Wednesday, May 14, 2014

Heilongjiang Grain: Half "Policy Purchases"

According to China's Grain Bureau, "policy-type purchases" accounted for more than half of the grain purchased in Heilongjiang Province for the 2013-14 market year. Authorities have been saying for decades that they want market forces to play a greater role in allocating grain, but China seems to be once again retreating from marketization as authorities obsess over "food security".

The National Bureau of Statistics says Heilongjiang is now China's biggest grain producer, with output at 60 million metric tons (mmt) in 2013, just under 10 percent of the national total.

The Grain Bureau statistics say that a total of 60 mmt of Heilongjiang's grain had been purchased by April 2014 (that's the entire harvest--surely an overstatement since farmers still retain significant quantities for their own use). The Bureau also reports that "policy-style" purchases accounted for 33.85 mmt of grain procured, or 56 percent of Heilongjiang's total. Policy purchases doubled from the previous year.

Jilin Province produced a record corn crop, but 85.7 percent of Jilin's corn was purchased for the "temporary reserve," a total of 28.4 mmt.

This year, Chinese authorities bought record amounts of japonica rice using the "minimum price" program and corn for "temporary reserve". These are classic price support programs in which the government stands as the buyer of last resort if others will not buy farmers' grain at the specified minimum or "reserve" price.

The Grain Bureau says it opened more government purchasing points in Heilongjiang to ensure farmers could sell their grain. The province has 390 facilities for storing rice purchased at minimum price and 996 facilities for holding corn and soybeans purchased for "temporary reserves." They rented 489 privately-owned granaries to store the stockpiled grain.

The increased role of government in grain-purchasing is portrayed as providing services to farmers to prevent them from experiencing losses from "natural disaster." Local government grain depots have been organized to purchase, store, and dry grain on behalf of farmers--"three services"--to eliminate hazards of bad grain and eliminate farmers' difficulty selling grain.

The services are specifically intended to address the problem of moldy grain. Due to emergency conditions in the province, national standards for mold have been relaxed in Heilongjiang to permit grain with mold content up to 5 percent to be held in government reserves.

The resurgent government role in Heilongjiang and Jilin is especially significant since these provinces are the largest producers, experienced the most rapid growth in output, and are expected to be the main suppliers of grain to southern provinces. Heilongjiang Province statistics indicate the province has expanded its grain-planting area by 30 percent since 2004. Yet the government has to buy up half the province's grain, paid a subsidy of 140 yuan/metric ton to ship 1.6 mmt to the south, and much of the corn is moldy.

While Heilongjiang is filling its bins with moldy corn that will poison livestock, quarantine authorities have been turning away imported corn containing a variety that has been tested over and over and eaten by animals in other countries for years but can't be allowed into the Chinese market because of its supposed risk.

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