Monday, February 19, 2018

Russian Soybeans Pressure China Market

China imported a record 515,000 metric tons of soybeans from Russia during calendar year 2017, according to customs officials. This new source of soybeans -- while still a tiny share of China's overall soybean market  -- may be a bigger problem for domestic Chinese soybean farmers than huge imports from North and South America.

The Russian soybeans are mostly grown by Chinese farmers who lease farmland in Russia's Far East. The farmers are mainly from Heilongjiang Province, China's far northeastern province which borders Russia. Heilongjiang is China's top soybean-producing province, accounting for about a third of China's production.

The Russian Far East is one of the earliest and largest targets for Chinese investment in foreign farms. Chinese farmers are attracted by low land rents in Russia that are a fraction of what they pay on the Chinese side of the border. Heilongjiang Provincial officials and a number of local governments have been supporting Chinese farming efforts in Russia for nearly 15 years, making deals with Russian counterparts and giving various subsidies. However, Chinese farmers returned little of what they produced in Russia to the Chinese market until recently.

In the last few years, China's central government has prioritized agricultural trade with Russia as part of its "One Belt One Road" initiative. China built its first foreign agricultural industry park in Russia and upgraded inspection and quarantine services at border crossings to facilitate the return of crops grown in Russia to the Chinese market. The report on soybean imports emphasized that Heilongjiang is the leading province for cooperation with Russia and declared the "expansion of non-GMO soybean supply" to be a "remarkable result" of the inspection and quarantine bureau's efforts to lower the threshold for farmers to return their Russia-grown grains to the Chinese market. The inspection and quarantine service formulated a risk assessment system for Russian crop imports to control disease risk, ensure soybeans are non-GMO, and established a traceability system.

In addition to the soybeans, customs authorities also reported imports of 11,764 metric tons of soybean oil from Russia during 2017 arriving at Heihe City, the most active border crossing on the Amur River. The report praised the surge of Russian flour, soybean oil and other foods as "natural" and "unpolluted."

Heilongjiang farmers have been complaining that the Russia soybeans are depressing prices in the China market. A November 2015 report blamed the surge of Russian soybeans for the depressed market, noting that the Russian beans were comparable in quality to Heilongjiang soybeans but substantially cheaper. That report estimated the flow of soybeans from Russia to 1 million metric tons--nearly three times the amount reported by customs statistics that year. The price of soybeans after arriving from Russia was reported to be 3600-3700 yuan/metric ton, well below the 4100 yuan/metric ton price of local Chinese soybeans.

The 2015 report said Russia bans production of GMO soybeans and pesticides, so the beans grown there are positioned as a non-GMO or even organic product that competes directly with Chinese non-GMO soybeans. The Russian beans were said to be low in protein and have high contamination with foreign matter, but Chinese soybeans also had quality problems that year. The reporter said the bottom line was that Russia-grown and Chinese soybeans are comparable in quality but the Russian beans are cheaper. The reporter blamed pressure from Russian beans for preventing Chinese prices from rising.

Customs statistics indicate that the Russian soybeans have prices that are 1000 yuan or more less per ton than Chinese beans -- even after adding the tariff and value added tax (see chart). Also in 2015, a weibo poster found that customs data showed Russian beans cost 1930 yuan/mt compared to 3550 yuan for imported "GMO" beans, and he asked, "Are Russian soybeans really that cheap?"

Note: imported Russian price calculated from customs statistics plus 3% tariff and 13% VAT (11% July-Dec 2017). Imported (coastal) is price in Qingdao, also including taxes. 

The post revealed that Heilongjiang customs officials were also alarmed about this issue and "held many meetings" to learn what "the real price of Russian soybeans" was. The Russian soybeans were imported largely by farmers that grew them, so they were in effect selling the beans to themselves and could name their own price. Of course, their incentive was to report a low price to minimize the tariff and value-added tax they had to pay. The weibo author found that Russian soybeans offered on e-commerce web sites quoted prices much higher than those reported in customs data, so he concluded the customs prices were artificially low. Nevertheless, the prices quoted for Russian beans were still much lower than the price for similar Chinese beans.

