Sunday, March 24, 2024

China Dream: Farms Without Farmers

Chinese propagandists breathlessly describe "unmanned farms" (无人农场) as "the new model for future agriculture," "the path to smart agriculture," and a solution to the problem of who will plant the crops in the future. They envision "farming without going to the fields" via an interconnected web of driverless tractors, seeding, planting and spraying equipment guided by satellites, drones, sensors, and irrigation pumps. China's ideal is to remove human decisions from the farming process by using sensors, big data, artificial intelligence, and other "smart" farming operations.

Chinese planners love schematics and fanciful engineering
drawings showing complex, colorful layouts.

China has been excited about "smart" farming for a while, but the unmanned farm idea seems to be new. A "Rural Revitalization Plan 2018-22"and a May 2019 "digital rural development strategic outline" called for development of smart agriculture, and the 2021 14th 5-year plan called for a digitized overhaul of agricultural production business and management using smart agricultural methods. In May 2022, China released a smart agricultural machinery technology road map. The 2020 plan for digital countryside included lots of plans for information technology and big data in farming, but the only reference to "unmanned farms" was a description of such farms in Europe, North America, Australia, Japan and South Korea. 

The first automated farms in China were built in 2018 in Shandong and Jiangsu Provinces. By the end of 2022 there were over 100 unmanned farm projects in 22 provinces covering 300,000 mu (20,000 hectares). The number doubled between 2020 and 2022. According to an "Unmanned Farm Development Report" issued in 2023 China's unmanned farming is in its initial stages of development in which government demonstration projects are set up on state-run farms to inspire wider adoption. The 5-year plan aims to "fully popularize" intelligent agricultural machinery and equipment for production of the main food crops in large contiguous fields in plains regions (that is, in flat places...presumably it's much more difficult if not impossible to implement full automation in hilly areas).

State farms in Heilongjiang and Ningxia Provinces are the featured models. Eight unmanned farms with nearly 20,000 pieces of smart farming equipment are operated by parts of the sprawling Beidahuang Group--the commercial arm of Heilongjiang's State Farm system along the Russian border. The project is supported by a collection of agricultural universities, the national meteorological satellite center, state-owned phone company China Mobile, real estate giant Country Garden (now in financial straits), several laboratories and an industrial park. 

The Ningxia Province State Farm group began its unmanned farm project in 2022 using 30,000 mu (2000 hectares) of farmland. In Hebei Province's Handan City they claim to have 25,000 mu operated as unmanned farms. Unmanned farming projects are also being set up by provincial and municipal agricultural officials in wealthy coastal regions of Zhejiang Province and Shanghai.

A model "unmanned" rice farm where no peasants work,
but lots of visiting rural officials stand around watching and taking photos. 

Liberation Daily said last month that the Shanghai government work report's plan to "build 30,000 mu of grain-producing unmanned farms" got a lot of attention. A Shanghai municipal plan for "high quality agricultural development 2021-25" aimed to set up digitized machinery management organizations and create 100,000 mu of unmanned grain farms. 

China is not a leader in smart farming; they are trying to keep up with developed countries. Liberation Daily said the project is inspired by a "new industrial revolution" involving big data, internet of things, and artificial intelligence propelling the "smart agriculture" era in Europe, America, Japan and South Korea. Foreign equipment will likely be excluded from China's smart farms, and the data collected will be walled off from foreign companies. China's national Beidou satellite navigation is mentioned as a core part of each unmanned farming project. Photos show Chinese-brand equipment. Liberation Daily emphasized that the value of the data collected by smart farming equipment may be even greater than the value of the farm products they produce. 

The unmanned farm project continues the century-old fascination of Chinese communists and their Soviet forebears with tractors, giant farms, and untested theories such as Trofim Lysenko's weird approach to breeding. The excitement over unmanned farms reflects a parallel contempt for troublesome peasant farmers who can now be replaced by young men with college degrees wielding tablet computers. The idea of eliminating labor from farming is appealing as China's population has tipped into decline and as its peasants age and lose interest in farming.

The unmanned farm concept also fits neatly into a new Xi Jinping-inspired "Thousand Village Demonstration and Ten Thousand Village Rectification" to overhaul the countryside by drawing up planned villages surrounded by vast fields, irrigation canals, electric lines and greenhouses.

