Grain Marketing, Technology, and Rule of Law

Two new measures make it easier for Chinese farmers to sell their grain. However, the two measures are contradictory. A pilot program adopts computerized systems to streamline the grain-buying process, but most Chinese farmers sell their grain to unlicensed individual grain traders who cannot afford any of this equipment. The story illustrates the tricky challenges Chinese officials must navigate to move a chaotic countryside toward a society governed by laws rather than expediency.

An initiative in Heilongjiang Province requires grain-buying stations to have electronic testing equipment and automated data systems to shorten the time farmers wait for test results and payment for their grain. An electronic unit tests grain for moisture in a few seconds--a procedure that used to take 20 minutes while farmers waited outside. Video cameras let farmers watch lab technicians test their grain to prevent the lab from producing false results to downgrade the grain and pay farmers a lower price--a longstanding method of cheating peasants. Farmers deliver their grain by truck, the license number is recorded and farmers show their ID card. The moisture, variety, grade, test weight, foreign matter, and incidence of mold are measured and entered in the system, the price is determined and payment is made to the farmer's bank account within minutes.

Farmers watch video screen and grain specifications.

In an article describing the system in 2014, a technician with 25 years of experience testing grain remarked, "With the new video surveillance system we cannot tolerate carelessness in our work." The technician continued, "Using the moisture testing equipment completely changes the longstanding practice of lab technicians testing grain using their teeth and their eyes." Officials say the new system for purchasing grain is more transparent and efficient. Most of the grain stations in Heilongjiang buying rice for the minimum purchase price program reportedly have this equipment now.

Grain moisture testing apparatus advertisement. 

This is a nice system, but as it turns out only a minority of farmers actually sell their grain at these depots. Most farmers sell their grain to private traders who come to villages to buy grain door to door, store it temporarily and then sell it on to grain buying stations or processors. These intermediaries make it more convenient for farmers to sell grain, but most of them have been operating illegally because they don't meet the requirements for a license to buy grain. 

A September 14, 2016 regulation issued by China's Grain Bureau makes these grain traders instantly legal by exempting farmers, individual grain traders (粮食经纪人), and traders in retail agricultural markets (农贸市场粮食交易者) from the requirements for a grain-purchasing license that were set in a 2004 regulation. Companies and enterprises--like the grain-buying stations above--are still subject to license requirements.

A grain-buying license issued by the State Administration of Grain

According to an article describing the license waiver, people in the industry estimate that there are 1 million such unlicensed traders, who have all been operating illegally until now. Selling to these traders has become popular because it saves farmers a long trip to the grain station, saves them the cost of hiring a truck, and reduces the need for laborers to load and drive the trucks. A professor at Henan Polytechnic University estimated that 85 percent of grain in his province is sold to these intermediaries. Many of the traders are farmers themselves who use their spare time to buy and sell grain. They store grain in courtyards and rented buildings.

Few of the private traders have licenses. In the Luohe district of Henan Province, a grain bureau official says only 12 of the 150 grain purchasing licenses are held by private individual traders. Shandong's Qihe County has 135 licensed grain buyers, including state-owned and private companies and flour mills, but a grain official estimates there are 700-800 unlicensed individual traders.

Mr. Zhang, a trader in Henan Province, has ten years of experience and buys 500,000 kg of grain annually. Mr. Zhang estimates there are 1000 traders like him in his country, and he never heard of anyone who had a license. Mr. Wang, another Henan trader with 20 years experience, didn't know a license was required to buy grain from farmers.

The licensing requirements are beyond the reach of individual traders. You have to prove you have 30,000 yuan in working capital, 200 metric tons of storage capacity, an official stamp, a legal document showing ownership or a rental contract for facilities, certain testing equipment, and qualified technicians and managers. (It sounds like the traders probably violate other regulations by storing grain in unapproved buildings or constructing warehouses on land designated for farming). Regulations stipulate that official granaries are not to accept grain that was purchased illegally. Violators are to be assessed a fine of five times the value of the grain. Nevertheless, the Henan branch of the China Grain Reserve Corporation (Sinograin) says most grain is delivered to granaries by small traders.

The article explains how an essentially illegal industry was created by quoting a common phrase: "Above there is a policy, below there is a countermeasure." As with many central government policies, the requirement for a grain license is widely ignored by local officials out of expediency. Many even encouraged the individual grain traders because farmers could not market their grain without the traders. A county grain official in Henan said there is not enough labor in the countryside to dry grain, load and haul it to distant grain-buying stations. But as long as the license requirement existed, traders always faced the risk that a zealous local official might order a crackdown.

One trader in Shandong told the reporter he was informed by local officials last year that he could no longer buy grain without a license. The trader made a phone call to a county grain bureau official he knew, and the local officials decided not to enforce the license requirement after all. 

There have been scattered cases where unlicensed grain traders were fined. The rule was mainly enforced to protect local markets from outsiders. In Guangxi Province, traders from Fujian and Zhejiang Provinces were fined for trying to sell rice they had purchased illegally without a license. 

The wife of a grain trader sits on a pile of sub-standard wheat refused by the Sinograin depot. Source: New Capital News.

The lifting of license requirements is applauded by small grain traders. The license waiver contrasts with dairy, hog-slaughter, and feed industries where re-licensing campaigns have shut down thousands of small operators who couldn't meet the requirements. Officials were probably forced to lift the grain license requirement because the small traders are so prevalent, and an entire industry composed of illegal operators just won't do when the country is now supposed to be run by the "rule of law." 

The waiver is probably not the end of the story. A Renmin University professor anticipates that a registration and reporting system will probably be introduced for these traders in the near future. Large-scale full-time grain producers may be more inclined to haul their grain to a distant licensed grain-buying depot equipped with electronic testing, video, and record-keeping equipment. Officials may be counting on the advent of these "new-type" farmers to reduce the need for the army of small grain traders. 

The small grain traders lack testing equipment and secure storage facilities like those of the state-owned grain stations in Heilongjiang described above. Will these traders get subsidies to buy testing equipment, grain dryers, and modern storage bins? Until they do, the traders will face the risk of having grain rejected when they sell it on to depots; they will be careful when buying from farmers and apply discounts based on eyeball evaluations.