Side Effects of Grain Price Support Purchasing and Storage Emerge, Experts Suggest Changing Subsidy Methods
Every year's No. 1 Central Document concerns agriculture, and this official way of attaching importance gives concrete expression to the Chinese notion that "food is the first necessity of the people." China has a large population, and food security has always been of paramount importance. Although there have been many consecutive years of bumper harvests, the state has not relaxed in the slightest on the grain issue.
Every year's No. 1 Central Document concerns agriculture, and this official way of attaching importance gives concrete expression to the Chinese notion that “food is the first necessity of the people.” China has a large population, and food security has always been of paramount importance. Although there have been many consecutive years of bumper harvests, the state has not relaxed in the slightest on the grain issue.
In the institutional arrangements for safeguarding food security, grain reserves are an extremely important component of the national food security system. In 2004, the state began implementing the minimum purchase price policy for grain. According to the regulations, the state publishes the minimum purchase price policy for rice, wheat and other grains before sowing each year. When the market price falls below the minimum price, the grain enterprise designated by the state——China Grain Reserves Corporation (hereinafter referred to as “Sinograin”)——purchases at the minimum price, thereby stabilizing the market price and safeguarding farmers' interests.
However, this policy, aimed at ensuring food security, protecting grain prices and raising farmers' enthusiasm for growing grain, has from time to time faced controversy in recent years. Some experts believe that China's current reserve ratio is too high, causing large quantities of overseas grain to enter the Chinese market and weakening the competitiveness of Chinese grain; moreover, the existing price-support purchasing method does not help improve grain-growing efficiency.
The reporter learned that the National Development and Reform Commission and the State Administration of Grain are also discussing the purchasing and storage system in order to respond to the situation in which the market and policy are “not suited to local conditions.”
Multiple Impacts
“Because rice is strong while milled rice is weak, corn and rice processing industries have generally suffered losses, and large-scale shutdowns have appeared in Northeast China, with seriously insufficient operating rates.” Mu Yankui, vice chairman of Yihai Kerry, one of China's large grain processing enterprises, said publicly.
The situation Mu Yankui encountered was that in 2013 and 2014, in major rice-producing areas, “within the first two months of purchasing and storage, all the rice entered the state treasury.”
“Because the state reserve price is relatively high, growers, farmers and farms are all willing to sell to the government's reserve depots, so within one or two months, basically all the rice was purchased.” Mu Yankui believes that processing plants will soon face a situation in which there is no rice to purchase. “As far as I know, last year it was two months; this year, in less than one month since it started, 80% of the new rice on the market is already gone.”
However, for processing enterprises that play a major role in grain market circulation, “they cannot raise funds in the short term and cannot purchase so much raw material, so they face a situation in which there is no grain to process in the next year.” This situation has even caused price inversions.
“Everyone can look at today's rice market; almost all processing enterprises have stopped production.” Mu Yankui said.
For Sinograin, the main body implementing the state's grain price-support purchasing policy, the economic calculation is not worthwhile; this is an “investment that cannot make ends meet.”
The National Development and Reform Commission, the Ministry of Finance, the Ministry of Agriculture and other departments jointly issued a notice on September 15, 2014 regarding this year's implementation plan for the minimum purchase price of mid-to-late rice. Among them, the minimum purchase price for mid-to-late rice uses national standard grade-three mid-to-late rice as the standard product. The minimum purchase price for mid-to-late indica rice is 1.38 yuan per market jin, and for japonica rice 1.55 yuan per market jin, respectively 0.03 yuan and 0.05 yuan higher than last year per jin; the grade price difference between adjacent grades is set at 0.02 yuan per market jin.
The minimum purchase price refers to the delivered-to-depot price at which purchasing and storage depots undertaking the minimum purchase price task purchase directly from farmers. Each year, the price of aged grain from Sinograin's rotation reserves is about 400 yuan per ton cheaper than that year's purchasing and storage price, but Sinograin's auctions of aged grain are not optimistic.
“Even at a low price, few people buy it.” A person inside Sinograin told the reporter, “The market conditions are poor, the aged grain cannot be sold, and we ourselves have also suffered great losses.”
The reason aged grain is difficult to sell is that “consumers generally like to eat new rice.”
Data show that Anhui recently planned to sell 66,567 tons of 2013 early indica rice, all of which was passed in at auction. Hubei planned to sell 39,857 tons of 2013 early indica rice, all of which was passed in at auction. Hunan planned to sell 149,141 tons of 2013 early indica rice, with an actual transaction volume of 2,356 tons and a transaction rate of 1.58%. Jiangxi planned to sell 246,059 tons of 2013 early indica rice, with an actual transaction volume of 1,008 tons and a transaction rate of 0.41%.
In fact, during the reserve process, Sinograin also invested enormously. “Now, in warehouse management, many technologies are used, such as nitrogen filling and air-conditioning temperature regulation.” The aforementioned Sinograin person said.
“But aged grain that has been stored for two to three years is also not accepted by the market.” Mu Yankui said.
In addition, about 90% of reserve grain on the market is currently managed in central reserve depots, while other grain is entrusted to commercial reserve institutions for storage.
