Wednesday, January 17, 2018

China's New "Agricultural Diplomacy"

China is seeking a more influential and assertive role in global agriculture and is making agriculture part of broader geopolitical initiatives in its new era of "agricultural diplomacy" under Chairman Xi Jinping. Is China ready for this role? Is the world ready for China?

The strategy was laid out in "Our Country's Agricultural Diplomacy Enters a New Era,"a December 26, 2017 propaganda essay by Farmers Daily propagandists. The writers expounded on the more prominent role given to agriculture in foreign affairs since Xi Jinping ascended to the top leadership position five years ago.

The article recites "Chairman" Xi's slogans that proclaim China as now open to the outside world. It cites key international meetings where agriculture was emphasized, with special emphasis on Xi's kick-off of the One Belt One Road initiative during a 2013 summit with Kazakhstan's president.

The "clear message" proclaimed by the article is that China is greatly increasing its voice and influence in global agriculture, and China’s international cooperation in agriculture is growing faster, deeper, and stronger than ever before. As Xi's leadership moves into a new phase in his second term, Chinese diplomats and agribusinesses will go abroad and host international meetings and trade shows to "tell an even more vivid story."

"Agricultural diplomacy" is a broad concept that includes China's growing trade in agricultural products, free trade agreements, foreign investment in agribusiness, foreign aid, technical exchanges, China's role in rule-setting and international organizations, and promoting Chinese cultural heritage in farming. The idea of "farm diplomacy" was floated by Xinhua News Service propagandists describing Xi's trip to Latin America in 2014 but it vanished until mentioned in last month's Farmers Daily article. "Agricultural diplomacy" as described by Farmers Daily is a broader initiative based on guiding principles of open trade, mutually beneficial development, and links between farming, industry and services guide the growing collaboration with foreign countries in agriculture.

China envisions a leadership role in global agricultural governance, including an active role in international organizations, in making the rules for agriculture, and in trade negotiations. The article cites recent international meetings of agricultural ministers held by international organizations APEC, G20, ASEAN and BRICS where China purportedly played a leading role. At the 2016 G20 held in Xi'an, attendees were invited to support China's "grand plan for international cooperation."

China is seeking a more active role in international rule-making bodies like the Codex Alimentarius, OIE, and International Plant Protection Convention. China is overhauling its own standards for foods, farm products, and pesticide residues.

China wants to push for more "fair and rational" agricultural trade rules by engaging in negotiations on items like agricultural and fishery subsidies and concluding bilateral and multilateral trade agreements. By establishing the basic principles for negotiations, Chinese industries will have "more time and space" for development and further deepen relations with countries along the "belt and road" path. China plans to coordinate its agricultural trade policy and make use of trade remedy measures like anti-dumping duties and safeguard measures against distillers grains and sugar.

In another signature Xi Jinping initiative, China is pushing other countries to recognize its agricultural heritage and culture. China claims a leading role in the UN's Food and Agriculture Organization protection of agricultural heritage, with a third of the items accepted for protection so far.

Over the past 5 years, "the Chinese dream, Chinese programs, and Chinese thinking were accepted by the international community," the propagandists wrote.

Drawing another subtle link between Chairmen Xi and Mao, "agricultural diplomacy" has a major objective of re-establishing China as a leader in "south-south" cooperation, as a leader of the developing world. The article recites China's contributions to FAO "south-south" development programs, 3 million tonnes of food aid to Africa, and thousands of trainings and scholarships for agricultural technicians and scholars.

Technical assistance in agriculture is cited as a diplomatic tool for boosting China's reputation and responsibility abroad. "Agricultural experts have become true practitioners of the philosophy of sincere and true diplomacy," telling the "beautiful China story," Farmers Daily said. Examples of China's beneficial impact on African agriculture are "too numerous to mention."

China is bringing in technology and purportedly sharing it. Farmers Daily cites the establishment of the Asia-Pacific international potato research center in Beijing's Yanqing County as a significant milestone showing China's leading role in the international scientific community (This explains why China declared potatoes a staple food several years ago). The potato center is described as a model platform for international cooperation in agricultural research with advanced equipment and personnel. Farmers Daily also cites a China-Germany agricultural research center and 62 laboratories established with the United States and Canada. By hosting scientists and meetings, bringing in equipment and plant resources, China is shrinking the gap between China and developed countries in agricultural science.

One problem: China doesn't have very many diplomats to carry out "agricultural diplomacy." To address this problem, there are inter-departmental working groups on agricultural cooperation, training for staff to work in agribusiness and as diplomats specializing in agriculture, "foreign agricultural cooperation demonstration districts," and "agricultural external opening cooperation pilot districts" to help companies begin doing business overseas.