A crop inspection tour in northern Heilongjiang last summer concluded that Russian soybeans continue to influence the Chinese market. A seed company sold 100 metric tons of soybean seeds to Russia last year. The manager of a processing plant cited the non-GMO, pesticide-free, and -- in his assessment -- high protein as advantages of the Russia-grown beans. He also estimated the volume of imports from Russia to exceed what is reported by customs data. The processing plant manager estimated the production cost of Russia-sourced soybeans at 2300-2400 yuan and the price in China at 3900 yuan/metric ton -- big profits. He was pessimistic about the market for Chinese soybeans, but saw bright prospects for Russian soybeans in China.

Over the years, China's soybean market has become segmented into largely separate markets for imported and domestic soybeans, but imported soybeans from Russia  break that pattern by competing directly with Chinese soybeans. The main Chinese soybean producing areas are insulated from imports by distance and a non-GMO wall the industry has worked hard to raise over the last 15 years to differentiate domestic from imported soybeans. Soybeans imported from North and South America arrive at crushing plants at coastal ports. The closest one is  more than 500 miles from Heilongjiang, and the most active ports for imported soybeans in Shandong and Jiangsu Provinces are over 1000 miles away.

Russian soybeans, meanwhile, arrive on the doorstep of domestic soybean producers in Heilongjiang Province. The non-GMO wall does not protect Chinese soybeans from Russian beans since the Russian soy is purportedly also non-GMO and even organic. Thus, China's "going out" strategy has created a new source of soybeans that competes head to head with domestic soybeans without any of the insulation factors built up against soybeans from the Americas.

Is Dr. Frankenstein advising China? Or, as the weibo poster cited above asked sarcastically, "Has the Chinese Government become an agent of Monsanto?"

Sunday, February 18, 2018

China Mulls Soybean Trade Retaliation

Chinese officials have been mulling retaliatory trade action against imports of U.S. soybeans. While soybeans loom as a big target in a trade war, such an action would cripple dozens of Chinese importers and undermine the country's new "open economy" strategy in agriculture.

One commentary on the Chinese Internet this week called soybeans "potentially China's strongest weapon" as trade friction with the United States heats up. The commentator suggested that a measure limiting soybean imports could cause President Trump to lose the 2020 election by hitting farmers in the U.S. Midwest. Yet the commentator also noted that limiting the soybean supply could lead to higher pork prices in China since soybean meal is an important component of pig feed.

China's Commerce Minister Gao Feng struck a conciliatory tone in comments at a February 8 news conference which was largely about trade friction with the United States. Minister Gao said the Ministry had met with industry associations to explore possible impacts of trade measures against imports of U.S. agricultural commodities (soybeans and cotton were mentioned specifically by the journalist who asked the question). Gao's main comment was that some "production-type" enterprises had raised concerns about the effects of limiting imports. The Minister then emphasized the importance of resolving trade difficulties to achieve mutually beneficial outcomes and to turn friction into energy. Minister Gao made similar conciliatory comments about beneficial trade and cooperation in the Ministry's earlier announcement of the antidumping investigation of U.S. sorghum imports.

A trade action against soybeans -- the biggest component of international trade in farm products -- would undermine China's efforts to craft its image as a proponent of global trade. In his response to a separate question, Minister Gao emphasized that a "new pattern of externally open agriculture" is central to China's rural revitalization strategy featured in the "Number one document" issued by communist party leaders this month. According to Gao, the strategy for China's rural makeover features greater engagement with global markets in which Chinese companies have greater control over a swelling flow of agricultural imports, Chinese farmers link up with commercial entities to export high quality farm goods demanded by the market, and China gains a stronger voice in multilateral organizations that set the rules for international trade.

Bolstering China's image as a proponent of global trade is a long-term strategy critical to the "One Belt One Road" initiative as well as to broader geopolitical objectives. Officials may hesitate to undermine their long-term image-building project in order to score points against Americans in a tit-for-tat trade skirmish.

