Agricultural reclamation reform is imminent, and agricultural reclamation companies look forward to asset injection dividends

Introduction

    Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, told a 21st Century Business Herald reporter: reforming the social functions operated by agricultural reclamation enterprises is relatively easy, as they can be transferred to local governments. The difficulty of the reform is whether the administrative management system of the agricultural reclamation system will be abolished.

    Our reporter Zhang Xu reports from Beijing 

    On October 13, the Central Leading Group for Comprehensively Deepening Reforms approved the "Opinions on Further Promoting the Reform and Development of Agricultural Reclamation" (referred to as the "Opinions"), and the reform of the enormous agricultural reclamation system is about to begin.

    On October 14, Liu Changyou, chairman of Beidahuang (600598.SH), told a 21st Century Business Herald reporter: the direction of this reform has been set, including the corporatization of farms, the groupization of agricultural reclamation, the diversification of property rights, and the separation of the social functions operated by enterprises.

    As a product of development in a special period, the agricultural reclamation system has multiple functions, including administrative, social and enterprise functions. This round of agricultural reclamation reform will involve separating the social functions of farms such as medical care, cultural education and community management, or transfer them to the government departments where the farms are located, so that agricultural reclamation can focus on agricultural production and safeguard national food security.

    Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, told a 21st Century Business Herald reporter: reforming the social functions operated by agricultural reclamation enterprises is relatively easy, as they can be transferred to local governments. The difficulty of the reform is whether the administrative management system of the agricultural reclamation system will be abolished.

    As the agricultural reclamation reform begins, listed companies in the agricultural reclamation system, including Beidahuang (600598.SH), Hainan Rubber (601118.SH), Yasheng Group (600108.SH), Nongfa Seed Industry (600313.SH), Xinzhongji (000972.SZ), Xinnong Development (600359.SH) and others that hold large amounts of land resources, will benefit.

    The difficulty of reform lies in how government and enterprises are separated

    The agricultural reclamation system is a product of a specific historical condition, created to undertake the nation's mission. After the founding of New China, the state successively established state-owned farms in border areas and in various provinces, thus forming an agricultural reclamation management system that combines operational functions with social functions, and the agricultural reclamation system became a rather enormous independent system.

    The current agricultural reclamation system has multiple functions, including administrative management, social security and enterprise functions. With economic development and the deepening of reform, this independent system of agricultural reclamation has become increasingly unsuited to the development of the social and economic situation.

    On October 13, the 17th meeting of the Central Leading Group for Comprehensively Deepening Reforms pointed out that, on the premise of adhering to the direction of the socialist market, we should promote the reform and development of agricultural reclamation, adhere to the separation of government and enterprises and the separation of society and enterprises, take safeguarding national food security and the effective supply of important agricultural products as the core, take promoting the groupization of reclamation areas and the corporatization of farms as the main line, rely on innovation-driven development, accelerate the transformation of the economic development mode, and promote the integration of resources and assets and the optimization and upgrading of industries.

    In interviews over recent years, 21st Century Business Herald reporters have learned that the agricultural reclamation system has problems such as unclear land property rights, an unsound land transfer market, low enterprise operating efficiency and a management mechanism lacking market orientation. These problems have long plagued the development of the agricultural reclamation system.

    Moreover, the agricultural reclamation system also has to undertake social security functions such as public security, procuratorate and court, medical care, and cultural education, making its social burden relatively heavy.

    Liu Changyou told a 21st Century Business Herald reporter: the direction of this reform is the corporatization of farms, the groupization of agricultural reclamation, the diversification of property rights, and the separation of the social functions operated by enterprises. Liu Changyou said that what has been determined now is the general direction of the reform, and the specific reform details have not yet come out.

    Li Guoxiang said that reform of social functions operated by enterprises is relatively easy to handle, either by separating them out to form a separate system or handing them over to the local authorities. The difficulty of agricultural reclamation reform lies in what kind of relationship the current administrative management system has with the economic management system.

    At the end of 2014, Wang Shoucong, director of the Agricultural Reclamation Bureau of the Ministry of Agriculture, pointed out in a speech to the agricultural reclamation system: improve the administrative management and macro-control system of agricultural reclamation. In the process of promoting corporatization reform, the functions and reform priorities of each management level of agricultural reclamation are different. For example, at the central level, the administrative capacity and institutional development of agricultural reclamation should be strengthened; at the provincial level, groupization reform should be promoted, but at the same time the name of the agricultural reclamation management body should be retained to coordinate and implement national policies; at the farm level, internal separation of government from enterprises and society from enterprises should be achieved, the capacity for unified operation should be improved, and the macro-control system should be realized within the administrative framework.

    Data from the Agricultural Reclamation Bureau of the Ministry of Agriculture show that at present the national agricultural reclamation system has 34 reclamation areas, with a total land area of about 540 million mu, accounting for 3.7% of the national territory. In 2014, the crop planting area of the agricultural reclamation system was 109 million mu, total grain output was 35.3807 million tons, and marketable grain available was 32.333 million tons; the total annual output value of agricultural reclamation was 642.037 billion yuan.

    Because the agricultural reclamation system holds abundant agricultural land resources, in April last year the Ministry of Agriculture formulated an agricultural reclamation reform plan. The development path takes the three major strategic agricultural industries of grain, natural rubber and the dairy industry as development priorities, and explores a plan to cultivate international grain merchants; the development goal is that by 2020 the annual marketable grain produced on agricultural reclamation land should reach 100 billion jin, meeting about 35% of the food grain needs of the domestic urban population, and at the same time cultivating 2-3 agricultural enterprise groups to enter the Fortune Global 500.

    Multiple listed companies may benefit

    With the start of agricultural reclamation reform, reclamation areas that hold numerous land resources and play a pivotal role in safeguarding national food security will benefit from the reform, and listed companies backed by these reclamation areas will gain more land asset injections in the groupization of reclamation areas, and the value of the numerous land resources they hold will become apparent.

    According to a review by 21st Century Business Herald reporters, listed companies in the agricultural reclamation system include Beidahuang, Hainan Rubber, Yasheng Group, Nongfa Seed Industry, Xinzhongji, Xinnong Development, Yongan Forestry (000663), Jilin Forest Industry (600189), Wanxiang Doneed (600371) and others, which hold numerous land and forestry resources.

    Companies producing and servicing agricultural materials and farm tools include Huilong Co. (002556.SZ), Dabeinong (002385.SZ), Denghai Seed Industry (002041.SZ), Yituo Co. (601038.SH) and others. As agricultural reclamation reform releases demand for agricultural materials, farm tools and agricultural services, it will bring great opportunities to these enterprises.

    Beidahuang is a listed enterprise under Beidahuang Agricultural Reclamation Group and also the only listed enterprise of Beidahuang Agricultural Reclamation Group. It has 17 farms, 11.58 million mu of arable land and 240,000 hectares of reclaimable wasteland, and its main business is rice and corn cultivation and so on.

    Beidahuang's parent company, Beidahuang Agricultural Reclamation Group, has a jurisdiction area of 56,200 sq km and owns 113 farms, including 2.85 million hectares of arable land and 920,000 hectares of forest land. Among them, only a small portion of the farms have been injected into the listed company. In the future, Beidahuang Group will inject more farms into Beidahuang.