China Closes Reserve to Poor Quality Grain

Substandard wheat and rice harvested in China this summer presents a quandary for Chinese price support programs. Officials are ordered not to purchase substandard grains for the national grain reserve. Instead, provincial officials are being prodded to subsidize purchase of the worthless grain.

With downward pressure on prices and many flour and rice mills operating far below capacity, the government launched intervention purchases at minimum prices for wheat and early-season rice harvested during the summer. The government's grain reserve corporation began buying wheat at support prices in late May in five provinces (Jiangsu, Hubei, Anhui, Henan, and Shandong), In July it began purchasing early-season rice in three provinces (Jiangxi, Hunan, and Hubei).

According to Farmers Daily, total intervention purchases of wheat totaled 19.5 million metric tons as of September 10, which was 23% less than in 2014. Large portions of wheat did not meet government standards in parts of Hubei, Anhui, and Henan, Purchases of early rice totaled 2.75 mmt, down 26% from 2014. Rice purchases were down because of sprouting or poorly-formed kernels in Jiangxi.

A representative from the grain reserve corporation said grain depots must not loosen purchasing standards for grain which would harm the government's interest. Grain depots are also ordered not to downgrade farmers' wheat to pay a lower price.

Farmers Daily learned that central authorities have instead issued orders to provincial governments to buy up the substandard grain as part of their "governors responsibility" for food security.

Beijing is no longer willing to write blank checks to support agricultural commodities as it watches its massive grain, cotton and sugar reserves decline in value day by day. There is likely to be pushback from provinces on this demand to pick up the tab since the grain-producing provinces likely have even worse finances than the central government.