A February 5 commentary noted that China has major domestic commercial interests that rely on soybean imports. The commentator observed that China's soybean industry has demanded action to limit soybean imports on several occasions over the past 15 years, but authorities have never imposed any major measures. This commentary pointed the inconsistency of launching antidumping investigations against imports of U.S. DDGS and sorghum, yet never conducting an investigation against imports of soybeans even though China's soybean industry is purportedly under the greatest pressure from imports.

According to the commentator, China's soybean industry called for an action in 2004 after a sudden drop in U.S. soybean prices devastated Chinese importers holding contracts to import at high prices (the so-called "soybean crisis"). In the commentator's opinion, China "lost the perfect opportunity" because there was little knowledge of how to launch trade remedy measures and many in the Chinese industry were willing to be rescued by being acquired by foreign companies.

The commentator recalled that a trade action against soybeans had been proposed in 2009 to retaliate against punitive U.S. tariffs on Chinese tires. However, powerful companies "inextricably tied" to soybean imports opposed the move, the commentator said. Instead, he pointed out that China chose to launch an antidumping action against imported U.S. chicken meat -- a much smaller trade item than soybeans.

According to the commentator, some individuals opposed to last year's antidumping tariffs on U.S. DDGS argued that antidumping duties could not be justified for DDGS if they were never imposed on soybeans.

In fact, the DDGS and sorghum antidumping trade actions were taken largely to facilitate China's own commodity dump: selling off China's massive corn reserves into its domestic market at prices below the government's acquisition cost. Imported DDGS and sorghum are substitutes for corn, and an article in the China Times reported that targeting DDGS and sorghum for punitive duties makes it easier to sell off the government's corn stocks by reducing the supply of cheap substitutes. China Times linked the sorghum antidumping investigation to the directive in this year's "Number one document" to accelerate the disposal of government grain inventories by improving auction and sale mechanisms.

None of the commentaries delve into the facts that make a punitive tariff against U.S. soybeans improbable. Here are a few additional considerations.

China's capacity to shift soybean purchases to other suppliers is limited. China imports two-thirds of the soybeans traded in the world, and about 35-40% come from the United States. Brazil already has been increasing its exports to China at a frantic pace for several years. Soybeans from southern hemisphere countries -- the main alternate suppliers -- are available mainly during April-September, and cannot substitute for U.S. soybeans imported by China during the northern hemisphere shipping season of October-April.

Punitive tariffs on soybean imports would hurt Chinese importers as much or more as it would hurt American farmers. Most soybeans are imported by hundreds of Chinese companies -- both state-owned and private. Multinationals--who were banned from further expansion ten years ago--no longer dominate the industry. Aggressive investment by Chinese players over the last decade has made domestic companies the primary operators of China's soybean crushing plants which are already plagued by excess capacity and razor-thin margins.

China's own soybean producers would benefit minimally from limits on U.S. imports. China's entire soybean harvest equals roughly two months of imports. Most of China's soybeans are now used for food processing industries at premium prices and do not compete directly with imported soybeans used for crushing to make vegetable oil and soybean meal for animal feed. Chinese farmers in the northeast expanded soybean production this year, but had difficulty selling the additional beans and the government had step in to buy them.

Chinese companies could import soybean oil and meal to some degree instead of importing soybeans. (precedent: when China tightened cotton import quotas several years ago, the textile industry started importing yarn which is not subject to a quota.) Imports of substitute oils like palm, rapeseed, sesame, olive oil would rise.

Smuggling and paperwork subterfuge would skyrocket. Customs officials would have to do extensive checking of paperwork and testing of shipments to verify the stated origin. Customs officials would have to be watched closely by anti-corruption investigators.

Chinese officials may recall stampedes at a supermarket by shoppers eager to get discounted cooking oil when soybean prices were in the stratosphere ten years ago.

