China's Agricultural Industry Development: Born for Agriculture, Seizing the Moment
To innovate the way fiscal support is provided to finance agriculture and actively leverage the guiding role of fiscal funds, the Ministry of Finance, in accordance with the spirit of the Central No. 1 Document and the plan approved by the State Council, together with shareholder entities such as the Agricultural Development Bank of China, China Cinda Asset Management Co., Ltd. and CITIC Group Corporation, initiated the establishment of the China Agricultural Fund at the end of December 2012 and began substantive operations in 2013.
According to the establishment plan of the China Agricultural Fund, the fund's basic goal is to achieve an organic combination of policy guidance and market operations, driving and guiding social funds toward “agriculture, rural areas and farmers”; its positioning emphasizes serving “agriculture, rural areas and farmers” as a precondition, making decisions and conducting operations in a market-oriented manner, and obtaining stable average market returns.
Never Forgetting the Original Mission, Integrating into “Agriculture, Rural Areas and Farmers” to Help Development
Exploring fiscal and financial ways to support agriculture, broadening financing channels for the agricultural industry. The government's direct investment in agriculture faces the problems of limited funds and fund use efficiency. Through the fund's market-oriented investment and financing activities, limited funds can leverage financial capital into “agriculture, rural areas and farmers”. The China Agricultural Fund has registered capital of 4 billion yuan. Through signing strategic cooperation agreements with multiple financial institutions such as Agricultural Bank of China, China Construction Bank, the Agricultural Development Bank of China, Bank of Communications, China Everbright Bank and others, and through the combination of investment and loans, it leveraged approximately 70 billion yuan in credit funds, giving play to the effect of fiscal “seed” funds in achieving maximum results with minimal input, and guiding social financial capital to invest in the agricultural sector. At the same time, it transformed the gratis use of funds into a certain investment return constraint, incentivizing leading enterprises in agricultural industrialization to improve production and operation efficiency, thereby enhancing the use efficiency of fiscal funds.
Giving play to a demonstrative and guiding role, setting the development direction for agricultural industry investment. The China Agricultural Fund was established for the cause of “agriculture, rural areas and farmers”. Compared with other funds, it has the natural advantages of a long investment period, lower investment return requirements and strong risk tolerance, which better match the characteristics of agriculture such as a long input cycle, limited returns and higher risks. Therefore, it can discover and cultivate modern agricultural enterprises with good growth potential and strong leading effects. Based on the characteristics of equity investment and leveraging its professional advantages in the field of agricultural investment, from more than 1,000 agriculture-related enterprises surveyed through household visits, it selected, decided on and invested in 17 of them through project collection, due diligence, project valuation and other stages. Social capital cast a “vote of approval” through concrete actions for the enterprises selected by the fund out of a hundred. For example, Morgan Stanley followed with an investment of 250 million yuan to take a stake in Inner Mongolia Horqin Cattle Industry Co., Ltd., which the fund invested in, and the fund joined with 6 market-oriented investment funds to collectively invest more than 3 billion yuan in Sichuan Fuhua Tongda Agrochemical Technology Co., Ltd.
While raising the level of agricultural industrialization development, achieving its own commercial sustainability. Through equity investment, the fund established a market-oriented operating mechanism of “sharing returns and sharing risks” with invested enterprises, providing invested enterprises with one-stop services including capital and technology, management consulting, customer matching and capital market financing, and offering professional guidance to enterprises from market, sales, finance, research and development, and marketing to the financial sector. By providing various value-added services to leading agricultural enterprises, it enhanced enterprise value and the level of agricultural industrialization development, while also promoting the appreciation of the fund. According to audited financial reports, the China Agricultural Fund achieved net profits of 9.1525 million yuan and 38.8381 million yuan in 2013 and 2014 respectively, with state-owned capital preservation and appreciation rates of 100.10% and 102.41% respectively. As of the end of 2014, the fund's net assets reached 4.05 billion yuan, initially achieving the goal of its own commercial sustainability.
