Tag Archives: agriculture

North China Plain Drought Leaves Millions Facing Water Shortages

Three months of drought across the North China Plain is leaving millions short of drinking water, Xinhua reports. There are concerns that the situation will worsen. Lack of rain has affected the wheat growing belt across six provinces from Shandong on the coast to Shanxi in the center of the country. Hebei has had only 2 mms of rain since November, 80% less than normal. Shandong is said to be facing its worst drought in a century. Fire trucks are delivering drinking water to residents.

A fifth of the farmland planted to winter wheat on the North China Plain, some 2 million hectares, has been affected by the drought. Direct economic losses are put at more than 1 billion yuan, with more to come as there is no relief to the drought in sight. Cloud seeding to induce rain and snow is likely.

The government, concerned about the effect of the prolonged drought on the spring harvest of the winter wheat crop, has already allocated 4 billion yuan ($607 billion) for farm irrigation and rural water conservation. Last week, following a State Council meeting on the current drought chaired by Prime Minister Wen Jiabao, it allocated a further 2.2 billion yuan to drought relief. Wen visited drought affected areas in Henan last week.

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Short Of Land, Hands and Water, China’s Grain Harvests Face Plateau

The record grain harvest last year despite a string of natural disasters masks the challenges facing China’s growers of wheat, rice and corn. A richer and growing population, urbanization and natural and man-made water shortages mean that supply is struggling to keep up with rising demand. The annual agriculture policy planning meeting last month noted that China’s 2010’s harvest of 546.4 million tones of grain, up 3% from the previous year, marked a seventh consecutive year of rising grain production, but also expressed concern at the vulnerability of the country’s harvest, particularly the wheat harvest, increasingly concentrated on the drought-prone North China Plain.

Less trumpeted was a concern that China is reaching the the edge of its capacity to keep its grain harvests increasing. Agri-technology is still boosting fruit and vegetable yields, but grain may have already reached its limits after decades of seed and fertilizer improvement. Meanwhile grain farming remains inefficiently small scale and labour intensive, with acreage and younger farmers alike being lost to towns, exacerbating the longer-running effects of erosion, desertification and other environmental damage. Stocks and imports cover the gap with increasing demand, so there is little risk of shortages. China already imports more than 4 million tonnes of corn (mainly for animal feed) and more than 1 million tonnes of both wheat and barley a year. But being subject to world commodity markets pushes up prices, and no country likes to feel it can’t be self-sufficient in food, especially when it has an increasing number of mouths to feed.

The balance between supply and demand is now so finely balanced that the government says it felt it necessary to spend 828 billion yuan ($125 billion) to boost grain production and combat natural disasters in 2010. It is impossible to break down that number in any detail, though China lost 3 million hectares (7.4 million acres) of crops to natural disasters, by the official count, with a further 20 million hectares of farmland damaged. To put that into context, the UN’s Food and Agriculture Organization estimates China to have 137 million hectares of arable land. China itself reckons 120 million hectares to be the minimum needed to maintain food security. All agree that the hectarage is moving in the direction of the smaller number, with the shrinkage of the area under grain shrinking causing most concern.

Financial incentives to farmers to raise grain output have not been effective hitherto. The Party’s annual economic planning session held ahead of the farm-policy planning meeting agreed to increase subsidies further for agricultural production and steadily raise the minimum state grain purchase price this year. And there has been a crackdown of sorts on the illegal conversion of arable land to industrial use. But none of that does anything to stop water tables falling across the North China Plain, the country’s bread basket. There cities and industries consume ever more water and drought has become more commonplace. Depleted aquifers and dried-up irrigation wells are leading grain farmers to turn to low-yield dry-land farming, abandon double cropping and even farming altogether.

Grain needs copious amounts of irrigation. Nationally, agriculture accounts for two-thirds of the country’s water use, though it accounts for only 13% of GDP. Water conservation is to be “one of China’ s major tasks in agricultural work” this year, according to the statement issued after the farm-policy meeting which laid out 2011’s priorities to be to “step up research and development into water conservation projects while keeping grain supplies stable, increasing farmers’ incomes and deepening rural reforms”. Notably, water conservation rates mention ahead of two 0f the country’s top economic policy objectives, food price controls to fight inflation and raising incomes for the 850,000 who work on farms to close the urban-rural wealth gap.

State media say the government expects to spend 200 billion yuan on water-conservation projects this year, 10% more than in 2010, with priority given to irrigation projects that improve grain output and that combat drought and floods. Over the next ten years it expects to double its current average annual investment in water-conservation infrastructure. Whether it will be enough will partly lie in the hands of nature and the extent of the damage the inevitable floods and drought will cause. Either way it looks like being a damned close run affair.

