Thursday, January 9, 2020

China's Grain Industrial Policy

China aims to create a modern grain processing industry by linking up farms with world-beating companies, raising the quality of products, and creating powerful brands. Subsidies and guidance from officials are expected to create strong Chinese companies with premium high-end products to compete with multinational companies under the guise of preserving China's "food security."

According to Economy Daily, China's objective is to establish a modernized grain industry system with "green" high-end products, world-class internationally-competitive companies and stronger food security by 2025. The program is designed to overhaul China's grain sector which is geared toward producing mass quantities of generic grain, reduce losses from mold and deterioration in bins and warehouses, reduce contamination from pollutants and pesticides--and catch up with the more discerning tastes of Chinese consumers for higher quality and safer products. The program includes billions in spending as well as thousands of government officials orchestrating investments and supply pipelines.

Official news media attribute the grain industry development project to Xi Jinping's food security directives issued during inspections of grain-producing provinces. The State Council's 2017 "Opinion on speeding up progress in agricultural supply side structural reform by greatly developing the grain industry economy" ordered more support measures for China's grain processing industry to simultaneously maintain food security, stimulate local economic development, and strengthen the position of Chinese companies in global food markets.

During 2017-19, the central government budgeted 20 billion yuan (about $3 billion) which stimulated an additional 45 billion yuan (over $6 billion) of local government and private investment in construction of post production services (drying, cleaning and storing grain), quality inspection facilities, and a "China Good Grain and Oils" action plan to nurture companies producing safe, high-end, premium-priced products. Henan Province alone claims to have spent 6 billion yuan on its grain industry project since 2012.

Xi Jinping gave the grain industry initiative further impetus and prestige at the March 2019 Peoples Congress by issuing instructions to the Henan Provincial delegation to raise the core competitiveness of the grain industry by extending industry chains, and increasing quality premiums for grain products to achieve national food security and create modern, efficient agriculture.

Three cities have been identified as models for grain industry development: Binzhou, Shandong Province (corn processing, wheat flour), Wuchang, Heilongjiang Province (rice), and Luhe, Henan Province (wheat flour). 30 of China's 31 provincial governments issued policy measures and plans to promote their grain processing industries.

Official propaganda emphasizes guidance by the "invisible hand" of the market plus the "visible hand" of the government. China's Administration of Grain and Commodity Reserves takes the lead role in the "baton role" by holding meetings to match up grain-producing provinces with grain-deficit provinces to form "long-term" supplier-pipeline relations. Grain processors are directed to form production bases in farming regions and dictate quality specifications through contract purchases. Government officials are encouraged to perform by incorporating grain industry statistical indicators in job evaluations for provincial officials.

Henan Province's grain and commodity reserves bureau said the grain industry project will receive favorable access to land, discount electricity rates, and additional funding. The province has 23 "good grain and oils" demonstration counties and 17 model companies, and a model low-temperature storage facility. Henan will draft a five-year plan for grain industry development, include peanuts, sesame, and tea oil seeds in the program, create brands, and nurture a set of large grain and oils processing firms. A "big group" of "zombie" state-owned firms have been "rescued" by the program.

The plan also has a "global vision" to create a set of large, profitable international grain-trading companies. Grain companies will be actively encouraged to "go out" to invest abroad. Henan's grain reserve bureau says grain companies will be actively encouraged and supported with help from the "Belt and Road" initiative to follow the path of "internationalized brands" to get more Henan products on the world's dining tables. Economy Daily says China will participate in international exchanges and set trading rules to gain "discourse power" in world markets.

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