New Grain Reserve Behemoth Set Up in Beijing

China Enterprise United Grain Reserve Ltd. Company was established yesterday to manage China's national grain reserve. The new company is a joint venture between two state-owned grain behemoths, Sinograin and COFCO. The merger is part of a bigger program to wring inefficiencies out of China's bloated state-owned enterprises. Officials praised the new grain company as signaling a new chapter in maintaining national food security, improving capacity to intervene in grain markets, and enhancing communist party leadership. 

Earlier this year, explanations of maneuvers to meld Sinograin and COFCO explained that efficiencies could be gained by combining the two companies' overlapping businesses in specialized joint ventures. Sinograin is responsible for managing national grain reserves, but COFCO also hires out facilities to store grain and is China's premiere player in international grain trade. China Enterprise United Grain Reserve Ltd. Co will utilize Sinograin's policy role and COFCO's commercial role to store reserves, procure grain to fill the reserves, and buy and sell grain to intervene in the country's grain market. The slogan "storing the country's grain" and "finding grain for the country" reflects the functions of Sinograin and COFCO. 

The second overlapping business is in oilseed and edible oils processing--COFCO is China's no. 2 edible oil manufacturer and Sinograin is no. 3. (Singapore-based Wilmar is no. 1.) Presumably another venture that will create a giant oilseed-processing business is also in the works. 

The China Enterprise United Grain Reserves Ltd. Co. (中企联合粮食储备有限公司) joint venture arguably reverses reforms in the early 1990s that spun off policy-oriented functions like storing grain reserves from state-owned companies like COFCO, allowing those companies to focus on commercial business. While the new company is said to allow Sinograin and COFCO to focus on their core policy and commercial functions, respectively, the company forges together policy-oriented Sinograin and commercial-oriented COFCO. The arrangement potentially gives COFCO access to policy loans from the Agricultural Development Bank of China, and grain reserves potentially could be financed by money spun from COFCO's near-monopoly on wheat and corn imports. 

Officials from the National Development and Reform Commission, State Asset Management Commission, Agricultural Development Bank of China, and National Food and Commodity Reserve Administration as well as Sinograin and COFCO were at the meeting in Beijing. The new company "took a collective oath, showing loyalty to the party's cause."