 

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Harsh Winter Weather Threatens China’s Inflation Fight

The feared-for harsh winter is arriving. The bitter cold front that has enveloped the north is sweeping southwards, covering parts of southern China with snow and  threatening central and southeastern regions of the country with blizzard conditions. This cold snap may pass in a few days but the question is what damage the forecast return of extremely cold weather in January and February will do to farming, and thus the battle against the food-price-driven part of inflation.

 

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The Cassava Conundrum: China’s Food Price Spiral

High food prices are a symptom not source of China’s inflation. Excess liquidity still slopping about the system is the main underlying cause. But food prices are politically sensitive. Hence plans to control prices put in place last month. Beijing has to be seen to be in control, even though price controls rarely have a happy history.

High world food prices complicate the picture. China is a leading food grower, but as its population and their incomes grow, it is becoming an ever larger food importer. Its demand has helped drive up world food prices. The U.N.’s Food and Agriculture Organization’s Food Price Index is close to its 2008 peak, having risen unrelentingly since June (pulling fertilizer prices in its wake). China’s imports are not the sole cause; poor harvests and the falling U.S. dollar play their part. But there are echoes of the surge in prices of 2008, which caused food riots in several countries.

The world is better placed now than then. Rice, wheat and maize, three of the most important staples, are in more adequate supply than they were in 2008. Yet still prices are high. Governments, including China’s, will be running down stock piles so the next harvest is important, particularly of cereals, soybeans and sugar. The FAO worries that the increase in supply globally may not be sufficient to match the growing demand. In which case, high global food prices will continue into next year, making Beijing’s instruction to local governments to secure supplies at steady prices more difficult to carry out.

Next year’s cereal crop, particularly wheat and the coarse grains used in feedstock, may be the most critical. This year’s crop has been hit by drought and flood around the world. Although it is the third largest on record, it has come in less than expected. The wheat crop worldwide is 5% less than in 2009. Some growing countries have imposed export restrictions. Stocks have covered this year, but these will need to be replenished on top of the continuing growth in demand. The FAO says that, absent more bad weather, winter wheat plantings should raise wheat production next year to meet the increase in demand, but no more. It is a similar story with coarse grains.

China is the second largest grower of both wheat and maize so its weather and yields will be critical. That makes reports of a two-month drought in Henan, Anhui, Shandong and Hebei on the North China Plain and which produce over half the country’s summer grain, concerning. The drought-affected area accounts for a fifth of the country’s winter wheat planting area. Prices will remain high and volatile.

The global balance between supply and demand for rice is much better. However, the continuing weakness of the dollar and buyers switching from expensive cereals could force up rice prices over the coming months. Domestic prices will be insulated from this to some extent as rice prices, like those of wheat, are controlled.

Corn and soybean prices do track international prices fairly closely, and higher prices for these feed through to meat and egg prices. Oilseeds, sugar, dairy, meat and fish prices are also at or around 2-year highs on world markets.

Cassava may be the interesting story, especially in China where a moratorium on new grain ethanol plants and domestic price supports for maize has boosted the demand for cassava chips as feedstock for fuel production. Roughly half of China’s fuel ethanol and alcohol output are now derived from root crops, namely cassava and sweet potato, and domestic cassava production has doubled over the past five years while Chinese farmers have also invested in overseas production in countries from Cambodia to Liberia. Cassava is now trading at record levels on international commodity markets, and encapsulates the chicken and egg situation, so to speak, that China finds itself in with respect to food of being a big driver of world prices that it is also trying to control.

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Local Officials Lumbered With Making Price Controls Stick

China has formally announced a series of measures to fight consumer price inflation that dump the task squarely in the laps of local officials. The State Council has instructed local governments to boost farm production, stabilize supply and lower food and fertilizer prices, all while ensuring coal, power and oil and gas supplies are uninterrupted. Local officials have also been given authority to impose local price controls where necessary on daily necessities and raw materials. Other measures range from suspending road tolls for vehicles carrying farm produce to clamping down on food hoarding. Most of the measures have been trailed over the past few days.

Decentralizing their implementation is probably the only realistic way of administering the new measures, though it means that the effects are likely to be patchy. It also means that central and local government officials will bear a common political responsibility for their success. Another way of looking at that is that Beijing will have a convenient whipping boy if food prices remain high. As we and many others have noted, for all their political sensitivity high food prices are the symptom not source of China’s inflation. The excess liquidity slopping about the system is the underlying economic cause, and dealing with that falls firmly in the lap of central government.

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BYD Fined, Loses Factories For Illegal Land Use

We now have a decision in the widely watched case of illegal land use involving BYD, the fast-growing compact automaker in which American investor Warren Buffett has a 10% stake. The Ministry of Land and Resources has announced that BYD is being fined 2.95 million yuan ($443,000) and that the seven factories the company built in Xian on 49 hectares of land bought from an economic development agency in Shaanxi, 45 hectares of which was zoned for agriculture, will be confiscated.

