Cablegate: Bountiful Harvests: A Look at Cross-Strait Agricultural

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R 130814Z JUL 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6258
INFO RUEHOO/CHINA POSTS COLLECTIVE
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RUEHRC/USDA FAS WASHDC 0973
RUEATRS/DEPT OF TREASURY WASHDC
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UNCLAS SECTION 01 OF 04 GUANGZHOU 000795

SIPDIS

SENSITIVE
SIPDIS

STATE ALSO PASS USTR
PACOM FOR FPA

E.O. 12958: N/A
TAGS: EAGR PREL ECON ETRD TW CH KIPR
SUBJECT: Bountiful Harvests: A Look at Cross-Strait Agricultural
Trade

1. (U) SUMMARY: Agricultural goods produced in Taiwan? Produced in
China with Taiwan seeds by Taiwan farmers? Produced in China with
Taiwan seeds by Chinese farmers claiming to be Taiwan farmers?
Produced in China with Chinese seeds claiming that the produce was a
Taiwan product or "Grown in Taiwan"? We've encountered all of
these explanations about the quality or lack thereof of Taiwan ag
products, many of which are too expensive for Chinese consumers, on
the mainland market. On the other hand, China is reaping the
extensive benefits of Taiwan agricultural investments, including
higher productivity, higher quality products, higher rural incomes,
and a certain amelioration of the political disdain that some Taiwan
farmers, especially those with DPP affiliations, have with mainland
politics. Increasingly, they prefer not to rock the boat or make
waves in China in ways that could have an impact on their ability to
do business. In contrast, Taiwan does not appear to be experiencing
much benefit of closer agricultural ties. END SUMMARY

The Promised Land
------------------

2. (U) Taiwan investment in agricultural projects is continuing on a
large scale. Over the past fifteen years, according to the
Guangdong Provincial Government, 1,000 Taiwan agricultural
enterprises have been set up in the province, withtotal investments
surpassing USD 1 billion. In Fujian, the Provincial Government
claims to have 1,783 Taiwan agricultural enterprises with
investments exceeding USD 1 billion.

3. (U) In October 2006 at the Boao Cross Straits Agricultural
Cooperation Forum in Hainan, members of the Kuomintang and the
Chinese Communist Party pledged to support a number of measures
aimed at improving cross strait agricultural trade.

4. (U) Econoff conducted interviews with Taiwan farmers in the
consular district, including Shunde, Dongguan and Zhanjiang in
Guangdong province, Zhangzhou in Fujian province, Haikou in Hainan
province, and Guilin, in Guangxi province. The farmers grow a
variety of cash crops, such as fruits, hot peppers, flowers, and
shrimp.

Profiling a Taiwanese Farmer
----------------------------

5. (U) The Taiwan growers, particularly fruit growers, tended to be
from southern areas of Taiwan, in particular Tainan and Pingtung
County. Some farmers moved to China during the 1990s; others were
more recent arrivals. The more recent arrivals tend to keep their
families in Taiwan and commute back and forth from Taiwan. Those
that came to mainland China earlier tended to have either moved
their families to China or married mainland women and remained on
the mainland.

6. (U) All of the farms visited were small or medium sized. In most
cases, their products were destined for domestic consumption in
China. Only in certain instances , such as orchids, were products
meant for export. None of those interviewed would openly admit that
their products were for export to Taiwan. All claimed that it was
currently illegal or too difficult to export their products to
Taiwan. In addition, the farmers said that Taiwan was trying to
export Taiwan agricultural products to China, implying that there
would be no market for their products in Taiwan.

Show Me The Money
-----------------

7. (U) Always afraid of the tax man, those interviewed were vague
about their revenues and their profits. One farmer in Zhangzhou,
Fujian, claimed that his farm lost money almost every year.
However, he also admitted that the farm had doubled in size since
its establishment in 2001. In Dongguan, one farmer stated that
nearly 70% of all agricultural enterprises fail to make money in the
first 5 years. However, in Guilin, another farmer said that
although there were high initial costs, it was easy to break even
within three years; everything afterward was profit. He stated that
farmers investing in China were usually successful and wealthy
farmers in Taiwan.

