Inverted grain prices at home and abroad: continue advancing reform to lower grain costs

The 2015 Boao Forum was held on the 26th. At the forum on “Exploring New Models of Rural Financial Reform,” Chen Zhangliang, Vice Chairman and Secretary of the Secretariat of the China Association for Science and Technology, said that last year China imported more than 100 million tons of grain in one go, with comprehensive imports of rice, millet, corn, soybeans, cotton, sugar, oil, pork, mutton, beef, milk and milk powder. And now, of the grain stored in warehouses, a large amount was produced and procured in our own country, but the procurement price is higher than the imported international price. The current prices of almost all agricultural products are more expensive than the average price of agricultural products in the world.

There are many reasons for the inverted prices, but at the very least labor has become more expensive. Second, the land is small plots owned by individual households, productivity is reduced, and mechanization cannot advance. China faces a major reform. Everyone knows that the Third Plenary Session set out a very important policy of land transfer. With land transfer, small plots become large plots, so tractors can get in, labor costs come down, and only then is it possible to compete in the world grain market. And land transfer needs money, and urgently needs financial support.

Transcript

Moderator Li Yang: Thank you, Governor Lu. Next, please welcome Chen Zhangliang, who holds the “three sixes” titles. I should also mention that by global standards Chen Zhangliang is one of the founders of genetically modified crops, at least one of those who commercialized them. Because for so many years people have been quite critical of GMOs, he has kept a low profile. Because relevant central leaders have now formally and scientifically brought the GMO issue out for discussion, we hope to hear you speak on this issue. But today we ask you to speak on financial issues.

⟦NL> Chen Zhangliang: For the past dozen or so years I have been following the issues of agriculture, rural areas and farmers, especially when I was president of Agricultural University, where I saw quite a lot. It happened that I had the opportunity to go to Guangxi as vice chairman in charge of agriculture, with 52 million people's lives, and those six years left a deep impression on me and gave me a fairly in-depth understanding. At the China Association for Science and Technology, over these years I have traveled to more than twenty provinces, constantly trying to understand the basic issues of agriculture, rural areas and farmers. One of the big problems is the rural finance problem, so today I am especially happy. Li Yang is an expert, and I am very glad to have the chance to discuss this matter with everyone. I will briefly raise three aspects: First, Chinese agriculture is undergoing tremendous change. This new round of change urgently needs financial support. Second, where rural finance can play an important role in the whole reform process; I will briefly explain with one or two examples. Third, the problems in rural finance, as far as I understand and have personally experienced, and how to do better next. I will speak from these three aspects.

Chen Zhangliang: First, let me talk about how, under the tremendous reform now facing Chinese agriculture, financial support is urgently needed. As for the facts, starting in 2012 everyone saw this country suddenly enter large-scale grain [imports], and a country inexplicably imported 80 million tons of grain. At the time we said the country could produce 95% of its grain itself, and importing around 5% was the safety line. Later some said 90% was the safety line, but it was quickly breached below 90%. Last year our country imported more than 100 million tons of grain in one go. Everyone knows last year's grain [output] was 1,200 billion [jin], but 100 million tons of grain were imported. Everyone noticed that imported grain covered rice, millet, corn, soybeans, cotton, sugar, oil, pork, mutton, beef, milk and milk powder, with comprehensive imports. At first everyone felt that with imports, agriculture had still increased for eleven consecutive years, and yet there were still so many imports. Look carefully at the grain now stored in warehouses: a large amount was produced and procured in our own country, but the procurement price is higher than the imported international price. The current prices of almost all agricultural products are more expensive than the average price of agricultural products in the world. There are many reasons, but at the very least labor has become more expensive. Second, the land is small plots owned by individual households, productivity is reduced, and mechanization cannot advance. China faces a major reform. Everyone knows that the Third Plenary Session set out a very important policy of land transfer. With land transfer, small plots become large plots, so tractors can get in, labor costs come down, and only then is it possible to compete in the world grain market.

Chen Zhangliang: Everyone knows that over the past year smuggled rice and smuggled meat have both been increasing, and smuggling in border areas is very difficult to control, because domestic prices are expensive and foreign prices are cheap. Facing this situation, things must change: small plots of land must become large plots, so labor costs can be brought down and labor efficiency raised. Everyone knows this. For example, for transplanting rice seedlings, one hundred farmers transplanting cannot match one machine; one hundred farmers cutting sugarcane cannot match one machine. But land transfer needs money; the farmers must be paid, for example 700 yuan per mu for dry land, and 1,200 yuan a year for paddy fields. For a transfer of twenty or thirty years, the money must be paid, and without money nobody can do this. Farmers cooperating also need to buy farm tools. This new round of reform in Chinese agriculture has costs, and these costs are very large.

