Grain Price Inversion Leads to Surge in Grain Imports: Farmers Cannot Sell the Grain They Grow
Grain Won't Sell, Grain Farmers Want to Cry but Have No Tears——Does China Have Too Much Grain?
Author: Gao Yuanzhi, Zhou Mian, Wu Tao Source: Banyuetan Website Editor: Yuan Bixia
Editor's Note: At present, China's grain production and grain market have some puzzling aspects: on the one hand, grain imports are surging; on the other hand, stockpiles are piling up and difficulty in selling grain has struck again. On the one hand, there is anxiety about “who will grow the grain”; on the other hand, there is the proud achievement of “eleven consecutive increases.” On the one hand, pressure on resources and the environment is growing daily; 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 the matter. Behind having more 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. Banyuetan reporters recently went deep into several major grain-producing provinces for interviews and found that safeguarding food security is facing new circumstances and tests, and that relevant strategies and policy measures have reached a juncture 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 rising in some localities. The persistent difficulty in selling grain also transmits through the grain chain, capital chain and land chain, triggering a chain of adverse reactions: grain brokers hoard large amounts of grain that then cannot be sold; large grain-growing households struggle to keep going and have no money to invest in reproduction; agricultural input dealers face serious credit sales and operational difficulties……
“Right now I'm so anxious I could bite someone”
Recently, the roadsides of Quanqiao Township in Fangcheng County were packed with large trucks selling grain. These vehicles had been parked by the roadside for as little as four or five days and as long as more than ten days. Drivers reported that Quanqiao had a grain purchasing point entrusted by Sinograin, but it only bought one or two truckloads of wheat per day. As a result, they could only wait in long lines outside the granary and along both sides of the road.
While waiting, drivers set up hammocks in the woods outside the granary gate, seemingly leisurely surfing the internet and resting…… Compared with Sinograin's somewhat “reserved” purchasing, a private purchasing point next to the granary was buying wheat openly. Although the price was only 0.95 yuan per jin, more than 0.2 yuan below 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 could only let it sit in their hands. At the home of Li Junping (pseudonym), a grain broker in southern Henan, reporters saw piles of wheat exposed to the air, spreading like rolling small hills from inside the house all the way beyond 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 combining 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. “I kept buying for 10 days in total, and it sat at home for more than two months without being able to ‘move.’ 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 in a different location, Liu Baochen, suffered the same difficulty in selling grain. 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 said that he and several partners had collected more than 2.4 million jin of wheat in total. After spending 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 was old and had never suffered such humiliation. He couldn't get over it and hanged himself,” Liu Baochen said. “Based on past experience, with the state protective price at 1.18 yuan, we bought at 1.1 yuan, and after deducting transport and labor, we could earn 2 fen per jin. Who could have thought 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 total of 34.04 billion jin of wheat, a decrease of 6.12 billion jin compared with the same period last year. Both government market-support purchases and purchases by market entities declined significantly compared with the same period last year.
“Grasshoppers tied to the same rope”
As time passed, the impact of the difficulty in selling grain gradually transmitted to deeper levels: because the wheat purchased by brokers was hard to move, grain-selling farmers, including large grain-growing households, encountered “IOUs,” and consequently could not pay the credit-sale amounts owed to agricultural input merchants. Everyone became “grasshoppers tied to the same rope,” and no one's days were 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 of them. 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 up to now there is still more than 2 million yuan in outstanding agricultural input debt, 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 for two seasons in a row,” Qin Changchun said.
Shi Yihang, also an agricultural input dealer in Tanghe, told reporters that under the impact of the persistent difficulty in selling grain, faced with a large amount of credit sales of agricultural inputs, he had no choice but to adopt the form of offsetting debt with grain to recover arrears not long ago. “There were 3 large grain-growing households 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 dragged on too long and the amount was too large, we couldn't bear it either.”
Reporters noted that, unlike ordinary farmers, for large grain-growing households, grain-sale proceeds are equivalent to their working capital for agricultural production. With piles of grain impossible to cash in, a “chokehold effect” was created.
Dong Haijun, a large grain-growing household 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 debt has reached more than 200,000 yuan. “The working capital for growing grain, including buying agricultural inputs, cultivation costs and farmers' land rent, mainly depends on grain-sale proceeds. If the grain cannot be sold, subsequent turnover will be hard to sustain.”
Yang Xiuli (pseudonym), a large grain-growing household 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 had left her more than 4 million yuan in debt, including not only credit-sale amounts for agricultural inputs but also 2 million yuan in private borrowing.
“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 land subcontracting fee for the next season. Now the grain is stuck in my hands, the chain isn't moving, and I can only borrow everywhere,” Yang Xiuli said.
“When you lose 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 had a negative impact on land transfer and large-scale operations, and in some localities there were even faint signs of lease withdrawal.
Wang Chunyou, an agricultural input dealer in southern Henan, said that many large grain-growing households are currently struggling to maintain operations and operating at a loss. If the difficulty in selling grain continues to go unrelieved, the next step could bring a wave of bankruptcies and closures. “Land transfer rents are high and 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, when you lose too much money, it's hard to avoid running away.”
In fact, during on-site investigations, reporters already found some cases of large grain-growing households running away. Even those barely hanging on all said that after the autumn harvest they would reduce the scale of contracted land, or even withdraw completely.
In Wolong District, Nanyang City, a grain broker surnamed Yang said that a person from Zhengzhou had previously transferred 2,000 mu of land locally. After this year's wheat harvest, he encountered difficulty selling and, after selling everything to him at a low price, ran away.
Liu Yong, a 31-year-old large grain-growing household in Pingqiao District, Xinyang City, told reporters that he began contracting land in 2009, reaching more than 6,300 mu at the most. Poor management in the early period left him more than 2 million yuan in debt, and last year he was forced to reduce the area to more than 5,200 mu.
“At present, in addition to credit sales for agricultural inputs, I owe more than 1 million yuan in land rent to farmers alone, and I've also borrowed more than 600,000 yuan in usurious loans at a monthly interest rate of 3 fen. 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 contract hasn't expired, so disputes with farmers are very likely, but I can't worry about that anymore.”
Liu Xueyou, a large grain-growing household in Xi County, said the wheat unsalable situation had not been seen for many years and he hoped it would attract attention from all sides. “Promptly introduce measures to untie the ‘dead knot’ and get these chains moving. For large grain-growing households, one year of loss often means three years of loss. If they see no prospect, it is very easy for them to give up.” (Banyuetan reporter Zhang Xingjun)
What is the reason the grain won't sell? Is it that China has too much grain? If there is too much grain, why does China's grain import volume repeatedly hit new highs? Data show that in the first half of this year, China imported a cumulative total of 16.29 million tons of grains and grain flour, including wheat, corn and barley, a year-on-year increase of more than 60%. Where is the problem?
Price Inversion, Import Surge
Qi Tingjun, a large grain-growing household at Qianjin Farm of the Heilongjiang Land Reclamation Jiansanjiang Management Bureau, 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 sharply and the returns from growing grain 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 returns from growing grain became better and better.
“There's no need to worry at all that the rice can't be sold. 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 stimulated farmers' enthusiasm for growing grain, while at the same time domestic grain prices also rose continuously for many 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.
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 increased. For example, in the past farmers farmed their own land and there was no land rent cost, but now with land transfer and large-scale operations, 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, by the current stage of development, labor costs and agricultural product costs have risen sharply. “But two special factors caused the timing to arrive early: 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 prompted the early arrival of grain price inversion.”
Experts said that domestic and international price inversion 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.