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Markets hunger for better China food data

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Chinese corn prices have fallen about 20% this year due to a glut, and another big crop is on the way to market.   © Reuters

Concerns about Chinese statistics go far beyond gross domestic product numbers. In particular, the supply and demand for farm commodities has become a guessing game due to massive government intervention, state secrecy and a creaky statistical system designed for a centrally planned economy.

Most people would assume we know how much food is produced in China, but market analysts are at a loss to assess the size of a Chinese grain glut that has seemingly come out of nowhere. For years, everybody thought they knew that China's consumption of grain would outpace its supply as the country raised more corn-eating pigs and chickens.

However, the economic slowdown, a curb on official banqueting, and disease and food safety scares have caused that story to unravel. The government tried to prop up prices by buying up surplus grain for three years in a row, but they ran out of space to store it. Imports of cheaper grains and animal feeds poured in, compounding the glut.

This year, the government withdrew its price floor for corn, the commodity with the most acute oversupply problem. Another big corn crop is now on its way to market, but warehouses are said to be near capacity already. Prices have already plummeted about 20% this year and no one knows whether they will fall further.

Until about 2012, there was a broad consensus among analysts on how much China's corn consumption was growing. But when demand faltered, analysts had to guess the size of the slowdown. Since there are no reliable statistics on how much grain is actually consumed in China, analysts piece together data on production, imports, exports and inventory changes to arrive at an estimate of how much grain "disappears" over the course of each year. These calculations were thrown further into the realm of guesswork when inventories, which China has long kept secret, expanded and became a bigger part of the equation.

Diverging estimates

Consumption estimates diverged as Chinese authorities began purchasing large amounts of corn to prevent prices from falling. As the government built up inventories behind closed doors, corn market analysts' guesses on how much corn the government held differed too.

Two private analysis groups in China estimate that annual corn "disappearance" fell 13% to 14% between 2012 and 2015. A Chinese government organization saw a more modest decline while the U.S. Department of Agriculture saw only a slight downward blip. Estimates of corn "disappearance" for the market year that ended in Sept. 30 ranged from 145 to 218 million metric tons.

The status of corn supply and demand has real consequences. Officials in China worry that falling prices will undermine their goal of doubling rural incomes between 2010 and 2020. China's corn glut comes as the rest of the world is also swimming in excess grain. Farmers in other countries will not be able sell their surpluses to China this year. In fact, China is reportedly exploring the possibility of exporting corn for the first time in a decade to jettison its excess. A revival of Chinese grain-based fuel ethanol production -- it had been capped during the grain-price crisis of 2007 -- is on the horizon.

No one knows how long it will take for China to offload stockpiles of grain. The government's campaign to clear out old grain from warehouses could hang over markets for years. The U.S. Department of Agriculture estimates that China has corn supply on hand to meet about six months' consumption needs, while private Chinese organizations estimate that the stockpile is much more than a year's supply.

The confusion in supply-demand analysis also may undermine Chinese authorities' aspirations for commodity markets in Dalian and Zhengzhou to become centers of global price formation. Global buyers and sellers may remain focused on Chicago, New York and London until China lays the statistical groundwork to let markets play their "decisive role" in resource allocation as the government has described during the last year. It is no coincidence that countries with the most prominent commodity markets also have strong statistical systems.

China has taken steps to give its agricultural markets more credibility and relevance. On the policy front, authorities have repealed floor-price policies for cotton, soybeans and rapeseed, as well as corn. Officials allowed prices to drop as much as 30% to fall in line with global prices.

On the statistical front, the Ministry of Agriculture began publishing a monthly report in July with estimates of supply and demand for Chinese agricultural commodities but the estimates are mostly guesses based on the same sketchy data available to other analysts. Results of auctions of commodities sold from government reserves are now posted regularly on a public website, but the amount held in reserves still has not been revealed, and purchases of commodities are not regularly reported either.

Agricultural census

A once-a-decade agricultural census scheduled for January could firm up the statistical foundation for China's markets. In one of the biggest statistical efforts ever, census takers will canvas the countryside to assess how much cropland China has and how many livestock and what has been planted, learn about the new generation of commercial-scale farmers, and take an inventory of rural infrastructure.

This effort is critically important since China's countryside is changing rapidly, and statisticians have had no means of monitoring 250 million land holdings and over a billion farm animals. The survey will be the first national count of farmland rentals and new-type commercial farms that have sprung up during the last decade. Officials may discover that some statistics have deviated from reality. Getting some certainty about what is produced in the country is a first step.

Publishing the government's secret inventory numbers will be another important step. Even if revealed, these numbers may be inaccurate and unhelpful at first. Grain is stored all over the country, it gets shifted around and sloppy record-keeping and misreporting are probably common. But exposing the numbers to public scrutiny could create beneficial pressure to clean them up. Measuring consumption of agricultural commodities is difficult in all countries, but it would be helpful if China could develop reliable indicators to monitor grain-milling, vegetable oil processing, various types of livestock slaughter, and the output of dairies.

China's new five-year plan for modern agriculture calls for collecting and publishing more statistical information. In addition to traditional surveys, officials plan to utilize new technologies such as the internet of things and remote-sensing. However, more numbers are not an improvement unless systemic problems are addressed. Recent statistical training given to village accountants and technicians who report the numbers may remove some of the inaccuracies. On the other hand, a rising tide of subsidies flowing to the countryside increases incentives for local officials to massage the farm numbers reported to their superiors.

Getting a better grip on supply and demand for commodities in China will benefit everyone as the country becomes an even more important part of the global food supply chain. That's something you can count on.

Fred Gale is senior China economist for the U.S. Department of Agriculture's Economic Research Service. The views expressed here are the author's and do not represent those of the USDA.

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