Tuesday, September 19, 2017

China Biofuel Dreams

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

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

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

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

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

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

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

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

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

Monday, September 11, 2017

China Subsidizes Crop Rotations, Land Idling

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

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

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

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

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

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

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

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

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

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

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

Sunday, September 10, 2017

2016 China Soybean Subsidy 118.58 yuan/mu

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

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

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

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

Wednesday, September 6, 2017

China: Let Them Raise Donkeys

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday, September 5, 2017

China Livestock Farm Closures Proceed

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

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

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

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

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

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

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

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

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

Wednesday, August 16, 2017

Infant Formula Registration Shake-Out

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

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

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

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

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

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

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

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

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

Thursday, August 10, 2017

China MOA S&D August 2017

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

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

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

China corn supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 36,760 36,760 35,496 35,496
Harvested area 1000 ha 36,760 36,760 35,496 35,496
Yield Kg/ha 5,973 5,973 5,970 5,936
Production MMT 219.57 219.57 211.91 210.7
Imports MMT 0.8 1 1 1
Consumption MMT 210.72 210.72 214.57 214.57
--Food MMT 7.82 7.82 7.89 7.89
--Feed MMT 133.03 133.03 135.03 135.03
--Industrial use MMT 58.25 58.25 60.25 60.25
--Seed MMT 1.61 1.61 1.57 1.57
--Loss and other MMT 10.01 10.01 9.83 9.83
Exports MMT 0.15 0.15 0.3 0.3
Surplus MMT 9.50 9.70 -1.96 -3.17

MOA made no changes in the soybean S&D.

China soybean supply and demand (Ministry of Ag, August 2017)
Item Unit 2016/17 July 2016/17 August 2017/18 July 2017/18 August
Planted area 1000 ha 7,208 7,208 8,196 8,196
Harvested area 1000 ha 7,202 7,202 8,196 8,196
Yield Kg/ha 1796 1796 1797 1797
Production MMT 12.94 12.94 14.73 14.73
Imports MMT 91.55 91.55 93.16 93.16
Consumption MMT 106.16 106.16 108.63 108.63
--Crushing MMT 91.09 91.09 92.50 92.50
--Food MMT 11.18 11.18 12.04 12.04
--Seed MMT 0.64 0.64 0.64 0.64
Loss and other MMT 3.25 3.25 3.45 3.45
Exports MMT 0.13 0.13 0.22 0.22
Surplus MMT -1.81 -1.81 -0.97 -0.97

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

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

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

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

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

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

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

Rice and Wheat Support Price Policies Up for Reform

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

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

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

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

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

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

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

Wednesday, August 2, 2017

China Ag Imports Outpace Exports in H1 2017

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

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

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

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

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

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

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

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

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

Monday, July 31, 2017

Good News Only Until the 19th Party Congress. That's an Order!

A meeting exhorting agricultural cadres to toe the line and "sing the main theme" last week shows that Communist Party Secretary Xi Jinping is taking no chances ahead of the 19th Party Congress where he is expected to consolidate his power as China's maximum leader.

A July 28 communist organization theory meeting was held by Minister of Agriculture and Party Secretary Han Changfu to "study the spirit of Xi Jinping's important speech facing the Communist Party's 19th Congress." Ministry of Agriculture party leaders were warned of the great importance of a "victorious" 19th Party Congress, and urged to implement all decisions of the central leadership with full strength, keeping the agricultural and rural situation good as the Congress approaches.

Communist party cadres were ordered to highlight the "great achievements" and "historic reforms" made in agricultural development and rural income growth under the "core leadership" of Comrade Xi Jinping since the 18th Communist Party Congress to ensure a successful 19th Congress this fall. Communist party officials were exhorted to strictly exercise "news discipline" and political consciousness, "singing the main theme" and "carrying forward energy" to publicize the great achievements and positive environment for agriculture and rural development.

What are the "great achievements" and reforms?

Cadres were told to emphasize the great improvements in communist party "work style," advancement of "clean government," and anticorruption work under Xi's leadership. Workers must "strengthen inspections" and "eliminate hidden dangers" to preserve rural harmony and stability.

