Category Archives: Agriculture

United States Puts Trade War On Hold

THE US-CHINA trade war is on hold. Official. Or official, at least until the US president tweets that it is back on, or was never off or is over.

US Treasury Secretary Steve Mnuchin says the Trump administration will not, for now, impose tariffs on up to $150 billion in Chinese imports for alleged violations of US American intellectual property and unfair trade practices. The rationale, according to Mnuchin, who was speaking on one of the United States’ Sunday morning TV talk shows, is the progress made in last week’s trade talks towards a ‘framework’ for cutting the $375 billion merchandise trade surplus with the United States.

High-level US trade officials met their opposite numbers from Beijing in Washington last Thursday and Friday, which was followed by a communique that vowed that neither side would launch a trade war against the other.

China said it would buy more agricultural and energy products from the US as part of a substantial cut in its trade surplus with the United States, which will include still-to-be-discussed purchases of US manufactures and services.

Both of those, and particularly the latter, require structural reforms on Beijing’s part likely to come later rather than sooner.

Beijing said it would drop it anti-dumping investigation into US sorghum, but that at best will protect existing US exports now at risk, rather than create new business in itself. Also, while the US has plenty of energy, particularly liquefied natural gas, it could sell China it would have to build distribution infrastructure to deliver it. Privately, US trade officials say it could take three to five years to double US energy exports to China.

Sales of agricultural commodities could be ramped up within a crop season, however. China bought $19.6 billion-worth of US farm produce in 2017, making it US farmers’ second largest foreign market. The United States is hoping for a 40% increase this year. If that comes about, there will be only another $188 billion to go to the $200 billion cut in the trade surplus that the United States reportedly seeks.

Beijing also promised to address US concerns about intellectual property protections (although that is pushing against an open door given that Chinese firms have an increasing amount of intellectual property of their own to protect these days).

Whatever short-term concessions might be made to provide Trump with an arithmetical win on the trade deficit, Beijing will do nothing that compromises its Made in China 2025 industrial policy, which is the real war.

Meanwhile, our man in Washington sends word that President Donald Trump’s U-turn on sanctions against telecoms equipment maker ZTE got a rebuff from the US Congress last week.

The House Appropriations Committee snuck into an appropriations bill an amendment that forbids the Commerce Department from changing the sanctions on ZTE that it imposed last month for trading with Iran and North Korea.

The inclusion of a seven-year ban on US companies selling components to ZTE has led the company to cease operations, and it was that ban that Trump, surprisingly, a week ago ordered the Commerce Department to rescind and replace with a less onerous alternative.

There is a long distance between an amendment being passed in committee and making it into law, a distance few such amendments survive. However, even getting past the first step, acceptance into a bill, shows how driven US-China trade relations are going to be on the US side by domestic politics, and especially in the run-up to November’s mid-term Congressional elections.

The Democrats — and it was one of their number, Dutch Ruppersberger, a Congressman representing a district in Baltimore, that proposed the amendment — are attacking Trump’s policies at every turn, scenting the opportunity to recapture control of at least one house of Congress from the Republicans in the mid-terms.

This partisan dimension further complicates the already complex trade relationship between the two countries. There may be no war-war for now, but there will be plenty of jaw-jaw.

Advertisements

2 Comments

Filed under Agriculture, China-U.S., Energy, Trade

Subsidies As High As An Elephant’s Eye

Harvesting wheat in Shulyu Village in Tangxian County, Hebei Province, June 8, 2014.

FARM SUBSIDIES, STARTING with corn and other grains, are to be withdrawn, state media report. The People’s Daily quotes Chen Xiwen, deputy head of the central agricultural work leading team, as saying, “the price will be decided by the market and [the state] will no longer play the role of subsidising farmers” (via FT).

China’s farmers have produced a string of record grain harvests in the face of natural and man-made disasters and shrinking hectarage. At an estimated 621 million tonnes, last year’s annual grain harvest set another record high for the 12th consecutive year.

However, supply still struggles to keep up with the demands of a richer and growing urban population. Stocks and imports cover the gap. China imported 3m tonnes of wheat, 3.4m tonnes of rice and a record 4.7m tonnes of corn (mostly used for animal feed) last year.