Chen Zhangliang: Second, financial support has a huge impact on agricultural production and on overall prices. Let me give two examples. The first example: when I was in Guangxi, avian influenza H7N9 appeared in several neighboring provinces, and those neighboring provinces began killing chickens and ducks, killing until the farmers could not bear it. On one chicken farm, tens of thousands of chickens were buried in the soil. The government subsidized one yuan or two yuan per chicken, demanding that avian influenza not be allowed to spread further. Guangxi was under my charge, and I knew Guangxi had not yet had H7N9. But the neighboring provinces began killing chickens and ducks, so Guangxi also had to kill. I knew this was truly stupid. Guangxi did not have it, so why kill? With a scientist's mind, you test tens of thousands of chickens and ducks, and random testing would certainly find none. All the farmers were now killing their chickens and ducks, and after killing them they would not bury them in the soil like other provinces, because those were healthy; they did not have avian influenza, so why bury them in the soil? So they were all frozen. After people got past this period, and when the weather got hot and people began eating again, I quickly took them out of the freezer and sold them, which solved the farmers' income problem, and the government's cost was very low. I made this decision, and it was a very good decision. Then the killing began: others buried them in the soil, while we quickly froze them. Internationally, chicken and duck meat frozen for several months is no problem. But then we found we could not freeze it all; there was no place that could handle 100,000 tons or 500,000 tons, and no equipment that could freeze it. I remember at the time I went to the rural credit cooperative, to Chairman Xie of Guangxi, and I said I needed to borrow money from the rural credit cooperative starting that very night, with the government stepping forward. Then each company was responsible for a loan, and in less than a week, 700 million RMB had to be produced to save the farmers. With this 700 million yuan, we saved so many chicken and duck slaughterhouses, and once built they normally purchased the farmers' chickens. Within a week, everything that could be collected was collected as quickly as possible, and before avian influenza arrived the chickens and ducks were all gone. Our chickens and ducks were not buried in the soil; they were all in cold storage. 700 million was not enough, so another 700 million came. This made me fully feel the major role of rural finance. After about a month and a half, when it was announced that chicken and duck meat could be eaten, and people heard it could be eaten, Guangxi's so many tons of chicken and duck were quickly supplied to the whole country, without losing money, and indeed earning quite a lot, because the price was much higher.

Chen Zhangliang: The second example: I am at the Association for Science and Technology. The association has 120,000 rural technical associations nationwide. We signed an agreement with Postal Savings Bank. This was based on work done by a rural technical association led by the Sichuan provincial association for science and technology. Farmers have difficulty getting loans, but the rural technical association gathers the farmers together and lets the rural technical association come forward to borrow from Postal Savings Bank. The most beautiful work was done in Meishan City, Sichuan Province: the loan came down and was then given to the farmers to use, and the microcredit was done very well. The Meishan city secretary told me that every month more than 100 million was borrowed from Postal Savings. Every farmer had it in hand, and this moved me very much. Why is this related to the association for science and technology? Because the rural technical associations are under me, and the people from the rural technical associations came forward and organized the farmers in the villages to convert mountain land to growing grapes. Now most of Sichuan grows grapes. One mu of grapes can earn ten thousand, and they found there was no money for grape trellises, no money for wire netting, no money for seedlings, and also management fees. With no money, the scientific and technical personnel came forward and sought out Postal Savings of China, and Postal Savings of China went one household at a time, which saved them costs. Because we determine which farmer has skill and keeps his word, and then tell Postal Savings of China. The people from Postal Savings of China, according to the list we provided, went over and made the loan. This lending in Sichuan Province alone was more than 10 billion yuan a year, and it is still like this now. We want to spread this experience nationwide, so in recent years we have wanted to sign this agreement with the bank governor, with 120,000 rural technical associations nationwide stepping forward, and then borrowing from Postal Savings of China to help us develop. This is how crucial financial support is to agricultural development.

