Grain industry chain overwhelmed by market distortions

Currently, there are some puzzling aspects in China's grain production and grain market: on one hand, grain imports are surging; on the other hand, inventory is piling up and selling grain is once again difficult; on one hand, there is the anxiety of “who will grow the grain”; on the other hand, there is the proud achievement of “eleven consecutive years of increase”; on one hand, resource and environmental pressures are increasing day by day; on the other hand, the impulse to simply pursue output shows no sign of abating…… Perhaps some will say that having more grain is always a good thing. However, this only sees the surface of things. Behind the abundance of grain, is the market normal? Are there problems with the grain structure? How can farmers' enthusiasm for growing grain be protected? Is grain production sustainable? These are all questions that require careful study and deep reflection. Reporters from Banyuetan recently conducted in-depth interviews in several major grain-producing provinces and found that ensuring food security is facing new circumstances and tests, and relevant strategies and policy measures have reached a turning point where adjustment is needed.

Grain won't sell, grain farmers want to cry but have no tears —— A frontline investigation from Henan, a major grain-producing province

This year, Henan's total summer grain output exceeded 70 billion jin, an increase for the 13th consecutive year. However, for grain farmers, the joy of a bumper harvest did not last long, because the grain piling up in their hands became a hot potato.

In recent days, Banyuetan reporters visited multiple counties and districts in Henan and found that difficulty in selling grain is rearing its head in some areas. The persistent difficulty in selling grain is also triggering a chain of adverse reactions through the transmission of the grain chain, capital chain and land chain: grain brokers who bought large quantities of grain cannot sell it; large-scale grain growers struggle to keep going and have no money to invest in reproduction; agricultural input dealers face severe credit sales and operating difficulties……

“Right now I'm so anxious I could bite someone”

Recently, the roadsides of Quanqiao Township in Fangcheng County were lined with large trucks selling grain. The shortest-parked of these vehicles had already been at the roadside for four or five days, and the longest had been parked for more than ten days. Drivers reported that Quanqiao has a grain purchasing point entrusted by Sinograin, but it only purchases one or two truckloads of wheat per day. As a result, they can only wait in long lines outside the grain depot and along both sides of the road.

While waiting, the drivers set up hammocks in the woods outside the grain depot gate, seemingly leisurely browsing the internet and resting…… Compared with Sinograin's somewhat “reserved” purchasing, a private purchasing point right next to the grain depot was openly buying wheat. Although the price was only 0.95 yuan per jin, more than 2 mao lower than the protective price, farmers still came to sell grain. “If I don't sell grain, I have no money to spend.” one grain-selling farmer said.

Those unwilling to sell at a low price had no choice but to let it sit. At the home of Li Junping (pseudonym), a grain broker in southern Henan, reporters saw piles of wheat exposed to the air, spreading like undulating small hills from inside the house all the way to outside the courtyard. Scales, woven bags and handcarts were scattered among them. From time to time, pigeons flew down from the roof to peck at the grain. The air gave off a stench blending pigeon droppings and moldy grain……

After this year's new wheat harvest, Li Junping opened his purchasing station and bought 400,000 jin from farmers. “The purchasing lasted 10 days in all, yet the grain sat at home for more than two months without being ‘moved’. I've been in the grain trading business for more than ten years, and this is the first time I've encountered such a situation.”

Another broker who suffered the same difficulty selling grain was Liu Baochen from another place. Because he failed to pay grain payments in time and could not bear the insults of farmers demanding payment, Liu Baochen's 71-year-old father Liu Changzhi hanged himself not long ago.

Liu Baochen explained that he and several partners had purchased more than 2.4 million jin of wheat in total. After exhausting more than 1 million yuan in private loans, more than 1 million yuan in grain payments still could not be paid. Farmers kept coming to demand payment, with nearly 50 people coming in a single day at the most.