International Cooperation, “Belt and Road” Spanning the Globe
Supporting the Silk Road Economic Belt and promoting rural economic development in the western region. At the end of 2014, at the starting point of the Silk Road Economic Belt——Xi'an, the China Agricultural Fund held a strategic cooperation signing ceremony with the Shaanxi Provincial Government and Shaanxi Haisheng Fruit Industry Development Co., Ltd., jointly contributing capital to establish the Shaanxi Apple Industry Group. As the initiator of the group's establishment, Shaanxi Haisheng Fruit Industry Co., Ltd. is the world's largest concentrated apple juice manufacturer, and its products have been sold in more than 20 countries including Europe, America and Southeast Asia. According to the signed cooperation and establishment agreement, based on registered capital of 430 million yuan, the three parties contributed capital to establish the Shaanxi Apple Industry Group. Through investing in and establishing an industry group, utilizing a modern enterprise management system, promoting excellent varieties and production technologies such as dwarfing rootstock apples, it promotes the transformation and upgrading of Shaanxi Province's apple industry, demonstratively drives the development of the national fruit industry, and delivers more and better products to the world through the Silk Road.
Promoting international production capacity cooperation and developing the marine economy. At present, global economic integration is accelerating, and high-quality resources in the global agricultural industry chain are flowing faster. With the full implementation of the “Belt and Road” national strategy and the rapid advancement of the “going global” strategy, international agricultural cooperation on a larger scale, at a deeper level and of a higher standard is imperative. In 2015, the China Agricultural Fund continued its investment strategy focused on leading agricultural enterprises, emphasizing in project selection the combination of social benefits and economic benefits, the combination of eastern, central and western regions, the combination of large, medium and small project scales, and the combination of investment-driven points and areas, seeking highlights, seeking innovation and breakthroughs, investing prudently, and further expanding the fund's social influence. For example, it invested 400 million yuan in China's largest private deep-sea fishing enterprise——Fujian Pingtan Deep-Sea Fishery Group Co., Ltd., driving nearly 1 billion US dollars in social capital investment.
Carrying out international technological cooperation and developing modern agricultural science and technology. Enterprises supported and invested in by the China Agricultural Fund enhance the modernization level of China's agricultural science and technology through international technological cooperation. Tianjin Lovol Heavy Industry Group Co., Ltd., invested in by the fund, is a leading domestic agricultural equipment manufacturer. Through establishing global research and development centers in Italy, Japan and other places, as well as implementing strategically significant cross-border mergers and acquisitions, the enterprise narrows the gap with foreign competitors in technology and products. The China Agricultural Fund, through investment, focuses on supporting Lovol Heavy Industry in basic research and development, gradually forming truly globally competitive technological capabilities, thereby driving the overall improvement of China's agricultural machinery and equipment industry. In addition, by supporting Shandong Kingenta Group in carrying out all-round cooperation with Israel, a country along the “Silk Road Economic Belt”, the China Agricultural Fund actively promotes China's integrated water and fertilizer process, opens up new water-saving agriculture markets, benefits farmers broadly and benefits vast areas of fertile farmland, and has positive significance for controlling agricultural non-point source pollution and safeguarding China's food security.
Industrial Upgrading, Full Coverage of Agricultural E-commerce
Achieving full coverage of e-commerce models among invested enterprises. Since 2014, Alibaba, JD.com, SF Express and others have successively launched rural strategies, prying open a long-dormant market. To help the rural market adapt to this new trend, the China Agricultural Fund has put forward clear requirements for every enterprise it invests in: either build its own e-commerce platform, or ride on the e-commerce platform of a mature enterprise, achieving the bundling and combination of offline sales and online sales. At present, all enterprises invested in by the China Agricultural Fund have complete online sales systems, achieving full coverage of e-commerce models.
Helping invested enterprises build IoT platforms. As early as 2010, the National Development and Reform Commission approved a batch of IoT pilot projects. How to enable internet technology to be deeply cultivated in the agricultural field was another new problem facing the fund. In this regard, the China Agricultural Fund has also made breakthroughs. With the support of fund capital, Horqin Cattle Industry, invested in by the fund, used IoT technology to establish a full-process traceability system. For every piece of beef, the breeding, slaughtering, acid removal, beef cut, cutting, storage procedures and quarantine procedures are all entered into the computer and encoded into barcodes. Customers can check information on the beef products with an “ID card” that they purchased on the enterprise's quality monitoring website, truly achieving full-process monitoring traceable to the source.