The lack of protein in animal feed was a bottleneck for China's livestock sector until China started importing soybeans in the 1990s. Soybean meal now provides most of the protein in animal feed. The two biggest consumers of soybean meal -- pigs and chickens -- are in vigorous expansions this year. Watch for fake and adulterated soybean meal and disease outbreaks among poorly nourished livestock and poultry if soybean supplies shrink.

Monday, February 5, 2018

No. 1 Document Sets Rural Revitalization Program

A deep and broad "rural revitalization" program is the focus of the Chinese communist party's "Number one document" on rural policies for 2018. Chinese leaders describe rural revitalization as a key historic development that will mark China's new century of prosperity and strength in contrast to the previous century of weakness and exploitation by foreign powers.

The ambitious and idealistic program is purportedly inspired by the thinking of "core" leader comrade Xi Jinping. The program is aimed at finally "winning" the long-sought "relatively well-off society." There will be balance between countryside and city development, people will enjoy a good life, poverty will be eliminated by hooking up poor regions with thriving industry, the countryside will be beautiful, there will be harmony between humans and their natural environment, Chinese industries will produce quality products, Chinese products will be internationally competitive, R&D will drive development, yet traditional Chinese culture will be preserved and propagated. All of this is to be orchestrated by the communist party.

A TV graphic laid out objectives for rural vitalization for 2020, 2035, and 2050.

The 16,400-character rural revitalization program laid out in the Number one document is deep and wide. The program's mantras include "institutional innovation", "transformation," "upgrade," "quality" and "green." The program is unabashedly socialist yet industrial development is at the core of the strategy. Agriculture will be overhauled by nurturing new types of agricultural business operators, including family farms, cooperatives, and "dragon head" agribusinesses. The document calls for linking up farms with processing, input, and tertiary industry. The document specifically calls for developing a native dairy industry, singles out the domestic agricultural machinery industry for strengthening, and repeats the exhortation in previous documents to invest in agriculture abroad and to create large Chinese multinational grain-trading and agricultural conglomerates. The fight to eliminate rural poverty relies on setting up thriving industries in poor regions and replacing ramshackle dwellings with new modern housing developments.

Land is to remain collectively owned, but elaborate arrangements are supposed to facilitate consolidation of fragmented plots into internationally-competitive appropriate scale farms. Rural households are to have their land contracts extended for 30 years and receive certificates verifying their land holdings. Then the peasant land-holders can pool their land and turn it over to modern farmers. However, land will be under strict control over its use to ensure national food security. The appropriate scale farms are expected to not only earn profits from low-margin grain crops but also give training, credit, and technical assistance to small-scale rural households.

Bankers will march forward to finance the vast overhaul of rural China. They will make loans secured by abstract temporary production rights to far-flung plots of land. The document acknowledges that the countryside is already riddled with debts for infrastructure, but does not seem to think more debts incurred to level fields, build irrigation ditches, and construct housing developments in impoverished villages will be a problem.

After decades of polluting water, air and soil, and sucking the organic matter and nutrients out of the ground, China is now a proponent of green, sustainable development. According to Chinese leaders, "ecological live-ability is the key to rural revitalization," and "a good ecological environment is the greatest advantage and source of wealth for the countryside."

the rural revitalization program calls for combining thriving industry and a clean environment.

China's rural revitalization also aims to influence the world. There will be a more open trading environment with stronger trade relations with countries and regions along the "one belt one road" path. China hopes to boost exports of high-value specialty agricultural products. China aspires to play a stronger role in making rules that promote global food security and a more fair and equitable international agricultural trading system.

The "Number one document" sets broad goals for progress on rural revitalization. By 2020, there should be major progress in rural revitalization, with the institutional framework and policy system basically in place. By 2035, agriculture and the countryside should be basically modernized, agricultural structure improved, rural people should have better quality employment, basic public services should be equalized between city and countryside, rural civilization should have reached a new degree, and the rural governance system should be much improved. By 2050, rural revitalization should be complete, agriculture strong, the countryside beautiful, and peasants rich.