8. (U) Common elements attracting Taiwan farmers to invest in China
include access to the mainland domestic market, cheap land, and tax
holidays. All of the farmers complainedabout labor, ranging from
the laziness of the farmhands in Hainan, to workers failing to come

GUANGZHOU 00000795 002 OF 004

back after holiday in Fujian, language and cultural issues. These
issues "forced" one farmer in Guangdong to import workers from
southern Fujian. Another frustration was the lack of direct
transportation links to Taiwan and access to Taiwan media, such as
TV or newspapers.

I Am from the Government and I Am Here To Help
------------------------ ---------------------
9. (U) In the interviews, Taiwan farmers generally expressed
satisfaction with local government officials. All had
concerns/complaints/problems expedited by local government
officials. In several cases, such as in Shunde, government
officials, including customs and quarantine officials, visited the
farmers and asked if they needed any assistance.

10. (U) All of the farmers were aware of the announcement made at
the 2006 Boao Cross-Straits Agricultural Co-Op Forum which promised
preferential treatment to Taiwan farmers. Most were unable to
comment whether the announcement encouraged more Taiwan investors to
come to China. Farmers from Guangdong and Fujian commented that
since the announcement, local government officials appeared to be
more accommodating to Taiwan investor needs.

You Reap What You Sow
---------------------
11. (U) In all cases, the farmers used Taiwan seeds and farming
techniques in China, leading to a dramatic increase in productivity
and quality of the products. In local markets, agricultural
products raised from Taiwan seeds usually have a 10-20 percent
premium over local products. Although this does not match the 50
percent premium of imported Taiwan products in China, it does
translate into significantly higher revenues as imported seed also
produces more fruit.

12. (U) In some cases, Taiwan farmers train Chinese farmers to grow
agricultural products in return for a guaranteed price upon harvest.
By doing this, the Taiwan farmers avoid the bureaucratic pitfalls
of purchasing Chinese real estate. The Chinese farmer learns better
farming techniques and earns substantially more income. In
Dongguan, one Taiwan farmer said a typical Chinese farmer growing
fruit may earn RMB 3000 (USD 395) from his own crop, but if he grew
for a Taiwan farmer, he could earn RMB 5000 (USD 670).

13. (U) Econoff inquired about the protection of technology, such as
seed or farming techniques. In Guangxi, Taiwan farmers admitted
that advanced technology, including the ability to research and
produce better seeds, can not be transferred to the mainland. In
contrast however, Zhanjiang local officials were quick to brag about
how local farmers were able to copy the techniques of the Taiwan
farmers and go into business themselves. In Fujian, the Taiwan
farmers dismissed this worry, stating that local farmers lacked the
knowledge and the capital to compete against Taiwanese farmers. In
addition, local farmers generally do not have independent access to
Taiwanese seed, which hampers their ability to compete against
Taiwan products.

Slow Boat to China
------------------

14. (U) In April 2006, the Mainland Affairs Council in Taipei
complained that Taiwan's intellectual property rights were abused by
Chinese farmers, claiming their products wer from Taiwan. In
addition, the Mainland Affairs Council complained of the slowness
and inefficiency of China Customs, which in turn, reduces the
overall value of Taiwanese agricultural products being exported to
China, which in 2005 was a miniscule $1.3 million.

15. (U) Based on interviews with two major supermarket chains,
Wal-Mart in Shenzhen and Park N' Shop in Guangzhou, Taiwan
agricultural products, primarily fruits, remain at a disadvantage in
the Chinese market. Both chains sell some Taiwan fruits, but the
cost of the fruit and shipping make them prohibitively expensive
compared to locally-grown fruits. Delays in delivery due to slow
customs clearance also cause fruit to deteriorate in quality, making
it harder to sell produce at already high prices. Both chains
expressed a preference to purchase locally grown Taiwan fruits
rather than import directly from Taiwan.