Descriptions of the unmanned farm projects rattle off huge percentages of water, fertilizer, and pesticide that will be saved. They claim to be able to raise production by 10%. No one mentioned what might happen if the electricity fails, if the internet goes down, or if the system is hacked. There is no mention of the cost of purchasing, installing, maintaining the equipment, nor the cost of hiring operators.

The unmanned farms promise to increase farmers' income despite the prospect that none of them will be working on the farms anymore. 

China's ideal: a guy in spectacles running an unmanned tractor
from a cell phone.


Sunday, March 10, 2024

China's rural bank problem

China's rural banks are a source of potential instability worrying leaders at this year's "two sessions" legislative conclave...and possibly a canary in the coal mine of a financial meltdown. 

Beijing Shangbao reported last week that finding an "orderly solution for risks in medium and small financial organizations is of the utmost importance in current financial work." Premier Li Qiang's government work report identified resolution of risks related to small and medium financial institutions alongside real estate and local government debt as keys to maintaining economic and social stability. Among small and medium financial institutions, rural banks have the most prominent problems.

China Banking and Insurance News reported that rural banks had nonperforming loans totaling 754.6 billion yuan at the end of 2022 and a nonperforming loan rate of 3.22%--more than double the rate for larger Chinese banks. Some rural banks have already refused to pay depositors, leading to protests. Authorities already undertook a huge consolidation of rural banks earlier this year. 

Two groups of rural banking institutions were set up in reforms 2 decades ago meant to clean up an earlier financial mess and to address the lack of lending for rural small businesses and farmers. A sprawling system of "rural credit cooperatives"--largely insolvent in the early 2000s--received injections of state capital and were merged into provincial or regional "rural commercial banks" and "rural cooperative banks." A network of village and town banks were set up by urban banks and foreign banks.

The fundamental problems of a small, fragmented rural customer base with few liquid assets persisted, and the countryside is riddled with debt.  Financial experts say rural Chinese banks would be unviable without subsidies. Many are plagued by mismanagement and economic slowdown in rural regions; the pandemic tipped many into crisis. With paper-thin margins, rural banks were tempted to offer high-yield financial products outside their rural mandate. Some went bust; some managers fled the country with bank funds in their suitcases.

There are likely a lot more problems lurking in rural China's finances. A hot topic at last year's "two sessions" was a report revealing that Chinese villages were in debt to the tune of 900 billion yuan (about $125 billion). Based on a 2019 Ministry of Agriculture survey, news outlet Yicai called the debts "heavy baggage" for village collectives and a potential "stumbling block to rural revitalization." Another outlet confirmed that its investigations found debts were common in villages all over the country, in both rich and poor areas. A Sichuan Daily article 4 months ago reported that a survey of 48 villages showed persistent problems with village debt despite a 12-year campaign by provincial authorities to resolve the debts. A local official in Shandong Province wrote that "village debt is a microcosm of rural social conflicts and problems." Debts arise from failed village-operated pig farms and other business ventures, road-building projects, covid control, poverty alleviation projects, and decades-old obligations for unpaid taxes.

The Agricultural Development Bank of China (ADBC)--a government-run rural policy bank--likely has a higher nonperforming loan rate than it claims. ADBC has participated in 3 rounds of the China banking regulator's pilot program that moves bad loans to take them off the books. ADBC was created 30 years ago to finance procurement and storage of grain, oilseed and cotton and has broadened its portfolio to include rural development and industrial parks. ADBC's soaring loan balance seems worrying. The ADBC loan book reached 8.79 trillion yuan ($1.23 trillion) in 2023, up 1 trillion yuan each of the last two years and triple the balance 9 years ago. ADBC lending has grown much faster than the agricultural sector. The ADBC loan balance is now 93% of the annual value of agricultural GDP, up from 46% in 2013 and 33% in 2004.
Source: annual reports of Agricultural Development Bank.

