effort was described as the bureau's "political responsibility for poverty alleviation."

The inspection and quarantine bureau (known as "CIQ") arrived to help in 2015. A cooperative designed to produce milk from water buffaloes started by village leaders the previous year had failed. Some in the village wanted to ask the CIQ officials to help jump-start their water buffalo coop, but others thought it best to move on to some other venture that could make money as fast as possible.

CIQ officials recommended that the village try raising donkeys. They observed that 60 percent of the families in the village raised donkeys, and they knew that China has a shortage of donkey skins needed to make a traditional Chinese medicine called e'jiao (阿胶).

The Yunnan CIQ linked up with the most prominent e'jiao manufacturer--Dong'e E'jiao in Shandong Province, thousands of miles away. The company has been active in promoting donkey production, breeding, and marketing to alleviate its shortage of donkey skins. The company routinely raises prices by 20-50 percent each  year, citing the soaring prices for donkey skins. Several months ago, the dimsums blog profiled an international donkey symposium hosted by the company.

In March 2016, the Yunnan CIQ took the head of the village committee and a donkey farmer to visit the "National Black Donkey Breeding Center" established in Shandong by the Dong'e E'jiao company. When they returned from the trip, the village's communist party branch and members of each production team responsible for poverty programs agreed to set up a "poverty alleviation" donkey farming cooperative in Xinle Village with 56 households as members.

Using a “party branch + antipovery farmer + specialized farm household” model, the cooperative was designed to transform the scattered courtyard-style of families raising donkeys individually to a scaled-up commercial model. The Yunnan CIQ spent 430,000 yuan (about $65,000) to buy 86 mares and 3 male donkeys as breeding stock.

The bureau called on provincial government experts to advise farmers on how to raise donkeys, feed formulas, and disease control. The Tengchong municipal government organized training and gave the Xinle Village farmers subsidies to build donkey barns. The cooperative now reportedly has 160 donkeys.

The Yunnan CIQ got advice on donkey breeding from its counterpart CIQ in Shandong Province. Yunnan donkeys are smaller, grow more slowly, and are less-favored by buyers compared with the improved "Dezhou" breed developed in Shandong. Using the Dezhou breed would increase efficiency, but officials realized that the different climate and altitude in Yunnan could kill off the Shandong breeds. With help from the Shandong CIQ, the Yunnan CIQ sent four Xinle Villagers to the Dong'e E'jiao company's breeding base for training in breeding and artificial insemination with the objective of developing their own local breed within 5 years.

The donkey program is an example of a broader strategy motivated by the Chinese leadership's goal of achieving a "relatively well-off society" by 2020.

The Yunnan CIQ says it has similar antipoverty projects to raise capers, grapes, and a specialty breed of chickens, as well as a program to offer free medical exams to "offer love and warmth in its poverty alleviation."

Other provincial CIQs have similar antipoverty programs. Last year, the Guangdong CIQ set up a vegetable cooperative in a poor, mountainous area of northern Guangdong Province, saying its program was inspired by Xi Jinping's "Two Centuries" objective. The Guangdong CIQ explains that it is striving to improve food and agricultural product quality by providing guidance on inspection, cooperating with local governments, and using agribusiness companies to lift people out of poverty.

The Xinjiang CIQ also attributes inspiration for its antipoverty efforts to Xi Jinping's admonishment to bring wealth to the countryside in order to achieve the goal of becoming a relatively well-off country with a theme of "party leadership, administrative guidance, and participation by the entire society."

Saturday, December 9, 2017

China Grain Output Up 0.3% in 2017

China produced 617.9 million metric tons of grain in 2017, according to a communique issued by the country's National Bureau of Statistics yesterday. An accompanying analysis noted that this was China's second-largest grain crop ever and explained that production growth of 0.3 percent reflected a nationwide structural adjustment campaign ordered by the communist party this year to shift crop area from corn--which has "relatively large inventories"--to minor grains and bean crops, and to expand production of other nongrain crops like peanuts and medicinal herbs. Weather was favorable--a rapid increase in temperatures came after spring planting, rainfall and sunshine were adequate, and weather remained warm near the harvest--and government officials followed orders from the communist party leadership to avert losses from floods.

