How to Prevent Operational Risks in Grain Banks

When grain market prices are high abroad and low domestically, rice is strong while rice products are weak, wheat is strong while flour products are weak, and funds are exceptionally tight, grain banks play a positive role in many aspects: providing raw materials for grain production, ensuring normal production, easing funding pressure, improving enterprise economic benefits, reducing grain storage losses for farming households, and making production and daily life more convenient for farmers.

The grain bank, which originated in the 1980s, has attracted people's attention because it adapted to the broad trend of social and economic development.

In the mid-1980s, the national grain administrative department once held an on-site meeting on "three agency services and one exchange" (collection on behalf of farmers, storage on behalf of farmers, processing on behalf of farmers, and exchange) at the Shuanggou Grain and Oil Processing Plant in what was then Xiangyang Prefecture (now Xiangyang City), Hubei Province. In fact, this was the pilot meeting for what is now the "grain bank."

At that time, the Shuanggou Grain and Oil Processing Plant was responsible for grain and oil processing tasks during the planned economy period, so logically it did not have to worry about processing raw materials. However, in order to make production and daily life more convenient for farmers and to develop diversified operations, the Shuanggou Grain and Oil Processing Plant began collecting grain on behalf of farmers, storing grain on behalf of farmers, and processing grain on behalf of farmers, and also carried out exchange services between the same varieties and different varieties, which was deeply welcomed by farmers. At that time, the "three agency services and one exchange" increased the grain and oil processing volume of the Shuanggou Grain and Oil Processing Plant by 30%. This win-win measure, which both made production and daily life more convenient for farmers and increased production raw materials and economic benefits for the enterprise, was fully affirmed by all sectors of society, and was subsequently summarized as the "grain bank" model and promoted in various places.

Sustained production development has provided abundant raw materials for processing enterprises

Since the Third Plenary Session of the 11th Central Committee of the Communist Party of China, the implementation of the household contract responsibility system in China has greatly mobilized the enthusiasm of the broad masses of farmers to develop grain production. The end of the "big collective" style of collective production and the intensive cultivation by individual households greatly improved labor productivity.

While completely changing the mode of agricultural labor and production, the state also fundamentally abolished the agricultural tax.

In 2004, the Chinese government began implementing the preferential agricultural policy of reducing or exempting the agricultural tax, and by 2005 nearly 800 million farmers had directly benefited. On December 29, 2005, the 19th meeting of the Standing Committee of the 10th National People's Congress voted to decide that the "Agricultural Tax Regulations" would be abolished as of January 1, 2006. On the same day, President Hu Jintao signed Presidential Order No. 46, announcing the comprehensive abolition of the agricultural tax and elevating this preferential agricultural policy to national law. Thus, the "imperial grain tax," the agricultural tax that had continued on Chinese soil for 2,600 years, finally came to the end of its history.

Hundreds of millions of farmers, having shed a heavy burden, became even more enthusiastic about producing grain.

Moreover, the state not only stopped requiring farming households to pay taxes, but also gave subsidies to grain-growing farmers.

The implementation of preferential policies such as direct grain subsidies to farmers, improved seed subsidies, comprehensive agricultural input subsidies, and subsidies for purchasing agricultural machinery and tools enabled China's grain production to set new records repeatedly. From 2004 to 2014, China's grain production increased continuously for eleven consecutive years. In 2014, the national total grain output was 607.099 million tons, an increase of 5.16 million tons over 2013, or 0.9%, reaching the highest level in history.

The consecutive increase in grain output not only increased the income of grain-growing farmers, but also provided abundant market raw materials for grain processing enterprises.

Accelerating social change has led to a continuous decline in household grain storage by farmers

As China's industrialization and urbanization continued to accelerate, social change was sped up. In terms of rural grain storage, "three major" new changes appeared:

Direct grain sales in rural areas decreased. The vigorous national economic construction attracted a large rural labor force, and the vast rural areas saw the "386011" phenomenon (women, the elderly, and children). According to the "2014 National Monitoring and Survey Report on Migrant Workers" released by the National Bureau of Statistics, the total number of migrant workers nationwide in 2014 was 273.95 million, a year-on-year increase of 1.9%. Migrant workers who went out were all vigorous and strong laborers. The huge number of migrant workers leaving rural areas reduced the population engaged in farming and brought difficulties to rural households in moving grain. After farmers harvested grain, due to the lack of labor, the vast majority sold the grain on the spot to enterprises or brokers who came to purchase it. Very few stored grain at home and then sold it after watching for the right opportunity.

Rural grain consumption decreased. On the one hand, migrant workers did not eat in rural households; on the other hand, the growth of rural economic income and the improvement of living standards also directly reduced grain consumption. In 2012, China's per capita grain consumption in rural areas had dropped to about 164 kg. Calculated on the basis that per capita grain ration consumption of rural residents declines by between 2% and 3% annually, by 2020 it will drop to between about 130 kg and 140 kg.

Household grain storage in rural areas decreased. The shortage of labor, the improvement of living standards, and the consecutive increase in grain output made farmers feel "free from worries about food and clothing," and the scale of household grain storage fell sharply. In the vast majority of rural households in China, grain stored at home dropped sharply from 400 kg per capita in the past to about 200 kg now. In some places, farmers who did not raise livestock or poultry did not even keep a single grain.

Improved living standards have made farmers' needs show a trend of diversification

No taxes for farming, grain subsidies increasing year by year, higher purchase prices, and growing household income have made farmers' living standards show diversification.

In terms of diet, the broad masses of farmers no longer cook all three meals by themselves. The development of the socialization of domestic labor allows farmers to enjoy all kinds of thoughtful and considerate services right at their doorsteps. At mealtimes, staple foods, non-staple foods, vegetables, and so on are delivered to their doorsteps for them to choose freely.

With the socialization of domestic labor services, farmers in major rice-producing areas can eat grains other than rice, farmers in major wheat-producing areas can eat grains other than wheat-based foods, and farmers in major corn-producing areas can eat many varieties of grain.

Farmers' demand for diversified life laid the foundation for grain processing enterprises to establish grain banks.

Farmers who are unwilling to store grain and also unwilling to sell grain outright in one transaction can only effectively solve the problem through "grain banks" established by grain processing enterprises.

There are now quite a few enterprises engaged in grain operations, including state-owned and local grain reserve enterprises, state-owned holding grain enterprises, as well as state-owned grain processing enterprises, trading enterprises, mixed-ownership grain enterprises, and private grain enterprises. Practice has proved that grain enterprises without grain processing and turnover capacity will find it difficult to add value if they establish grain banks, and will also find it difficult to solve the problems of exchanging raw grain for processed grain products and exchanging different grain varieties.

After decades of development, the important role of grain banks is obvious to all. However, with changes in the social and economic environment, the operational risks of grain banks cannot be ignored.