Chen Zhangliang: Third, the current difficulties and the reforms we hope for. There are many difficulties. For farmers, if you just go and investigate, as our Wu Xiaoling and others have said, loans are difficult and loans are expensive; everyone says this. Loans are difficult because of farmers' own knowledge and other aspects; it is very hard for them to talk directly with bank lenders. For example, buying seeds needs money, raising pigs needs money, and the money for seeds and for breeding pigs and piglets is very hard to raise, while farmers cannot afford not to pay. Second, loan interest is high, loans are expensive, and farmers are afraid. But the third problem is that collateral and guarantees are difficult. President Li Yang knows this best, because the investigation report is very clear. During my six years managing rural areas, I wore my brain out trying to get a little money for farmers. The moment a bank opens its mouth, it is all about collateral and guarantees. In the Property Law, even the shabby house on a farmer's homestead cannot be used for a loan, because it is not allowed to be used as collateral or guarantee. Aside from the shabby house at home, farmers have nothing else. What can they use as collateral? The bank says, if you do not put up collateral, how can I give you money? In the end the bank invented a method: joint guarantee. What does joint guarantee mean? To borrow 5,000 or 10,000 yuan, several neighboring buddies, a dozen or so households, jointly guarantee for this person, and you also guarantee for others. This is joint guarantee. Joint guarantee is very common in rural areas, and this is a very good opportunity. But the joint guarantee method can be spread, yet for somewhat larger amounts, nobody is willing to bear the guarantee, so everyone dares not take it on.

Chen Zhangliang: One major reform of the Third Plenary Session, I have been waiting for it for more than a year. The Third Plenary Session finally decided that homesteads can be used as collateral and guarantees. At the Boao financial forum this matter will be discussed. This is the fourth major reform, concerning the property rights of homesteads and the issue that farmers can use them as collateral and guarantees. Because the Property Law has never allowed farmers to buy and sell their own houses. Our citizens can buy and sell, but farmers cannot; farmers are not allowed to sell their homesteads and the houses on the land, but they can use them as collateral and guarantees. Hearing this, I think there is great hope, and rural finance will finally be revitalized. This is very good.

Chen Zhangliang: But I have traveled to thirty provinces, and this decision of the Third Plenary Session has not been carried out; it is empty. I myself went household to household, and the bank governors all said the trouble is huge: this thing is not worth much money, and you still have to go assess how much it is worth. For example, to lend 100,000, he comes to use it as collateral and guarantee. Things in rural areas do not earn money; if what is planted is killed by floods or drought, the money cannot be repaid to me. The bank governor also asked me: if I go to his house and seize the homestead and the shabby house, according to the law they should be seized. Then he told me, can you really seize them? Before I even reach his house, the dog comes out and bites me. Drive the dog away, and you say the money you owe must legally be paid back to me. Suddenly you see his father and mother, grandfather and grandmother lying sick in bed, almost every household the same. Are you going to drive them out? And there are very small children pulling at your pant legs, one person pulling one leg. You just hurry away and let it go; there is no way to collect it back, because after collecting it the whole family would move into your house.

Chen Zhangliang: The third issue I want to talk about is that in the operation of rural finance, these difficulties truly exist. Before the meeting I told Li Yang that not long ago I went to Taiwan, China to look at rural Taiwan, China and how farmers get loans, and why farmers in Taiwan, China can operate so smoothly. There are farmers' associations, and the farmers' associations have cooperative credit; within the farmers' association they can lend themselves, knowing which household grows grapes and that the grape trellis now needs 60,000 RMB, and they directly lend him 60,000 RMB without going through so many complicated procedures. This rural finance is done beautifully. Japanese rural finance is also like this: its own cooperative operates there by itself, and each farmers' association has quite a lot of money on hand and runs the financial system like a bank itself.

Chen Zhangliang: I think today's meeting is especially important, especially as Wu Xiaoling said, to consider carefully from the macro level how to get money lent into farmers' hands. Like the microcredit that Yunus talks about, I am mainly moved by his spirit, the spirit of the Nobel Prize. Like us, they could not get loans. He went household to household: if your family wants to raise three pigs and cannot get a loan, for example needs 1,000 RMB, he finds 1,000 RMB and gives it to you. He helps farmers survive one household at a time, so they can live like human beings. I think it is not about how much money is lent, but that this spirit moves us. I think only when money reaches farmers' hands is this very good.

Chen Zhangliang: One last sentence. Li Yang just said pigs represent China's CPI; when pork prices are high and when pork prices are low, this is indeed a fact, and this is also related to loans. The Chinese government only subsidizes sows; the Chinese government absolutely does not subsidize boars. But without boars, sows are no good. I studied biology, and people always ask me whether the chicken came first or the egg. Nobody answers well: in the world, was there first a chicken or first an egg? I say, to hell with it, first there is a rooster and then there is everything; without a rooster where would all this come from? But we only subsidize sows, not boars, and boars also need bank support, so financial support is very important. Thank you!