In the background of all this is China's ambitions to elevate its model of what might be called "centrally planned free trade" as an alternative to the post-WWII Anglo-American dominance of trade institutions. Can a country that has been characterized by insularity for at least two centuries become a world leader? Can a country where rules are customarily flouted and skirted in everyday life seriously become an international rule- and standard-maker? Can a country where leaders collect advanced degrees based on ghost-written doctoral theses and a country where slogans pass as "theories" become a leader in agricultural science?

It appears that we have the beginning of a grand social experiment that may answer these questions later in this century.

Thursday, January 11, 2018

China Cuts Prices for Wheat Auctions

Chinese authorities announced that they will hold sales of old wheat from reserves beginning January 18, 2018 at reduced starting bids.

Wheat purchased through the price support program during 2014-16 will be offered at a minimum bid of 2410 yuan/metric ton, 50 yuan lower than previously. Sales will also be held for wheat purchased in the Xinjiang Autonomous Region (which is not part of the formal minimum price program, but has its wheat price supported by "temporary reserve" purchases). Wheat with excessive mycotoxin levels will be designated for sale to ethanol producers at discounted prices starting at 800 yuan/mt. Sprouted 7-year-old wheat from Xinjiang will also be sold at a discount starting at 1200 yuan/mt. In addition, authorities will offer imported wheat from 2013 stored in 16 different provinces at prices varying from 2160 to 2490 yuan/mt.

Wheat from 2012 shifted among provinces will be offered at prices from 2030 to 2330 yuan/mt. The first auction of 411,937 metric tons of interprovincial-transferred wheat reserves was held today (January 11), but none sold.

Wheat from Chinese reserves to be offered for auction
Description
Starting price
Yuan/mt
$/mt
Wheat procured at minimum price, 2014-2016 2410 371
Excessive levels of mycotoxins (Henan Province)* 800 123
2010 temporary reserve wheat (Xinjiang, sprouted) 1200 185
2011 temporary reserve wheat (Xinjiang) 2000 308
2012 temporary reserve wheat (Xinjiang) 2100 323
*designated for sale to ethanol plants. 

According to an analyst with the Xi'an national grain trade center, the reduced opening prices for grain auctions has several motivations. Officials want to tamp down price expectations in the market to sync up with the reduction in minimum wheat prices announced for the 2018 procurement season (which begins in June). Officials want to make more wheat available during the peak flour-milling period ahead of the upcoming Spring Festival. They also want to clear out old stocks of wheat to make room for 2018 grain purchases beginning this summer.

Another analyst says the wheat sales are being held to relieve cost pressure on flour mills. Reports say that the supply of high quality wheat is tight, but there is abundant supply of common and low-quality wheat.

An analysis on the flour information network earlier this month agreed that there are abundant supplies of common wheat. Flour prices are not rising because demand is relatively weak, and sales during the current "peak" demand season are not that vigorous. Prices for wheat bran--the by-product of flour-milling--are also weak, contributing to downward pressure on flour mill profits.

Saturday, January 6, 2018

School Soccer to Promote Cheese

A school soccer competition will promote cheese consumption in Beijing, bringing together President Xi Jinping's passions for sports and upgrading Chinese industries, according to a December 2017 announcement by the Ministry of Agriculture's press office.

The "Dream Cup" is an open competition for teams from Beijing schools sponsored by a Beijing dairy company that will promote cheese consumption by students. But it is also much more than that. The cheese soccer activity illustrates the growing personality cult of Xi Jinping and ambitions to bring together disparate elements of society to achieve lofty national goals, with communist party coordination in the background.
"D20" dairy industry leaders pose with school children July 2017. Source: Ministry of Agriculture.

According to the announcement, the cheese-centered soccer competition is an implementation of the "spirit" of the 19th communist party congress held in October and a "measure to implement Xi Jinping's specific instructions." The competition was organized by the Ministry of Agriculture in conjunction with the China Dairy Association and Beijing Municipal Soccer Association, and with sponsorship by Beijing's Sanyuan Food Co. and the Beijing Peoples Broadcasting Association. The competition is part of a "China moderately well-off milk action plan" launched in February 2017 which distributed free dairy products to schools in poor regions as one of its efforts to revive the Chinese dairy industry.

