How can agricultural PPP investment be accelerated?
China is in a critical period of "industry nurturing agriculture and cities supporting rural development." Although the country's overall economic strength and industrial structure are already capable of "industry nurturing agriculture" and "cities driving rural development," the fundamental reality of the primary stage of socialism determines that relying on large-scale government investment to nurture agriculture and support rural areas is unrealistic. Actively using the PPP model to guide social capital into agriculture and rural areas is one of the important means at this stage to "nurture agriculture and support rural development."
The PPP model, also known as the public-private partnership model, namely Public-Private-Partnership, originated from the UK's "public-private cooperation" financing mechanism. It refers to a partnership between the government and private organizations, based on a concession agreement, for the cooperative construction of infrastructure projects or for the provision of certain public goods and services, with the rights and obligations of both parties clearly defined through signed contracts, ultimately achieving results more favorable to all parties than acting alone. Beginning in 2014 (also known as "PPP's inaugural year"), the State Council, the National Development and Reform Commission, and the Ministry of Finance issued a series of guiding documents on the "Government and Social Capital Cooperation Model (PPP)." With the introduction of the "Opinions of the State Council on Strengthening the Management of Local Government Debts," the "Guiding Opinions of the National Development and Reform Commission on Carrying Out Government and Social Capital Cooperation," and the Ministry of Finance's "Operational Guidelines for the Government and Social Capital Cooperation Model (Trial)," PPP formally debuted as a statutory model for government financing, and carrying out PPP has risen to the level of a national strategy.
I. Current Status of Agricultural PPP Investment in China
In recent years, with the deepening of the national modern agricultural system construction and the central government's increased support for agriculture, agriculture has become a hot investment sector, and agricultural PPP investment has begun to take shape.
1. Policies have been introduced to support agricultural PPP. In order to thoroughly implement the spirit of the Central Document No. 1, the "Opinions of the General Office of the State Council on Accelerating the Transformation of Agricultural Development Methods," the "Several Opinions of the General Office of the State Council on Further Promoting Tourism Investment and Consumption," and other documents, further optimize policy measures, develop multiple functions of agriculture, vigorously promote the development of leisure agriculture, and strive to advance the integration of the primary, secondary, and tertiary industries in rural areas, the Ministry of Agriculture issued the "Notice on Actively Developing Multiple Functions of Agriculture and Vigorously Promoting the Development of Leisure Agriculture," which pointed out the need to explore new financing models and encourage the use of PPP models, crowdfunding models, "Internet Plus" models, issuance of private bonds, and other methods to increase financial support for leisure agriculture. Various localities have also successively issued opinions on guiding social capital into agriculture. For example, Zhejiang Province issued the "Opinions on Encouraging Investment in the Development of Modern Agriculture" as early as 2014, which specified five concrete "policy bonus packages" in areas such as finance, taxation, and land use to guide social capital into modern agriculture.
2. Some practices of PPP investment in agriculture already exist. In recent years, social capital has accelerated its "march" into agriculture, with investment scale growing year by year. Although some are not large in scale and cannot be called a true PPP model, operational prototypes have already emerged. More and more social capital is choosing market-oriented, specialized division of labor, standardized production, and socialized collaboration as management strategies for investing in agriculture, organically integrating base development, product processing, and market expansion. The entities investing social capital in agriculture present a diversified pattern: there are local capable individuals investing, capital from other regions, and even some foreign capital; there are those from the secondary industry of manufacturing and construction, as well as those from the tertiary industry. For example, CITIC Group established an agricultural division, and Lenovo Group had already entered the agricultural sector in its early days. From the perspective of regional development, there are obvious regional differences in social capital investment in agriculture. The eastern coastal areas have superior agricultural production foundations and investment environments, started investing in agriculture earlier, have large investment scales, and achieve notable results, while social capital in the central and western regions is still in its infancy, with relatively limited business scope and profit space available.
3. Problems in PPP investment in agriculture remain prominent. China's agricultural PPP investment began in the 1990s. Although it has developed to some extent, due to the lack of relevant national policy support, the scale and scope of agricultural PPP investment are very limited, and some prominent problems exist, mainly manifested as follows:
First, cooperation sustainability is poor. Some cooperation between the government and social capital is not cooperation in the normative sense. After government investment, some takeover or operating entities lack enthusiasm, and operations see investment every year while projects struggle to yield results every year, lacking sustainability. In the final analysis, this is because government investment has not formed a stable cooperation mechanism with social capital.
Second, project attractiveness is low. Some agricultural projects themselves are not very attractive and have no possibility of obtaining exorbitant profits. On the one hand, the long agricultural production cycle affects the investment return cycle, and social capital must have sufficient patience and tolerance to wait for future financial returns. On the other hand, agricultural infrastructure is weak. Agricultural infrastructure construction requires relatively large investment, which first shuts out some social capital; even if some capital barely enters, it easily leads to "short-term behavior."