Construction had started last December and the plants weren’t due to start production until 2011, so the practical effect on BYD will be to constrict future, not present capacity, and the ruling lifts some uncertainty over the company for investors. In one sense BYD has got off lightly. The ministry had previously hit five companies this year for illegal land use, following a tougher inspection regime launched in February that found examples of illegal land use in more than half the 13 cities examined in an initial spot check and officials cooking the books in four. In those cases buildings were ordered to be demolished, land taken back, executives imprisoned and officials reprimanded. BYD’s high-profile and famous foreign investor may have helped it escape the most severe of those punishments, as least as far as we can tell at this point.

The question now is what sort of signal BYD’s punishment will send, and who will see it. One audience is foreign companies. As the China Law Blog pointed out in response to our preview post on the ruling, “if China is going after Chinese companies for putting manufacturing facilities on agricultural land, what in the world makes you as a foreign company think you will be able to get away with doing the same thing?”

The bigger audience is local officials, at least a dozen of whom in this case have been censured for not exercising effective supervision, including one, the director of the planning department in Shaanxi’s local Land and Resources office, who has been removed from office. It is not unknown for local officials to turn a blind eye to such land-use violations in the drive for economic growth. Companies want to bring new production capacity on stream without waiting for all the red tape to be dealt with, while officials themselves are  judged on their promotion of local economic growth and local governments have become hooked on land sales for their revenue.

The ministry has said that 7,800 hectares of land had been used illegally in the first half of this year, a 14% increase over the same period last year. That reversed the trend of the figures of the past three years. They had shown the issue was shrinking, but that may just have reflected lax enforcement and reporting. The country’s farmland has continued to be eaten up by industrialization and urbanization. It has shrunk by 6% over the past decade to 122 million hectares, barely above the minimum arable land the ministry reckons China needs to be self-sufficient in food. The summer’s floods and the drought earlier in the year in some parts of the country have reduced that margin further. Food self-sufficiency is considered a national security issue. Getting permission to change agricultural land to other uses, particularly commercial uses, is now tougher than ever.

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China Readies New Crackdown On Melamine In Milk

Despite the melamine-tainted milk powder scandal that killed six babies, sickened more than 300,000 children and all but closed down China’s dairy exports in 2008, batches of contaminated milk are still turning up, the latest only this month. Some of that is supplies from 2008 that should have been destroyed but which got unscrupulously diverted into a sort of dairy black market. But the suspicion has never gone away that some dairy farmers were continuing to pad out their milk with melamine, a toxic industrial chemical used to make plastics, fertilizers and concrete but which can increase milk’s apparent protein value.

That those suspicions are well founded is supported by proposed new food safety regulations. These tighten the rules on the production and marketing of melamine, including setting up a register of wholesalers to track distribution of the chemical to retailers and getting local governments to send resident supervisors into all dairy enterprises to enforce health and safety regulations, which have already been tightened since 2008. The new rules also call for all dairy enterprises to test their products for melamine before distributing them and for food enterprises to check dairy products they buy.

The new rules come into effect at the end of October. Dairies that break them face being shut down. We also expect an intensifying of the crackdown on any dairy farmer or milk producer found to be using melamine, and the imposition of some exemplary sentences.

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Follow The Honey

[picapp align=”center” wrap=”false” link=”term=china%2c+honey&iid=981429″ src=”http://view3.picapp.com/pictures.photo/image/981429/beekeepers-work-cole-field/beekeepers-work-cole-field.jpg?size=500&imageId=981429″ width=”500″ height=”333″ /]

The U.S. has imposed anti-dumping penalties on Chinese honey (above) since 2001. So little surprise that there have been attempts to circumvent them; honey laundering is the cheap joke. This has gotten worse as a mysterious disease has been devastating U.S. hives for the past five years. America now produces less than a third of the 375 million pounds of honey it consumes a year. China, for its part, produces a quarter of the world’s honey and is a leading honey exporter.

One route for trans-shipments has been through Germany. Now the U.S. has indicted 10 executives of Alfred L. Wolf Gmbh, including its chief executive, on charges that they illegally imported more than $40 million worth of Chinese honey since 2002, thereby dodging $80 million in anti-dumping duties, which might make this the biggest fake food transshipment case in U.S. history. Alfred L. Wolf, once part of the  Hamburg-based trading house, Wolf & Olsen, became the similarly-based natural raw materials company, Norevo, in February.