Each agricultural office and unit must circle tightly around agricultural supply side structural reform as the main line, place "green" agricultural  development in a more prominent position, tackle difficulties, blaze new trails, highlight agricultural science and technology innovation, and promote precise industry-driven poverty alleviation. Agricultural leaders must actively work for abundant agricultural harvests and income growth. During the typhoon season they must work hard on disaster prevention and mitigation.

Don't expect any bad news from China over the next few months.

Saturday, July 29, 2017

China Imported Food Safety Regulation Strengthened

Chinese consumers often buy imported food because they have more confidence in its quality and safety, yet China's regulators are raising more hurdles to food imports in the guise of food safety.

A White Paper on the Safety and Quality of Imported Food During 2016 released by China's inspection and quarantine administration (known as AQSIQ) reports on the country's growing and diversifying imports of food, summarizes problems found in rejected shipments, and outlines the agency's initiatives to certify exporters in other countries, track shipments from their source to their final destination in China, keep tabs on both importers and exporters, and shame bad actors.

According to the White Paper, China became the world's largest market for imported food and agricultural products in 2011. The value of imports has stabilized at US$46-$48 billion between 2013 and 2016, but the number of shipments arriving rose from 965,000 to 1.32 million during those years. (Note: the AQSIQ white paper does not appear to include bulk commodities like grains or oilseeds. China's soybean imports alone were valued at $34 billion last year.)

AQSIQ reports that the source and type of food imports is diversifying, yet a few regions still account for most of the imports. While China imported food from 187 countries in 2016, 10 countries accounted for 81.6%. The European Union was by far the largest source, accounting for US$ 11.1 billion of China's food imports and 43 percent of shipments. Southeast Asia was the second-leading source of imports ($7.4 billion and 12.5%), and United States was third ($5.1 billion and 8.6% of shipments. Most of these imports arrive in China at a handful of coastal provinces.

Meats are the largest and fastest-growing food import category. Meat imports totaled 4.6 million metric tons last year and were up 63%. Overall dairy imports peaked in 2014, but imports of infant formula continue to grow rapidly--up 25.6% last year. For some commodities, imports account for a large proportion of domestic supplies. Dairy imports accounted for 17% of the domestic dairy product supply last year, the import share of supply was 29% for edible oils, and 5.5% for aquatic products, according to the paper.

To ensure the safety of the growing stream of food imports, AQSIQ explains that it has set up a system that emphasizes control over the entire supply chain for imported foods: before, during, and after import. This includes approvals of manufacturers in foreign countries to ensure they comply with China's regulations and standards, inspections and testing at points of entry, and tracking products after they enter China.

Implementation of the import food safety system involves extensive testing and inspections at the border plus onerous approvals for exporters. This means there are many hurdles to clear in order to export to China. A country must have its food safety system reviewed by AQSIQ, foreign manufacturers must be certified and registered, and governmental authorities in exporting countries must inspect shipments and issue certificates verifying that shipments comply with China's food safety standards. Last year AQSIQ reviewed food safety management systems in 40 countries, and 16,033 enterprises in 89 countries were registered as exporters. AQSIQ also has authority to inspect and quarantine 291 kinds of imported animal- and plant-based foods to prevent diseases and pests from entering China.

AQSIQ also intends to compile mountains of information about exporters, importers, and every stop imported food shipments make between foreign farms and Chinese consumers. China has a record system to keep tabs on 126,998 foreign food exporters and 30,625 importers in a publicly available "record system for importers and exporters of imported food and cosmetic products." There is also a food recall system for imports and an "importer discussion system" to talk about problems that arise.