“When people demanding money get anxious, they curse. My father is so old, how could he have ever suffered such humiliation? He couldn't get over it and hanged himself.” Liu Baochen said, “Based on past years' experience, the state protective price was 1.18 yuan, we purchased at 1.1 yuan, and after deducting transport and labor, we could earn 2 fen per jin. Who could have imagined this would happen? Right now I'm so anxious I could bite someone.”

Statistics show that as of August 20, Henan Province had purchased a cumulative 34.04 billion jin of wheat, a decrease of 6.12 billion jin compared with the same period last year. Of this, both government market-support purchasing and market-entity purchasing declined markedly compared with the same period last year.

“Grasshoppers tied to the same rope”

As time goes on, the impact of the difficulty in selling grain is gradually transmitting to deeper levels: because the wheat purchased by brokers is hard to unload, grain-selling farmers, including large-scale grain growers, have encountered “IOUs”, and consequently cannot pay the credit sales owed to agricultural input merchants. Everyone has become “grasshoppers tied to the same rope”, and no one's days are easy.

In Yuantan Township, Tanghe County, agricultural input dealer Qin Changchun took out a thick stack of bills. A rough count showed more than 30. On them were recorded, item by item, information about farmers' credit purchases of agricultural inputs, ranging from three to five hundred yuan to tens of thousands of yuan.

“I roughly calculated that as of now there is still more than 2 million yuan in outstanding agricultural input debts, most of it owed on credit from last year's wheat planting. Now the corn is about to be harvested, and some haven't paid a single cent even for two seasons.” Qin Changchun said.

Shi Yihang, also an agricultural input dealer in Tanghe, told reporters that due to the persistent difficulty in selling grain, faced with large amounts of credit sales of agricultural inputs, he was recently forced to adopt the form of offsetting debts with grain to recover owed money. “There were 3 large-scale grain growers whose debts totaled more than 200,000 yuan. There was really no other way, so I had to offset part of the debt with about 100,000 jin of wheat. Otherwise, if the time drags on too long and the amount is too large, we can't bear it either.”

Reporters noted that, unlike ordinary farmers, for large-scale grain growers, grain sales money is equivalent to their working capital for agricultural production. Piles of grain that cannot be converted into cash have produced a “chokehold effect”.

Dong Haijun, a large-scale grain grower in Xiangdian Township, Xi County, said that every year he pays for agricultural inputs after harvesting the crops, but now because the wheat cannot be sold, his agricultural input debts have reached more than 200,000 yuan. “Working capital for grain growing, including purchasing agricultural inputs, cultivation costs and farmers' land rent, mainly depends on grain sales money. If the grain cannot be sold, subsequent turnover will be hard to sustain.”

Yang Xiuli (pseudonym), a large-scale grain grower in another county, felt even more that she was “living in deep water and scorching fire every day”. According to her, last year's disaster plus the current difficulty in selling grain have left her more than 4 million yuan in debt so far, including not only credit sales of agricultural inputs but also 2 million yuan in private lending.

“In the past, after selling this season's grain, I would hurry to repay last season's agricultural input payments and at the same time pay the next season's land subcontracting fee. Now the grain is stuck in my hands, the chain isn't moving, and I can only borrow money everywhere.” Yang Xiuli said.

“Losing too much money, it's hard to avoid running away”

In addition to the chain reactions triggered in the grain chain and capital chain, the difficulty in selling grain also has a negative impact on land transfer and scaled operation, and in some areas there are even signs of lease termination.

Wang Chunyou, an agricultural input dealer in southern Henan, said that many large-scale grain growers are currently barely hanging on and operating at a loss. If the difficulty in selling grain continues without relief, the next step may bring a wave of bankruptcies and closures. “Land transfer rents are high, investment is large, and in places with poor infrastructure, drought and flood cannot guarantee a good harvest. After working hard to harvest grain and then being unable to sell it, if you lose too much money, it's hard to avoid running away.”

