Monday, February 16, 2015

Zhejiang-Heilongjiang Grain Tie-up

A joint venture between provincial state-owned companies reflects the resurgence of the State in grain marketing as Chinese officials cajole rich provinces into taking more "responsibility" for their grain supplies.

The Zhejiang Province Rural Development Group announced that it signed an agreement to form a grain-marketing venture with the Heilongjiang Province State-owned assets commission. The venture will produce, store, and transport grain from Heilongjiang to Zhejiang.

One of China's problems is that it is producing massive volumes of surplus, high-cost commodities in its peripheral provinces--corn and rice in Heilongjiang and Jilin, cotton in Xinjiang, pork in Sichuan. The central government bears the financial burden of subsidizing the storage and transportation of these commodities since agricultural hinterlands don't have much money and wouldn't spend it on agriculture if they did. The central government pipes money to farmers since it can't afford to let discontent boil over at the fringes of its empire. Meanwhile, rich coastal provinces like Zhejiang find it cheaper to import commodities. Last month, the central government announced that coastal provinces are now expected to take on more of the burden. This Zhejiang-Heilongjiang hook-up appears to be a manifestation of this strategy.

The Zhejiang company will invest 225 million yuan to set up the Heilongjiang Xinliang Grain and Oil Group. The Zhejiang company will have a 60% share, and the Heilongjiang commission will have 40%. In other words, rich Zhejiang is putting up most of the money to build assets located mostly in Heilongjiang. The "strategic cooperation framework agreement" between the two provinces calls for setting up an integrated production-storage-transport-trade grain industry conglomerate. In the first three years, the project will concentrate on constructing a "grain resource base," processing, storage, and depots for grain in transit (presumably from Heilongjiang to Zhejiang). Within five years, there are plans to build a 1.5-mmt grain-production base, 1.5-mmt of reserve storage capacity, and a port facility in Yingkou (Liaoning Province) capable of handling 150,000-mt to be shipped south to Zhejiang.

The project is expected to develop close relations between producing and consuming areas, will have a major role in ensuring Zhejiang's food security, and will "strive for profitability."

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