In 2022 ADBC lent 407.8 billion yuan to finance procurement of grain, cotton and oilseed purchases and 94.6 billion yuan to finance 23 million metric tons of imports. ADBC said it financed 64 percent of China's grain purchases in 2022. Interest on ADBC's loans is largely paid by government subsidies for holding reserves, but recent loans are probably underwater due to falling grain and oilseed prices. The value of grain purchased at high prices in 2022 has shrunk with grain prices falling, so it will be impossible to repay the principle on the loans by selling the grain. Income from giant grain logistics projects, poverty alleviation and construction of apartment buildings to resettle displaced rural people is unlikely to be sufficient to repay the interest or principle. 


Friday, March 1, 2024

More People Are Dying in China, Stats Bureau Says

We know Chinese folks don't want to have babies, but it turns out Chinese people are dying in unprecedented numbers as well. An extra 11.3 million people died in 2023. Males and rural people are disappearing at the fastest rates. 

China's birth rate was record-low in 2023 but its death rate was also record-high as its population plunged by 1.48%, according to the National Bureau of Statistics. This is the second year China has reported a drop in population (last year it dropped 0.06%). The plunging birth rate is the main factor pushing China's population over the cliff's edge, but China's people are also dying faster. 

China's birth rate fell to 6.4% in 2023 as the country recorded 9.02 million births. That was down more than half from the rate in 2016 and almost 17 percentage points less than the 1987 peak of 23.3%.

China's death rate has been more stable than its birth rate, but there's a clear upswing in deaths over the last 3 years.  

Source: Data from China's National Bureau of Statistics and 2023 Statistical Communique.

The death rate was steady before suddenly creeping up to 7.18% in 2021, 7.37% in 2022, and 7.87% in 2023. These are all record highs. China's death rate was 6.4%-6.6% during 1980-2005 and bumped to the previous record of 7.14% in 2011 before reaching an average of 7.07% during 2015-20.

For some reason Chinese people have been dying in greater numbers over the last 3 years. We can calculate the "excess deaths" by comparing the actual number of deaths with the number that would have occurred if Chinese people had continued dying at 7.07% per year as they had done during 2015-2020. China's statistics bureau reported 111 million deaths in 2023, but only 99.8 million would have died at the rate recorded during 2015-20. That's 11.3 million "excess deaths" in 2023. The calculations show "excess deaths" increased year by year, from 1.6 million in 2021, to 4.3 million in 2022, and 11.3 million in 2023. The 65-and-over folks comprised 14.2% of the population in 2023.


The aging of China's population does not explain the surge in the death rate. The proportion of people aged 65 and older was already rising (from 10% to 12.6% during 2015-20) without causing an increase in the overall death rate.  

China's population decline is hitting men more than women. In 2023 China's male population declined 1.74 million but its female population declined by only 340,000. The same disparity between male and female population change occurred in 2022 and 2021. The statistic bureau's data indicate that China lost 3 million males between 2020 and 2023 and gained 910,000 females over those 3 years. (The 2020 data look implausible, probably because that year's census provided some surprises that were massaged by the statisticians.)

China appears to be losing people mainly in the countryside. The population in cities and towns went up 12 million in 2023, but the rural population went down by 14 million. This is the first year that losses in the countryside exceeded gains in urban population. 

So it looks like there has been a rural disease epidemic striking mainly rural men, unreported civil war in the countryside, or a wave of executions of rural men. Or maybe the migrants who fled to the U.S. border were counted as dead. What's happening China?

Sunday, February 11, 2024

China Massaged Soybean Data to Hide Policy Failure

China has been massaging data on soybean imports and consumption of soybean meal to hide the failure of its policies aimed at reducing reliance on imported soybeans.

Last month China's customs data reported that 99.41 million metric tons (mmt) of soybeans were imported during the 2023 calendar year, an 11.41% increase from 89.218 mmt imported during 2022.

However, adding up the monthly soybean import totals reported by customs over the last 12 months gives me a bigger total of 101.71 mmt for 2023. That would have been a record amount, exceeding the previous record of 100.3 mmt imported during calendar year 2020. What happened?

The 99.41 mmt total appears to have been doctored to whittle down the annual total and keep it under the symbolic 100-mmt barrier. A record soybean import total would have drawn attention to the failure of highly publicized and costly Chinese policies to reduce reliance on imported soybeans. The revisions also foil a prediction that China's soybean imports would exceed 100 mmt made in December by the head of the U.S. Soybean Export Council office in Beijing in an interview with a Chinese news outlet.