According to the Ministry of Agriculture, the soccer competition will integrate youth sports with upgrades of the Chinese dairy industry by encouraging consumption of cheese by young people, promoting development of soccer and other sports, adopting habits of hard work and improving physical fitness. The Ministry's announcement explains that the Chinese dairy industry has made progress in boosting milk consumption and improving quality and safety, but it still faces challenges that include an imbalanced product structure. Promoting cheese consumption is a hoped-for "breakthrough" for the dairy industry's development. (note: cheese was nearly nonexistent in China until about 10 years ago and is still seldom consumed). This will bring about a hoped-for "historic transformation" from a "big dairy country to a strong dairy country," the Ministry's announcement said. 

Thursday, January 4, 2018

China Wants to Shed Rice Stockpiles

Chinese authorities are considering another reduction in support prices for rice in 2018 to move toward market pricing, dissipate their huge stockpile, and stem a surge of imports, market analysts say.

With a record crop of 208.56 million metric tons (about 146 mmt after milling) in 2017, China's rice supply is more than adequate. As of December 25, 62.5 mmt (presumably rough rice; 43.75 mmt after milling) of the fall rice crop had been purchased (34.7 mmt medium grain and 27.8 mmt long grain), 2.3 mmt more than a year earlier. Procurement of the summer-harvested early indica rice crop totaled 9.16 mmt (6.4 mmt milled basis), up 570,000 mt from the year before.

An August rice market analysis estimated that the government's rice stockpile could be a record-high 100 million metric tons (apparently on a rough basis; 70 mmt milled basis), or about 80 percent of a year's consumption. The analyst's estimates were based on authorities' annual procurement of about 30 mmt of rice (21 mmt milled basis) through the support program since 2013 less sales of reserves.

Despite plentiful domestic supplies, rice imports also continue to rise. According to a Ministry of Agriculture report of customs statistics, China imported 3.6 mmt of (milled) rice in the first 11 months of 2017. That was up 15% from a year earlier.

A December report from China's central broadcasting network said that good quality rice is fetching good prices, but the price support program is propping up prices for generic rice.

A November report from China Grain Network said that quality of the 2017 rice crop varied by region. Rice has sprouting and other serious quality problems in parts of China were there was heavy rain at harvest time--mainly in Henan, Hubei, and Anhui Provinces. In southern regions like Jiangxi and Hunan Provinces quality of the crop is good. In most other areas, the quality was more or less the same as the previous year.

According to the China Grain Network report, the surge of rice imports is prompted by the spread between Chinese and international rice prices. In late November, the price for Thai 5% broken was $410/mt fob, and 3880-3980 yuan/mt on arrival in China. Pakistan 5% broken was $385/mt fob, and 3900-3920 yuan/mt on arrival in China's Guangdong Province.

On December 26, prices for domestic late-season long grain milled rice ranged from 3800 yuan/mt in Hunan (China's largest rice-producing province) to 4000 yuan/mt in Shanghai and 4040 yuan/mt in Chengdu, Sichuan Province. Early season long-grain rice was 3910 yuan/mt in Shanghai, comparable to the price of imports. Medium grain japonica rice was more expensive: 4800 yuan/mt in Guangzhou, 4900 yuan/mt in Fujian, 4300 yuan/mt in Shanghai, and 4200 yuan/mt at the train depot in Heilongjiang (the largest production region for japonica rice).

China also managed to double its exports of rice to over 1.1 mmt in the first 11 months of 2017. China Grain Network explains that the exports reflect a strategy of accelerating the disposal of excess rice stockpiles and describes the exports as "structural adjustment." In other words, China is dumping surplus rice on the world market. According to China Grain Net, the average unit value of exports through October was $482/metric ton (45 percent lower than last year). The average export price equals 3133 yuan/mt at the current exchange rate--about 20 percent less than prevailing domestic prices in China. Major markets are South Korea, Philippines, Mongolia, and African countries such as Guinea-Bissau, Côte d'Ivoire, and Mozambique. The China Grain Net analysis expects exports of rice to accelerate as de-stocking and reform of the rice market picks up.

The China Grain Network says market participants anticipate declining rice prices in 2018 as the government is expected to cut minimum prices again. They expect the minimum price for japonica rice to be cut by 200-400 yuan/mt, the middle/late indica price to be cut by 200 yuan/mt, and they think the minimum price for early rice could be eliminated altogether. The announcement could come in February, the month when minimum rice prices for the coming season are typically announced.

The State Council's December 12 announcement that imports of broken rice will be permitted at a tariff of 10 percent beginning July 1, 2017 has not been explained, but it is consistent with rhetoric about a new emphasis on quality products in agricultural policy. Authorities may remove the price support for the low-quality early indica rice crop and allow imports of broken rice at a 10 percent tariff to liberalize the low end of the market. Both are relatively low-quality types of rice used for making liquor and other industrial processing.

