How big is the impact of lower grain prices on new rural business entities?
Close attention should be paid to the chain reactions triggered by lower grain prices, and precautions should be taken to prevent localized difficulties in selling grain from turning into large-scale, systemic difficulties in selling grain, which would in turn deal a blow to the growing new rural business entities
From the start of summer grain purchasing to the concentrated listing of autumn grain, Outlook Newsweek reporters, conducting continuous follow-up interviews along multiple major producing provinces including Henan and Hubei, found that due to consecutive years of bumper grain harvests and the continued one-way rise in support prices, many new trends have emerged in current grain circulation and purchasing and storage: inventories in some areas are high, and policy-based purchasing pressure is relatively great; market purchasing and sales are weak, and the traditional peak season has reversed into an off-season; the weakening trend is spreading from a single variety to multiple varieties. In some places, after queuing to sell grain became "normalized," some purchasing points even saw the phenomenon of "pulling strings" in order to sell grain.
Industry insiders and experts call for the following: as policy-based grain purchasing and storage enters a window period for adjustment, all localities should pay close attention to the chain reactions triggered by price cuts and guard against localized difficulties in selling grain turning into large-scale, systemic difficulties in selling grain. It is necessary to protect farmers' enthusiasm for growing grain and prevent declining grain-growing returns from slowing the process of agricultural scaling, or even triggering a slide in grain production.
500 yuan in kickbacks to sell grain once
In the courtyard of the Huangchuan Directly Subordinate Depot of Sinograin in Henan, all kinds of grain-selling vehicles lined up in a queue stretching forward. Not far away, people who had finished weighing were busy unloading grain. Along the continuously rotating conveyor belt, golden rice slowly flowed into the warehouse.
In front of a farm tricycle in the queue, farmer Guo Ruimin from Sanpi Town, Huangchuan County, told Outlook Newsweek reporters that this was the first time he had sold grain after this year's mid-to-late rice harvest. "The whole family has 12 mu of land, with an average yield of nearly 1,000 jin per mu. The grain dealer's purchase price is 1.18 yuan, but hauling it here can fetch more than 1.3 yuan."
Unlike Guo Ruimin's concern about grain prices, Zhang Ming, deputy director of the Huangchuan Directly Subordinate Depot, was more worried about the current warehouse capacity situation. According to him, the Huangchuan Directly Subordinate Depot and entrusted depots in its jurisdiction stored a total of 2.64 million tons of grain and oil. Although located in a rice area and not participating in summer grain support-market purchasing, after inventory checks only more than 400,000 tons of empty warehouse capacity remained. "Since the launch of autumn grain support-market purchasing on October 1, more than 100,000 tons of rice have already been purchased. Based on support-market purchasing volumes in previous years, the warehouse capacity gap is expected to possibly reach 500,000 tons."
At the Magangji Township Grain Station in Gushi County under the Huangchuan Directly Subordinate Depot, Outlook Newsweek reporters saw that although the warehouses were both small and old, the entire 15,000-ton warehouse capacity was full to bursting. On the gate of each warehouse hung a "Grain Rights Notice Board" uniformly produced by Sinograin. In neighboring Guangshan County, Guo Caiyuan, director of the County Grain Bureau, also admitted that the county's total rice output was more than 600,000 tons, but the state-owned grain system had only more than 6,000 tons of empty warehouse capacity, and warehouse capacity for autumn grain support-market purchasing was very tight.
Statistics show that this year Henan's summer grain again achieved a bumper harvest, realizing thirteen consecutive increases, with total output crossing the 70 billion jin mark for the first time; on the autumn grain side, sample analysis by relevant departments of 81 surveyed households in 9 counties also showed that crops such as corn, soybeans, and medium indica rice across the province all saw obvious per-unit yield increases and some quality improvement. With output increasing on one side and warehouse capacity tight on the other, under this double squeeze, queuing to sell grain thus entered "normalization."
In Hunan Province, one of the major rice-producing areas, as some depots filled up, some farmers had to travel long distances across regions to sell grain. Zhou Jinhong, chairman of Jinshan Grain and Oil Company in Kaihui Town, Changsha County, Hunan, introduced that because surrounding depots were full, the company's grain purchasing radius had expanded to 50 kilometers, with the farthest grain farmers even coming from Youxian County, 200 kilometers away.
This magazine's reporters noted that as the pressure of queuing to sell grain increased, at some depots with limited warehouse capacity, the phenomenon of "pulling strings" to cut in line to sell grain even appeared. Zhang Zhenhai, a grain broker from Fudian Town, Huangchuan County, introduced that within a 30-kilometer radius this year, only one Sinograin entrusted depot in Baidian Town was still opening its warehouses to purchase grain. More than 100 vehicles were queued, but fewer than 10 vehicles could be unloaded in a day.
