How Agricultural Investment Can Explore Public-Private Partnership Models
“The nation takes agriculture as its foundation.” Agriculture is tied to our country's national economy and people's livelihood, food security, farmers' income growth and many other aspects, and our country has always placed agriculture first in the development of the national economy. At present, our country's agricultural industry is in the stage of transformation and upgrading from traditional agriculture to modern agriculture.
In the next 10 years, our country's agricultural industry will enter a period of rapid development. The sound and rapid development of the agricultural industry requires not only solving the problem of capital input, but also solving the problem of effective use of capital, which requires joint public and private resources through model innovation.
Tailored for “agriculture”: public-private cooperation is inevitable
Agricultural products are a special kind of commodity, and their special nature is reflected in the fact that they bear many non-economic functions, such as safeguarding national economic security and ensuring the survival and development of residents. The quasi-public-good attributes of agricultural products determine to a certain extent that the government should bear important functions in their supply. In addition, farmers and enterprises are also important providers of agricultural products. If agricultural products were provided only by government investment or only by private investment, there would be serious deficiencies. Therefore, the supply of agricultural products and the development of the agricultural industry should fully leverage the cooperative effect of “government + enterprises + farmers” through model innovation.
Overall, investment in the agricultural industry has the following characteristics:
Large capital demand. Agriculture itself is a large industry, including land, seeds (livestock), planting, breeding, processing, sales, distribution and many other links. In addition, it also involves agricultural service fields such as pesticides and agricultural machinery. In particular, some specific agricultural sub-sectors require very high capital input, such as livestock breeding. A large industry means large investment. From 2003 to 2012, the central government's cumulative expenditure on “agriculture, rural areas and farmers” exceeded 6 trillion yuan.
Long investment cycle. Crops and livestock have different growth cycles. Taking beef cattle as an example, from calf to finished cattle ready for market takes at least two years, and this does not include the time for earlier-stage breeding, reproduction, and downstream processing and sales. Therefore, agricultural investment funds usually need a long cycle from input to effect.
Limited investment returns and relatively high investment risk. For a long time, the profit level of agricultural production links has been generally low, and investment returns have been limited. At the same time, agricultural production is greatly affected by natural climate conditions, with many uncertain factors, which can often plunge farmers or agricultural enterprises into cyclical fluctuations of “rich one moment, poor the next.”
High requirements for investment professionalism. Agricultural investment is closely related to national agricultural policy, which requires investors to have a relatively deep understanding of agricultural policy and its direction. At the same time, agricultural investment also has relatively high requirements for professional operations management.
⟦NL> Based on the unique attributes of agricultural products and the investment characteristics of the agricultural field, relying solely on input from any one party among the government, farmers or enterprises is insufficient in agriculture; an organic combination of public resources and private resources must be achieved.
The so-called public-private partnership (PPP, short for Public Private Partnerships) model refers to a management model in which, during cooperation between the government public sector and the private sector, the private sector is allowed to participate in providing public goods and services, thereby realizing the functions of the government public sector. Through this cooperation and management process, public goods and services can be provided to society more efficiently while not excluding and appropriately satisfying the private sector's investment profit-making goals.
From the perspective of agricultural investment, public-private cooperation can also be interpreted from another angle: “public” refers to investment pursuing social benefits, and “private” refers to investment pursuing economic benefits. “Public-private cooperation” is not only cooperation between the government and the private sector, but also an organic balancing of social benefits and economic benefits.
“Seed” capital: entering agriculture by using one point to drive an area
Under the public-private cooperation model, public finance should use model innovation to try methods of “priming” capital and “seed” capital, focusing on social benefits while also taking economic benefits into account, using one point to drive an area, promoting, driving and guiding input into agriculture from all social forces, allowing private capital and other social resources to enter the agricultural field, and achieving policy goals.
The China Agricultural Industry Development Fund itself is a brand-new exploration of public-private cooperation in the field of agricultural investment. With serving “agriculture, rural areas and farmers” as its premise, it comprehensively uses multiple financial tools to guide social funds into rural areas, cultivate leading enterprises in agricultural industrialization, and use leading enterprises as a fulcrum to drive the development of an industry and a sector, promote the prosperity of the agricultural economy in a region and a field, fully leverage the fund's radiation effect, leading role and driving function, and strive to play a positive role in promoting social and economic development and helping farmers become prosperous.
In recent years, private capital's enthusiasm for agricultural investment has only increased. How can tens of billions of yuan of funds flow in an orderly manner to the links where the agricultural industry needs them most? How can these funds avoid being wasted or becoming purely speculative investment? This requires both market regulation means and guidance from government departments or other organizations with similar functions. Take Tianjin Lovol Heavy Industry Co., Ltd., in which the fund invested, as an example. By setting up global R&D centers in Italy, Japan and other places and implementing strategically significant cross-border mergers and acquisitions, Lovol Heavy Industry narrowed the gap with foreign competitors in technology and products and gradually formed truly globally competitive technical capabilities. The fund focused on supporting the company's basic R&D while also driving social capital such as Industrial and Commercial Bank of China to support its financial leasing business. In 2013, our country's broiler industry suffered a double blow from avian influenza and a downward industry cycle, leaving it in a difficult situation. Farmers reduced production or exited one after another, large-scale enterprises also suffered widespread losses, and funds were generally tight. Against this background, the China Agricultural Industry Development Fund still invested in Jiangsu Lihua Animal Husbandry Co., Ltd. The fund's involvement greatly strengthened the confidence of social capital and industry enterprises. At the same time, the fund also supported Lihua Animal Husbandry in cooperating with well-known slaughtering institutions in the industry to appropriately develop slaughtering business, transform its operating approach, and improve corporate competitiveness.