According to the document, China's communist party will "[raise] high the great flag of socialism with Chinese characteristics with guidance from Xi Jinping’s thought on socialism with Chinese characteristics for a new era, face the difficulties, work hard, forge ahead, to win the all-round well-off society, and make a great contribution to socialism with Chinese characteristics for a new era."

Wednesday, January 24, 2018

China: 31 Farmer Subsidies for 2018

The official "Voice of China" listed 31 subsidy programs to apply for in 2018 that illustrate Chinese leaders' plans to transform agriculture. According to Voice of China, agricultural subsidy programs will emphasize aid for businesses engaged in environmental protection, those that increase industry efficiency and those that strengthen food safety. The list below includes the name of each program and the dates for application. (Voice of China also listed the government entity to apply to, but these are excluded here for brevity.)

Applicants for these programs must be registered as enterprises (which would include farmer cooperatives, agribusinesses and "family farms" holding a business license, but not individual farmers). They must demonstrate adequate "business management capability" and cannot have a bad social credit score, nor can they be on a black list. Aid cannot exceed the expenses of the project and a project cannot be supported by multiple subsidies.

The programs below focus on developing new-type farms, cooperatives, agricultural service providers, farm-industry linkages, soil improvements. Many of these programs are ideas that have been tried before. For example, producing oils from tree nuts has been proposed every 15 years or so, and feeding crop stalks/straw to cattle and sheep was a big initiative in the 1990s that has been revived. The programs feature "model farm" approaches and upgrades of the animal breeding system that have been around since at least the 1950s. Also prominent is the "comprehensive agricultural development" begun in the 1980s, which finances an overhaul of farming infrastructure in a village or larger contiguous area, including development of a processing or other agribusiness linked up with farmers. Industrial parks are another long-time socialist favorite now being adopted for agriculture.

This does not appear to be an exhaustive list of agricultural subsidies. It does not include payments to the broad population of farmers, such as the "support and protection payment" for grain farmers, target subsidy for cotton producers in Xinjiang, nor direct payments to producers of corn, soybeans, and rapeseed in select provinces. The programs below appear to be special project aid that companies, cooperatives, and licensed farms can apply for, not broad entitlements to all farmers.

Directory of China agricultural subsidy/aid programs, 2018
Program description Application period
Model farmer cooperatives Jan-June
Cropland protection and quality improvement aid Jan-March
Aquaculture breeding and production model farms Feb-June
Projects raising livestock on crop straw Feb-June
Grassroots agricultural technology extension system aid Feb-March
Modern agricultural industrial parks March-April
Grain/cotton/oilseed/sugar high-yielding field construction March-May
Agricultural machinery purchase subsidy (for "green" projects) March-May
Aid for production of agricultural resources and ecological protection March-May
Agricultural disaster prevention fund March-May
Socialized services for the whole agricultural production process April-Dec
Soil fertility testing aid Before April
Aid for potato, fruit, vegetable storage facilities Before April
Pastoral complex construction May-June
Logistics upgrades May
National agricultural industry chain innovation model districts June-July
National comprehensive agricultural industrialized development (for new-type farms) June-July
Modern young farmer plan June-Aug
Model districts integrating production with cities (agricultural industry parks) July-Aug
Ministry of Agriculture Food Grain Processing Model Enterprises July-Sept
Fostering of New-type Professional Farmers July-Aug
National Agricultural Comprehensive Development Industry Integration for managed land, organic fertilizer, low-residue pesticides July-Oct
Aid for Outstanding Young Agricultural Technicians July-Oct
National Outstanding Rural Practical Personnel Aid (large farms, S&T model farms, returned migrants) Aug-Oct
Model Agricultural Comprehensive Development of Forestry (for tree-based oils, national forest reserves, forest economy) Aug-Jun2019
National Agricultural Comprehensive Development (for production and breeding of improved varieties of crops and livestock) Aug-Dec
Closed-System Ecological Agriculture Model (storage and processing of ag by-products, straw, manure) Aug-Dec
National Model Districts Combining Rice and Fish production Sept-Dec
Action Plan for Rural Migrants and Other Entrepreneurs Returning to Countryside (targeted tax and fee reductions, support for rural industry) by Dec 31
Agricultural Comprehensive Development Fund for High-Yielding Fields, Ecological Projects, Irrigation water conservancy by Mar2019
Modern Crop Seed Resource Protection, Crop Breeding, Variety Testing by Jan2019