"I hauled more than 50,000 jin of grain and have already waited a week without selling it. Some have queued even longer, waiting more than 10 days. But some people can unload as soon as they arrive. Upon asking around, they were selling 'favor grain,' and each time had to give the quality inspector about 500 yuan in kickbacks. Then they could get quality inspection without queuing, and after inspection go directly to weighing and warehousing."
Grain-growing returns fall by more than 30 percent at most
In addition to obvious localized difficulties in selling grain caused by tight warehouse capacity, Outlook Newsweek reporters found through further research that under the strong dominance of the policy market, current grain circulation and purchasing and sales links also show complex hidden characteristics of selling difficulties. Three major trends deserve attention: the support-market purchasing process is noticeably prolonged; market-based entities are weak in purchasing and sales, and the traditional peak season is not prosperous; and the weakening trend is spreading from a single variety to multiple varieties.
Data from the Henan Provincial Grain Bureau show that as of September 30, the province's wheat support-market purchasing had concluded. The province had purchased a cumulative 40.1 billion jin of wheat, of which 17.9 billion jin was purchased at the minimum purchase price and 22.2 billion jin at market price. If calculated based on total summer grain output of 70 billion jin, farmers still held as much as nearly 30 billion jin of wheat in their hands.
Li Ming, director of the Purchasing and Sales Planning Division of Sinograin Henan Branch, told reporters that in addition to a year-on-year decline in purchase volume, the obvious prolonging of the support-market purchasing process was the biggest feature this year. "Based on experience from previous years, summer grain support-market purchasing starts at the end of May, and after entering July the purchase volume generally drops markedly, basically entering the final stage. But this year, as of September, the average daily purchase volume still reached 20,000 tons, while in the same period last year there was basically no progress. The main reason is insufficient market purchasing and sales momentum, with most grain sources entering the support-market scope."
Because support-market purchasing caused the price of raw grain to continue rising one-way, the grain processing industry as a whole was sluggish, and most enterprises adopted the practice of purchasing while processing in order to reduce costs. Even the "Golden September and Silver October" pattern of the traditional purchasing and sales peak season was broken.
Deng Shenglong, general manager of Yinxin Rice Industry Company of Fuwa Group in Jianli County, Hubei, introduced that the county's rice output was 130,000 tons, his own enterprise processed 40,000 tons, and after deducting 10,000 tons for support-market purchasing, the remaining portion could usually be fully absorbed by a large number of small and medium-sized enterprises. However, under the pattern of strong grain and weak rice, many small enterprises were operating below capacity, and purchasing and sales were obviously sluggish.
Zhang Zhixian, deputy director of the Yida Research Institute of Chinagrain.com, pointed out that generally speaking, with the start of the new school term at universities and the arrival of the Mid-Autumn and National Day holidays, the operating rate of flour enterprises continues to rise, and the wheat market forms a "Golden September and Silver October" purchasing and sales peak season. However, because current market supply is sufficient and everyone generally takes a bearish view of the future market, the phased upward market trend of previous years did not appear.
From the perspective of varieties, among the three major staple grains, the trend of the weakening market spreading from a single variety to other varieties is also becoming prominent. In Jianli County, the purchase price of medium rice, whose purchasing began in early to mid-August, fell all the way from 1.42 yuan to 1.35 yuan. Dong Huaiyong, director of the county grain bureau, said that if support-market purchasing had not been launched, difficulties in selling grain would very likely have appeared; Ding Zhaoshi, deputy director of the Shandong Grain Bureau, introduced that when local new wheat came onto the market, prices fell somewhat compared with last year and remained weak throughout. After support-market purchasing was launched in some areas, the market only fluctuated slightly around the support price.
Shen Hongyuan, an analyst at the Zhengzhou Grain Wholesale Market, believes that from the phased surplus of corn in Northeast China in recent years to the current sluggish purchasing and sales of rice and wheat, the spreading trend of market weakness among several major staple grain varieties deserves attention.
The sluggish market has already had a negative impact on grain-growing returns. The Henan Provincial Price Cost Investigation and Supervision Bureau's recent research on input and output for autumn grain showed that although output increased somewhat, overall autumn grain planting returns generally showed a downward trend.
