Tuesday, February 7, 2017

China's Farm Policy Math

According China's Grain and Oils News, the Heilongjiang Branch of China's Grain Reserve Corporation procured 35 million metric tons of grain in 2016. This branch claims to now have an inventory of 150 million metric tons of grain reserves purchased on the government's behalf.

The Heilongjiang grain reserve company brags that its purchases of grain raised incomes for farmers by 10 billion yuan ($1.45 billion). Wow! However, the company reports that the subsidies distributed to granaries last year to cover the cost of storing the grain was 11.5 billion yuan ($1.67 billion). So...it cost 11.5 billion yuan to raise farmers' income by 10 billion yuan.

This doesn't count the shrinking book value of the grain, nor losses due to spoilage. Market prices for corn in Heilongjiang are now 1300-1400 yuan/mt, much lower than the support price for corn of 2220 yuan/metric ton they would have paid for corn in 2013 and 2014, and about 600-700 yuan less than the 2000 yuan they would have paid in 2015/16. Rice prices have been more or less flat. If they ever sell this grain they will not cover the cost of purchasing it.

Nor do they count the cost of corruption. Last August, 15 officials from Heilongjiang's Sinograin branch were convicted of receiving bribes. According to court documents, the communist party secretary got 1.96 million yuan, US$88,000, and two gold bars. This individual was also in charge of the granary at Lindian in Heilongjiang when it burned down in 2013, one of the biggest scandals ever in China's grain bureaucracy.

1 comment:

Godfree Roberts said...

A typical rate is an initial charge of 9 to 16 cents per bushel for the first 3 months of storage and an additional charge of from 2 to 4 cents per bushel for each additional month. This amounts to a six-month commercial rate of from 15 cents (9 + (2 x 3 mo.) = 15) to 28 cents (16+ (4x 3 mo.) = 28).
Grain storage isn't cheap.