Tuesday, January 23, 2018

China Farm Output Up Marginally in 2017

China's agricultural output grew marginally, farming's share of the economy continued to shrink, and farm prices were down sharply for a number of commodities during 2017, according to agricultural production data released by the National Bureau of Statistics last week.

Value-added in agriculture, forestry, and fishing grew 4.1 percent during 2017, slower than China's overall GDP growth rate of 6.9 percent. The primary sector's share of GDP continued its decline, falling to 7.9 percent of GDP during 2017.

Investment in agriculture is growing rapidly, making up for years of neglect. According to the Bureau's investment data, fixed asset investment agriculture, forestry and fisheries grew 11.8 percent during 2017, faster than the 7.2-percent growth in total fixed asset investment and one of the fastest-growing sectors. However, agriculture still received just 3.9 percent of all China's fixed asset investment during 2017. (Investment by rural households is excluded from these figures, but rural households don't invest much in agriculture.) Fixed asset investment in primary processing of farm products (e.g., grain milling, vegetable oil processing, meat processing) grew 3.6 percent, and investment in food manufacturing grew just 1.7 percent.

China's grain output grew 0.3 percent during 2017 as a 1-percent rise in yield offset a 0.7-percent decline in area planted. Corn output was down 1.7 percent, while rice and wheat production each rose 0.7 percent. Output of soybeans surged 12.4 percent, and other beans were up 5.6 percent--reflecting the shift of land out of corn into alternative crops. The 14.6-million metric tons of soybeans produced was small in comparison with the volume of soybean imports (86 mmt for Jan-Nov 2017), and soybean imports grew even faster (15.8 percent) than soybean production. Cotton production rose 2.7 percent, reflecting growth in output in Xinjiang Autonomous Region and a sharp decline in central and eastern provinces. According to the National Bureau of Statistics, 74.4 percent of China's cotton was produced in Xinjiang last year.

China's output of major crops, 2017
Item Unit
Change from prev. yr. (%)
Grain output MMT 617.9 0.3
Grain area planted Mil ha 112.2 -0.7
Grain yield MT/ha 5.5 1.0
Cotton output MMT 5.5 2.7
Cotton area planted Mil ha 3.2 -4.3
Cotton yield MT/ha 113.2 7.3
Corn output MMT 215.9 -1.7
Wheat output MMT 129.8 0.7
Rice output MMT 208.6 0.7
Soybean output MMT 14.6 12.4
Other beans MMT 4.6 5.4
Tuber output MMT 34.2 1.3
Vegetable output Mil Ha
Vegetable area MMT
Medicinal crops MMT

Production grew 1 percent or less for most types of livestock in China during 2017. The number of hogs slaughtered increased 0.5 percent from 2016 and pork output was up 0.8 percent. Poultry meat production was up .5 percent and egg output fell 0.8 percent. Beef cattle slaughter rose 1 percent and beef production increased 1.3 percent, according to the National Bureau of Statistics.

China livestock production, 2017
Livestock production Unit
2017 amount
Change 2016-17 (percent)
Hogs slaughtered Million 689 0.5
Pork MMT 53.4 0.8
Beef cattle slaughter Million 51.62 1.0
Beef MMT 7.26 1.3
Poultry slaughter Billion 12.41 0.3
Poultry meat MMT 18.97 0.5
Egg production MMT 30.7 -0.8

