Investment in Agriculture, Rural Areas and Farmers: Pooling Resources for Positive Development Effects
The report of the 18th National Congress clearly stated that we should “adhere to the path of new-type industrialization, informatization, urbanization and agricultural modernization with Chinese characteristics”, promote the deep integration of informatization and industrialization, the benign interaction between industrialization and urbanization, and the mutual coordination of urbanization and agricultural modernization, and promote the synchronized development of industrialization, informatization, urbanization and agricultural modernization. On March 24, 2015, the meeting of the Political Bureau of the Central Committee further proposed the new content of green development, changing the “four modernizations” into the “five modernizations”, that is, development in accordance with ecological principles and the laws of nature.
Among the many elements of the “five modernizations” of agriculture, the role of capital is extremely important, and insufficient capital support is precisely the most prominent problem faced in the current process of China's agricultural development. To break through the capital bottleneck, the only way is to integrate “agriculture, rural areas and farmers” funds and practice effective ways of investing in agriculture.
Innovating Input, Amplifying the Effect of Policy Funds
In terms of relevant economic means, the state has introduced measures including the abolition of the agricultural tax and the implementation of direct subsidies to farmers, establishing a government-led model——a policy fund support system for “agriculture, rural areas and farmers”, forming a new pattern and new mechanism of diversified input entities for “agriculture, rural areas and farmers”. To make policy funds for “agriculture, rural areas and farmers” play the role of “strengthening agriculture, benefiting rural areas and enriching farmers”, it is particularly important to build the most stable and most reliable capital support system for strengthening agriculture, benefiting rural areas and enriching farmers, and to explore investment methods that support the development of “agriculture, rural areas and farmers”.
Taking the China Agricultural Industry Development Fund as an example, the fund won the 2015 China Equity and Venture Capital Industry Outstanding Fund of Funds Award. The China Agricultural Industry Development Fund has created a successful practical sample in exploring ways to integrate “agriculture, rural areas and farmers” funds: taking serving “agriculture, rural areas and farmers” as the premise, comprehensively using various financial instruments, guiding social funds into rural areas, cultivating leading enterprises in agricultural industrialization, and using leading enterprises as a fulcrum to drive the development of an industry and a sector, promote the prosperity of agricultural economy in a region and a field, and give full play to the fund's radiating effect, leading role and driving function.
The state's input into “agriculture, rural areas and farmers” increases every year. The traditional input methods of direct central fiscal expenditure and transfer payments are characterized by scattered input projects and multiple funding channels. Support funds for agriculture are fragmented, and the phenomenon of “sprinkling pepper” is prominent; moreover, the use efficiency is low and supervision and management are difficult. At the same time, in recent years the agricultural sector has attracted investment intentions from a large amount of private capital. To guide tens of billions of funds to flow in an orderly manner to the links most needed by the agricultural industry, it is necessary to rely on the form of funds to unite the forces of the government, farmers and enterprises, and realize the organic combination of public resources and private resources.
The mode of fund operation can cater to the characteristics of agriculture itself: large capital demand, relatively long investment cycle, limited investment returns and relatively high investment risk. In terms of capital volume, the China Agricultural Fund takes industry as the linking point, uses a small amount of “seed” funds from public finance to leverage private capital into the agricultural sector, and through the fund's investment activities plays a positive demonstration and guiding role in the direction of private capital, thereby realizing the relatively concentrated entry of private capital into sub-sectors that conform to industry development trends, and using the pooled capital force to promote and drive the development of related agricultural industries.
In terms of risk control, the China Agricultural Fund, through equity investment, establishes a market-oriented operation mechanism of “sharing returns and sharing risks” with invested enterprises. Agricultural investment has high professional requirements. With a close grasp of relevant national agricultural policies and rich experience in the investment field, the China Agricultural Fund carefully screens through project collection, due diligence, project valuation and other links, and ultimately discovers and cultivates modern agricultural enterprises with good growth potential and strong leading roles, providing professional guidance to enterprises from the market, sales, finance, research and development, marketing to the financial field. By providing various value-added services to leading agricultural enterprises, it enhances enterprise value and the level of agricultural industrialization development, and at the same time promotes the appreciation of the fund. The operating model of the China Agricultural Fund, with investors' in-depth understanding of agricultural policies and their trends, as well as professional operation and management, matches the characteristics of agriculture's relatively long input cycle, limited returns and relatively high risks, achieving considerable investment returns while keeping risks controllable.
Forming Synergy, Seizing the High Ground of New Business Forms
At last year's Central Rural Work Conference, “vigorously developing agricultural industrialization” was listed as the first item of agricultural work in 2015, requiring all localities to introduce modern industrial organization methods such as industrial chains and value chains into agriculture, and promote the integrated interaction of the primary, secondary and tertiary industries. Agricultural industrialization is an inevitable choice for transforming traditional agriculture in China, and is also the only way to achieve the goal of the “five modernizations” of agriculture. Leading enterprises are the main form of agricultural industrialization operation. As of the end of 2014, there were already more than 100,000 leading agricultural enterprises nationwide, initially forming a scale of industrialization.
