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Chinese Bigwigs Buy up Taiwanese Rice


Chinese Bigwigs Buy up Taiwanese Rice


In its latest campaign to win the hearts and minds of Taiwan’s farmers and fishermen, China has intensified its politically-motivated procurement of local farm and fisheries products. But do local producers really benefit from selling to China?



Chinese Bigwigs Buy up Taiwanese Rice

By Rebecca Lin
From CommonWealth Magazine (vol. 518 )

Finding Huang Kuen-bien, who is affectionately known as Uncle Kuen-bien, in the remote countryside is incredibly easy. Since the 2004 Public Television System documentary Let it Be featured Huang and several other elderly rice farmers, he has become a national celebrity. Huang can be reached by landline, mobile phone or online.

“You are always welcome to visit! Take the high-speed rail to Jiayi Station, then get a taxi to Qingliao in Houbi District," says Huang in response to our request for an interview. He quickly adds, helpfully, “We are right on the main road; it's very easy to find.”

Still harboring doubts, we soon find out that Huang did not exaggerate. All along the way we find signs indicating the way to Wu-Mi-Le Community. And Huang’s Fengchang Store has also become a hot tourist destination.

Chinese Dignitaries Woo Rural Taiwan

Over the last two years the community has not only seen a steady stream of Chinese tourists but also quite a number of political heavyweights from China.

“Uncle Kuen-bien is always a cool customer, but people shake his hand, grip it tightly and do not let go for a very long time,” jokes Chang Mei-hsue, secretary general of the Wu-Mi-Le Quality Rice Promotion Association, pointing out a photograph with a middle-aged man in a beige jacket and a grey crew cut.

The man in the picture is Wang Zhizhong, son of Wang Daohan, the late former chairman of China’s Association for Relations Across the Taiwan Strait (ARATS).

This January, Wang Zhizhong twice visited Houbi District – the major rice producing area in the Jianan Plain – accompanied by Taiwan’s former Minister of Justice, Liao Cheng-hao. Also in Wang’s entourage were high-ranking officials from the Cuxiong Yi Autonomous Prefecture in Yunnan Province.

Huang opens a drawer and takes out a stack of name cards collected from his Chinese visitors. In August last year, officials from Jinhu County in Jiangsu Province sought to enlist his help. “They said I am an expert and that they want me to serve as technical advisor for rice cultivation in Suzhou,” Huang recounts.

Huang’s encounters with Chinese higher-ups are nothing out of the ordinary here. In fact, they reflect official Chinese policy. In mid-March, Jia Qinglin, ranked fourth in the Chinese leadership hierarchy, said that in the coming five years Taiwan affairs will focus on strengthening exchanges, dialogue and cooperation with all sectors of Taiwanese society. China will launch a “full-fledged” campaign toward that aim, Jia stated in his final working report before ending his term as chairman of the Chinese People’s Political Consultative Conference.

The strategy of Zheng Lizhong, deputy director of the Chinese cabinet’s Taiwan Affairs Office, is direct engagement with Taiwan at the grassroots level: Zheng reckons that if China increases its contract farming agreements with Taiwanese farmers and fishermen in central and southern Taiwan, they would feel the benefits of economic growth in the wake of the Economic Cooperation Framework Agreement (ECFA), the preferential trade pact signed between Taiwan and China in June 2010.

In fact, Chinese officials early on adopted various approaches to directly curry favor with Taiwan’s rural population.

During each of his four visits over the past two years, Wang went directly to Taiwan’s agricultural areas, meeting with representatives of production and marketing teams, farmers’ cooperatives, as well as fruit and vegetable wholesalers. He also visited farming families in Jiayi, Tainan, Kaohsiung and Pingtung.

“These were special fact-finding itineraries to get the real picture of Taiwan’s agricultural industry,” explains ex-minister Liao, who accompanied Wang on all his visits to Taiwan.

