Governors' Responsibility System Reveals China Grain Worries

China's State Council has issued a directive establishing a new provincial governors' food security responsibility system which demands that local leaders shoulder more of the responsibility for boosting local food supplies, storing the food and ensuring that the food is distributed to consumers who need it.

A number of articles in Peoples Daily and other outlets tied to the government have emphasized that this new system reflects the government's top priority on food security. The articles indicate that top leaders are frustrated with provincial leaders for slacking off and expecting the central government to be responsible for national food security. Chinese officials portray a sense of urgency about the food security situation despite the fact that China has a serious glut of most major commodities.

The provincial food security system charges both the communist party secretaries and the governors of each province with ensuring local food supplies. They will be held accountable by including food security in the evaluation system for officials, requiring officials to make reports to the State Council, and subjecting provincial leaders to "criticism," "rectification," or other penalties if they fall short.

The new system goes beyond the "governors' rice bag" and "mayors' vegetable basket" responsibility systems installed in the 1990s--those just ensured there is "enough to eat" but the new responsibility system demands that governors pay attention to the entire marketing system for grains. The new system reportedly goes beyond grains to include vegetable oils and potatoes.

Part of the responsibility is to boost local grain production. Governors are expected to finance provincial "grain risk funds" and pay for farmer subsidies that have stronger production incentives than the existing subsidies. They are expected to finance model farming projects and high-yielding grain production districts.

Grain storage and distribution is a big emphasis of the responsibility system. Governors are expected to hold provincial reserves to supplement the massive central government reserves which are mostly held in remote grain-producing provinces. They are supposed to crack down on the practice of "round-tripping"--shifting grain around to collect subsidies on phantom grain reserves. Provincial governors are supposed to establish a new grain marketing system comprised of public-private hybrid companies. Poorly-operated state-run grain companies are to be merged and consolidated. Private companies are expected to take ownership stakes in these new state-owned grain companies.

The new system appears to be based on frustration that rich coastal provinces neglect grain production and storage while excess supplies of grain rot in remote grain-producing areas. According to a Development Research Center official, government reserves of corn, wheat, and rice are at record levels and inventories of each grain exceed 50 percent of annual production. Another unnamed official said that huge amounts of grain go to waste in government reserve warehouses. Most of the grain has been stored at least 2 or 3 years and has degraded to the point where it can only be used as animal feed or other uses (like making fuel ethanol).

This sounds like a recipe for even more waste, confusion and statistical subterfuge as officials mainly concerned with skyscrapers, subways and industrial parks are ordered to construct model farms, warehouses, and establish bogus grain companies. All the while filing fictitious reports showing their superiors that everything is fine.