Overall, grain production was up 1.5 mmt, which reflects a 3.6-mmt decline in corn output offset by minor gains in rice, wheat, minor grains and beans. The overall yield rose 1 percent as the high-yielding corn crop (6,091 kg/ha) was replaced by lower-yielding beans (1,085 kg/ha) and minor grains on land concentrated in the "sickle" region of marginal production areas running from the Russian border through the arid northwest down to mountainous regions in the southwest.

Corn production is estimated at 215.9 mmt, down 3.6 mmt from last year. The NBS report did not include an estimate of soybean output, but the accompanying analysis revealed that soybean area planted increased 8.1 percent to reach 7.8 million hectares in 2017. In contrast, the Ministry of Agriculture's CASDE report reflects a larger shift from corn to soybeans: CASDE estimated 2017 corn output at 210 mmt and includes a more aggressive 13-percent increase in soybean area. NBS thinks production of the main food grain crops, rice and wheat, remained relatively steady, with production of each rising 0.7 percent.

China grain production, 2017
Planted area
1000 ha
1000 mt
All "grain" crops
By season:
 Summer grain
 Early rice
 Fall crops
By crop:
Source: China National Bureau of Statistics, preliminary estimates, 8 Dec., 2017.

China change in grain output, 2016-17
million metric tons
All grains
Other grains
Source: China National Bureau of Statistics preliminary estimates, 8 December 2017

Thursday, November 23, 2017

China: 10,000 Pesticide Standards by 2020

China's agriculture ministry aims to have 10,000 standards for pesticide and veterinary drug residues on the books by 2020, according to an official's speech at an annual government food safety meeting held last week.

Livestock products, vegetables, and fish and shellfish tested for harmful substances had a compliance rate of 97.7 percent during the first three quarters of 2017, according to Huang Xiuzhu, Chief Inspector with the Ministry of Agriculture's Agricultural Product Quality and Safety Supervision Bureau. Huang also cited China's 110,000 farm products certified as "non-harmful," "green food," and organic as indicators of food safety.

Inspector Huang warned that potential safety problems persist in China's agricultural products. The next steps will be to tighten regulation of chemicals by farmers, complete a five-year action plan to overhaul standards for chemical residue tolerances, and ensure implementation of the standards on farms.

In their five-year crash program, agricultural officials are revising 1000 pesticide residue standards and 100 veterinary drug standards annually. They aim to have over 10,000 chemical residue standards for farm products by 2020, according to Huang.

Huang said one goal is to eliminate highly toxic pesticides from the market [even though they are already outlawed]. Another is to achieve 40-percent utilization of pesticides [i.e. reduce the proportion of pesticides that drift into the air or leach into soil and water without killing pests on crops], and develop pest and disease prevention teams. Officials are also striving to build standardized model livestock and poultry farms and vegetable farms where the standards are fully implemented.

Huang did not say whether the blizzard of new standards would ever be enforceable. Surely, the demand for chemical testing will outstrip the capacity to perform tests. China's laboratories will not be able to conduct more than spot-checks for dozens of chemicals produced by tens of millions of Chinese farms. Who will fund the labs and who will pay for the tests? Where will the technicians come from and who will train them? Who will certify the labs and supervise them?

Exporters to China will also need to conform to these tolerances for numerous substances that may or may not correspond to standards used in their own country. You never know when border inspectors might decide to check for various substances. New labs staffed with inexperienced technicians using questionable procedures may produce anomalous results.

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

--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
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
Growth from last year

Palm oil
Rapeseed oil
Sunflower and safflower
Soybean oil

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
Imports, Jan-Sep
Change from a year ago

Million tonnes
*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
Imports, Jan-Sep
Change from a year ago

1000 tonnes
Pork offal
Milk powder

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).