AQSIQ posts lists of rejected food shipments and lists of bad actors among foreign producers, foreign exporters, and domestic importers on an AQSIQ web page. As of today (July 29, 2017), the latest rejections for May had been posted July 5, and black lists had been updated June 12. All lists are in Chinese. The importer black list included 217 companies cited for violations from 2014 to this year. The May rejections listed 451 food shipments (some multiple instances of the same item) and 35 cosmetics shipments.
The white paper reports that China's inspection and quarantine authorities rejected 3,042 imported food shipments during 2016. Imports can be rejected for labeling problems (products must be labeled in Chinese with place of production and contact information for importing company), incomplete documentation, detection of dozens of additives and contaminants, presence of microorganisms and bacteria, and being past the sell-by date.

The number of rejected shipments in 2016 was relatively steady over the last five years--the largest number of rejections was 3,503 in 2014 and the lowest was 2,164 in 2013. These rejections constitute a tiny proportion of food imported. The 3042 rejected shipments equaled just 0.23 percent of the 1.3 million total number of food shipments reported by AQSIQ for 2016. Calculations show the same percentage was rejected in 2015 and it was essentially the same (0.22 percent) in 2013. The highest percentage was 0.34% in 2014, still tiny.

China food import rejections
Year All food import shipments Rejected shipments Percent rejected
2012 834,000 2499 0.30
2013 965,000 2164 0.22
2014 1,042,000 3503 0.34
2015 1,199,000 2805 0.23
2016 1,324,000 3042 0.23

Beverages (596 rejections) were the most commonly rejected food item, followed by cakes and cookies (578). These categories also had the highest percentages of shipments rejected: 0.53% for beverages and 0.41% for cakes and cookies. The percentage of shipments rejected was under 0.1% for meat, seafood, and wine and spirits.

Estimated China food import rejections, by type of food, 2016
Type of food Rejections Share of shipments rejected

Number Percent
Meat 134 0.05
Seafood 94 0.09
Dairy 155 0.24
Grain/milling products 271 0.30
Wine and spirits 213 0.09
Sugar and confections 246 0.30
Beverages 596 0.53
Nuts and fruits 128 0.16
Cakes and cookies 578 0.41
Other food 627 0.31

A large number of food shipments China rejects come from countries known for having higher food safety standards than China, including the European Union (678), United States (198), Japan (183), and Australia (94). In fact, the large numbers may reflect the propensity for Chinese consumers to import from those countries because the products are safer than those in China. Another large group of rejections are for foods from nearby countries. Shipments from Taiwan accounted for the largest number of rejections (721). It's unclear why Taiwan had so many rejections--they included a variety of products and reasons. Other top sources were Southeast Asia (399 rejections) and South Korea (161), and Russia (91). The rate of rejection was below the average for the EU (0.16% of shipments), Australia (0.11%), South Korea (.13%) and Brazil (0.17%), while the U.S. rejection rate of 0.23% was equal to the overall average. Russia (0.54%) and Southeast Asia (0.32%) rejection rates were above the average but still very low. Rejection rates could not be calculated for Taiwan and Japan because AQSIQ did not report their total food shipments.

Estimated China food import rejections, by country-supplier, 2016
Country/region Rejections Share of shipments rejected (%)
Taiwan 721 NA
EU 678 0.16
Southeast Asia 399 0.32
U.S. 198 0.23
Japan 183 NA
South Korea 161 0.13
Australia 94 0.11
Russia  91 0.54
Brazil 64 0.17
Turkey 40 NA
Other countries 414 NA

Chinese regulations will now influence how food is regulated in exporting countries. Exporters must conform to China's requirements if they want to sell to China--and the incentive to adopt China's requirements are strong since China is a large export market. Countries more reliant on selling to China will be more inclined to shift their regulatory system to harmonize with China's.

Moreover, China intends to actively participate in international bodies that set food regulatory standards and practices. The White Paper says China is gaining a voice in the formation of international rules for food safety by participating in multilateral bodies that set such rules. China signed bilateral food safety agreements with 24 countries during 2016. AQSIQ anticipates that China's "going out" program of encouraging Chinese companies to invest overseas to supply food to China will resolve safety problems for food imports.

