Selling Grain Is Hard, Stacked on Top of Debt-Financed Farming: China's Grain Subsidies Are Less Than One-Tenth of Europe's and America's

Economic Observer reporter Jiang Yunzhang: “Wheat is falling, corn is falling too. This year's grain prices are truly baffling!” A bumper grain harvest is normally a happy occasion, but Liang Yukui (pseudonym), a large-scale grain farmer in the Yunan area of Henan Province, cannot bring himself to feel glad at all.

A few years ago, in response to the call of the Ministry of Agriculture and the Henan provincial government, Liang Yukui rented more than 700 mu of land locally, bought seeders, harvesters and other farm machinery, and began growing grain. It was not until last year that Liang Yukui finally paid off, more or less, the bank loans and the money borrowed from relatives and friends. What he had not expected was the sharp plunge in wheat and corn prices in 2015. He said that now the grain cannot be sold, and the several-hundred-thousand-yuan in deferred agricultural input payments definitely cannot be repaid.

Liang Yukui told the Economic Observer that on the one hand he is trying to sell the grain at low prices to pay off the debts for agricultural inputs and land rent first, and on the other hand he is planning to sharply reduce the scale of his rented land and even withdraw completely from renting land to grow grain. He said, “Many contracts have not yet expired, and there will certainly be disputes with many people, but I really cannot worry about these things anymore!”

Henan is a major grain-producing province and the largest wheat-producing province. It is reported that this year many large-scale grain farmers in Henan have mostly encountered the same predicament as Liang Yukui. Because of the chain reaction caused by the difficulty of selling grain, not only are large-scale grain farmers unable to continue, but even some grain brokers and agricultural input dealers have been dragged in. Such a predicament may affect the land transfer and large-scale agricultural operations and other agricultural reforms that local governments are promoting.

Multiple grain experts analyzed and said that in recent years, from the central government to local governments, farmers have been encouraged to actively grow grain and large-scale grain farmers have been encouraged to develop, but now in Henan, Jilin, Heilongjiang and other major grain-producing areas, a relatively severe difficulty in selling grain has emerged, which shows that the relevant grain regulation strategies and policy measures have reached a juncture where adjustment is urgently needed.

Among the three major staple grains whose market prices have fallen across the board, corn has dropped the most, with a maximum decline of 30% compared with last year. Liu Shi, who once held an important position at Monsanto Far East Company and served as president of Longping High-Tech Co., Ltd., believes that the sharp fall in corn prices is related not only to domestic corn stocks being overflowing and to the severe inversion with international corn prices. There is also an extremely important point: it is related to the temporary corn purchase and storage price announced by the National Development and Reform Commission and other parties on September 20. Unexpectedly, this year the state's policy-based corn purchase price was lowered for the first time, down 0.13 yuan per market catty from last year's highest purchase price.

According to past convention, the state's policy-based market-support purchase prices have increased year by year. This is the first time the National Development and Reform Commission has lowered the policy-based corn purchase price. Feng Lichen, president of China Corn Network, Ma Wenfeng, an analyst at Orient Agribusiness Consulting, and others analyzed and said that the relevant parties should reform grain regulation policies, including grain imports and purchase and storage, as early as possible, and increase subsidies to grain farmers.

An expert close to the National Development and Reform Commission said in an interview with the Economic Observer that the central government's annual expenditure on agriculture, rural areas and farmers is now about 1.5 trillion yuan, and subsidies to grain farmers are roughly about 90 yuan per mu, which is vastly different from the subsidies some European and American countries give to agriculture and farmers. Calculated out, China's direct subsidies to farmers now account for only about 3% of farmers' income, while in European and American countries it is as high as 40%. Therefore, whether viewed from China's national conditions or from the angle of safeguarding food security, the intensity of subsidies to agriculture and farmers should be substantially increased.

Difficulty Selling Grain

This year's difficulty in selling grain began with the summer grain. This newspaper has learned that there were two main reasons: first, there were relatively few grain collection depots implementing the policy; second, the wheat quality was not high. The most severe difficulty in selling grain occurred in Henan Province.

This year Henan's wheat output was 70 billion jin, achieving a historic breakthrough, but the accompanying difficulty in selling grain also made grain farmers, especially large-scale grain farmers, suffer greatly. It is reported that as of now, many large-scale grain farmers still have not sold the wheat in their hands.

A large-scale grain farmer in Zhenping County, Nanyang City, Henan Province, told the Economic Observer that since 2012, the grain management offices in Pengying, Wanggang Township, Gaoqiu Town and other townships in the county have all stopped purchasing wheat, and local people who want to sell grain can only go to the China Grain Reserves depots dozens of kilometers away. Several large-scale grain farmers in Fangcheng County, Nanyang City, also reported similar problems, causing the wheat harvested this year to be unsellable.

According to Jiao Shanwei, president of the Yida Research Institute of China Grain Network, there are also relatively large differences in how large-scale grain farmers in Henan Province sell wheat. Sales in northern Henan, where wheat quality is better, have not been greatly affected, and the difficulty in selling grain is mainly concentrated in southern Henan. During this year's wheat harvest, Nanyang, Xinyang, Zhumadian, Zhoukou, Pingdingshan and other cities in Henan Province suffered successive rainfall, causing wheat to develop fusarium head blight, black point disease and excessive unsound kernels. To a certain extent, this also caused these places to experience a relatively severe difficulty in selling grain.

It is not only large-scale grain farmers who are troubled by falling wheat prices and the difficulty of selling grain; even some grain traders and agricultural input dealers in Henan are complaining bitterly. Hou Zhengguang of Xihejing Village, Baidaokou Town, Hua County, Anyang City, reported that this year he purchased a total of 2,000 tons of wheat at a price of about 1.2 yuan/jin, and because prices kept falling, he still had 200-300 tons of wheat unsold; in Yuantan Town, Tanghe County, Nanyang City, agricultural input dealer Qin Changchun was owed more than 2 million yuan by local grain farmers, most of which was credit owed when planting wheat last year.

Ma Wenfeng, an analyst at Orient Agribusiness Consulting, and others analyzed and said that since the beginning of autumn this year, the prices of the three major staple grains have all fallen. Compared with the same period last year, corn has fallen by more than 20% on average, wheat by about 10%, and rice has seen the smallest decline. Now the new-season corn in Northeast and North China has already come onto the market. Ma Wenfeng and other analysts worry that this year's difficulty in selling grain will extend from Henan to Northeast China and other major grain-producing areas. If this continues, it will cause relatively large damage to the interests of grain farmers, especially some large-scale grain farmers, and dampen farmers' enthusiasm for growing grain.

Lou Yuanjun, a large-scale grower in Shilipu Village, Xiaotan Township, Yanjin County, Henan Province, told the Economic Observer that he rented more than 580 mu of land at a price of about 900 yuan per mu per year. In the past two years his economic returns had just begun to recover, but this year he encountered falling grain prices and lost all his savings. For large-scale grain farmers, it is often “one year of loss takes three years to recover.”