Building a Close Financial Interest Chain Between Grain Production and Marketing

Lessons from Sihong County's Grain Enterprises Helping Large Grain-Growing Households Solve Financing Difficulties

After large grain-growing households in China sprang up like bamboo shoots after rain, funding problems followed. Solving the funding problems of large grain-producing households for their production and development has become a major challenge in the development of large grain-producing households today.

The practice in Sihong County, whereby large grain-growing households mortgage their standing grain crops to local grain processing enterprises, which then provide loan guarantees for them, is an effective way to solve the financing difficulties of large grain-growing households.

Large Grain-Growing Households Obtain Mortgage Funds, Enabling Continuous Reproduction

Unlike the production of ordinary crops, grain production has important characteristics: first, the upfront capital investment is large. A large grain-producing household planting 1000 mu of grain needs an investment of over one million yuan for a single season. Second, the production cycle is long. Wheat takes more than eight months from planting to harvest, and rice also takes more than four months.

The characteristics of grain production determine that those engaged in grain production must have sufficient working capital to support production development. When grain production was carried out by individual households, since each person had only a few mu of land, the investment in production did not seem so burdensome. When the scale of grain planting reaches dozens of mu, hundreds of mu, or even thousands or tens of thousands of mu, the continuous production investment leaves them struggling.

The difficulty of capital turnover for large grain-growing households is a surface phenomenon; from a deeper perspective, it is that resources have not been reasonably developed and utilized. Relative to grain processing enterprises, the standing grain crops of large grain-growing households are excellent resources. Based on this understanding, Subei Grain and Oil Company, located within Sihong County, has provided loan guarantees for large grain-growing households since April this year. Company general manager Zhao Dongdong said that large grain-growing households in need of loans mortgage their standing grain to the company, and after harvest the company purchases it at a price equal to or higher than the market price, while the company provides bank loan guarantees for the large households. With grain processing enterprises providing loan guarantees for large grain-growing households' standing grain, the difficulty of working capital turnover for large grain-growing households is effectively alleviated, and reproduction can continue.

Grain Processing Enterprises Obtain Grain Sources, Ensuring Production and Operations

Under market economy conditions, apart from a very small number of special commodities operated under state monopoly, the vast majority of commodities are traded through market competition.

Since the marketization of grain purchasing and marketing and the diversification of operating entities, competition in the grain market has become increasingly fierce. Especially for grain processing enterprises that rely on processing to survive, the intensity of competition is even more brutal. In recent years, under the impact of cheap imported grain, small processing enterprises have basically been eliminated, a large number of medium-sized processing enterprises have been restructured, and large enterprises are also operating at severely insufficient capacity, making survival and development difficult.

Sihong County's practice of guaranteed loans on standing grain alleviates the financing difficulties of large grain-growing households while providing a solid material foundation for grain processing enterprises. With large grain-growing households providing a steady stream of grain sources, the production and operations of processing enterprises can continue.

Grain Production and Marketing Achieve Effective Linkage, Maximizing Social Resource Utilization

As is well known, grain is the most important commodity indispensable for human survival. Yet, even for such an important commodity related to the national economy and people's livelihood, the waste in the production and processing stages is astonishing.

In the grain production stage, because farmers do not understand market demand, the grain varieties they plant are not suited to market demand, leading to product backlog and damage from insects, mold, rats, and birds; under the minimum grain purchase price policy, although the state purchases it, it merely piles up in grain warehouses; in some places the soil is polluted and cannot be used to grow grain, yet farmers still plant grain, making it unable to circulate in the market.

In the processing stage, grain processing enterprises passively purchase grain produced by farmers; not only are varieties mixed and products unable to fetch good prices, but some grain is contaminated and cannot be sold.

Sihong County's practice of processing enterprises providing guaranteed loans on large grain-growing households' standing grain can relatively well solve the above problems, achieving maximization of social resource utilization.

When grain processing enterprises guarantee loans for large grain-growing households, the sense of responsibility of processing enterprises is invisibly strengthened. Before grain sowing, processing enterprises will, on the one hand, inspect farmers' cultivated land conditions to see whether there is pollution and whether it is suitable for growing grain; on the other hand, they will tell farmers which grain varieties are suited to market demand; at the same time, they will also impose strict requirements on the use of chemical fertilizers and pesticides during farmers' planting process. It is learned that in order to strengthen the interest linkage with large grain-growing households, after providing loan guarantees for large grain-growing households, Subei Grain and Oil Company will specially send experts to guide the large households in managing their standing grain and help them increase production and income; for large grain-growing households that plant according to the company's technical regulations, the company implements high-price order purchasing for new varieties released by the company. Subei Grain and Oil Company also took the lead in establishing a chamber of commerce for large grain-growing households, using a credit mechanism to guide large households to plant and sell according to contract, and supervising enterprises to serve large households diligently. The grain produced in this way will become a best-selling product on the market.

It is reported that this new type of loan guarantee method, in which grain processing enterprises guarantee loans on large grain-growing households' standing grain, has solved 5.7 million yuan in financing difficulties for 25 large grain-growing households and family farms in Sihong County, Jiangsu Province.