National grain stocks hit a record high, with sales, transport and storage facing difficulties

Grain stocks hit a record high; experts urge reflection on price signals

China's grain stocks are climbing toward a record peak.

Taking corn as an example, according to estimates by the China Grain Network, China's temporary reserve corn surplus has now reached as high as 150 million tons, while this year China's new-season corn output has again increased, and is expected to reach 219.7 million tons. Not only corn: based on the quantity of policy-driven grain purchases and auction transactions, the China Grain Network estimates that China's policy-driven wheat stocks stand at about 40 million tons, and rice stocks are equally abundant.

And data show that in 2014 China's grain imports exceeded 100 million tons for the first time. With production, imports and inventories all rising at once, has China's grain price given the correct signal?

Recently, public opinion put this question to Chen Xiwen, deputy head and director of the office of the Central Rural Work Leading Group. Chen Xiwen believes the cause of this problem is mainly that domestic grain prices are not competitive, and the deeper reason is that China's agricultural structure is irrational.

However, he still said that the "11 consecutive increases" in domestic grain production played an extremely important role in successfully responding to the global financial crisis, and the positive significance of grain output increases should be affirmed. In Chen Xiwen's view, the problem lies in the need to accelerate the transformation of agricultural production methods; otherwise China's agricultural shortcomings cannot be made up, and Chinese agriculture cannot escape its predicament. "Chinese agriculture must consider how to produce products that better meet demand and are more efficient to produce."

Chai Ning, a senior analyst at the China Grain Network Yida Research Institute, and Shen Hongyuan, a senior analyst at the Zhengzhou Grain Wholesale Market, and others said that the simultaneous increase in the three quantities has become a new normal, and China's grain market and agricultural development need more time for adjustment and opportunities for improvement.

The above experts suggest that requirements for output can be moderately lowered, and that by adjusting China's agricultural planting structure during a period of a relatively high 'stock-to-consumption ratio', moderate fallowing can be carried out and farmers given appropriate subsidies; or that the period of simultaneous increases in the three quantities can be used to adjust the domestic extensive production mode, and by increasing imports and expanding the release of reserves, pressure on domestic water resources, environmental resources and production and planting can be eased.

Granaries in emergency

On October 8, the State Administration of Grain issued a notice using two "unprecedented" phrases to describe the current grain storage situation: "At present China's grain inventory has reached a new high; the quantity of grain stored by various grain and oil storage enterprises is unprecedented in scale, and the quantity of state policy-driven grain stored in open-air and simple storage facilities is also unprecedented."

The high inventories have brought tension to granaries.

The Economic Observer learned that at present, the corn, rice and other stored grain in the jurisdiction of the Jilin branch of Sinograin is severely overloaded, with corn the most serious; the current warehouses are already full, and the grain cannot be sold, dispatched or stored.

In Henan, the largest wheat-producing province, after many consecutive years of launching the wheat minimum purchase price policy, the problem of tight state warehouse capacity is equally prominent. According to relevant personnel from the Henan branch of Sinograin, as of now the policy-driven grain purchased and stored in Henan's jurisdiction has exceeded 30 million tons. Because warehouse capacity is insufficient, policy-driven grain purchase and storage can no longer be launched.

For this reason, the Ministry of Finance has already pre-allocated 23.8 billion yuan in subsidy funds for interest and storage fees for policy-driven grain and oil for the first quarter of next year, to support Sinograin in actively securing grain purchase funds and strengthening warehouse storage and preservation.

With insufficient granary capacity, where exactly has the problem arisen?

Zhang Zhixian, vice president of the Yida Research Institute, said, "Because grain minimum purchase price policies have been implemented for many consecutive years, the current policy-driven pricing has deviated from normal market grain prices, and this has also made the structural imbalance among domestic grain varieties increasingly prominent."

He believes that grain purchase and storage policy has stabilized Chinese farmers' incomes and is an important driving force behind consecutive years of domestic grain output increases, but continuous policy-driven purchase and storage has also caused large amounts of grain to enter state inventories, while state policy-driven grain auctions sell poorly; accumulated and compounded over many years, this has ultimately caused tight granary capacity in some regions.

As for the Ministry of Finance's large pre-allocated funds, Jiao Shanwei, president of the China Grain Network Yida Research Institute, analyzed that supplementing warehouse capacity is, after all, only a temporary fix, not a fundamental solution. At present, China has shortcomings in grain logistics, emergency supply systems, grain and oil quality inspection and monitoring, grain situation monitoring and early warning, and promoting grain conservation and loss reduction, and relevant parties should consider adjustments and reforms to grain purchase and storage policy comprehensively from these aspects, tackling them one by one.

Zhang Zhixian suggested that "subsidies to grain-growing farmers should be increased; on the premise of ensuring farmers' grain-growing income, the process of price formation mechanism reform should be accelerated, so that prices reflect true supply and demand and guide the adjustment of planting structure."