The National Bureau of Statistics reported that overall agricultural producer prices were up 3.5 percent, but the only major category showing price gains was forestry and fisheries (up 4.9 percent). Corn prices fell 2.9 percent and vegetable prices were down 4.4 percent (due to a warm winter that boosted production in north China during 2017). Hog prices fell 14 percent, egg prices were down 7.2 percent, and poultry prices were down 3.3 percent in 2017.
China agricultural producer prices (change, 2016-17)
All  3.5
Crops -0.5
  Corn -2.9
  Vegetables -4.4
Livestock -9.2
  Hogs -14.0
  Poultry -3.3
  Eggs -7.2
Forestry and Fisheries 4.9

Sunday, January 21, 2018

China S&D Estimates Jan 2018

A recent spurt in Chinese corn prices works against China's "supply side structural adjustment" which aims to shift production from corn to other crops to reduce excess supplies of corn. Profitability of corn could undermine these plans by inducing China's farmers to plant another huge corn crop this spring while the world is already awash in excess corn supplies.

The January 2018 China Agricultural Supply and Demand Estimates (CASDE) explained that farmers in the northeastern provinces have been holding back corn in anticipation of rising prices. The influx of cash from corn producer subsidies recently distributed allowed them to pay back loans without having to sell corn to generate cash; this allowed them to hold on to their corn longer. However, CASDE says the national average wholesale corn price is expected to remain stable at 1600-1700 yuan/mt, "constrained by high inventories."

An MOA news conference on the 2018 outlook for agricultural markets pronounced that the de-stocking of excess corn inventories and price-stabilization had surpassed expectations last year. In late December the average price of corn in northeastern provinces was 1580 yuan/mt, up 7.3 percent from the fourth week of October and 16.9 percent higher than a year earlier. In the north China plain the average corn price was 1660 yuan/mt, up 2.4 percent from late October and up 4.3 percent from a year earlier.

MOA agrees that corn looks profitable, but officials warned farmers not to "blindly" expand planting of corn this spring. They warned that there is little room for further increases in corn prices ahead of the Chinese Spring Festival holiday in February. Officials say changes in the corn markets are one of four topics to focus on  in 2018, and they called for local officials to continue urging farmers to switch from corn to minor grains and beans in marginal production regions as spring planting arrives.
China corn supply and demand (Ministry of Ag, Jan 2018)
Item Unit 2016/17  2017/18 Nov 2017/18 Dec 2017/18 Jan
Planted area 1000 ha 36,768 35,100 35,445 35,445
Harvested area 1000 ha 36,768 35,100 35,100 35,100
Yield Kg/ha 5,971 5,986 6,091 6,091
Production MMT 219.55 210.11 215.89 215.89
Imports MMT 2.46 1.50 1.00 1.20
Consumption MMT 210.72 215.62 220.96 220.96
--Food MMT 7.82 7.89 7.89 7.89
--Feed MMT 133.03 135.03 138.35 138.35
--Industrial use MMT 58.25 61.3 63.3 63.3
--Seed MMT 1.61 1.5 1.59 1.59
--Loss and other MMT 10.01 9.83 9.83 9.83
Exports MMT 0.08 0.3 0.5 0.5
Surplus MMT 11.21 -4.31 -4.57 -4.37
In their December 2017 CASDE report, MOA adopted the newly-released National Bureau of Statistics 215.89 mmt official estimate of 2017 corn production. This estimate is nearly 6 million metric tons larger than CASDE's previous estimate (210.11 mmt), making it hard to show that China is making progress in reducing its corn inventory. If the Bureua's larger estimate of production had been inserted in CASDE's November balance sheet without making adjustments, it would have meant that China's corn supply would have exceeded its consumption during 2017/18. CASDE avoided this by raising its estimate of corn consumption for animal feed, which gave the balance sheet a -4.57 mmt deficit in December. The January deficit was reduced to -4.37 mmt after the estimate of 2017/18 corn imports was raised to 1.2 mmt.

(Last year, CASDE ignored the National Bureau's higher estimate of 2016/17 corn production for about five months. This year CASDE adopted the Bureau's official estimate the same month it was announced.)

