Substandard Grain Enterprises Receiving Subsidies Must Be Thoroughly Investigated

In recent years, consecutive years of bumper grain harvests have been a cause for celebration, but the phenomena of high grain procurement volumes and high stockpiles alongside low profit margins and low operating rates among processing enterprises have also occurred from time to time. In response to this situation, Heilongjiang specially introduced a subsidy policy this year, but unexpectedly it recently set off a huge uproar across the province.

⟦NL> According to reports, on April 15 this year, the Heilongjiang Provincial Department of Finance, the Grain Bureau, and the Agricultural Development Bank jointly issued a document titled "Heilongjiang Province Administrative Measures for Subsidies to Rice Processing and Corn Deep Processing Enterprises Competing to Purchase and Process Policy Grain," which stated: in order to promote the accelerated development of grain deep processing enterprises in Heilongjiang Province, with the approval of the provincial government, a single enterprise in the province with an annual processing capacity of 100,000 tons or more for rice and corn deep processing could receive a government subsidy of 200 yuan per ton, with a subsidy of 200 yuan per ton of rice for grain processing enterprises competing to purchase state reserve grain. However, after the document was issued and implemented, in just two months, of the 1,488 rice mills large and small across the province, more than 1,000 were forced to suspend production.

Why did changes so drastically different from the direction of the policy's implementation occur? According to media reporters' investigations, after this policy was implemented, because the subsidy was not small, the enterprises that received subsidies had considerable room to lower prices, which instead threw the entire market into chaos. Subsidies went to 102 enterprises, and not counting the 58 among them that were substandard, the consequence was that more than 1,000 rice mills across the province were forced to suspend production.

The formation of this chaotic situation was not unrelated to the hasty process of determining the subsidy list. According to investigations, the publication of this list was not publicly announced in advance, but directly issued. The list was not strictly reviewed by grain departments in various localities; instead, the provincial government, the provincial finance bureau, and the provincial grain bureau directly determined it based on the processing capacity annual report figures submitted by the enterprises. Some enterprises that had suspended production or had no production lines entered the subsidy list mainly because they falsified reports and local grain bureaus did not review strictly.

The subsidies issued according to the document's provisions were very generous for enterprises. An enterprise head said that if subsidized based on a volume of 100,000 tons, that would be equivalent to 20 million, and for one enterprise that would mean building another production line without any problem. A list of rice processing enterprises enjoying the subsidy policy, issued together with this document, involved a total of 102 enterprises. So how were these enterprises enjoying subsidies determined and verified? According to the document's wording, this list was strictly screened from rice processing enterprises with relatively high creditworthiness based on the 2014 annual statistical report on the grain and oil processing industry and the monthly reports of grain and oil processing enterprises from January to March 2015, and their annual production capacity was all above 100,000 tons.

However, this so-called "strictly screened" list had many questionable aspects. Media reporters' investigations found that among the dozens of processing enterprises visited that were included in the subsidy scope, about half did not meet the subsidy standards; among the 10 enterprises in Hegang City included in the subsidy scope alone, 4 were bankrupt or shut down. Not only did bankrupt and shut-down enterprises enter the subsidy list, but some grain storage enterprises that did not even have production lines were also included in a subsidy list that was originally aimed only at processing enterprises. In sharp contrast, many enterprises that met the processing capacity standards did not enter the list, and some heads of processing enterprises did not even know that such a subsidy list existed.

Because enterprises included in the subsidy scope could receive a government subsidy of 200 yuan for processing and selling 1 ton of policy rice, this was equivalent to 0.15 yuan more profit per jin of rice. Under normal circumstances, being able to earn 2 or 3 fen in the grain trade itself meant it was a good deal, and 5 fen could be called exorbitant profit. Therefore, many enterprises that received subsidies lowered the prices of finished products, leading to low-price competition, and many enterprises, before they understood what was happening, were "knocked down" by rapidly sliding prices. This situation was not only unfair to the enterprises that suspended production, but would also have many adverse effects on market supply.

We hope that the relevant national departments and Heilongjiang Province will thoroughly investigate this incident to avoid further adverse effects.