Deepening Production-Sales Cooperation Is Still Needed to Reduce Grain Inventories

On December 18, several grain processing enterprises from Jilin City, Jilin Province, came to Beijing to promote this year's newly marketed rice. This is already the second time Jilin City has come to Beijing to promote rice. The grain production-sales cooperation between Jilin City and Beijing gives full play to the resource advantages of major grain-producing areas and the market resource advantages of major grain-selling areas, and has made useful explorations for deepening grain production-sales cooperation and promoting regional grain balance.

At present, China's grain production regions are becoming increasingly concentrated. Grain output in the 13 major producing areas accounts for more than 75% of the national total, and the regions supplying commercial grain are highly concentrated. The regional contradiction between producing areas and selling areas is becoming more and more prominent. For major producing areas, with grain inventories running high, the consideration is how to sell the grain, reduce the pressure of purchase and storage, and protect farmers' interests; for major selling areas, the consideration is how to secure enough high-quality grain to ensure regional grain security. Deepening grain production-sales cooperation and promoting regional grain balance will help solve the problem of high grain inventories in major producing areas.

This year China's grain production achieved a "twelfth consecutive increase." Domestic grain inventories are ample, and major grain-producing areas such as Heilongjiang, Jilin, Liaoning and Inner Mongolia, as China's grain "reservoirs," face enormous grain storage pressure. Deepening grain production-sales cooperation is a very effective means of easing warehouse capacity pressure in major producing areas. After grain purchase and sales were completely liberalized in 2004, apart from state-planned allocation, major producing areas and major selling areas have mainly relied on market means to connect grain production and sales, establishing production-sales cooperation relationships based on equality, coordination and mutual benefit, and promoting regional grain balance.

With grain inventories currently high, major producing areas such as Heilongjiang, Jilin, Liaoning and Inner Mongolia are actively going into major selling areas to promote their high-quality agricultural products. For major grain-selling areas, grain security has always been a "Sword of Damocles" hanging overhead. In order to ensure regional grain security, major selling areas such as Beijing, Shanghai, Chongqing, Tianjin, Zhejiang, Fujian, Chongqing and Yunnan have gone into major producing areas to establish production-sales cooperation bases, gradually developing the simple supply-demand relationship between producing and selling areas into a supply chain management cooperation model. Ju Yongping, chief economist of the Jilin Provincial Grain Bureau, said that in order to solve inventory pressure, they use preferential policies to attract enterprises from major selling areas such as Beijing, Chongqing and Yunnan to carry out grain purchase and storage business in Jilin, incorporate investment projects by enterprises from selling areas into the province's overall construction plan for storage facilities, and let them enjoy the state's subsidy policies for investment in building warehouses in the province; after storage projects by non-local enterprises are completed, any that meet the conditions for state policy-based grain purchase are allowed to undertake state policy-based grain purchase.

Beijing is an exceptionally large major grain-selling area, with a grain self-sufficiency rate of only 10%, and more than 90% of its grain needs to be transferred in from elsewhere. Beijing Grain Group is the main vehicle for ensuring Beijing's emergency grain supply. Since 2006, Beijing Grain Group has gone deep into major grain-producing areas to build more than 220 grain source bases, with a raw grain conversion capacity of 4.5 million tons. At present, Beijing Grain Group's grain source bases and industrial bases cover major grain-producing areas such as Northeast China, North China, Northwest China and the Yangtze River Delta, and its ability to ensure the capital's grain supply has been continuously strengthened.

At present, deepening cooperation between producing and selling areas faces a practical obstacle: the serious inversion of domestic and international grain prices. The fundamental reason for the inversion of grain prices is that China has implemented a minimum purchase price policy and a temporary storage policy for many consecutive years. While international grain prices are declining, China's grain prices have remained stable with slight increases, and international grain prices are far lower than domestic grain prices, affecting the enthusiasm of enterprises in selling areas to purchase grain in producing areas. This has led to inventories that should have been borne by selling areas being shifted to producing areas. A large amount of grain being stored in producing areas rather than selling areas is not conducive to ensuring grain security in selling areas.

From the current perspective, to ease warehouse capacity pressure in major producing areas and promote grain production-sales balance, first, it is necessary to continue deepening the reform of the grain circulation system and further improve the grain price formation mechanism and the purchase and storage policy. While continuing to implement the minimum purchase price policy for wheat and rice in 2016, improve the subsidy policies for corn and soybeans, improve the grain purchase and storage policy, and adhere to the principle of keeping close to the market and safeguarding farmers' reasonable returns when determining purchase and storage prices.

Second, major selling areas should take on more responsibility for grain reserves. On the issue of ensuring national grain security, the central and local governments should divide authority, with the central government handling central reserves and local governments handling local reserves. Major selling areas such as Shaanxi, Gansu, Chongqing, Sichuan, Guizhou, Yunnan, Guangxi, Guangdong, Fujian and Zhejiang should strictly implement local reserves according to the grain reserve quantities verified by the state, and achieve a balanced distribution of grain reserves. Increasing the scale of grain reserves in major selling areas will not only help improve the emergency grain supply guarantee capacity of major selling areas, but also help ease the problem of heavy inventory pressure in major producing areas, truly playing a role of "killing two birds with one stone."