The 2022 import total also appears to have been doctored. Last month's customs report said 89.218 mmt had been imported during 2022, but a year ago customs reported that 91.08 mmt of soybeans had been imported during 2022. 

Customs officials appear to have made retrospective revisions that cut the 2023 total by 2.31 mmt and the 2022 total by 1.86 mmt. They probably reduced both years' numbers to keep the year-to-year change realistic. A comparison of monthly totals from previously published monthly reports with monthly totals currently in the customs database indicates that small downward revisions were made in monthly totals for January-June 2023 with no changes for July-December. Small changes were also made for 8 of the 12 months of 2022.

The 10.2-million-tonne increase in soybean imports during 2023 reported by official data far outstrips the 0.6-million-tonne increase in domestic soybean production achieved last year at great expense through multiple subsidies, earmarked bank loans, and "instructions" issued to farming enterprises.

A second questionable claim comes from China's Feed Industry Association which reported that use of soybean meal in manufactured animal feed dropped 11.8% in 2023 and the percentage of soybean meal in feed dropped 2.6 percentage points. These numbers appear to show that the industry achieved a directive issued in the communist party's 2023 Document No. 1 to "deepen implementation of the action plan to reduce and replace soybean meal used in animal feed." The Feed Industry Association's web site features a large banner promoting the soymeal reduction program and a November 2022 article on the association's site calling for faster reduction of soymeal use in poultry and aquaculture said the soymeal reduction program was of the utmost importance. 

However, the reported 11.8% decrease in soymeal use doesn't seem to square with the 11.4% increase in soybean imports. The November 2022 Feed Industry Association article said 85% of soybean meal in China is produced by crushing imported soybeans, so the increased volume of imported soybeans implies an increased supply of soybean meal. 

The CASDE soybean balance sheet issued by China's agriculture ministry shows increasing volumes of soybeans crushed during each market year: from 90.5 mmt in market year 2021/22 to 95.9 mmt in 2022/23, and 97.8 mmt in 2023/24, which also implies a growing supply of soybean meal. 

If the precipitous 11.8% drop in soybean meal use is true, what's happening to the increased supplies of soybean meal? 

There doesn't seem to be any indication that soybeans or soybean meal are being stockpiled. Instead, a report from China Grain Net (an organization affiliated with the government's grain reserve company) says the government has accumulated stockpiles of domestic soybeans and soybean oil. 

The import data was accepted at face value in China Grain Net's review of the 2023 soybean market. The report praised a series of policies that boosted domestic soybean output to over 20 mmt in 2022 and 2023, then listed a series of soybean procurements by Sinograin and local governments that removed about 2.7 mmt of 2022/23 domestic soybeans from the market to prevent prices from crashing. Sinograin also purchased an undisclosed amount of 2023/24 domestic soybeans last October. Sinograin also cut back on its auctions of soybean reserves to ease downward pressure on prices. 

The China Grain Net report did not mention any stockpiling of imported soybeans. 

The report revealed that reserves of soybean oil were bloated in 2023 due to import stockpiling during the 2022 lockdown year that wasn't needed because recovery of demand after the lifting of covid lockdowns was much weaker than expected.

China's usual tactic is to blame "subsidized" and "genetically modified" American crops for its problems, but it is Brazil's soybean supply boom that kept soybeans cheap. Low prices induced Chinese buyers to import record volumes, undercutting China's grand plan to reduce reliance on imported soybeans. The China Grain Net report cited a record crop in Brazil and low prices for the surge in soybean imports. The report noted that Brazil accounted for 70% of China's soybean imports during 2023. The U.S. share was 24%.

Friday, February 9, 2024

China's Insane Agricultural Policy Directives

It's said that doing the same thing over and over again and expecting different results is the definition of insanity. By that definition China's agricultural policy is insane. 

This month China released the latest in a string of "No. 1 Documents" on rural priorities issued each year since 2004. (An earlier set was issued from 1982-86.) The same programs keep coming up, often with the exact same language. Some long-forgotten programs are intermittently resurrected despite having failed in the past. 

This year's document has several failed programs resurrected from the dead.