In fact, during on-site investigations, reporters have already found some cases of large-scale grain growers running away. Even those struggling to hold on all said that after the autumn harvest ends, they will reduce the scale of contracted land, or even withdraw completely.

In Wolong District, Nanyang City, a grain broker surnamed Yang explained that earlier a person from Zhengzhou had transferred 2,000 mu of land locally. After this year's wheat harvest, he encountered difficulty selling and, after selling it all to him at a low price, ran away.

Liu Yong, a 31-year-old large-scale grain grower in Pingqiao District, Xinyang City, told reporters that he began contracting land in 2009, reaching more than 6,300 mu at the most. Due to poor management in the early stage, he owed more than 2 million yuan and was forced to reduce the area to more than 5,200 mu last year.

“At present, in addition to credit sales of agricultural inputs, I owe more than 1 million yuan just in farmers' land rent, and I've also borrowed more than 600,000 yuan outside at a monthly interest of 3 fen in usury. I kept thinking I could turn things around, but who knew I'd run into difficulty selling grain again.” Liu Yong said, “After this autumn ends, I plan to return all the land. The contracts haven't expired, so disputes with farmers are very likely, but I can't worry about that anymore.”

Liu Xueyou, a large-scale grain grower in Xi County, said the wheat unsalable situation has not been seen for many years, and he hopes it can attract attention from all sides. “Promptly introduce measures to untie the ‘dead knot’ and get these chains moving. For large-scale grain growers, one year of loss often means three years. If they can't see prospects, it's easy for them to give up.”

Does China have too much grain?

What is the reason grain won't sell? Is it because China has too much grain? If there is too much grain, why has China's grain import volume repeatedly hit new highs? Data show that in the first half of this year, China imported a cumulative 16.29 million tons of cereals and cereal flour, including wheat, corn and barley, a year-on-year increase of more than 60%. Where is the problem?

Price inversion, imports surge

Qi Tingjun, a large-scale grain grower at Qianjin Farm under the Jiansanjiang Administration of Heilongjiang State Farms, has been engaged in rice cultivation for more than 20 years. This year he planted more than 600 mu of rice. Qi Tingjun told reporters that before 2004, because there was no market-support purchasing policy, grain prices fluctuated wildly and grain-growing returns could not be guaranteed. After 2004, the state implemented a minimum purchase price policy for rice and raised the price year by year, and his grain-growing returns also got better and better.

“There's no need to worry at all that the rice won't sell. With the minimum purchase price as a floor, we just sell the grain to the local Sinograin.” Qi Tingjun said.

Qi Tingjun's choice was also the choice of many farmers. Over the past 10 years, the minimum protective price and temporary purchase and storage policies greatly mobilized farmers' enthusiasm for growing grain, and at the same time domestic grain prices also rose for many consecutive years. At present, China's grain market has seen multiple inversions, including inversion between domestic and international grain prices, inversion between main producing areas and main sales areas, and inversion between finished grain and raw grain prices.

Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, said that China has kept raising grain purchase prices because the cost of farming has risen. For example, in the past farmers grew grain on their own land, so there was no land rent cost, but now with land transfer and scaled operation, there is a rent cost. Reporters learned that this year in Heilongjiang, Shandong and other places, land transfer prices rose sharply, with increases in many places exceeding 20%.

Ye Xingqing, director of the Rural Department of the Development Research Center of the State Council, said that judging from China's stage of development and natural endowments, grain price inversion is an inevitable trend. Given China's national conditions of many people and little land, at the current stage of development, labor costs and agricultural product costs have risen sharply. “But two special factors caused the timing to arrive earlier: one is that we ourselves raised purchase prices year after year, and the other is that international market grain prices fell in recent years, which pushed the arrival of grain price inversion earlier.”

Experts said that inversion between domestic and international prices has led to a surge in grain imports, and inversion between domestic regions has led to a decline in the enthusiasm of main sales areas to purchase grain from main producing areas. These are important reasons for the current difficulty in selling grain.