Third, the investment environment is not well matched. First, land resources are relatively scarce. With the adjustment of national land policies, the contradiction of land use difficulty is very prominent, especially the shortage of land for agricultural facilities, which restricts the development of facility agriculture or other agricultural projects requiring relatively large-scale facility land. Second, labor costs are rising, and talent and technological services are not keeping up effectively. With the massive transfer of rural young and middle-aged labor, social capital investing in rural labor-intensive industries faces very prominent problems of insufficient high-quality workers and "difficulty in hiring," and rising labor costs also affect the profit space of social capital. Third, agricultural financial services lag behind. When social capital invests in agriculture, it lacks collateral or the collateral does not meet the requirements of financial institutions, making it difficult to pass loan approval; agricultural insurance has few varieties and narrow coverage, and social capital faces relatively high operational risks.
II. Application Prospects of Agricultural PPP Investment
Agricultural PPP investment is an inevitable result of the transformation of China's economic development stage, the modernization transformation of agriculture, and changes in rural production factor relationships. It is also a phenomenon jointly caused by market profits, policy dividends, and other factors. With the support of the national new PPP policies, agricultural PPP investment will usher in new opportunities.
From the perspective of agricultural projects themselves, they possess the characteristics of PPP projects. From the nature of the PPP model itself, PPP projects have the characteristics of large investment amounts, long cycles, and high project risks. Successful PPP projects require participating parties to have the capabilities required by these three characteristics. Some agricultural PPP projects have the following characteristics: First, quasi-public welfare. The utility of some projects in the agricultural sector is indivisible, costs and benefits have externalities, and their social benefits exceed direct economic benefits. Therefore, government departments and social capital need to cooperate throughout the entire process based on concession agreements, with both parties responsible for the entire project cycle. Second, there is sustained income. Agricultural projects generally have relatively stable benefits but no exorbitant profits, and project returns are generally obtained through cooperation of 10 years, 20 years, or even longer. Third, the amount of capital investment is large. Social capital investing in modern agricultural projects involves a certain level of technical content and requires a very large amount of capital investment. The government invests a portion, social capital finances a portion, and they jointly inject capital to carry out operations.
From the perspective of agricultural industry demand, PPP is urgently needed to increase investment. Policy, science and technology, and investment have always been the three major factors supporting agricultural development in China. China's agriculture remains a weak link in national economic development, and the situation of insufficient investment and a fragile foundation has not changed. In China, how to stabilize and gradually increase the various investments necessary for agricultural development is an important part of consolidating the agricultural foundation. Merely increasing government fiscal investment is far from enough, and it is urgent to increase investment through multiple channels. For an industry like agriculture, which requires large investment amounts but has long payback cycles and relatively slow results, successfully attracting social capital is relatively difficult. PPP is one of the important means of guiding social capital to increase agricultural investment.
From the perspective of transforming investment methods, PPP is urgently needed for innovative development. The government has many areas and forms of investment in agriculture, some visible and some invisible. There are expenditures for agricultural departments; water conservancy projects, rural infrastructure projects, comprehensive agricultural development projects, modern agricultural projects, beautiful villages, ecological forest construction, and so on; there are also drought relief and flood control funds; and various subsidies to farmers, such as direct grain subsidies, improved seed subsidies, subsidies for breeding sows, and so on. For some basic projects, the government must truly realize the transformation from micro to macro, from approval to supervision, and from project arrangement to institutional supply. It must truly achieve the organic combination of government investment and social capital, use PPP to innovate agricultural investment models, and truly improve investment efficiency. PPP is not a free lunch and cannot completely replace financing methods such as bonds.
III. Approaches to Advancing Agricultural PPP Investment
Overall approach: In accordance with the requirements of relevant national documents, with the goal of enhancing the supply capacity of public goods (services) in the agricultural sector and improving supply efficiency, strengthen top-level design and standardized guidance, deepen the reform of the agricultural investment management system, and through multiple methods such as franchising, entrusted operation, investment subsidies, government purchase of services, and equity cooperation, encourage and guide social capital into key foundational and public welfare areas of agriculture, establish a long-term partnership with social capital featuring shared benefits and shared risks, establish and improve an institutionalized, standardized, and procedural monitoring mechanism, and lay a solid foundation for the synchronized development of agricultural modernization with industrialization, informatization, and urbanization.
Basic principles: First, adhere to top-level design. Introduce a clearer and more operable policy system for PPP investment in agricultural projects. In accordance with the national main functional zone planning and the layout of advantageous agricultural industries, integrate social capital investment in agriculture with agricultural industry development plans and the construction of various modern agricultural parks, so that social capital can accurately identify its industrial positioning when entering the agricultural sector and avoid blindness and convergence in investment. Second, adhere to pilot demonstration. First select some regions with mature conditions, good foundations, and prior exploratory practice as experimental zones (demonstration zones) for social capital investment in agriculture, explore and summarize specific methods and experience before promoting them, and advance in an orderly manner. Third, adhere to strict access. Establish an access system for social capital investment in agriculture, review the production and operation capabilities and contract performance capabilities required for social capital to engage in agricultural production, and strictly control the "access gate"; establish and improve an institutionalized, standardized, and procedural monitoring mechanism to avoid falsification or changing the business scope midway. Fourth, adhere to multi-party win-win. While ensuring that government funds play a leveraging role, social capital must be allowed to profit. Establish a close interest linkage mechanism between enterprises and farmers, so that farmers can share the "dividends" of enterprise development and growth and increase farmers' incomes.
