Grain Banks Become a New Model for Serving Agriculture, Rural Areas and Farmers, Need to Shore Up Shortcomings in Financial Markets

In the future, “grain banks” will need support from financial markets such as futures, options, insurance and banking, forming a model led by the futures market

■ Reporter Yu Deliang

Zhang Xiaojun, a major grain grower in Nong'an County, Jilin Province, was building a new house after the Spring Festival and was still short about 20,000 yuan. So he went to the “grain bank” and sold more than 10 tons of corn through “point pricing”, raising enough money to build his new house, and construction started smoothly.

Today, farmers are no longer unfamiliar with new terms such as “grain bank”, “point pricing” and “futures prices”; they have integrated them into their planting, grain collection, grain selling and even futures market activities. The so-called “grain bank” is a new type of grain business format that adopts market-oriented operation, absorbs surplus grain from farmers as “savings”, and allows “depositors” not only to withdraw, purchase grain or cash out at any time with their “passbooks”, but also to enjoy functions such as commissioned processing for farmers and variety exchange. Through the “grain bank” business, farmers directly hand over the grain they produce to enterprises and can choose to settle at any time within a certain period at a satisfactory price.

Industry experts said that the new “grain bank” business helps farmers resolve bottleneck problems such as difficulty in selling grain, storing grain, transporting grain and raising funds, and promotes the healthy development of the agricultural industry. In the future, support will also be needed from financial markets including futures, options, insurance and banking, to form a new “grain bank” model led by the futures market.

New “Grain Banks”

No Longer Hurting Farmers When Grain Is Cheap

In the 5 years since traditional “grain banks” moved from pilot projects to wider promotion, their functions and connotations have been continuously innovated, and a new “grain bank” model has taken shape.

COFCO Biochemical Energy (Yushu) Co., Ltd., which carries out pilot “grain bank” business, explained to the reporter the specific way its business works. Farmers deliver grain to the enterprise according to a previously signed agreement, and the enterprise determines a daily listed price based on futures and spot prices and pays farmers a 10% advance payment at that day's listed price; within the following 6 months, farmers can freely choose the settlement date; the enterprise settles the remaining grain payment according to the listed price on the settlement date. If the listed price on the settlement date is lower than the price on the grain delivery date, the enterprise settles at a price 10 yuan/ton higher than the delivery date price. Since the company launched the “grain bank” pilot in October 2013, it has unloaded an average of 550 tons per day, totaling 33,300 tons, involving more than 400 farmer households and rural cooperatives. The shortest settlement cycle was 9 days and the longest was 150 days. Through company subsidies, “point pricing” grain sales and other forms, farmers increased their income by more than 500,000 yuan, with average price-difference income growth per household exceeding 1,000 yuan and savings on various expenses of more than 2,000 yuan. After more than a year of pilot operation, the enterprise's cash flow pressure was reduced, farmers' income growth was guaranteed, and the “grain bank” formed a positive interaction between the enterprise and farmers, already producing an obvious win-win effect.

Heilongjiang now has two enterprises piloting “grain banks”, and another thing this reform pilot is doing is building a trading platform——a platform similar to Taobao, where as long as the bid is suitable, farmers do not need to worry about the geographical distribution of buyers and can sell to whomever they want, and can even sell abroad.

Carrying out the “grain bank” business not only guarantees that enterprises can obtain the raw materials needed for continuous operation, but also reduces grain storage losses and saves farmers' grain storage costs, playing a positive role in increasing farmers' income. An industry insider calculated a grain purchase and storage account for the reporter. For example, in corn purchase and storage, the state currently purchases and stores corn in the three northeastern provinces and the Inner Mongolia Autonomous Region at a price of 2,240 yuan/ton. If purchase and storage are calculated at 70 million tons, the total cost is 156.8 billion yuan, in addition to fiscal costs of more than 20 billion yuan for shared expenses, storage fees and interest. Moreover, because the purchased and stored grain is kept for a long time, new grain becomes old grain and the mildew rate increases, causing waste of grain resources and, to a certain extent, becoming one of the factors threatening food security; the purchased and stored grain is not circulated according to market rules, causing processing enterprises to lack processing raw materials and only be able to obtain high-priced raw materials through auctions, forming a vicious cycle. If the “grain bank” business is promoted, this situation can be effectively alleviated.

A person in charge of the relevant department of the National Food and Strategic Reserves Administration introduced that China began piloting “grain banks” in 2008. As of June last year, according to incomplete statistics on more than 200 enterprises in more than ten provinces across the country carrying out “grain bank” business, the business has cumulatively handled 12 million tons of grain and driven farmers' income growth of 1.2 billion yuan.