The China Agricultural Fund takes a long-term perspective, providing invested enterprises with one-stop services including funds, technology, management consulting, customer matching and capital market financing, and using high-quality value-added services to guide enterprises in building core competitiveness. Thus it helped Lovol Heavy Industry, an investment aimed at developing cutting-edge technology, establish a global R&D center abroad and a series of strategically significant cross-border mergers and acquisitions, greatly promoting the formation of core technological capabilities with global competitiveness and driving the overall improvement of China's agricultural machinery and equipment industry. It can be seen that successful fund-based agricultural investment, while forming enterprise competitiveness, uses the demonstration role of leading enterprises in the industry to drive similar enterprises to actively seek industrial upgrading. Fund-based investment is an effective means of enhancing enterprise core competitiveness and promoting industrial upgrading, conducive to comprehensive alignment with local economic and social development plans, conducive to turning separate forces into synergy, and conducive to attracting the participation of more social funds.
Premier Li Keqiang pointed out in the government work report: “Formulate the ‘Internet Plus’ action plan, promote the combination of mobile Internet, cloud computing, big data and the Internet of Things with modern manufacturing, promote the healthy development of e-commerce, industrial Internet and Internet finance, and guide Internet enterprises to expand the international market.” The agricultural sector has seen the rapid influx of capital and the upgrading of models, and Internet enterprises represented by Alibaba and JD.com are optimistic about the rural market and are actively building platforms.
The China Agricultural Fund sizes up the situation and lays out “Internet Plus” to seize the high ground of new business forms. Grasping the most cutting-edge development trends of the industry, it has put forward clear requirements for every enterprise it invests in: either build its own e-commerce platform, or carry a mature enterprise's e-commerce platform, to realize 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 the e-commerce model.
With the support of the China Agricultural Fund, the enterprises invested in by the fund have made breakthroughs at the technical level in the upgrading of the new “Internet Plus” business form. Internet of Things technology is used to guarantee product quality, and technical means such as cloud computing are used to achieve the opening up of a complete industrial chain. Horqin Cattle Industry, invested in by the fund, uses Internet of Things technology to achieve full-process monitoring traceable to the source: it has established a full-process traceability system. The China Agricultural Fund enables the key technologies of new business forms to be deployed in the agricultural sector, opening up agricultural product production, marketing and cloud services, running through the procurement, production and sales links of traditional agriculture, and ultimately enabling the traditionally isolated agriculture to form a complete industrial chain.
Connecting Industry, Releasing Positive External Effects
Agricultural products have the strategic nature of safeguarding national economic security and the public goods attribute of guaranteeing residents' survival and development. The China Agricultural Fund uses the fund method to operate agriculture, rural areas and farmers funds, which can greatly spill over positive external effects.
Promote industrial transformation, find new growth points, and drive farmers to increase production and income. Give play to the cohesion of leading enterprises and use the collective effect of regional agricultural industries. The healthy development of leading enterprises will drive local economic development and even form regional industries, effectively generating and increasing income for local farmers. The China Agricultural Fund invests in transforming enterprises in the process of upgrading and replacement, gives research and development support to enterprises that need support or are in the start-up stage, and develops agricultural processed products that go from being ignored to being in short supply, thus forming an industrial form that supports local development; local farmers rely on this and their incomes have greatly increased.
Connect the entire industrial chain, build a complete ecological cycle and realize benign interaction. In the past, animal husbandry, due to long-term overgrazing, caused grassland degradation and land desertification; because the livestock density was too high, the soil became compacted, the amount of grass decreased, and the ecological structure was destroyed. The China Agricultural Industry Fund supports outstanding animal husbandry enterprises in completing attempts that run through the complete ecological chain. Fresh meat processing enterprises build a benign ecological circle for animal husbandry, starting from the forage link, promoting intensive operation, planting salt-alkali-tolerant high-protein forage on already desertified land, followed downstream by livestock breeding, first opening up forage breeding and cattle and sheep breeding on artificial grasslands. Every link from the source is strictly managed, and the “reassuring milk” that the people expect with quality standards will also be smoothly realized.
Fund-based investment, from initially being an attempt to integrate agriculture, rural areas and farmers funds, has increasingly become a consensus across all sectors. Under the successful demonstration effect of the China Agricultural Fund, finance departments in many places have begun exploring industry development funds. The success of capital input represented by the China Agricultural Fund has confirmed that market-oriented mechanisms amplify the effect of fiscal input. The China Agricultural Fund will assume more important responsibilities and, in the fund-based investment method, explore more active and efficient input and operation models.