The document directs provinces to experiment with a "dynamic mechanism" linking farm input subsidies to rises in input prices. This apparently is institutionalizing the so-called "one-time subsidies" given to compensate farmers for high input prices each of the last 3 years. The subsidies were given out in 2-to-4-billion-yuan tranches in an ad hoc manner, multiple times in 2021 and 2022. Last year's document instructed officials to "perfect the mechanism for offsetting increases in farm input prices." This year it has become a new subsidy program. 

The "dynamic input subsidy" echoes a similar "comprehensive input subsidy" that began in 2006 to help farmers cope with rising costs of fuel and fertilizer. That subsidy also began in an ad hoc manner, given out as an emergency during the farming season, then institutionalized. Authorities then announced a dynamic mechanism to link the subsidy to increases in fertilizer and fuel prices--exactly the same as the instructions in this year's document. The earlier subsidy ballooned from 12 billion yuan to 107 billion yuan between 2006 and 2012. It proved ineffectual and was folded into a single "land fertility" subsidy along with seed subsidies and a grain producer payment. 

This year's document also includes an instruction to continue the land fertility subsidy, but there is no instruction to ensure that the subsidy funds are actually used to improve fertility.

This year's instruction to raise the minimum price for wheat previously appeared in documents for 2009-2013. Then it switched to "continue implementing the minimum price policy for wheat and rice." The increase in minimum prices prompted a WTO challenge from the U.S. initiated in 2016 (which China lost). The 2017 document's instruction to "rationally adjust the minimum price" reappeared in the 2023 and this year's document.

A proposal in this year's document to explore a mechanism for rich grain-consuming provinces to financially compensate poor grain-surplus provinces has been around for at least 15 years.

Another blast from the past is the instruction in this year's document to pursue a 3-year action plan to develop tea oil and oilseeds grown on trees to reduce reliance on imported oilseeds. The tea oil strategy was pursued in the 1980s, failed and disappeared down the memory hole. Another big initiative during the mid-2000s was to grow jatropha trees to produce nuts that would be used to produce oil for biodiesel fuel. Jatropha trees were planted all over the mountains of western China but the plan soon collapsed. 

The new document's instruction to support development of high-oil soybean varieties is also familiar. There have been a series of soybean revitalization programs since the early 2000s that called for efforts to develop and disseminate high-oil soybean seed varieties to make domestic soybeans more attractive to crushers. Most Chinese soybeans are rich in protein but low in oil content, making them only profitable for use in tofu and other food products.

Other language that keeps reappearing includes orders to crack down on smuggling of agricultural products, protection of "black soil," and to increase use of organic fertilizer. 

Why do Chinese officials keep regurgitating the same policies? Copy-paste is a much easier and less risky approach than thinking up and debating new policies. Communists have a deep memory hole, and all history must validate the success of the State's policies. Policy failures are never discussed in Chinese books. Moreover, China's agricultural cadres all yearn to be promoted to escape backwater agricultural assignments, so the cadres who saw the policy fail 10 years ago are no longer around when the policy is reintroduced. 

Sunday, January 28, 2024

China Relied on Brazil for 27% of Ag Imports

When China says it is "diversifying" its sources of agricultural imports, it really means they are shifting purchases from the United States to Brazil. During calendar year 2023 Brazil had a 27-percent share of China's agricultural imports while the United States had a 15-percent share. This reversed the two countries' positions back in 2014 when the U.S. share was 24 percent and Brazil's was 19 percent. 
Source: Analysis of China customs data

Brazil had a 69-percent share of China's soybean imports in 2023, up from 62 percent the previous year. Brazil's share of corn imports went from 0 to 47 percent in one year after China approved Brazil as a corn supplier in late 2022. Brazil's share of China's sugar imports was 50 percent, and Brazil's shares were 46 percent for poultry, 41 percent for beef, 28 percent for pork, and 28 percent for cotton. 

Other countries that were leading suppliers of China's agricultural imports included Thailand, Australia, New Zealand, Canada, and Indonesia with shares of 4-to-6 percent during 2023--still way behind the U.S. and Brazil. Russia, Argentina, and Chile each supplied 2-to-3 percent. The entire Southeast Asian region had a 15.6-percent share, similar to the U.S. share. The European Union had a 10-percent share. All of Africa supplied a combined 2.4 percent and South Asia supplied 1.4 percent.