In much the same way that China is building out its physical infrastructure of roads and airports from scratch, it is also building a food safety system from scratch using blueprints supplied by foreign experts. Thus, a country known for abysmal food safety problems now has--on paper--some of the highest standards and a logically designed system. China's regulatory approach may clash with those of some counterparts who have developed their own approaches to ensuring food safety through many years of practical experience. The systems China is installing look great on paper, but frequent flyer miles for Chinese inspectors, scanners, microscopes, and mountains of data cannot protect food without the human elements of expertise, experience, logic, and integrity.

Sunday, July 23, 2017

China Wheat Supplies Plentiful

China has plentiful supplies of wheat after a good harvest this summer with minimal pest and disease damage, and authorities are adding to wheat reserves in order to prop up prices. Wheat imports are expected to decline during the 2017/18 market year as importers buy mainly to fill deficits of certain varieties still not produced in adequate volumes in China.

China's National Bureau of Statistics estimated the 2017 winter wheat output (harvested during the summer) at 127.35 million metric tons, up 1.07 mmt (0.84%) from last year. The National Grain and Oils Information Center estimates total wheat output at 129.85 mmt for 2017/18, also up 1 mmt from last year. NGOIC estimates wheat consumption at 103.7 mmt, down 4 mmt from last year.

Reports from provinces indicate that this year's incidence of wheat scab and pest damage is down sharply. There have been few problems with lodging, mold and sprouting that were widespread during the last several years when heavy rain storms occurred at wheat harvest time.

Chinese authorities are buying up wheat to resist downward pressure on prices due to plentiful supplies. Shandong Province launched its minimum price procurement program in three prefectures on July 6. Hebei Province launched its program in all its major wheat-producing areas the same day. Jiangsu, Anhui, Henan, and Hubei Provinces had already started their minimum price purchase programs in June. Procurement at minimum prices will continue through September 30.

The Agricultural Development Bank has allocated 135 billion yuan ($19.6 billion) to finance summer grain procurement (wheat, early rice, and rapeseed), 20 billion yuan more than last year. As of June, purchases financed by the government's Agricultural Development Bank constituted 54% of all wheat purchases.

Wheat procurement is finishing its peak period. As of July 15, 2017 the Grain Bureau reported that 46.7 mmt of wheat had been procured so far, 12.1 mmt more than the same period last year.

Average procurement prices for wheat reported by the Grain Bureau covered a wide range, from 2100 to 2710 yuan/metric ton ($8.28-$10.69 per bushel). The lowest prices reported in each province are under the minimum of 2360 yuan/mt ($9.30 per bushel).

As of early July, the Chinese government's temporary reserve of wheat was reported to be 56-to-57 mmt. That is 17-to-18 mmt higher than last year at the same time.

The rally in international wheat prices last month due to drought concerns in the U.S. narrowed the gap between Chinese and global wheat prices. The estimated C&F price of US Soft Red Wheat arriving in China is 2120 yuan/mt, up 303 yuan from last month. That price is still 460 yuan less than the price of domestic Chinese wheat, but the gap narrowed from 767 yuan/mt last month.

NGOIC lowered its estimate of China's 2017/18 wheat imports to 3 mmt this month, down 300,000 metric tons from last month's estimate. NGOIC's estimate is 1.25 mmt less than 2016/17 imports.

Saturday, July 22, 2017

Distrust Breeds Food Adulteration in China

Widespread fraud and adulteration has caused a breakdown in China's food marketing system, according to a July 4 report from Xinhua News Service posted on numerous Chinese news sites.

The Xinhua report describes a fundamentally failed market in which Chinese consumers are willing to pay high prices for quality food, and producers are willing to produce such items, but distrust raises an "integrity barrier" between consumers and producers that undermines the market process.

Consumers have come to expect products to be adulterated or fake as the default. They have learned not to trust brands, packaging, or logos. Xinhua authors point out that consumers have to rely on friends, acquaintances or expensive verification methods to authenticate the food they buy. Consumers in Beijing and Shanghai wishing to buy a type of rice from an area in Heilongjiang Province known for its quality ask friends living there, "Where can I buy authentic Wuchang rice?" Consumers meeting an official visiting from an agricultural province ask him, "Can you tell me how can I buy real ginseng?"