Chinese officials not only want to understand the industry, they also want to import knowledge in the form of farming advisors and farming technology. Wang, who commands a vast interpersonal network in China, is planning to develop a plot of land of 4,300 hectares – roughly 165 times the area of Da-an Forest Park in Taipei – in Chuxiong Prefecture’s Yuanmou County into a model zone for cooperation in high altitude organic agriculture between Yunnan and Taiwan. The project is explicitly defined as a cross-strait agricultural cooperation zone.

“Just a few days ago I got a phone call saying that Wang will come to Taiwan again in June to participate in the rice harvest,” reveals Chang of the Wu-Mi-Le Community. As part of Houbi District’s efforts to instill greater appreciation for the hard work of local farmers, visitors can buy a plot of ten ping (about 30 square meters) for NT$3,000 and then try their luck at cultivating rice themselves from planting seedlings to harvesting ripe rice plants.

A sign bearing the name “Wang Zhizhong” in Chinese characters stands prominently in the front row.

Rice Yes, Technology No

Has China’s allure also worked its magic on Uncle Kuen-bien?

Although a cataract has left Huang with complete loss of vision in his right eye he still rides a 125 cc. motorbike to work in the fields, planting additional rice seedlings where already planted ones failed to grow. The newly planted paddy fields are lush with a vibrant green.

“He came to see me, I am not sure why, but I think we should be alert. Can you see a person’s heart? Chinese people’s motivations give us cause for suspicion,” declares Huang as he stands firm against strong gusts of wind that would make others lose their balance.

But what if local rice could be sold to China? “Of course, it’s best if someone wants to buy our rice. If the price is right, I will sell. That’s business, but we must not sell our technology,” insists the 84-year-old farmer as he stoops low, both hands submerged in the cold paddy field water.

Economic incentives have always been Taiwan’s Achilles’ heel when dealing with China.

In 2006, Huang won the national rice cultivation championship with his Tainung No. 71 variety, also known as YiChuan Aromatic. Since last year some of his champion rice has been exported to China. The key go-between in the rice deal was Liao Wen-jhen, who served as chairman of the Houbi Township Council before it was zoned out of existence due to the merger of Tainan County with Tainan City in late 2010.

Council of Agriculture (COA) statistics show that in June last year, after China gave the green light for rice imports, Taiwan exported a total of 773 tons of rice to China, about 25 percent of the island’s total rice exports. This made China the largest buyer of Taiwanese rice alongside Hong Kong.

Taiwanese rice is not exactly an export hit. Although officials pride themselves on exports to 27 countries, total exports reached just 1,900 tons in 2011. With China added as a new buyer, rice exports soared to 3,100 tons last year. But this is still a far cry from 140,000-ton rice quota that the Taiwanese government has approved for export per year. Clearly Taiwanese rice could use more overseas buyers.

Accurately diagnosing this weakness, Chinese officials began politically calculated rice purchases in Taiwan, making rapid inroads into the China-skeptic Greater Tainan area, a stronghold of the major opposition Democratic Progressive Party.

“Chinese officials mostly come here to buy rice to build connections with Taiwanese county and city governments or local communities,” observes Wu Yuan-chang, head of the Taiwan Province Rice & Cereals Association. He believes that Chinese rice importers only want to make their higher-ups happy and that after reaching China the Taiwanese rice will not find its way onto supermarket shelves due to a lack of distributors.

Ex-township Council Head Pulls Strings with China

Trying to find out more about the export channels for Taiwanese rice, our second stop in Houbi District takes us to Dingan neighborhood where Liao, the former township council chairman, keeps a local service office.

After China opened its market to rice imports from Taiwan, the carefully calculating Liao bought rice from the local rice mill through his own “ECFA Company” and packaged it under the label Uncle Wenlin’s Champion Rice. He has already sold 70,000 kg. of the rice, mainly to Longgang District of Guangdong Province. This rice was grown under contract after the Fang Rong rice mill and elderly local farmers featured in Let it Be, such as Uncle Kuen-bien and Uncle Wenlin, joined the local specialized rice production and marketing zone.