Building a new collaborative model of “Internet + industry chain”. The China Agricultural Fund also works with enterprises to build a new collaborative model of “Internet + industry chain”, opening up the procurement, production and sales links in traditional agriculture. In agricultural products production, marketing and cloud services, it ultimately enables traditionally isolated agriculture to form a complete industry chain. This kind of industry chain has been gradually cultivated in five or six enterprises invested in by the fund. In July 2015, the China Agricultural Fund invested 300 million yuan in “Nongshang No. 1”, and together with a group of investment institutions, cooperated with the world's largest slow-release fertilizer manufacturer——Kingenta Group to invest in “Nongshang No. 1”, with more than 2 billion yuan in first-phase funding. “Nongshang No. 1” gathered a group of champion brands in the domestic and international agricultural materials industry, can successfully solve the “last kilometer” and “last hundred meters” problems, and with the great opportunity of Kingenta Group and the fund and other investment institutions implementing the “Internet +” national strategy, establishes a national team for agricultural e-commerce.
Public-Private Cooperation, Bringing Prosperity Through Point-to-Area Demonstration
The fund itself is a completely new exploration of public-private cooperation in the field of agricultural investment. At present, the enterprises invested in by the fund are all private enterprises. Public finance, in the form of “seed” funds and “starter” funds, promotes and guides investment from all sectors of society into the agricultural field through point-to-area demonstration, enabling private capital and other social resources to enter the agricultural field and achieve policy goals. Horqin Cattle Industry, invested in by the China Agricultural Fund, was the first in the industry to practice the model of “large-scale planting driving large-scale breeding”, exploring a path for the sustainable development of China's beef cattle industry. Through large-scale, intensive and mechanized forage planting, the enterprise reduces planting costs and breeding costs, enhancing the enterprise's profitability and the international competitiveness of China's beef cattle industry. The fund's investment in Horqin Cattle Industry demonstrated support for this development direction, driving state-owned commercial banks and joint-stock banks to increase their trust in the enterprise, as well as internationally renowned investment institutions to inject capital into the enterprise. By giving play to its value discovery function, the fund uses a small amount of fiscal funds to collaboratively complete the public goal of supporting agricultural industry development with social resources.
Using industry and enterprises as fulcrums, achieving increased farmer income and prosperity through public-private cooperation. In the agricultural field, to improve the use efficiency of public resources, one of the most effective methods is to use industry as the junction point of public investment and private investment. Through investment in leading enterprises in agricultural industrialization, the China Agricultural Fund directly enhanced the financial strength of invested enterprises, conveyed modern management concepts to enterprises, created economic benefits for both enterprises and the fund itself through the enhancement of enterprise equity value, and at the same time indirectly supported the farmers connected to the enterprises, driving farmers to increase income and become prosperous. Jilin Jinta Industrial (Group) Co., Ltd., invested in by the fund, is the largest leading pepper enterprise in Northeast China, with long-term contracted pepper farmers reaching 42,500 households and more than 150,000 people, and seedling-radiated planting area of 300,000 mu, covering multiple provinces and regions including Inner Mongolia, Jilin, Liaoning and Heilongjiang. According to statistics from Taonan City, Jilin, through pepper planting, the city's pepper farmers increased income by a cumulative 213 million yuan, with per capita income increasing by 1,416 yuan. Anhui Longhua Bamboo Industry Co., Ltd., invested in by the fund, is located in Huoshan County, Anhui Province, and is the largest bamboo products processing enterprise in the Dabie Mountain area. The company's development drove the development of the entire moso bamboo industry in Huoshan and surrounding areas. Moso bamboo went from being ignored to being in short supply. Huoshan County's 10 million moso bamboo poles of more than 10 inches per year increased farmers' income by a net 165 million yuan, driving 100,000 bamboo farmers in the county to prosperity. Through leading enterprises as fulcrums, the fund leverages the development of an industry and a sector, driving the prosperity of agricultural economy in a region and a field, truly bringing tangible benefits to farmers.