While removing incentives for grain production seems counterintuitive in such circumstances, all the state’s guaranteed minimum purchase prices — currently double world prices — is doing is building up record levels of domestic stocks. The US Department of Agriculture estimates those of corn at the end of the 2015/16 crop year will account for more than half the world total, at 113m tonnes.

Policymakers have long recognised that this structural distortion of China’s domestic agricultural commodities markets is not sustainable. So the removal of subsidies has been expected, though it will have to be implemented in ways that do not risk social instability if rural incomes fall too sharply. Subsidies provide on the order of a 20% top-up to farm incomes. Authorities have just announced a new (if sketchy) agriculture investment programme.

That level of support is not out of line with international averages, but the numbers involved are, inevitably, large. The OECD, the rich-countries think-tank, estimates China’s support to its farmers at 1.8 trillion yuan ($292.6 billion) in 2014, the latest year for which comparative figures are available. That is double the amount of five years previously (other countries have been cutting back farm subsidies over that time) and equivalent to 2.5% of GDP, making it a bill worth trimming.

However, the bigger goal is the critical need to improve agricultural productivity overall as China’s shrinking farmland runs up against the limits of what is needed for China to feed itself. The current five-year plan promotes large-scale farming as a priority. By contrast, most grain farming is inefficiently small-scale and labour-intensive.

On average, each farmer plants half a hectare. In mechanised Europe, the ratio is more than 20 times that and in the Big-Agri United States upwards of 100 times. Furthermore, Chinese farms lose or waste some 35 million tonnes of grain a year in the course of storage, transportation and processing, according to state media.

Grain also needs lots of water, an issue in an increasingly water-scarce country, and an acute one on the evermore arid North China Plain, China’s breadbasket. One of the unintended consequences of grain subsidies has been to discourage small farmers from switching to cash crops that make better use of the available land.

Policymakers see large-scale, efficient and technologically advanced farming as the way to address all those challenges — and cut some hefty import and subsidies bills.

Leave a comment

Filed under Agriculture, Economy

Drought Hits Northern China, El Niño Threatens Worse

EL NIÑO, THE periodic warming of sea-surface-temperatures in the Pacific, is already if prematurely being blamed for the worst drought to hit northern and central China in 60 years. State media says more than 27.5 million people are facing water shortages across at least six provinces.

Previous El Niños caused flooding in the southern rice-growing regions, as they did so disastrously along the Yangtze River in 1998, even as they brought drought to the wheat-growing provinces of the north. The extreme weather produced by El Niño in 1876–77 caused one of that century’s most deadly famines across Asia, with 13 million people dying from hunger in northern China alone.

While the latest El Nino conditions are only just starting to form in the Pacific, they are exacerbating the hot, dry weather in northern China, which was already suffering from serious water shortages as a result of years of deforestation, industrialization and urbanization.

The previous El Niño in 2009 triggered a sharp fall in wheat output. State media say that drought in Liaoning Province has so far devastated 2 million hectares of crops. An El Niño would ratchet up that number significantly.

Drought is also severe in Jilin, Inner Mongolia, Shaanxi, Henan and Hubei, affecting a further 2 million hectares of crops. The overall effects on harvests could be significant. A break to a run of 11 consecutive years of rising wheat harvests looks likely. The key question is whether this turns out to be a short El Niño lasting a few months, or a more long-standing event lasting as long as a couple of years.

China is not alone in being affected by El Niño. The net effect around the Pacific could be to cut global grain harvests by upwards of 2%. Sugar, beef, cotton, palm oil, cocoa and coffee output could also be hit, pushing up prices of those commodities. China’s cotton fields are south of the Yellow River, and like the rice paddies, subject to El Niño-related flooding.

Leave a comment

Filed under Agriculture, Environment

China’s Soybean Importers Threaten More Defaults

CHINA’S SOYBEAN IMPORTERS are hardening their line on defaulting on contracted shipments in an attempt to force down prices in face of burgeoning stockpiles and slowing demand. China is the world’s biggest buyer of soybeans, accounting for three-ffiths of global imports. The main use for the beans is to be crushed into meal to make poultry feed. Demand for feed has fallen by an estimated 15% following last year’s outbreaks of bird ‘flu.

