How Land Revenue Guarantee Loans Break the Bottleneck in Grain Production

Capital is an indispensable and important resource for developing grain production. Without sufficient production capital, grain production cannot proceed.

With the large-scale emergence of new types of agricultural business entities such as large grain growers, family farms and farmers' professional cooperatives, the demand for capital in grain production is growing day by day. How to solve the capital problems of these grain production entities has become a new topic explored in various places.

In order to resolve the conflicts between banks and farmers over loans, in 2013 Jilin Province launched land revenue guarantee loans. The Longjing City government took the lead in piloting the approach, giving full play to its platform role through its own public credibility and acting as a bridge between the two sides. The local government established a property rights financing agricultural development company, with large land-transfer operators such as family farms and specialized farms as the main loan recipients, uniformly mortgaging land management rights to help them obtain financial support from financial institutions.

Wang Lichen, who in 2003 was still running a small grain production workshop, is now the legal representative of Longshan Agricultural Specialized Farm. An annual loan scale of 1 million yuan has enabled Wang Lichen's farm not only to achieve an average annual grain output of 1 million jin, but also to transform from a small workshop into a processing enterprise with an annual processing capacity of 2 million jin of grain.

Although the land revenue guarantee loan method has not been around for long, it has shown strong vitality.

Breaking the Bottleneck in Grain Production

Unlike small-scale household grain production, the grain production scale of new types of agricultural business entities such as large grain growers, family farms and farmers' professional cooperatives is relatively large. At minimum several dozen mu, at most several hundred or several thousand mu, or even tens of thousands of mu.

The seasonal characteristics of grain production determine that producers must make relatively large-scale capital investments in advance.

For China's main grain varieties such as wheat, rice and corn, the production period generally requires several months, with wheat production requiring more than half a year. Before the grain is harvested, the inputs for seeds, chemical fertilizers, pesticides, labor and machinery all need to be paid for in advance by producers.

As the scale of grain production expands, the funds that need to be advanced naturally increase substantially.

Compared with the production of high-efficiency cash crops, the income from grain production is relatively low. Relying on the strength of new types of agricultural business entities themselves, it is very difficult to have enough capital to support grain production.

In real life, it is not hard to see that on the one hand new types of agricultural business entities are springing up like bamboo shoots after rain, while on the other hand some new types of agricultural business entities are like tender seedlings that cannot withstand a single blow when hit by drought or flooding. There are of course many reasons for this, but the capital bottleneck is one of the most important.

With the spread of agricultural mechanization, in China's rural areas, especially those in the plains, new types of agricultural business entities, with the support of the state's beneficial agricultural policies, are interested in expanding the scale of cultivated land transfer. But after expansion, more capital is needed. Without the support of the financial sector, this can only be like quenching thirst by looking at plums.

Land revenue guarantee loans not only solve the problem of capital investment in small-scale grain production, but also provide a guarantee for producers expanding the scale of grain production.

Promoting the Development of Grain Production

Grain is a special commodity essential for people's three meals a day. As the world's most populous country, China can never relax its grain production at any time.

In today's era, although rising people's incomes have reduced grain consumption as staple food, the consumption of meat, poultry, eggs and milk has been continuously increasing. Meat, poultry, eggs and milk are mostly converted from grain; without stable and sustained growth in grain production, it is impossible to meet the ever-rising living needs of modern people.

Maintaining stable and sustained growth in grain production and promoting the development of new types of agricultural business entities such as large grain growers, family farms and farmers' professional cooperatives is a wise choice.

New types of agricultural business entities not only have a relatively large production scale, but also have a relatively high level of modernization in production. The widespread application of modern science and technology and mechanization can greatly increase grain output per unit area.

China's rapid industrialization and urbanization have brought about the transfer of a large amount of rural labor. In 2014, China's total number of migrant workers was nearly 274 million. In rural areas lacking labor, it is unrealistic to rely solely on “386015” (women, the elderly and children) to farm. When these people, with limited scientific, technological and cultural levels and insufficient physical strength, engage in grain production, the results are either extensive management with low grain output; or abandoning fields and letting them lie fallow, causing a waste of precious cultivated land resources; or having the labor force that has gone out to work or do business return home seasonally to farm, which prevents them from working with peace of mind, causes enterprises using migrant workers to face a short-term labor shortage that affects production, and also reduces these workers' income from work and business while increasing their expenses.

Land revenue guarantee loans, by boosting the development of new types of agricultural business entities, can solve the problem of rural labor shortages through land transfer or through means such as agricultural production cooperatives. At the same time, they also raise agricultural labor productivity and promote the development of grain production.

Because many local villagers go out to work, starting in 2010 Lu Jiang, a villager from Yingyan Village, Laotougou Town, Longjing City, began contracting land and shifting to scaled planting. Land revenue guarantee loans increased his loan scale by 10 times compared with before, and the scale of his contracted land expanded to 1,545 mu. Now he has also begun purchasing grain from surrounding farmers for unified processing, earning more than 1.5 million yuan per year.

Opening a New Path for Rural Finance

The vast countryside is not only rich in material resources, but its financial market is even broader and boundless.

The families of the vast majority of China's population are in rural areas. Agricultural production needs capital, the circulation of agricultural products also needs capital, and the daily lives of rural residents need capital even more. Under market economy conditions, as long as the financial sector studies the situation carefully, it can continuously develop new rural financial products.

The land revenue guarantee loan explored by Longjing City, Jilin Province, as a new product, has already opened up the rural financial market. In Longjing, land revenue guarantee loans have helped 315 farms gradually take shape and scale up.

In real life, one important reason some financial institutions are unwilling to enter the rural market is fear of risk. Longjing City's experience can serve as an example of risk sharing.

In actual loan operations, Longjing City set up a risk fund with a limit of 10 million yuan. After a year and a half of operation, not a single bad debt appeared, and many banks came to regard Longjing as a “hot cake” and began competing to participate in lending. At present, Longjing City has issued a total of 137.811 million yuan in loans, and it is expected that this year land financing loans will achieve 100% full coverage. As of the end of April this year, among Jilin Province's 60 counties (cities and districts), 31 had carried out pilot work on land revenue guarantee loans, issuing nearly 30,000 loans totaling 1.43 billion yuan to farming households, forestry households, family farms and farmers' professional cooperatives.

China's agricultural production has entered a new stage of development. Maintaining good development momentum under the new normal requires innovative support from the financial sector. The land revenue guarantee loan explored by Jilin Province provides a useful reference for the financial sector in supporting the development of “agriculture, rural areas and farmers.” We would rather see this flower that blooms within the wall spread its fragrance both inside and outside the wall.