Wednesday, December 27, 2017

China's "Rural Revitalization" Set for 2018

An ambitious rural revitalization initiative was one of 8 priorities set for Chinese officials at the 2018 "economic work conference" held in Beijing December 18-20. The strategy was one of the directives issued in Xi Jinping's October speech to the 19th communist party congress where he proclaimed that agricultural and rural problems are foundational issues that must receive the utmost attention from communist party leaders.

Over the past decade, China's statisticians consistently reported numbers showing that the gap between countryside and city was improving, but now the official Xinhua news service reports a dismal situation to explain why rural revitalization is so critical: development in the countryside still lags far behind cities, inadequate development in the countryside is a glaring weakness, and the rural-urban imbalance is the most prominent imbalance in China's development.
The rural strategy was described only briefly in Xi's speech (434 characters of the 32,000-character speech) and in reports on the economic work conference, but the Minister of Agriculture instructed rural cadres to study Xi's speech and implement the strategy to achieve a transformational upgrade. The strategy is mainly a comprehensive restatement of various initiatives that have already been underway for several years.

Ambitious institutional reform is at the heart of the rural strategy: officials are measuring plots of rural land and verifying who has the rights, nurturing a new core of "appropriate scale" agricultural businesses, rectifying ownership of other collective property and profit-distribution mechanisms, and they hope to improve support policies for farmers. Family farms, cooperatives, and agribusinesses are expected to pull small agricultural households into "the orbit of modern agriculture" by sharing profits, imparting technical knowledge and linking small farmers with processing and service businesses. National food security will be maintained by investing in farmland that no one really owns, making scientific achievements that are brought to fields by an army of new service providers, and further mechanizing agriculture. All this will be accomplished while fully embracing the concepts of an open economy and "green" development.

The centerpiece of rural reforms is a giant project to clarify rural land rights which has been underway since 2014 and is expected to be complete next year, except for a few minority and border areas, according to a news conference held by Ministry of Agriculture officials last month. Officials have verified plots and issued certificates for 74 million hectares so far, 82% of collective cropland on the books (officials have discovered that there is actually more contracted land than previously thought). Xi Jinping also declared that villagers' contracting rights to rural collective land would be extended to 30 years. Defining boundaries and verifying contracting rights to land will give villagers confidence in their rights that will put them at ease when transferring the use rights of their land to others, facilitate distribution of land-based farm subsidies, and it will be the foundation for giving migrants compensation for giving up land rights, making mortgage loans, and promoting investment in land, officials say.

Another 3-year program is clarifying rights to a broader scope of collective assets in 129 pilot counties. Nationally, village collective assets are estimated to be worth 2.86 trillion yuan ($435 million, excluding Tibet), an average of nearly 5 million yuan ($762,000) per village. Officials say some of the pilot villages have set up dividend payment schemes for villagers, but the size of the payments is relatively small. The collective asset pilots will be expanded in 2018.

With greater assurance of land rights--where the boundaries are and with certificates that give them better prospects of getting the land back--it will be easier to transfer land use rights to "new farmers." One farmer in Heilongjiang Province reportedly took six months to assemble a farm of 800 mu (53 hectares) six years ago, but it only took him two weeks to acquire another 700 mu this year, according to state media. Officials are setting up provincial mortgage guarantee companies to facilitate agricultural lending, and they plan to set up similar companies at the municipal and county levels. Other plans are to mortgage farm equipment and other assets, and to promote leasing of farm machinery to speed up mechanization.

Officials see the traditional small-scale rural household as an inherent feature of rural China, and they hope new farm businesses will help the masses of rural households by linking them with processing and service businesses, giving out loans and training, and establishing profit-sharing mechanisms with small farmers.

More structural adjustment is on the horizon for Chinese agriculture. Corn was the focus of structural adjustment over the past year, but hogs are also in structural adjustment and state media say ruminant animals are next on the agenda. The focus is to protect resources (reduce soil erosion in the case of corn, reduce water pollution by pigs, and reduce over-grazing by ruminants), to increase quality and raise net income.

Rural and agricultural tourism, e-commerce, and other new industries will be promoted. The economic work report mentioned an initiative to align purchase prices for grain reserves more closely with market prices. Officials promise to explore establishment of "functional areas" for grain production and "protected areas" for other key crops.

