China's agricultural grain reserves have been damaged; how should the "grain rats" be cleaned up?

The honor of being named an outstanding unit in the 2014 national grain quality and safety supervision work had not even cooled before Liaoning and Jilin were exposed in a "grain rat" scandal of "passing off old grain as new grain."

According to a CCTV report, media recently reported that multiple grain depots in Liaoning and Jilin colluded with grain traders to "substitute old grain for new" and fraudulently obtain state subsidies. On the morning of the 18th, the Jilin Provincial Grain Bureau, Sinograin Jilin Branch and relevant departments held an emergency meeting. In the afternoon, they sealed off some rice grain piles at the Baiyilaga collection and storage depot, about 16,000 tonnes. The National Food and Strategic Reserves Administration authorized a general inspection of grain depots

At the emergency meeting, Han Fuchun, director of the Jilin Provincial Grain Bureau, said: "On this issue, this has truly sounded a warning bell for us, and it is shocking. (The grain trader) said he was a blood brother of the top official at this grain depot. Isn't that collusion between insiders and outsiders?" Regarding the series of problems disclosed in the report, the Jilin Provincial Grain Bureau, Sinograin Jilin Branch and the Jilin Provincial Branch of the Agricultural Development Bank of China have formed a joint investigation team and rushed to the grain collection and storage depots in the involved areas of Songyuan, Baicheng and other places in Jilin on the 18th to conduct an investigation.

Han Fuchun said: "We will inspect all the rice under the minimum purchase price policy for 2014 and 2015, checking all its receipts, storage locations and quality, and all that fails to meet standards will be withdrawn (from state reserves). Although those (grain depots) were not reported, if there are problems they will be handled the same way."

The investigation team will first conduct new-versus-old testing and determination on the sealed rice, and is expected to announce the investigation results to the public before April 21. In addition, the reporter learned that, authorized by the National Food and Strategic Reserves Administration, the Jilin Provincial Grain Bureau will join multiple relevant departments to carry out a general inspection of all grain reserve depots in Jilin Province, and the general inspection is expected to be completed before the end of April.

Grain depot director says work inevitably has oversights

At 2 p.m. yesterday, a joint investigation team composed of the Jilin Provincial Grain Bureau, the Jilin Provincial Grain and Oil Hygiene Inspection and Monitoring Station and other departments entered the Baiyilaga grain depot and took samples from 18 rice grain piles at the depot. At 5 p.m., an investigation team composed of grain authorities at the provincial, municipal and county levels in Jilin sealed off some rice grain piles at the Baiyilaga collection and storage depot.

The Baiyilaga grain depot is a local state-owned grain depot entrusted by the Songyuan Directly Subordinate Depot of Sinograin Corporation, and undertakes the task of purchasing state temporary reserve grain and minimum protection price grain. This sealing involved a total of 18 rice grain piles, about 16,000 tonnes, all of which were rice collected and stored as new grain this year.

Zhang Yunjun, director of the Baiyilaga grain collection and storage depot, said: "Vehicles come and go every day and it is very busy, so it is unavoidable that I have oversights in some links, but I am still trying to understand the specific situation." According to him, the total rice collection and storage volume at the Baiyilaga collection and storage depot is currently about 34,000 tonnes. Apart from the new rice collected this year, the remaining 18,000 tonnes of rice is the amount collected and stored in previous years. "We have not yet accepted it after inspection. It may also be that there were oversights by testing personnel in management, and this situation occurred."

Xu Feng is a tester at the Baiyilaga grain depot, and that day he was responsible for the quality testing of that batch of grain. The reporter asked: "At that time, on the 27th, which numbered storage was it transported to?" Xu Feng said: "No. 91 grain pile, and also No. 40 rice grain pile. The two are the same (in storage volume), both about 900 tonnes."

First admission that large quantities of agricultural reserve grain may already be severely damaged

According to a Global Times report, an April 19 article in the British Financial Times said that Chinese official media exposed the poor quality of grain stored in Sinograin warehouses -- generally regarded as a taboo topic. This is the first time the Chinese authorities have admitted that large quantities of agricultural reserve grain may already be severely damaged.

China Central Television broadcast a report over the weekend titled "Grain Depot 'Big Rats'," with undercover footage recording officials at Sinograin warehouses in Northeast China buying old grain or low-quality grain at discount prices, while the relevant documents showed that new grain was purchased at the price set by the state. The grain exposed in the report had already sprouted, changed colour or become mouldy. The report said, "Through such manipulation, quality is difficult to guarantee." Government-organized auctions of grain and cotton often fail to sell, which has intensified outside suspicion -- that their quality has deteriorated to the point of being unusable commercially.

The true quality of China's grain reserves will have a major impact on global grain prices. If much of the stored grain is inedible, China will be forced to increase imports, thereby driving international grain prices up. If the stored grain is of good quality, Beijing will take measures to reduce reserves and push them onto the market, which will push grain prices down.

The Chinese government's minimum protection price system has led to a continuous increase in the quantity of stored grain. The system is intended to raise farmers' incomes and encourage their enthusiasm for growing grain. Outside estimates put China's cotton and corn reserves at about 60% and 40% of total global reserves.

Changes to pricing policy will be opposed by state-owned institutions that profit from it. The US Chamber of Commerce said in a report earlier this year that the minimum protection price system for grain collection and storage brings huge costs to Sinograin Corporation, which is responsible for managing China's grain depots.

Central policymakers acknowledge that China's land and water resources are insufficient to produce enough grain for 1.4 billion people. Widespread soil pollution will lead China to grow more labour-intensive cash crops and import grain. One suggestion is to lower the level of grain reserves, which has gradually increased over the past few years, and gradually move away from the Mao-era policy of grain self-sufficiency.

China is currently piloting a method of directly issuing subsidies to cotton or soybean farmers rather than setting minimum prices. In March this year, Beijing said it would spend 154.6 billion yuan on reserves of grain, edible oil and other materials, but did not specify how it would be allocated.

Grain Bureau strictly inspects grain depots in the three northeastern provinces

The honor of being named an outstanding unit in the 2014 national grain quality and safety supervision work had not even cooled before Liaoning and Jilin were exposed in a "grain rat" scandal of "passing off old grain as new grain."

As soon as the news emerged, the National Food and Strategic Reserves Administration immediately organized an investigation and announced on April 19 that, in addition to strictly supervising a thorough investigation of the relevant enterprises in Liaoning and Jilin exposed by CCTV a few days earlier, it would also make the policy-related grain stocks collected and stored in the three northeastern provinces and the Inner Mongolia Autonomous Region a key focus of this year's national grain stock inspection.

Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant Co., Ltd., told the reporter that this incident is undoubtedly a warning bell, namely that the current grain collection and storage system has reached a moment when it must be changed. "The urgent task is to change the current grain collection and storage system and implement target price reform."