Monday, January 22, 2024

Chinese Minister Restarts U.S. Cooperation

China's Minister of Agriculture and Rural Affairs Tang Renjian met U.S. Secretary of Agriculture Tom Vilsack in Washington January 18 to resume the Joint Committee on Cooperation in Agriculture (JCCA), a forum for discussing exchanges between the United States and China that had been dormant since 2015. During the same trip Tang also visited Mexico and the Dominican Republic to discuss closer agricultural exchanges with developing countries on the U.S. doorstep.

Chinese Minister of Agriculture and Rural Affairs Tang Renjian
met U.S. Secretary of Agriculture Tom Vilsack January 18. Source: China MARA.

In the official USDA news release about his meeting with Minister Tang, Secretary Vilsack emphasized China's role as an export market, noting that he discussed market access issues with Minister Tang and expressed hope that the bilateral relationship will expand and improve market access opportunities for U.S. farmers and ranchers in China. The USDA statement also said discussion included "tackling climate and food security challenges" and sustainable agricultural systems. 

China's Ministry of Agriculture and Rural Affairs' Chinese language web site features an article about the Washington meeting with more detail and a more positive spin than the USDA statement. According to the Chinese article, Minister Tang endorsed the JCCA as a channel for promoting bilateral exchange and promised to "cherish, care for, and operate this mechanism in a stable manner." The description of Tang's comments was more expansive than the USDA statement, calling the restarting of the JCCA "after a 9-year hiatus" as a "landmark event in the history of Sino-US agricultural relations." The Chinese statement pledged that China was willing to work with the U.S. to "pragmatically promote China-U.S. cooperation to take new steps and work together to stabilize food and agricultural development."

The Chinese article mentioned that Minister Tang brought up "climate smart agriculture," food security, and "people to people exchanges" (all favorite topics of Xi Jinping) in the discussion, while Secretary Vilsack brought up trade facilitation. According to the Chinese account the two sides agreed to establish working groups on food security, nutrition and health. 

The Chinese account also reveals that Chinese Ambassador Xie Feng attended the meeting, Tang held afternoon meetings with U.S. commercial groups, and Tang requested a meeting with the U.S. Trade Representative's chief agriculture negotiator.  

The Washington meeting was out of step with China's agricultural diplomacy since last year which has featured a stream of meetings with developing countries where Chinese officials pledged aid and cooperation as a fellow "developing country" to build relations based on a shared importance of agriculture and rural poverty alleviation. It's also unusual for the Chinese agriculture minister to travel abroad. 

Before arriving in Washington Minister Tang made visits to Mexico and the Dominican Republic that were squarely in line with China's agricultural diplomacy strategy. On January 11, Minister Tang met his Mexican counterpart for the 7th meeting of an agricultural working group under a China-Mexico Intergovernmental Standing committee where they discussed climate smart agriculture, food security and promoting rural prosperity. Tang praised growth in China-Mexico trade of agricultural commodities. The article twice mentioned another Xi Jinping favorite, "Agricultural Cultural Heritage." Reflecting China's S&T interests, Tang pointed to exchanges of germplasm and biotechnology research as achievements in China-Mexico cooperation and he visited the International Corn and Maize Improvement Center and the National Fisheries and Aquaculture Research Institute in Mexico. 

Minister Tang met Mexican ag minister January 11 in Mexico City.
Source: MARA web site.

During his January 14-15 visit to the Dominican Republic Tang scored a meeting with the President and held bilateral talks with the Dominican ag minister. Here the Chinese article mentions the "Belt and Road" framework for developing agricultural relations and discussed rice and tropical crops, two favorite crops for China's agricultural diplomacy with developing countries. There were discussions of launching a bilateral agricultural cooperation mechanism between China and the Dominican Republic.

Tang did not visit neighboring Haiti, which is one of a dozen countries that still has diplomatic relations with Taiwan. Tang also bypassed old Chinese friend, Cuba, on his North American journey. 

Tang's visits to Mexico, Dominican Republic and the United States were all described in articles on the Chinese language web site of the Ministry of Agriculture and Rural Affairs. The English version of the site featured only the visit to Mexico with no mention of the trip to the United States.