Corn fell from 1.12 yuan/jin in July and August 2015 to the current 0.71-0.81 yuan/jin, a maximum decline of 36.61%; soybeans also fell from 2.41 yuan/jin to the current 1.92 yuan/jin, an average decline of 20.33%; medium indica rice fell from 1.35 yuan/jin last year to the current 1.18 yuan/jin, a decline of 12.59%. On the other hand, the year-on-year increases in production costs for the three were 3.31%, 2.75%, and 2.19%, respectively. Under the double squeeze of rising costs and falling prices, planting returns inevitably declined. Taking corn, which had the largest decline, as an example, the average cash return per mu in 2015 was 484.35 yuan, a decrease of 230.09 yuan from 714.44 yuan the previous year, a decline of more than 30 percent.
New business entities hit by difficulties in selling grain
In response to the continuously weakening market situation, major grain-producing areas have, on the one hand, implemented support-market purchasing plans as scheduled, and on the other hand, adopted multiple measures to increase warehouse capacity by tapping potential. In addition, local governments have also actively carried out production-sales matching activities.
Tang Xuejun, director of the Regulation Division of the Hubei Provincial Grain Bureau, pointed out that as inventories remain high and domestic and international grain prices are severely inverted, the policy-based grain purchasing and storage system that has been implemented for many years is facing a window period for adjustment. Although striving to realize the "separation of price and subsidy" and letting grain prices return to the market is the general direction for the future, under circumstances where short-term reform cannot be fully put in place, all localities should especially guard against the possible emergence of large-scale difficulties in selling grain and their chain reactions.
"As of now, the area of contracted cultivated land transferred in rural China has reached 380 million mu, accounting for 28.8% of the total contracted cultivated land area. Large grain-growing households, family farms, and other new business entities are still in the developmental stage." Tang Xuejun said, "Once a bumper grain harvest does not bring increased income, this group will be the first to suffer. If their enthusiasm is dampened, the negative impact will inevitably be transmitted to the ongoing land transfer and agricultural production scaling process, and may even trigger a slide in grain production."
In fact, Outlook Newsweek reporters' continuous follow-up interviews in many places in Henan have already found that difficulties in selling grain in the new period are quietly triggering a systemic "chemical reaction" through the transmission of the grain chain, capital chain, and land chain: after large amounts of grain were purchased, sales stalled, and some grain brokers were pressed by debt; large grain-growing households struggled to keep going, borrowing money or lacking funds to invest in reproduction; agricultural input dealers had serious credit sales and faced operational difficulties......
Xing Changyin, vice chairman of the Tushengjin Planting Cooperative in Tanghe County, Henan, introduced that since the cooperative was established, it has subcontracted more than 800 mu of land and managed more than 2,000 mu. This year's total wheat output was 720,000 jin. Because of poor quality and low selling prices, it had originally hoped to turn things around after the autumn grain came in, but who knew that after more than 600,000 jin of corn was harvested and listed, the price also fell to seven or eight mao per jin.
"The previous season's crops left more than 800,000 yuan in fertilizer debt, and after selling wheat we finally managed to pay it back. After the autumn harvest we ran into difficulties selling corn again, and this time we had no choice but to take out another loan of more than 300,000 yuan to plant wheat. When the cooperative was established, for good luck it was named 'Tushengjin,' and now it has become 'Tusheng troubles.'" Xing Changyin said.
Tang Daoli, a large grain-growing household in Sheqi County, Henan, calculated an account: this year the per-mu yields of wheat and corn were 1,000 jin and 1,200 jin respectively, the local average selling price of wheat was 0.95 yuan/jin, and the current corn price was only 0.72 yuan/jin. Thus the annual income per mu was 1,814 yuan. After deducting the contracting fee of 850 yuan, as well as 1,050 yuan in input, irrigation, and labor costs for the two seasons, there was still a loss of 86 yuan.
"Since 2008, I rolled the snowball and contracted more than 2,800 mu of land, and by this autumn I had already reduced the scale to less than 2,000 mu. Next year, if the market, land rent, and input costs remain unchanged, I estimate that only a scale below 1,000 mu will count as safe." Tang Daoli said, "Now large grain-growing households are all in deep water, land has become a hot potato, and everyone is throwing out subcontracted land one after another."
Yang Jun, a professor at the University of International Business and Economics, told this magazine's reporters that systematic research on domestic grain production since reform and opening up shows that the factors affecting output fluctuations mainly include natural disasters, economic growth, agricultural fiscal expenditure, and grain-growing returns, among which the latter has the most direct impact on farmers' enthusiasm for growing grain and is also the decisive factor related to grain output.
"Looking at China's grain fluctuations from 1978 to 2013, whenever the planting profit rate was relatively high, grain output increased; if the grain profit rate was too low, it easily led to sustained output declines. It is suggested that while reforming the support-market policy, changes in grain production profitability should be monitored to ensure that farmers' grain-growing profit rate remains at a reasonable level and to stabilize grain production."