16. (U) These responses mirror interviews with Taiwan fruit growers
in China. All of them grow primarily for the domestic market; those
with farms still in Taiwan do not export from them to China,

GUANGZHOU 00000795 003 OF 004

preferring to use domestically-grown Taiwanese fruit. The farmers
cited lower input costs and good transportation to far flung major
cities such as Beijing, Shanghai, Chengdu, and even Urumqi where
their products fetch good prices. They cited both high costs and
customs issues.

17. (U) Growers in Hainan and Fujian complained of local farmers
passing off their own fruit as from Taiwan. Growers also complained
of the lack of regulations controlling the origin of fruits. While
one farmer in Hainan sold fruit in boxes stating "Taiwan Pineapple;
Grown in Hainan", he admitted that local farmers simply labeled
their boxes as "Taiwan Pineapple" with no indication where the fruit
was grown.

From Green to Blue
------------------

18. (SBU) Econoff inquired about the Taiwan farmers' political
affiliations. In all cases, they claimed to be apolitical.
However, in Hainan, one farmer expressed strong feelings against
Taiwan's current president, Chen Sui-bian. In Zhanjiang, another
farmer said that all of the parties in Taiwan were corrupt so it was
simply choosing the least corrupt. In Dongguan, one farmer said
that those who were blue (Kuomintang supporters) stayed blue; those
who were green (DPP supporters) usually became less green. He
admitted that his family members were ardent DPP supporters, but
said in the next election he intended to vote for the Kuomintang.
However, his parents would still vote for the DPP due to large
pensions allegedly being lavished on rural retirees.

Two-Way Trade? Only the Shadow Knows
-------------------------------------

19. (SBU) Although superficially it appears that agricultural trade
is one way, with Taiwan agricultural products being exported to
China and Taiwan farmers investing in farms on the mainland, there
are indications that some products are being exported to Taiwan via
back channels. In Hainan, local officials openly admitted that
Taiwan fishing boats often met with Chinese fishing boats to
purchase their catch rather than catching it themselves. In
Guangdong, a flower farmer said that some of his mainland-raised
Taiwan orchids were exported to Taiwan, though they were first
transshipped via South Korea and Vietnam and there certified as
Korean or Vietnamese origin. However, Taiwan farmers in China
continue to hide some aspects of their investments. In one instance
in Guangxi, two Taiwan farmers spoke in Taiwanese among themselves
about not revealing the extent of Taiwan agricultural technology
transferred to the mainland, not knowing Econoff understood their
dialect. In another case in Fujian, it appeared that the Taiwan
farmer wanted to say more but not in the presence of local
government officials.

What Is Good For The Goose...
---------------------------

20. (SBU) In the areas that Econoff visited that had Taiwan
agricultural investment, he noted good transport systems and
relatively good incomes based on the quality of housing visible from
the road, compared to other rural areas with no Taiwan investments.
Farms located in Taiwan investment zones appeared to be well run and
well maintained. Both farmers and local officials bragged about the
large increases in productivity due to better seeds and superior
farming techniques. Local officials, working through both word of
mouth as well as organized groups visiting from Taiwan, continue to
encourage investors from Taiwan to visit and offer assistance in
setting up their farms in China, clearly recognizing the beneficial
impact of Taiwan agricultural investment.

...May Not Be Good For the Gander
-------------------------------

21. (SBU) Taiwan products grown on the mainland appear to be
limiting any effective entry of Taiwan agricultural products into
China. Products grown in both the mainland and Taiwan from Taiwan
seed are usually similar in quality but with signficant differences
in price. While demand for Taiwan fruit is great, the average
Chinese cannot afford products imported from Taiwan. However,
mainland grown-Taiwan fruit provides a cheaper and reliable
alternative that is growing more popular with Chinese shoppers.
Finally, the growing agricultural ties appear to be affecting a key
constituency of the DPP, the farmer. While rural southern Taiwanese

GUANGZHOU 00000795 004 OF 004

are among the key supporters of the DPP, the lack of enthusiasm by
Taiwan investors in the mainland of any moves to upset the status
quo is quite striking. The farmers with whom we spoke all voiced
their desire for a stable, peaceful environment to conduct business
here in China and their intention to vote for whoever can deliver
this.

GOLDBERG

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