On the supply side, producers must expend considerable energy and expense to prove "I am who I am," the Xinhua writers say. Even if a company spends a lot on advertising, the prevalence of fraud makes consumers distrust the authenticity of the product when it reaches the shelf in the supermarket.

A rice cooperative manager in Heilongjiang's Jiamusi Prefecture explains that their efforts to convince consumers their rice is authentic raise the cost of the rice far above the actual cost of growing it. Grain Bureau officials from Heilongjiang Province holding promotions in southern cities are frequently confronted with questions like, "How do we really know this rice is from Heilongjiang?" and "How do we know government-sponsored sales promotions are for real?"

A production manager at a rice mill in Wuchang acknowledges that integrity issues are the biggest problem in the production, processing and sale of rice. This has been a long-term headache for Wuchang's rice industry since it markets itself as a premium-quality product, but imitators and fakes abound.

A rice producer in Heilongjiang Province's Wuchang City prints on packages of rice: "I am a demobilized soldier; quality food is getting more and more scarce; please believe in farmers' quality; integrity is better than a brand."

The Xinhua authors report on an expensive verification method prompted by the "integrity barrier." A researcher purportedly from a company-sponsored research institute in Zhejiang Province has been sent to Heilongjiang to live in a village and observe, photograph and report on the entire rice production process. The Zhejiang researcher says he came to search for "food with integrity, grain with virtue."

Farmers in Inner Mongolia explained to the Xinhua reporters that 500g of millet sells for only about 2 yuan, but old, stale grain is commonly mixed with the fresh millet so they can make a profit at that price. Farmers told the Xinhua reporters that many organic and grain products are adulterated because otherwise they could not make any money. The farmers say the mindset of most people in the business is that cheating can yield immediate benefits and there is little to be gained from honesty. The Xinhua authors compare the prevalence of adulterated foods to "Gresham's Law," in which bad money drives out good.

The Xinhua reporters explain that mutual distrust has created a vicious circle of adulteration. Farmers feel their weak position in society gives them a right to cheat customers. Their products are frequently downgraded or refused by unscrupulous companies when prices fall. The legal system rarely gives them any protections and companies know the farmers have no recourse. Farmers see a wide gap between living standards in the countryside and city.

In this environment of distrust, Chinese farmers and traders feel no compunction about reneging on contracts or adulterating products. The manager of a major company's rice mill says his company's 60-percent compliance rate for production contracts with farmers is actually quite high for China.

The remainder of the Xinhua article morphs into a promotion of Heilongjiang Province's rice industry and an obligatory nod to "supply side reform." The authors claim that Wuchang rice could meet Chinese consumers' demands for quality and safety at a price just a fraction of the cost of imported Japanese or Thai rice, and they calculate the income that could flow to producers in Heilongjiang. However, the authors offer no practical suggestions for filling the trust deficit other than posting motivational slogans on the wall.

Ironically, the Xinhua article itself breeds the cynicism and distrust that it purports to uncover. The article is presented as investigative journalism, yet it appears to be a veiled promotion of rice produced in Wuchang City, Heilongjiang Province. The references to "supply side reform" and the large number of sites posting the article suggests that propaganda authorities have ordered this to be disseminated. Journalists who pose as purveyors of information but are actually shills for companies and government policies are themselves dishonest in the way they present their work--another source of information that cannot be trusted.

Tuesday, July 18, 2017

Wanted: Premium Rice Prices

The upcoming harvest of another summer rice crop is a reminder of the growing contradictions in China's agricultural policy. Officials entice farmers to keep growing poor quality rice they don't want to grow and that is no longer demanded by the market, but officials are afraid they won't meet their food security targets without this rice that no one wants to eat.

In a handful of hot, humid provinces of southern China, officials encourage farmers to grow two crops of rice--an early crop planted in the spring and harvested in mid-July followed by a late crop harvested in late fall. Two crops increases the physical amount of rice produced, but the early crop doesn't taste good, is shunned by the market and mostly ends up in government warehouses.