Liao did his math. Two kilograms of rice bought directly from the Fang Rong rice mill will cost him NT$160, more or less the same price that he would have to pay to a rice dealer.

Including expenses for shipping, selling and administration, costs will rise to NT$300. Liao sells a 2kg package of rice to local governments in Guangdong province for 80 yuan (around NT$380).

Liao believes that the profit margin for rice “cannot be called high” in comparison to profit margins of 100 percent or higher for such popular Taiwanese exports as pineapple cakes and green tea.

However, Liao still believes that the Chinese market offers unlimited potential for Taiwanese rice despite its comparatively high price. Chinese rice sells at 5 to 20 yuan per kilogram, less than half of the selling price for Taiwanese rice. If sales and other operating expenses are included, Taiwanese rice is three to four times more expensive than rice grown in China.

But since China is purchasing Taiwanese rice for political reasons, price does not really matter. Under the policy of the Taiwan Affairs Office, various districts within the jurisdiction of Guangdong Province buy rice from districts in the Greater Tainan Area in Taiwan based on a quota system. Foshan City, for instance, has been matched with Liuying, Baihe, Dongshan, Xiaying and Liujia, whereas Longgang District’s counterpart is Houbi District.

In March, Liao again exported 30,000 kg. of white rice to China. He chose to bypass rice mills and buy part of the rice shipments directly from independent farmers’ cooperatives. In Liuying, for instance, farmers have founded a cooperative to market their rice autonomously under the name “Chamuying Rice.” Chamuying is the old name for Liuying.

Prime Rice from Taiwan as Gift or Hand-out

But do the farmers actually get more for their rice by selling directly to China?

This past January, Liu Gui-miao, a former Tainan County councilor for the ruling Kuomintang and now marketing manager of the farmers’ cooperative selling Chamuying Rice, sold 1,632 2-kg. bags of rice to the Foshan City government, a deal facilitated by the Tainan City Straits Economics and Trade Cultural Development. Upon import into China, the bags of rice were used as official gift packs or hand-outs to low-income families.

“They repackaged the rice into 289 gift packs and gave them to government officials. The rest was used as food aid for distribution to low-income households,” association secretary general Lu Ai-hua, who formerly served as the chairman of the now abolished Yongkang City Council. In March, Lu will visit China again, hoping to land bigger orders in Luohu, the gateway between China and Hong Kong on the China side.

Is this a worthwhile business?

No Profit for Farmers, Rice Mills

Liu Gui-miao, who served five terms as county councilor, is well aware that politically-motivated orders from China are different from genuine business in that neither order volume nor customers are stable. Consequently, Liu hopes to further explore the Chinese market for Taiwanese rice.

Two years ago China began purchasing milkfish from Taiwan under contract, a move also intended to win the support of local fishermen. But in the end prices and order volume proved difficult to maintain.

COA statistics show that Taiwan exported rice worth US$1.32 million (about NT$39.6 million) to China last year. But local rice farmers feel that they do not reap any tangible benefits from exporting to China.

This can be attributed to the way in which Taiwanese rice is distributed and marketed. Normally, farmers sell their entire harvest to rice mills, which process and sell it on to distributors. Rice destined for export to China is usually sold to the rice mills at the same price as rice for domestic sale; the farmers themselves do not earn a single penny more.

At the same time, the rice mills sell to Chinese distributors at the same price as domestic rice dealers. Therefore, the rice mills also do not earn more from selling to China.

Chen Chi-chung, professor at the Department of Applied Economics of National Chung Hsing University, points out that production costs for Taiwanese rice are high. “Unless you specifically target the premium rice segment, you won’t stand a chance of creating a new market,” Chen explains.