The strategy is perplexing to outsiders because it is both capitalist and socialist, both forward-looking and conservative. The strategy aims to use capitalist tools like markets and entrepreneurship to enliven moribund socialist institutions governing the countryside: collective land ownership, state farms, and bureaucracies. These institutions were jury-rigged in the 1950s by officials trying to balance their utopian vision of collective farming with the realities of giving peasants incentives to produce efficiently. Xi envisions a 21st century "new era" for China of affluence, efficiency, and interconnectedness. Yet his vision also calls for preserving the past: promoting pride in rural "civilization" and maintaining a countryside laid out to accommodate medieval subsistence agriculture.

Wednesday, December 20, 2017

China's New Ag Census: Statistical Fog Remains

Initial results of China's 2016 agricultural census confirm that the country's farming sector remains shrouded in a statistical fog where numbers reveal only gray indistinct shapes whose details cannot be discerned with any precision. The skimpy initial release of statistics reveals nothing about what is produced, but they suggest China still has lots of people in the countryside squatting on plots of land they are not allowed to sell. Livestock and aquaculture farming--where land is less of a constraint--have proceeded much faster in commercialization and specialization than crop production. Scaled-up farms are increasing in number, but they have a long way to go to transform farming in China.

Last week, the National Bureau of Statistics released a series of five communiques, a graphical summary of changes over the last 10 years and two essays by communist party go-to academics which amount to cheerleading about how much life in the countryside has improved because of the wise policies of socialism with Chinese characteristics under Xi Jinping's leadership since the 18th communist party congress. The monumental effort reportedly engaged 4 million enumerators, drones, and satellite imagery to canvas the countryside's 230 million households, 600,000 villages, 40,000 towns, and 2 million agricultural business units to produce an inventory of rural China as of December 31, 2016. Statisticians claim to have covered all but 0.19 percent of China's farms.

While the census is hailed as "scientific," the initial reporting of results is highly political in nature. A theme of the reports is, "Look how much things have changed in the countryside," by emphasizing statistics on rural infrastructure, farm equipment, greenhouses, and scaled-up farms. There is nothing in these initial reports about what is produced, planted or sold--although the census did collect these numbers--and there is no effort shown to determine whether statistics have deviated from reality with so much change occurring in China's countryside. Detailed statistical volumes will be released later, which hopefully will reveal more about land use, sales value, and animal numbers.

When compared with the previous agricultural censuses conducted in 1996 and 2006, the 2016 census reveals a major outflow of people and consolidation of villages and townships. There has been massive migration to cities--agricultural employment reported by the censuses fell from 433.5 million to 314.2 million during 1996-2016. The number of administrative villages fell from 748,320 to 596,450, and the number of townships declined from 43,112 to 31,925 during 1996-2016.

Basic agricultural statistics in China's three censuses
Year
Farming households
Other farming businesses
Cultivated land
Agricultural employment
Million 
Thousand
Million hectares
Million
1996
193.1
358
130.39
433.5
2006
200.2
395
121.78
342.5
2016
207.4
2,040
134.92
314.2

Yet a comparison across censuses reveals that the number of agricultural households has actually increased gradually from 193 million in 1996 to 207.4 million in 2016. This reflects the continued formation of new households through population growth. As some family members move to cities, most families hold on to their allocation of village land since they can't sell it under China's collective land ownership system. Elderly parents are often left behind to tend the plots, watch grandchildren, and play mah jong. While many young people have no interest in farming, enough have stayed behind to take over land-holdings as elderly patriarchs pass on in order to keep the number of farming families steady or increasing slightly. The amount of land available is static or shrinking, so the allocation of land per household is also small and getting smaller.

Not all farms are operated by rural families, and the new census shows a big increase in the number of non-family farming units. In the 1996 and 2006 censuses, these other farming businesses included mainly collectives, state farms, government research farms, and probably prison camps and military farms. The increase in nonfamily farming units from 395,000 to over 2 million between 2006 and 2016 reflects a big jump in formation of farmer cooperatives after the 2007 cooperative law and formation of private agricultural enterprises (most of the cooperatives are aggregations of farmers who cultivate their own land). In fact, one of the few interesting results of the census is its tacit admission that only half of the 1.8 million farmers cooperatives officials brag about actually exist. The census notes that 1.78 million farmer cooperatives are registered with commercial bureaus, but census enumerators counted only 910,000 cooperatives. This confirms reports from the field that many cooperatives were set up as bogus shells to collect subsidies or to pad statistics, and many others just failed.

The most disappointing aspect of the census is its failure to update China's estimate of cropland area. The new census endorses a Ministry of Land Resources survey from 2008 that reported 135 million hectares of cultivated land, nine years ago. Uncertainty about the area of land under cultivation dates back centuries--landlords have always under-reported land holdings to evade taxes, a practice that continued under communist authorities until land-based taxes were eliminated 10 years ago.