A Grain and Oil News article on prospects for the early rice harvest this month notes that production of the early rice crop has been gradually sliding downward because market demand is less than the supply. Now that farmers have full bellies and money in the bank, they are not inclined to invest the extra time and money to grow two crops; many have instead switched to growing a single rice crop that requires fewer trips to the field. The 30-million-ton early season crop is about 15 percent of China's rice output, but it is mostly shunned by the market because of its poor taste as consumers become more discerning about the rice they consume. The article says the early rice crop is mainly used in food processing or stored in government reserves.

In view of the excess supply of early rice, authorities have cut the minimum price two years in a row. The recent summer grain purchase work meeting anticipated that market prices for this year's crop will be less than the minimum price of 2600 yuan per metric ton, triggering more government rice-buying this summer.

Grain and Oils News observes that authorities are under growing pressure to dispose of rice stocks. Authorities have had a hard time selling their stockpiled rice; 25 auctions have sold only 1.87 million metric tons of early rice this year. No auction has sold more than 5.6 percent of the rice offered. 

A Farmers Daily article by Ministry of Agriculture economists in March also raised concerns about bulging rice inventories. The economists cited a 2016 survey that showed a 10-percent increase in rice stocks held by farmers that they interpreted as a sign that the bulging inventory phenomenon has spread to farmers who presumably are unable to sell all their rice. This article also observed the dichotomy between excess supplies of low-end rice and shortages of high-quality rice demanded by consumers.

Medium grain rice produced in northeast China--generally considered to be high-quality--is also in surplus, according to an analysis by a local Price Bureau in Anhui Province from last October. There is considerable pressure to de-stock medium grain rice, but doing so would push prices downward. This analysis also notes that farmers who produce high-quality varieties or have low moisture can get better prices, but they face little risk of a decline in price due to the minimum price program. In Anhui, farmers harvested and sold their rice as quickly as possible to get the guaranteed price (presumably so they can return to their off-farm jobs or mah jong games).

In Hubei Province rice inventories are generally low-quality due to hot weather and flooding last year. Analysts say supplies of quality rice are tight. The difference between China's rice prices and Asian export prices has narrowed; the price of Thai Grade B rice is above the price of Chinese early indica rice for the first time in nearly four years. Nevertheless, China's rice imports were 1.3 million metric tons during the first four months of 2017, less than 1-percent less than the pace set last year.On June 12, customs inspectors and police held a joint crackdown that nabbed 39 rice smugglers and destroyed 2000 tons of smuggled rice; preliminary estimates of rice smuggling were put at 300,000 metric tons.

The core problem identified by the economists writing in Farmers Daily is a rising cost structure that prompts officials to put a floor under prices. The Farmers Daily writers pointed out that China's production costs are higher than those of producers in Vietnam, Cambodia, and Pakistan. Imports from these countries tend to put downward pressure on prices for low-grade rice in China. However, officials don't want to let Chinese rice prices fall low enough to compete with international prices because they fear farmers would stop growing rice or protest over falling incomes. While they did cut the minimum price for early rice two years in a row, the cuts were small and cautious.

Chinese officialdom's strategy is to urge farmers to produce high-quality rice that will justify the high prices needed to cover rising production costs. Strategic plans and guidance documents are filled with exhortations to build brands, grow organic, and obtain certifications to get premium prices.

The Farmers Daily authors describe the minimum price policy as inappropriate for the growing market segmentation in the rice market. Higher quality rice sold to government warehouses at the minimum price doesn't get a premium to encourage improvements in quality. Instead, the authors suggest promoting vertical linkages between growers and rice companies, creating brands of rice, and using e-commerce to market high-quality rice.

Now China is attempting what might be called a "Great Leap Sideways." Just a few years ago, the "China Price" was the absolute lowest price for knock-offs and generic commodities. Now China is trying to re-position its products as high-end designer goods to justify high prices needed to cover rising production costs. That's quite ambitious for a country that was synonymous with food safety calamities a decade ago and whose rice, in particular, is still under a cadmium-tinted cloud.