Ministry of Agriculture officials seem vexed by low international prices for corn and soybeans. At the MOA press conference, the director of economic information observed that low prices in international markets have been putting increasing pressure on Chinese grain and oilseed markets. CASDE notes that global corn supplies are abundant, and the C&F price of U.S. corn arriving at Chinese ports is 1550-1650 yuan/mt, down 100 yuan from the previous month and the lowest in two years, CASDE said. CASDE raised its estimate of corn imports based on strong demand.

CASDE's soybean analysis also cited downward pressure on U.S. soybean futures prices due to expectations of a big harvest in South America. The average C&F price of imported soybeans is 3050-3250 yuan/mt, while the average price of domestic soybeans is 4175-4375 yuan/mt. Estimated 2017/18 imports remained at 95.97 mmt. A slight reduction in domestic soybean production was the only change in CASDE's soybean balance sheet.
China soybean supply and demand (Ministry of Ag, Jan 2018)
Item Unit 2016/17  2017/18 Dec 2017/18 Jan
Planted area 1000 ha 7,208 8,194 8,099
Harvested area 1000 ha 7,202 8,194 8,099
Yield Kg/ha 1,796 1,817 1,802
Production MMT 12.94 14.89 14.6
Imports MMT 93.49 95.97 95.97
Consumption MMT 108.11 110.56 110.56
--Crushing MMT 92.90 94.38 94.38
--Food MMT 11.18 12.04 12.04
--Seed MMT 0.64 0.64 0.64
Loss and other MMT 3.39 3.5 3.5
Exports MMT 0.12 0.22 0.22
Surplus MMT 0.01 0.08 -0.21

CASDE raised its estimate of 2017/18 cotton output to 5.64 mmt (slightly higher than the National Bureau of Statistics December estimate of 5.49 mmt). CASDE raised estimated cotton imports to 1.1 mmt. CASDE estimates that cotton stocks will fall from 8.75 mmt to 7.27 mmt during 2017/18.
China cotton supply and demand (Ministry of Ag, Jan 2018)
Item Unit 2016/17  2017/18 Dec 2017/18 Jan
Begin inventory MMT 11.11 8.75 8.75
Planted area 1000 ha 3,100 3,293 3,293
Yield Kg/ha 1,555 1,662 1,714
Production MMT 4.82 5.47 5.64
Imports MMT 1.11 1.00 1.10
Consumption MMT 8.09 8.22 8.22
Exports MMT 0.01 0.01 0.01
End Inventory MMT 8.94 7.00 7.27

China edible oils supply and demand (Min Agriculture, Jan 2018)
Item Unit 2016/17  2017/18 Dec 2017/18 Jan
Production MMT 27.36 27.81 27.82
--Soy oil MMT 16.27 16.51 16.5
--Rapeseed oil MMT 5.74 5.71 5.71
--Peanut oil MMT 3.18 3.26 3.26
Imports MMT 5.78 6.28 6.03
--Palm oil MMT 3.34 3.75 3.85
--Rapeseed oil MMT 0.8 0.85 0.85
--Soy oil MMT 0.71 0.65 0.3
Consumption MMT 31.68 31.9 31.9
--Urban MMT 22.97 23.4 23.4
--Rural MMT 8.71 8.5 8.5
Exports MMT 0.17 0.17 0.17
Surplus MMT 1.29 2.01 1.78

China sugar supply and demand, January 2018
Item Unit 2016/17  2017/18 Dec 2017/18 Jan
Planted area 1000 ha 1396 1456 1456
--sugar cane 1000 ha 1225 1267 1267
--sugar beets 1000 ha 171 189 189
--sugar cane MT/ha 61.8 60 60
--sugar beets MT/ha 55.2 52.5 52.5
Sugar output MMT 9.29 10.35 10.35
--sugar cane MMT 8.24 9.15 9.15
--sugar beets MMT 1.05 1.2 1.2
Imports MMT 2.29 3.2 3.2
Consumption MMT 14.9 15 15
Exports MMT 0.12 0.07 0.07
Surplus MMT -3.44 -1.52 -1.52

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.