Gyrations in estimates of China's farmland since the 1990s are an indicator that no one really knows exactly how much land China cultivates. Statistics reported a steadily declining stock of cultivated land starting in the early 1960s that reached 95 million hectares in 1995. At the time, everyone knew this was an understatement, which was confirmed by the 130 million hectares reported by the first agricultural census for 1996 (it took several years to report this number, probably because of bickering behind the scenes). The second agricultural census found a seemingly plausible shrinkage in farmland to 122 million hectares in 2006. However, the Ministry of Land Resources survey in 2008 reported an even larger 135 million-hectare estimate of farmland which has been reported as the cultivated land area in each statistical yearbook since then.

Uncertainty about the size of China's cropland base means that no one really knows how much is produced in the country. Crop output is based on the annual estimate of area planted in crops which exceeds the area of cultivated land, due to double-cropping, and perhaps planting of crops on grassland, hillsides, riverbeds, etc. that are not classified as "cultivated land." Statistics on the area planted in crops have been unchanged during the wild gyrations in cultivated land statistics. Between 1995 and 2016, crop area planted increased from 150 million hectares to 165.65 million hectares. The area planted in crops has increased 9.5 percent over the most recent 10 years--an implausible trend in view of the amount of land gobbled up by real estate, roads, and ecological projects. No estimate of area planted in crops was reported in this initial set of communiques on the 2016 census.

(In comparison, the area of cropland reported by U.S. agricultural censuses declined from 180 million hectares in 1997 to 158 million in 2012--the most recent U.S. census).

China's census suggests that there are more people engaged in farming than other statistics report. The 2016 census reported that 314 million people were employed in agriculture, which equals 40 percent of total national employment (776 million) reported for that year in other publications. The estimate of employment in the "primary" sector published in Statistical Yearbooks is much lower, at 215 million (28 percent of all employment). Agriculture's share of GDP is much smaller than its share of employment--less than 9 percent of GDP in 2016, according to macroeconomic statistics.

As noted above, the census agricultural employment totals have fallen over time, but the rate of decline differs from that shown by annual employment statistics. The censuses report a decline in agricultural employment of over 100 million between 1996 and 2006, but only a 28-million decline between 2006 and 2016. Annual estimates of employment in "primary industry" reported by the statistics bureau show a much steeper decline in ag employment of 104 million during 2006-16--four times faster than the decline reported by the censuses.

China's agricultural labor force is aging. The 2016 census reported that 33.6 percent of agricultural workers were age 55 or older and 19.2 percent were under age 35. The 1996 census reported a much younger rural labor force with only 11.8 percent of rural workers 55 and older and 53.5 percent under age 35 (the 1996 census did not tabulate agricultural employment separately, but most rural people were employed in farming at that time). The youthful labor force in the 1990s reflected a bulge of young people born in the early 1970s--a cohort that fueled China's labor-intensive manufacturing boom during the 2000s as they migrated to factories. (The 2006 census used a different set of age-groupings, reporting that 30 percent of ag workers were over age 50.) The percentage of farmers 55-and-older translates to over 100 million people who will probably never switch to another profession or move to a city.

(An aging farmer population is not unique to China. The average age of farmers reported by U.S. ag censuses has been over 50 since the 1970s. The average age of U.S. farmers rose from 54 in 1997 to 58.3 years old in 2012.)

Education-level tabulations indicate that China's agriculture sector is not attracting the best and the brightest. Education levels have gradually improved. The share of unschooled farmers has fallen from 14 percent in 1996 to just 6.4 percent in 2016, and farmers with just a primary school education have fallen from 42 to 37 percent of all farmers. Lower middle school (9 years of schooling) is now the predominant education level of farmers, comprising 48.4 percent of farmers. The share of farmers with a secondary school or higher education level is increasing, but highly educated farmers are still rare in China. In cities, secondary school is the most common education level, and a much higher proportion have higher education.

China's agricultural laborers by education level (percent)
Year
None
Primary school
Lower middle
Secondary, vocational
Technical school or higher
1996*
14.0
42.1
38.0
5.1
0.8
2006
9.5
41.1
45.1
4.1
0.2
2016
6.4
37.0
48.4
7.1
1.2
*1996 data are for all rural workers.

The 2016 census is the first to profile scaled-up farms. The census found 3.98 million scaled-up farms, just under 2 percent of all farms. The census found that 28.6 percent of cultivated land was in scaled-up operations (the definition varied: 6.7 ha or more of land in areas where a single crop is grown; 3.35 ha in areas where two crops are grown; 1.67 ha for farms where crops are grown in plastic-covered sheds or greenhouses). There were 12.9 million people working on scaled-up farms, but this was just 4.1 percent of all agricultural employment.