“The central reserve has the best storage environment; grain in other commercial reserve depots is inferior to Sinograin's own reserve depots, making aged grain sales even more difficult.” A person inside another large state-owned grain central enterprise said.
In the reporter's previous interviews, Sinograin management repeatedly said that the state also assesses Sinograin's responsible officials, and assessing losses on reserve grain is one of the assessment contents.
In the institutional arrangements for safeguarding food security, grain reserves are an extremely important component of the national food security system. In 2004, the state began implementing the minimum purchase price policy for grain. According to the regulations, the state publishes the minimum purchase price policy for rice, wheat and other grains before sowing each year. When the market price falls below the minimum price, the grain enterprise designated by the state——China Grain Reserves Corporation (hereinafter referred to as “Sinograin”)——purchases at the minimum price, thereby stabilizing the market price and safeguarding farmers' interests.
However, this policy, aimed at ensuring food security, protecting grain prices and raising farmers' enthusiasm for growing grain, has from time to time faced controversy in recent years. Some experts believe that China's current reserve ratio is too high, causing large quantities of overseas grain to enter the Chinese market and weakening the competitiveness of Chinese grain; moreover, the existing price-support purchasing method does not help improve grain-growing efficiency.
The reporter learned that the National Development and Reform Commission and the State Administration of Grain are also discussing the purchasing and storage system in order to respond to the situation in which the market and policy are “not suited to local conditions.”
Multiple Impacts
“Because rice is strong while milled rice is weak, corn and rice processing industries have generally suffered losses, and large-scale shutdowns have appeared in Northeast China, with seriously insufficient operating rates.” Mu Yankui, vice chairman of Yihai Kerry, one of China's large grain processing enterprises, said publicly.
The situation Mu Yankui encountered was that in 2013 and 2014, in major rice-producing areas, “within the first two months of purchasing and storage, all the rice entered the state treasury.”
“Because the state reserve price is relatively high, growers, farmers and farms are all willing to sell to the government's reserve depots, so within one or two months, basically all the rice was purchased.” Mu Yankui believes that processing plants will soon face a situation in which there is no rice to purchase. “As far as I know, last year it was two months; this year, in less than one month since it started, 80% of the new rice on the market is already gone.”
However, for processing enterprises that play a major role in grain market circulation, “they cannot raise funds in the short term and cannot purchase so much raw material, so they face a situation in which there is no grain to process in the next year.” This situation has even caused price inversions.
“Everyone can look at today's rice market; almost all processing enterprises have stopped production.” Mu Yankui said.
For Sinograin, the main body implementing the state's grain price-support purchasing policy, the economic calculation is not worthwhile; this is an “investment that cannot make ends meet.”
The National Development and Reform Commission, the Ministry of Finance, the Ministry of Agriculture and other departments jointly issued a notice on September 15, 2014 regarding this year's implementation plan for the minimum purchase price of mid-to-late rice. Among them, the minimum purchase price for mid-to-late rice uses national standard grade-three mid-to-late rice as the standard product. The minimum purchase price for mid-to-late indica rice is 1.38 yuan per market jin, and for japonica rice 1.55 yuan per market jin, respectively 0.03 yuan and 0.05 yuan higher than last year per jin; the grade price difference between adjacent grades is set at 0.02 yuan per market jin.
The minimum purchase price refers to the delivered-to-depot price at which purchasing and storage depots undertaking the minimum purchase price task purchase directly from farmers. Each year, the price of aged grain from Sinograin's rotation reserves is about 400 yuan per ton cheaper than that year's purchasing and storage price, but Sinograin's auctions of aged grain are not optimistic.
“Even at a low price, few people buy it.” A person inside Sinograin told the reporter, “The market conditions are poor, the aged grain cannot be sold, and we ourselves have also suffered great losses.”
The reason aged grain is difficult to sell is that “consumers generally like to eat new rice.”
Data show that Anhui recently planned to sell 66,567 tons of 2013 early indica rice, all of which was passed in at auction. Hubei planned to sell 39,857 tons of 2013 early indica rice, all of which was passed in at auction. Hunan planned to sell 149,141 tons of 2013 early indica rice, with an actual transaction volume of 2,356 tons and a transaction rate of 1.58%. Jiangxi planned to sell 246,059 tons of 2013 early indica rice, with an actual transaction volume of 1,008 tons and a transaction rate of 0.41%.
In fact, during the reserve process, Sinograin also invested enormously. “Now, in warehouse management, many technologies are used, such as nitrogen filling and air-conditioning temperature regulation.” The aforementioned Sinograin person said.
“But aged grain that has been stored for two to three years is also not accepted by the market.” Mu Yankui said.
In addition, about 90% of reserve grain on the market is currently managed in central reserve depots, while other grain is entrusted to commercial reserve institutions for storage.
“The central reserve has the best storage environment; grain in other commercial reserve depots is inferior to Sinograin's own reserve depots, making aged grain sales even more difficult.” A person inside another large state-owned grain central enterprise said.
In the reporter's previous interviews, Sinograin management repeatedly said that the state also assesses Sinograin's responsible officials, and assessing losses on reserve grain is one of the assessment contents.