Monday, November 28, 2011

Agricultural Export boom?

Agriculture was in the news this week. First the Council of Agriculture gleefully announced ag exports are rising:
The Council of Agriculture (COA) said yesterday that the overall value of Taiwan’s agricultural exports to China in the first 10 months of the year totaled US$536 million, up 26 percent year-on-year, thanks to a cross-strait trade pact and other incentives.
Taiwan's agricultural trade deficit with China fell, according to the COA:
As of October this year, Taiwan’s agricultural trade deficit with China was around US$110 million, and the projected figure for the whole year is US$140 million, much lower than in 2007, Chang said.
"Much lower than in 2007" wink, wink. That was Chen Shui-bian time, in case you missed that. The COA then goes on to make my bullshit sensor signal a five alarm fire:
In the Jan.-Oct. period, Taiwan farm produce exports to China, in 18 categories that were included on an ECFA early harvest list, totaled 14,242 tons at a value of US$95.7 million, according to Chang.
Ok, in the 18 ag product categories, there was a total gain of US$95.7 million. Now hold still, because a couple of paragraphs later come some numbers.
In the 18 categories, the sale of live groupers surged by a whopping 192 percent year-on-year to an export value of US$79.66 million, she said. Chang attributed the increase mainly to the ECFA “early harvest” tariff concession program and the opening of 15 Chinese seaports for direct shipping links.
So... maybe I am reading this wrong, but of the $95.7 million increase, $79.66 million is groupers. 83% of the increase is from one product! Add the number given by the spokesperson for tea exports, $7.37 million, and 90% of the gain is from just two products.  We're not succeeding in agricultural products, just in raising fish. Subtract that $79.66 million and the agricultural deficit sucks -- which shows how important definitions of what counts as agriculture are -- most people when they hear the word "agriculture" don't think of fish.

These numbers reinforce the point made a couple of months ago by academics written up in the Taipei Times, that most products on the "early harvest" list aren't benefitting from ECFA (discussed in the second half of this post).

Two other things jump to mind. First, the grouper benefits aren't going to Taiwan. As I wrote about months ago, big financial firms are investing in the grouper trade, pushing down prices received by producers in Taiwan, jacking up prices for grouper in China, pocketing the difference, and doing nothing for anyone's living standards. This is a purely parasitic application of channel power.

Second, I'd sure like to know about the effect of smuggling. Remember this?
With trade deficits across the strait on the rise, government efforts to crack down on smuggled Chinese agricultural goods into Taiwan are insufficient, Yang said, adding that the 67 tonnes seized by officials last year was only 1 percent of what was discovered in 2008.
I'd be curious to know what all those fishing boats are bringing back from Chinese harbors. Is increased smuggling shaving points off China's agricultural import growth by moving goods from formal to informal channels? There's no way to know.

In a bid to grab votes from the agricultural industry, DPP Presidential candidate Tsai Ing-wen was also out this week demanding that the government do something about awful fruit prices and excoriating the Ma Administration for the problems of the nation's agriculture industry. A couple of weeks ago a friend of mine and I rode the Rift Valley and all along the way we were deeply distressed to see good fruit simply rotting on the trees, unable to be harvested because prices are too low to make it worthwhile. The one goodie:
[Tsai] also proposed establishing a NT$100 billion agricultural development fund to modernize the sector and encourage younger people to work in the industry.
It would be great if we could get young people back into farming, but it feels like a pipe dream, with the price of land so high and wholesale prices so low, and farming so lacking in prestige.

Agriculture in Taiwan has been in the doldrums since the 1960s. It's a long-term problem, one that Tsai probably will not be able to make much progress on (and probably should be making carefully hedged promises about), and one that is not going to yield up a solution unless there are massive systemic changes in the way people think about food and its production in Taiwan.
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Marc said...

My trustworthy and long-time evening market vendors tell me that Chinese ag products aren't being smuggled in at all, but "legally" brought in and put in cartons bearing the name Taiwan, and sold openly in the wholesale markets.

So now we find we find ourselves more frequently asking veg and fruit vendors to tell us the village or farm location of their produce. It's not too hard to spot the fakes.

Robert Scott Kelly said...

That's interesting Marc. They can probably get away with this as the produce may be coming from all those "Taiwan" farms that have been set up in China in recent years using Taiwanese expertise and even labor. In any case, this combined with the prevalence of illegal pesticides from China being used in Taiwan is but one more reason I've gone back to only buying organic veggies from reputable establishments.

Okami said...

I imagine the problem is the licensing of buyers at the wholesale markets allowing cartels to form and keep prices low. Combine this with the subsidies farmers get for farming, sometimes just throwing seed on the land and letting it grow wild to qualify for said subsidies and you see the problems.

I also wonder what licensing and custom clearance access you need to ship grouper to China and HK. I'm sure there's enough here to qualify for a Pulitzer if someone put in the time and wasn't afraid.

Taiwan will go nowhere agriculturally till they handle the labor and land problems associated with farming.

Steve said...

Lando: Lord Vader, what about Leia and the Wookiee?
Darth Vader: They must never again leave this city.
Lando: [outraged] That was never a condition of our agreement, nor was giving Han to this bounty hunter!
Darth Vader: Perhaps you think you're being treated unfairly?
Lando: [after a pause; nervous tone] No.
Darth Vader: Good. You know it would be unfortunate if I had to leave a garrison here.
Lando: [to himself] This deal is getting worse all the time!

Anonymous said...

I was wondering, for exports is a license required by China or Taiwan?

I would imagine that locally, if farmers and chain stores work together, there might be some hope. Unfortunately, most of the current distribution requires management due to the cluttered locations of stores that do not belong to large chains, this would require hiring dedicated personnel and trucks to handle it, which might not be that cost effective either. High quality restaurants make their own purchases individually, but it would not be possible for the average grocery store to do it due the the great variety.


Anonymous said...

To put costs into perspective, generally, as a rule of thumb, FOB price of commodities are around 1/3~1/4 of the retail price. When you do the profit chain calculation, that is what ends up reasonable. If you then consider all handling, delivery locally in Taiwan, generally it is possible to figure out what is the reasonable price out of the farm, lower than which the farmer might consider other options. I think compared against high tech devices like mobile phones, the percentage allocated to farmers will be much better.

Upon recent economy related conference that I attended, there was displayed that assembly labor for an iPhone or iPad is only about 1% of the retail price. I did a search through the NET, and I found very similar results. So are farmers better off? I think most likely that is the case. However, to be locally sufficient on food supply should be a very important issue.

The most problem with Taiwan farms is that lots of them are not large enough to be operated on a cost efficient manner, so lots of effort needs to take place to consolidate the owners and land before reform can take place. This is where we need someone with the personality of Steve Jobs to tell the higher level in government to "Take the whole deal or take nothing" type of guts; and at the same time provide the comfort to farmers that they still are in control of their own assets. In all, tough job.