But prime rice acreage in Taiwan totals just 15,000 hectares, less than 10 percent of total rice cultivation. “I don’t believe that the rice farmers cultivating the approximately 200,000 hectares of other rice fields stand a chance of making any money from cross-strait rice transactions," Chen notes. He does not believe that rice exports to China can tangibly contribute to solving the problems faced by most rice farmers – sagging sales and slim profit margins.

Targeting Direct Distribution in China

But a new breed of young, marketing-savvy farmers has jumped on the bandwagon of Beijing’s green-lighting of rice from Taiwan. Instead of relying on state-brokered deals, they sign contract farming agreements with fellow farmers in the area and personally pound the pavement in China to explore distribution routes for Taiwanese rice.

Lai Cheng-lin, the second-generation owner of Rong Shing rice mill and the youngest farmer ever to win Taiwan’s national rice championship last year, is quite an entrepreneurial farmer.

Lai graduated from the MBA program at the Department of Business Administration of Soochow University in Taipei. Upon graduation eight years ago, he returned to his native Houbi to take over his grandfather's fields and his father’s rice mill, learning both trades from the ground up.

Lai, who turns 34 this year, earlier this year began to produce rice for export to China under contract farming agreements.

With a dozen farmers on board to grow aromatic rice varieties, Lai shoulders all costs for fertilizer, agricultural chemicals, materials and wages to guarantee consistent quality. The farmers are paid a premium price of NT$16,000 for rice harvested per 970 square meters of land. Presently about ten hectares are being planted under contract.

Growing rice in paddy fields costs about NT$100,000 to NT$120,000 per hectare. But the farmers who have signed contracts with Lai can earn NT$160,000 per hectare. “It’s me who bears the risk of climate related crop failures,” Lai explains. He plans to use the upcoming harvest to test the waters in China.

He expects his rice to be delivered to department store distribution channels in China by June and to launch large-scale sales promotion campaigns in September.

Seizing every opportunity to open up market access in China, Lai selected six different rice varieties to send to COFCO Corporation, the largest distributor of food, grain and edible oil products in China. A cooperative partner then went to Beijing to cook rice on the spot, using Taiwan-made rice cookers and water from Taiwan to ensure that the rice gives off its typical aromatic scent.

“After all the political (rice) procurements have already entered the markets, I hope this avenue will open up,” Lai notes. He is aware that the government controls COSCO, China's largest grain supplier. However, he believes that Taiwanese farmers will only get a steady flow of rice orders from China if their products can get onto supermarket shelves through regular distribution channels and please the palates of Chinese consumers.

Changeable Political Agenda

It remains to be seen whether Lai's approach will be crowned by success. But Huang Li-chin, the woman in charge at the Fang Rong rice mill, knows well that “Taiwanese rice must be promoted via the market and not through policy.”

Huang is even more concerned about the possible negative effects from politically-motivated procurement.

Following a string of media reports touting the economic benefits of ECFA for Taiwan’s agriculture, farmers followed the trend and began to cultivate crops under contract on a massive scale. However, should Beijing’s policy suddenly change, the resulting damage would be incalculable.

“What we need to do is look after quality. Even if the political buyers don’t come, there will still be people who want to eat Taiwanese rice. That’s where our niche for survival is,” remarks Huang. The specialized rice production and marketing zone that she manages covers an area of 250 hectares, with an annual production of 2,000 tons of rice. It was also Huang who was instrumental in getting Uncle Kuen-bien to plant his champion rice.

Encouraged by the central government’s policy, Chinese politicians and VIPs continue to aggressively tour Taiwan, focusing on the countryside. During our visit of rural villages in the Tainan area we found that these visits have given rise to great hopes and expectations.

But how long are these politically-calculated exchanges going to last? Fishermen were elated two years ago when a deal was struck for export of milkfish from Tainan to China at a guaranteed purchasing price. The enthusiasm soon fizzled out when export volume remained far behind expectations. Perhaps that experience provides some clues to the answer we are looking for.

Translated from the Chinese by Susanne Ganz