The scaled-up farms had a smaller proportion of older workers, but only a slightly higher proportion of young workers under age 35, compared with the overall agricultural labor force. Thus, scaled-up farms had a higher proportion of workers at peak working ages of 35-54 than the general farm labor force. The scaled-up farmers were more likely to have a junior-middle school education and less likely to be unschooled or have a primary school education compared with the overall agricultural labor force.

The most striking feature of scaled-up farms is that they are much more likely to be engaged in livestock and aquaculture production than other farmers. Over 28 percent of scaled-up farmers are engaged in either livestock or fishing, compared with 4.3 percent of the overall agricultural labor force. The census also reported that 62 percent of the swine inventory was on scaled-up farms (slaughter 200 head or more--smaller than the 500-head definition used by the Ministry of Ag) and 73 percent of chickens (slaughter 10,000 birds or more) were on scaled-up farms. Again, the preponderance of tiny crop farms reflects the incentives and barriers imposed by the land tenure system. Land is collectively owned, but animals and fish are private property.

Characteristics of scaled up agricultural businesses
Scale farms All farms
People engaged (million) 12.9 314.2
Characteristics
Percent
Male 52.8 52.5
Age 35-less 21.1 19.2
Age 55-older 20.7 33.6
Education
Percent
None 3.6 6.4
Primary school 30.6 37.0
Lower middle 55.5 48.4
Secondary, vocational 8.9 7.1
Technical or higher 1.5 1.2
Employment by sector:
Percent
Crops 67.7 92.9
Forestry 2.7 2.2
Livestock 21.3 3.5
Fishing 6.4 0.8
Services 1.9 0.6

Irrigation is used on 61.89 million hectares of China's farmland, 46 percent of the total. 30.5 percent of farms pump water from underground for irrigation and 69.5 percent use surface water from reservoirs, rivers, and canals.

Permanent greenhouses constructed of steel and glass cover 334,000 ha (up from 81,000 ha in 2006), and structures covered with plastic sheeting occupy 981,000 ha (up from 465,000 ha in 2006).

The census also conducted a more extensive inventory of farm equipment than in previous censuses. The number of tractors increased by 1.4 million between 2006 and 2016, but the composition of tractors was not reported--it likely shifted from small to bigger machines. The total of 26,900 tractors is one for every 7.7 farms or one tractor for every 5 hectares of land. The number of combine harvesters doubled between 2006 and 2016, to reach 1.14 million.

China's inventory of farm equipment
Type of equipment 2016 2006 1996
Thousand
Tractors 26,900 25,500 11,790
Tillage equipment 5,130
Rotary cultivators 8,250
Planters 6,520
Rice transplanters 680
Combine harvesters 1,140 550 113
Mechanical threshers 10,310 7,519
Automated irrigation machinery 14,310
Hay processing machinery 4,090
Milking machines 100
Wool shearing machines 50
Aerators 1,940
Fruit tree pruners 490
Inland motorized fishing boats 280 467
Sea-going fishing boats 250


Monday, December 18, 2017

Officials Ponder China's Ag Policy Direction

Chinese officials and scholars have recently been discussing rural policy for the "new era" proclaimed in Xi Jinping's October speech to the 19th communist party congress. Agriculture faces a number of conflicts in fulfilling Comrade Xi's various pledges to be an open economy, maintain secure control over the food supply, be a leader in environmental governance, and bring all segments of society into relatively well-off status by 2020.

With shrinking land and water resources, rising rural labor costs, the need to maintain food security, and a new pledge to produce high quality products,  Ke Bingsheng, president of China Agricultural University and an agricultural economist, commented that it would take a "miracle" for China to produce enough food for its growing consumption. Since communists are atheists, they have to put their faith in technology and government planning, so Professor Ke proclaims "modern agriculture" is the needed "miracle."

The countryside has become a warehouse for the elderly, infirm, and others marginalized by China's economic transformation. Ke Bingsheng observed that agriculture still employs 28 percent of the labor force, but it produces less than 9 percent of GDP. That means labor productivity--and therefore farm income--is still very low for those engaged in agriculture. The economy needs to grow faster to absorb even more rural laborers, and farm productivity must rise in order to boost rural incomes.

