The Politburo announced that farmers could meet this demand by massively increasing output, and set improbable targets for grain production. In order to 'prove' that these targets were possible, Mao arranged for farmers in so-called 'Sputnik Cooperatives' to transplant ripe crops from a number of fields into a single artificial plot in order to impress local stooges, who duly reported their findings back to the masses. And the People's Daily newspaper duly reported the highly improbable yields of over 20 tons of wheat per hectare (about twice what the best land globally could hope to achieve today) and even, in one case, 400 tons of rice per acre (which was divorced from reality by a factor of about a hundred).
Encouraged by this apparent great leap forward in productivity, the government increased its grain requisitions to secure and pay their foreign exchange commitments; and the population, hindered by having to face the harsh reality of yields which weren't improving at all, reluctantly handed over their food to the Russians and promptly starved. Household subsidies without global growth are just more unpleasant.
Returning to the present, the agricultural data (like the economic data) suggest that 2009 was another successful year for Chinese farmers and the outlook for 2010 is similar. But the sham of the 'Sputnik Cooperatives' cautions us to be careful with all statistics emerging from totalitarian states. Instead my team looks for anomalies in real economic activity, whether in terms of price action or trade flows. And the Dalian corn price highlighted above constitutes a striking anomaly.
What Might Have Happened in the Last Year to Cause Such a Price Aberration?
Early 2009 saw a drought in northern China so bad that Beijing ordered rockets to be fired into the skies to make it rain, and sent out divisions of the People's Liberation Army to water the fields by hand, armed with little more than buckets and spades. Aggravating matters further, the start of 2010 has revealed a very severe drought in the south-west of the country, bad enough to curtail industrial production in a region heavily reliant on hydroelectric power. Furthermore, fertiliser consumption in China was down sharply compared with previous years, and the impact of lower fertiliser usage on yield tends to be magnified by poor weather. This conjunction of events is normally considered prejudicial to good grain harvests.
If there has been a problem with the domestic harvest, the government will have to intervene. Politics in China have moved on somewhat since the heartless policies of Chairman Mao, and the last thing the current regime needs is an outbreak of civil unrest caused by hunger or, worse, starvation. Any domestic shortfall must be made up in the world market. We now have relatively good data regarding global trade in grains. And this is the crucial fact: China has re-appeared in the global grain markets, buying wheat from Australia and, most significantly, buying cargoes of corn from the US for the first time in a decade.
How significant could this prove to be? The example of other commodities suggests that China could have a major impact.
For example, they formerly played a very insignificant role in the global soybean market, but within the last fifteen years they have moved to a situation where they import over 70% of their soybean requirement and account for over half of world trade. Soybean prices have doubled since China began to be a major world player in the late 1990s.