Since late February Chinese importers have cancelled 1 million metric tons of orders from the U.S. and South America, particularly from Brazil, though to put that in context, China imports 70 million metric tons a year. In the Chicago commodities futures markets, soybean prices have risen by more than 14% this year.

Trading firms mostly clustered in Shandong province have refused to make payments for about 20 shipments, Shao Guorui, general manager of Shandong Sunrise Group, reportedly says. Chinese buyers face losses of as much as $7 million dollars on each shipment, he adds. The crushing companies they sell onto are suffering, too, with around half the industry’s capacity idle because of over-expansion. 

Sunrise accounts for one-eighth of China’s soybean imports. It is part of Shandong Chenxi Group Co., run by Shao’s multi-millionaire brother Zhongyi.

The issue could flare up into a trade dispute with Japan.  Shandong buyers have 80 to 100 cargoes booked for delivery from the Japanese trading giant, Marubeni, through July. Marubeni accounts for a quarter of China’s soybean imports. “Marubeni is deluded in thinking that payments will come once the cargoes have sailed,” an unidentified industry executive based in Shandong was quoted as saying.

 

Leave a comment

Filed under Agriculture

China Scraps Disasterous Cotton Stockpiling

CHINA’S COTTON INDUSTRY has run head-first into the law of unintended consequences. In 2012, the world’s largest cotton importer bought millions of tones of cotton fibre from local farmers to stockpile in an effort to drive up rural incomes, particularly in Xinjiang. Domestic cotton prices hit 40% above global market prices. China’s textile mills, unable to buy freely on world markets because of import quotas, cried foul — or at least those that had not gone out of business because they were no longer price competitive.  Stocks reached a peak of 10.5m tones, accounting for more than half world inventories and one and two third times 2013’s total crop —  6.3m tonnes, down 7.7% from the previous year, according to official data published this week.

After unloading some of the cotton at a loss over the course of last year and months of head scratching over what to do with all the rest, authorities have now decided to scrap the scheme in favor of direct subsidies to cotton farmers next year starting with a pilot scheme in Xinjiang. Details of the size and scale of the subsidies remain unclear, however. The stockpiling scheme for soy will also cease, but those for wheat, rice, corn, rapeseed and sugar, which have not experienced cotton’s problems, will continue.

Leave a comment

Filed under Agriculture

China’s 3m-plus Hectares Of Farmland Too Polluted To Grow Crops

CHINA HAS LONG been steadily losing farmland to urbanization, soil erosion and environmental degradation. Now authorities say 3.33 million hectares of the arable land the country still has are too polluted to grow crops. By way of comparison, that is an area almost equal to the size of Taiwan. Vice-minister for land and resource Wang Shiyuan says “tens of billions of yuan” is being thrown at pilot projects to rehabilitate contaminated land and water supplies tainted by the same source.

Officials are particularly concerned about toxic metals getting into the food chain. This Bystander has heard reports of rice being sold in Guangzhou that contains dangerous levels of cadmium. Once in the ground, such metals can persist for years, and government land surveys are still turning up traces of pesticides banned in the 1980s.

China is skirting the 120 million hectares of farmland considered to be the minimum needed to ensure the country’s food security. A newly released national land survey says the country’s arable land was down to 135.4 million hectares as of the end of 2012. The current five-year plan calls for more than 50 million hectares of new farmland to be created by 2020, so every little bit of reclaimed contaminated land helps.

Leave a comment

Filed under Agriculture, Environment

If Pigs Could Float

If pigs could fly. Well, they do float. At least when dead. More than 2,000 bloated pig carcasses have been fished out of the Huangpu River at Songjiang on the outskirts of Shanghai. It is not unusual to see all sorts of pollutants in China’s rivers, including dead pigs, if not on this scale. It is not clear how the pigs got into the river, or who dumped them in it, but there are plenty of pig farms upstream. Authorities say there is no cause for concern over the quality of drinking water taken from the river, but this unusual case seems set to become a touchstone for popular concerns about environmental pollution.

Update: Authorities say the number is now up to 2,800 dead pigs, that the animals came from Jiaxing City in  Zhejiang, and that the pig virus, PVC (porcine circovirus, which is not known to infect or cause disease in humans), had been found in one water sample.

Leave a comment

Filed under Agriculture, Environment