Nurturing new-type farm operators who have higher productivity and are more internationally competitive is a core component of the ideas for revitalizing the countryside offered in Xi Jinping's October speech. This month, a meeting of the State Council's standing committee chaired by Li Keqiang emphasized programs to nurture new-type operator as well as other measures to promote agricultural "modernization" and link farming with industry and service sectors. The meeting endorsed training for new-type farmers, support for various mortgage loans and provincial loan-guarantee companies for farmers, subsidies and new leasing arrangements for farm equipment, and improved services for farmers, Prof. Ke said.

The Ministry of Agriculture's Zhang Hongyu assured small-scale farmers that they will not be left behind as China modernizes agriculture. The capacity to "pull along" small farmers is one of the criteria for evaluating the new-type farm operators. The large-scale farms and agribusinesses are expected to provide training, financing, technical advice, and other services to bring the general population of rural households into agricultural modernization. Small farmers need to be organized into cooperatives and collective organizations need to be mobilized.

Keeping farm prices high would boost incomes for small farmers, but there seems to be consensus now that China's high agricultural prices must be allowed to fall in line with prices in global markets to make China's products more internationally competitive. Professor Ke Bingsheng surmised that the international market is having an unprecedented influence on Chinese markets, and he warned policymakers that they must consider effects of international markets when designing farm policies.  He cited China's experience with the grain market as a "warning."

In a similar vein, Economy Daily warned officials not to let up on agricultural price reforms, despite another big grain harvest this year. The commentary reviewed the problems with price support programs and their elimination for soybeans, rapeseed, cotton, and corn, and said reform of price-setting mechanisms for rice and wheat should be next on the agenda. Economy Daily said wheat reserves are now 70 percent of annual consumption and rice reserves are 60 percent of consumption--"far higher than international standards"--and a perverse phenomenon of "domestic grain going into reserves; foreign grain going into the market" needs to be corrected by letting the market determine the grain price.

Development Research Center economist Cheng Guoqiang offered several suggestions for reforming the rice minimum price program: set a single minimum price for all kinds of rice (there are now separate prices for three kinds of rice); or cut the minimum price to 2400 yuan/metric ton (this year it ranged from 2600 to 3000 yuan) and give farmers a subsidy similar to the corn producer subsidy; or start purchasing rice at minimum price a month later than usual to let the market set a price before the government begins purchasing.

The mantra for supporting farmers is now to "separate price from subsidies" by allowing crop prices to be set by the market while giving farmers subsidy payments. Heilongjiang Province--China's largest corn and soybean-producing region--announced that its subsidy payments to producers of corn were 133.46 yuan/mu (about $123 per acre) and payments to soybean producers were 173.46 yuan/mu ($160 per acre). The corn subsidy equals close to 20 percent of gross revenue and the soybean subsidy looks like it is over 30 percent of gross revenue for farmers in the northeast.

With China becoming more reliant on imported food, the Development Research Center's Ye Xingqing has set forth a strategy in "Diversification of China’s Global Agricultural Supply System is Inseparable from “Belt-Road,” which calls for China to nurture new suppliers of agricultural imports from "Belt and Road" countries. Dr. Ye worries that China is exposed to risk by (1) relying on a few countries in the Americas and Oceania for most of its agricultural imports, (2) relying on a few maritime shipping lanes, and (3) relying on a handful of multinational grain-trading companies, which exposes China to potential risks. With dependence on agricultural imports persisting--and perhaps increasing--in the future, Dr. Ye recommends following the advice of the 2014 and 2016 No. 1 documents by planning and guiding agricultural imports and diversifying suppliers, as Chinese investors abroad develop new supply chains.

The most prominent example of China's import diversification strategy is its $3.65 billion loans-for-grain deal with the Ukraine initiated in 2012. This clever move to reduce risk diversified corn imports away from the United States--which supplied over 90 percent of China's corn imports at the time--to buy almost exclusively from a country with turbulent internal politics and riddled with corruption which was about to go to war with Russia. China reportedly sued Ukraine in 2014 for failing to pay back the loan. To explain why Chinese investors are now approaching Ukraine cautiously, Eurasianet.org said, "The most damaging [Chinese] investment was the failed loans-for-grain deal financed by Export-Import Bank of China in 2012." 

Xi Jinping's pledge to make China a leader in "green" development is hitting the country's livestock industry by forcing thousands of pig farms to close or move, imposing requirements for collecting, treating, and utilizing manure, and imposing a tax on polluters due to come into effect in January 2018. A researcher with China's Academy of Agricultural Science (CAAS) worries that the new environmental tax will increase costs for Chinese livestock producers--among China's biggest water polluters--and further reduce their international competitiveness, leading to larger imports. Wang Minji of CAAS recommends increasing subsidies for construction of manure handling and treatment facilities and other assistance for livestock and poultry producers in China to offset the impacts of the tax.