What are the main ways modern finance helps agricultural development?

Premier Li Keqiang of the State Council presided over an executive meeting of the State Council on December 3, deploying the wider promotion of the Zhongguancun pilot policies and accelerating the construction of national independent innovation demonstration zones, to further encourage mass entrepreneurship and innovation; and decided to increase tax support for rural finance, helping the reform and development of “agriculture, rural areas and farmers”.

It is fair to say that modern society is a financial society, and I believe no one would object to this, but as a traditional industry that has continued in China for thousands of years, agriculture has long failed to attract enough attention and support from the modern financial industry, becoming an industry that is neglected, whether intentionally or not. With the development of traditional agriculture into modern agriculture, especially with the need for agricultural scale-up, industrialization and optimization of the agricultural structure, agriculture's need for financial support is becoming more and more urgent, and it can be said that the development of modern agriculture can no longer do without the support of the financial sector. As far as the actual situation across the country is concerned, there is a serious mismatch between the intensity of financial support and the current state of agricultural development, which to some extent restricts the development of modern agriculture.

In the era of the small-scale peasant economy, what each household needed was just money for fertilizer and seeds, and even if they temporarily had no money, they could overcome the difficulty through borrowing among neighbors, since after all the amounts were relatively small, which is the so-called “borrow in spring and repay in autumn”. But with the industrialization and scale-up of modern agriculture, especially with the implementation of the national land transfer policy, some agricultural operators have long since shed their “small farmer” identity, and the land transferred into their hands often amounts to several thousand or even tens of thousands of mu; the means of production needed have also greatly increased, and at this point relying on small loans among neighbors can no longer meet real needs, and the only way is to seek help from financial institutions, that is, to apply to financial institutions for loans.

On the other hand, the support of the financial and banking sector for the development of modern agriculture is not merely “making a contribution”, because with the support of the financial industry, modern agricultural development can not only achieve scale and industrialization, but also become more stable, reducing credit risk, thereby achieving a win-win situation with the financial industry. So how can the financial industry's support for animal husbandry be strengthened? On the one hand, the government should pay sufficient attention at its level and come up with practical measures; the government should first actively create convenient conditions for financial support for modern agricultural development, issue relevant fiscal and tax preferential policies, and accelerate the pace of building modern agriculture loan guarantee centers; on the other hand, financial institutions in various places should also adjust their business thinking, accelerate the improvement of the capital investment mechanism for financial support for modern agricultural development, and build a financial service model covering the entire industrial chain.

For a long time, the reason why the domestic financial industry has not provided enough support for agricultural development is that the traditional small-scale peasant economy is difficult to scale up and industrialize, and farmers' assets are mainly reflected in limited grain, livestock and poultry, and so on, while for financial institutions, because these agricultural means of production are too greatly affected by market prices, epidemics and so on, a slight misstep can make it impossible for financial institutions to recover their loans, so there has long been the traditional view that “with ten thousand strings of cash, anything with fur does not count”. But in this way, farmers have even less ability to expand the scale of agricultural production and form industrialized operations, ultimately creating a vicious cycle that hinders modern agriculture from becoming bigger and stronger, and also reduces their ability to withstand market risks.

What is gratifying is that at this executive meeting of the State Council presided over by Premier Keqiang, all of the above work was touched upon. In order to further ease the problems of high agricultural loan costs, high risks and difficulty for low-income farmers to obtain loans, the meeting decided to extend the following two policies, which had already reached the end of their implementation period, to December 31, 2016: first, exempt business tax on interest income from small farmer loans of no more than 50,000 yuan by financial institutions, and include 90% of it in the taxable income amount for enterprise income tax, so as to mobilize the enthusiasm of financial institutions to lend to farmers. Second, for the premium income of insurance companies carrying out insurance business in planting and breeding, include 90% of it in the taxable income amount for enterprise income tax, so as to expand insurance protection and services for farmers. At the same time, in view of the situation that farmers' loan demand is mainly concentrated in the range of 50,000 yuan to 100,000 yuan, raise the limit for small farmer loans eligible for tax preferences from 50,000 yuan to 100,000 yuan, and extend to the end of 2016 the tax preferential policy of levying business tax at a reduced rate of 3% on the insurance business income of county-level rural financial institutions. Let benefit-farmers policies continue to exert their power, and promote agricultural development and increase farmers' incomes.

It can be said that these measures are highly targeted to reality, and at the same time greatly mobilize the motivation of financial institutions and insurance companies to support agricultural development, and are undoubtedly worth looking forward to.