Government market-support purchases leave 80% of rice mills in Northeast short of grain and shut down
The government spends hundreds of billions of yuan every year buying grain, with the original intention of protecting farmers' enthusiasm for growing grain, but it has disrupted normal market circulation and triggered many serious problems. Last year, after new rice came onto the market in the Northeast, processing companies all followed their usual practice and planned to buy a full year's raw materials within 6 months. But because the state reserve entered the market to buy grain, all the new rice was bought up in just 2 months, and as a result about 80% of the rice mills in the Northeast region stopped work and production.
Government market-support purchases leave 80% of rice mills in the Northeast short of grain and shut down
The complexity of China's grain problem today exceeds what many people imagine.
In Northeast China, although it is a major rice-producing area, about 80% of rice mills have stopped work and production because of insufficient raw materials.
To resolve China's grain problem and find a path for the sustainable development of China's grain industry, a reporter from China Business News interviewed Mu Yankui on this subject. Yihai Kerry is now one of the largest grain and oil processing enterprises in the country.
Grain inventory “barrier lake”
Starting in 2008, through policies such as market-support purchases, the government entered the grain circulation market on a large scale and bought up large quantities of raw grain at high prices for the state reserve warehouses.
Mu Yankui said that the government's original intention in doing this was to protect farmers' enthusiasm for growing grain, but because there was a lack of modern grain processing industry as a channel for absorption, large amounts of grain piled up in government reserve warehouses, forming a “barrier lake.” This not only consumed enormous financial resources, but also disrupted normal market circulation and further affected the healthy development of processing enterprises. In this way it entered a vicious cycle and triggered many serious problems.
The first is that processing enterprises were forced to stop work and production because of poor raw material supply. For example, last year after new rice came onto the market in the Northeast, processing companies all followed their usual practice and planned to buy a full year's raw materials within 6 months. But because the state reserve entered the market to buy grain, all the new rice was bought up in just 2 months, and as a result about 80% of the rice mills in the Northeast region stopped work and production.
The second is the financial burden. Large amounts of raw grain entering reserve warehouses means the state must pay hundreds of billions of yuan every year for grain purchases, infrastructure construction, manual storage, interest costs and so on, and the finances are overwhelmed.
The third is food safety. New grain must be stored in reserve warehouses for 1~3 years or more before it is put on the market, so not only can consumers not eat fresh rice, but the problem of aged grain caused by this also brings huge hidden dangers to product quality.
In addition, the government's high-price market support also causes domestic grain prices to be far higher than international market prices, thereby prompting large quantities of cheap agricultural products from neighboring countries to be imported and smuggled into China, which clearly does not conform to the original intention of the policy.
Fifth, the government's market-support purchases of corn in the Northeast caused corn prices in the Northeast to be higher than in North China, making large amounts of North China corn flow backward into the Northeast. This not only caused enormous waste of social resources, but also made corn processing plants in the Northeast lose market competitiveness because of high-priced raw materials, causing serious losses. According to incomplete statistics, in Hebei alone more than 5 million tons of corn flowed backward to Liaoning this year.
Expand the pilot program for target price subsidies
In 2014, the Central Document No. 1 determined that pilot programs for target price subsidies would be launched for soybeans in the Northeast and Inner Mongolia and for cotton in Xinjiang, that the principle of market pricing would continue to be upheld, that reform would be explored to decouple the price formation mechanism for agricultural products from government subsidies, and that a target price system for agricultural products would be gradually established, subsidizing low-income consumers when market prices are too high and subsidizing producers according to the price difference when market prices are below the target price, so as to effectively guarantee farmers' income.
Mu Yankui said that the original intention of the protective price purchase and temporary storage system was to protect farmers' interests, but because it directly intervenes in prices and the government directly enters the market to buy grain, it disrupts the order of market operation. According to the spirit of the Third Plenary Session, this violates the principle that the market plays a decisive role in resource allocation. Such policies are extraordinary policies for extraordinary times, and when the state launches such policies it should carefully assess their necessity and not turn them into a normalized policy.
The target price subsidy system and target price insurance mechanism, however, can achieve a good balance between protecting farmers' interests and maintaining the order of market operation. Mu Yankui said that this year's “Document No. 1” proposed first piloting the target price subsidy system for two varieties, soybeans in the Northeast and cotton in Xinjiang, and we sincerely hope the pilot work proceeds smoothly and is extended to other varieties as soon as possible.
The breakthrough for food security lies in modern processing industry
In 1990, Yihai Kerry launched the first bottle of Arawana brand small-package edible oil on the market, helping Chinese consumers achieve a consumption upgrade from traditionally pressed oil to refined oil. This year, domestic edible oil enterprises including Yihai Kerry are vigorously promoting non-GMO edible oil products on the market, and the edible oil market has reached a new stage from eating enough to eating well.
Mu Yankui said that after less than 20 years of development, China's oil and fat industry has undergone earth-shaking changes. In the past there was not a single modern oil plant, but now we have the world's largest and most advanced edible oil industry. China's edible oil market has sufficient quantity, stable prices, a wide variety of categories and safe quality. But looking back at our grain processing industry, it is still at a very backward stage of development.
Mu Yankui believes that a modern grain processing industry is the most important breakthrough for solving the “three rural issues” and the “food security issue.” The current “three rural issues” and “food security issue” are mainly driven by the strength of the government. To better exert the power of the market in the future, it is necessary to give play to the pulling role of the grain and oil processing industry.
China is a large agricultural country, but not yet an agricultural power, Mu Yankui said, and the main reason is that the agricultural product processing industry is backward. At present the competitiveness of our oil and fat processing industry is globally leading, but the grain processing industry lags far behind. The added value of our agricultural product processing is still less than 50% of that of developed countries, lagging behind developed regions such as Europe, the United States, Japan and South Korea.
Taking rice processing as an example, a large comprehensive rice processing plant can burn rice husks to generate electricity, extract rice bran oil from rice bran, extract dietary fiber from rice bran meal, and extract white carbon black, activated carbon and more than 30 other high-value-added products from rice husk ash. In this way, the processing value of each ton of rice can be increased by 1000~2000 yuan. If the 200 million tons of rice China produces each year could all be processed according to this circular economy model, then not only could value be increased by 100 billion~200 billion yuan, but more than 20 million tons of coal could also be saved each year, carbon dioxide emissions could be reduced by 300,000 tons, and more than 2.3 million tons of rice bran oil could be produced, equivalent to the output of 110 million mu of soybeans.
Mu Yankui suggested that the state should increase support for and guidance of the modern grain processing industry and raise the level of development of the grain processing industry as soon as possible, thereby laying a solid foundation for our food security and food safety management.