Those indicted potentially face up to 20 years in prison if found guilty. One Chinese national, Gong Jie Chen, a sales manager for QHD Sanhai Honey in Qinhuangdao in Hebei has also been indicted. He is accused of setting up QHD as a front company in the operation which is said to have mislabeled Chinese honey as coming from Russia, India, Indonesia. Reports from Australia say Chinese honey has also been routed to the U.S. through there.

While this is not the first honey laundering case to be brought, it is potentially the biggest and comes during a heightened U.S. crackdown on illegal imports of substandard and counterfeit products. Though the U.S. honey ban was on anti-dumping grounds, there are also health safety concerns over the levels of the antibiotic chloramphenicol, which can cause serious illness, in Chinese honey; Chinese beekeepers have been giving their colonies antibiotics to keep them healthy thought the drug is banned in both the U.S. and the E.U.

With the U.S. Congress seeking to impose stricter anti-China trade restrictions, albeit in a misguided attempt to protect U.S. manufacturing jobs, this alleged malbeesance (sorry, couldn’t resist) comes at a bad time.

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China’s Record Harvests Offset Flood Damage To Farmland

[picapp align=”center” wrap=”false” link=”term=china%2c+wheat+harvest&iid=2544117″ src=”http://view3.picapp.com/pictures.photo/image/2544117/china-grain-reserves/china-grain-reserves.jpg?size=500&imageId=2544117″ width=”500″ height=”318″ /]

This Bystander has been trying to piece together the economic effects of this year’s rains, floods and landslides on the year’s harvests and so food prices. Though the official number for direct economic damage from this year’s extreme weather  is high, more than 350 billion yuan ($51.4 billion), it turns out the picture is surprisingly benign when it comes to food supplies. What nature takes away with one hand, she seemingly returns with the other

Damage to farmland has been localized though widespread and severe where it happened: 13 million hectares lost, according to the count of the U.N’s Food and Agriculture Organization, primarily across Guangdong, Guangxi, Fujian, Sichuan, Yunnan, Guizhou, Chongqing, Hubei, Hunan, Jiangxi, Anhui, Shaanxi and Gansu. The Ministry of Civil Affairs puts the number of hectares of flooded farmland  at 16.5 million, a higher number than the FAO’s but which may have a lower bar of damage.

Set against that a record winter wheat crop harvested in June (that harvest accounts for 95% of annual wheat production: the picture above is from Xian in Shaanxi at the end of May), despite the extreme weather. A similarly record cereal crop (maize for livestock feed and rice) is expected, too. Though the much smaller spring wheat planting now being gathered will have been reduced by the cold snap in the northeast at sowing, the 2010 wheat crop overall is expected to be 114 million tonnes, within a percentage point of last year’s record. The maize crop is being forecast at 166 million tonnes, which would be a high, and rice, more tentatively, at 196 tones, which would also be a record. Meat and poultry production has also been running at record levels, one reason the demand for maize has been so high.

All that, higher government subsidies for wheat and rice production, and decent stockpiles from last year are keeping food prices stable.

The human loss is easier to catalogue, if less palatable: 3,185 lives lost, according to the latest official estimate, with at least 1,060 still missing; 12 million have been displaced.

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Cracking Down On Illegal Land Use: The BYD Case

A deadline is drawing near in a case of illegal land use involving BYD, the fast-growing compact automaker in which American investor Warren Buffett has a 10% stake, and which is being widely watched for a potential shift in policy.

In July, the Ministry of Land and Resources said it would rule by Sept. 30 on what to do about the company building seven factories on 49 hectares of land bought from an economic development agency in Shaanxi, 45 hectares of which was zoned for agriculture.

It is not unknown for local officials to turn a blind eye to such zoning violations in the drive for economic growth. Companies want to bring new production capacity on stream without waiting for all the red tape to be dealt with, while officials themselves are  judged on their promotion of local economic growth and local governments have become hooked on land sales for their revenue.

The ministry has said that 7,800 hectares of land had been used illegally in the first half of this year, a 14% increase over the same period last year. That reversed the trend of the figures of the past three years. They had shown the issue was shrinking, but that may just have reflected lax enforcement and reporting. The country’s farmland has continued to be eaten up by industrialization and urbanization. It has shrunk by 6% over the past decade to 122 million hectares, barely above the minimum arable land the ministry reckons China needs to be self-sufficient in food. The summer’s floods and the drought earlier in the year in some parts of the country have reduced that margin further.

The ministry has hit five companies so far this year for illegal land use, following a tougher inspection regime launched in February that found examples of illegal land use in more than half the 13 cities examined in an initial spot check and officials cooking the books in four. In those cases buildings were ordered to be demolished, land taken back, executives imprisoned and officials reprimanded.

None of the companies sanctioned were as high profile as BYD. How tough will the ministry be this time? And what sort of signal will it want its ruling to send?

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