Main areas for encouraging agricultural PPP investment: 1. Agricultural park-type projects. Such projects require government power to expropriate land and require upfront fiscal investment. Once completed, a dedicated unit is needed for continued operation. Within the scope of an agricultural park or experimental zone, the PPP model can absolutely be adopted. 2. Rural wholesale markets. Large rural wholesale markets require government power to expropriate land, with a portion of upfront fiscal investment. Once completed, the government grants a concession to a dedicated unit for continued operation, and the PPP model can absolutely be adopted. 3. Rural biogas projects. The upfront investment and publicity and mobilization work for rural biogas require relevant government departments to advance, while the maintenance of biogas digesters and the repair and upkeep of related equipment require dedicated franchised operating units to complete, and the PPP model can be adopted. 4. Fishing port wharves. The construction of fishing ports and fishing boat wharves requires government investment, but operation and management require dedicated units to carry out, and the PPP model can be adopted to benefit the development of the fishing port economy. 5. Grassroots animal epidemic prevention system. The construction of rural animal epidemic prevention stations and nationally mandated animal vaccines can be completed through national investment, but continued operation requires dedicated units to complete, and these dedicated institutions manage the numerous village-level epidemic prevention workers to accomplish this. In addition, breeding communities, improved seed breeding projects, and facility agriculture in the western regions can all implement the PPP model.
Operating mechanism: The competent agricultural department determines agricultural PPP investment projects, formulates annual and medium-term development plans for agricultural PPP investment projects, and then introduces social capital through bidding. Social capital signs a PPP cooperation agreement with the agricultural department or its authorized institution, independently undertakes or cooperatively establishes a new project company to undertake most of the design, construction, operation, and maintenance work of the PPP construction project, obtains reasonable investment returns through user fees and necessary government investment, and at the same time, the agricultural department is responsible for supervising the prices and quality of public goods and services.
IV. Policy Recommendations for Accelerating Agricultural PPP Investment
(1) Formulate an implementation plan for agricultural PPP investment. In accordance with the requirements of relevant State Council documents, formulate an agricultural PPP investment implementation plan as soon as possible, provide specific explanations of the policy needs for agricultural PPP investment, areas encouraged for investment, work arrangements, and so on, so that social capital can understand the specific process for investing in agriculture, clarify the interest protection mechanism for social capital and the pathways for realizing investment returns, and use capital returns as an attraction to mobilize the enthusiasm of social capital for investing in agricultural projects.
(2) Strengthen the qualification review of social capital access. Adapt measures to local conditions, plan scientifically, and guide according to circumstances to avoid capital loss caused by blind entry of social capital into agriculture, or even loss of confidence in further investment. Attach importance to and strengthen capital review for social capital entering agriculture. In particular, before social capital transfers farmers' land to develop modern agriculture, evaluate and demonstrate its investment motives, capital situation, project prospects, and operational capabilities, monitor the entire process of social capital investment in agriculture, track investment progress, and truly achieve survival of the fittest.
(3) Establish a PPP project guarantee fund. Because agricultural projects have long cycles and slow investment recovery, introducing medium- and long-term capital requires sufficient guarantees to meet the fund recovery and repayment needs of PPP projects. In order to better mobilize banks' enthusiasm for issuing project loans, it is recommended to accelerate the establishment of a PPP agricultural project guarantee fund, which can provide corresponding compensation for investment losses caused by non-performing loans to banks resulting from local government breaches of trust.
(4) Strengthen the evaluation and management of investment projects. Supervision and management should be carried out through key links such as plan forwarding and decomposition, project construction progress, and fund use and disbursement, comprehensively grasp the distribution and use of funds in agriculture-related fields, build a comprehensive investment supervision system relying on various forces, resolutely investigate and deal with prominent problems in agriculture-related fund fields, investigate irregularities and correct deviations, plug loopholes, put forward specific opinions on accountability for effectiveness, and promote the formation of an incentive and restraint mechanism closely linking investment supervision with investment arrangements.
(5) Strengthen research on issues related to agricultural PPP investment. Agricultural PPP investment is a new thing and requires strengthened related research. It is necessary to systematically sort out the national PPP-related policies, analyze and understand the practice of PPP in other industries, summarize the experience of foreign countries in carrying out agricultural PPP investment, track and study domestic investment practice, clarify the classification standards for agricultural PPP projects, and promptly propose policy needs for agricultural PPP investment.