Let Grain Reserves Be More “Marketized”
On May 31, a fire broke out in the northeastern province of Heilongjiang, triggering wide social attention: the fire occurred during the time when a Communist Party discipline inspection team started to review the top officials of China Grain Reserves Corporation (CGRC). Some thought the fire was set on purpose in order to hide something bad. At the same time, what have been burnt were the temporary grain reserves and grains that were collected and stored according to the lowest price policy. The grains were involved in the violation of regulations for being stored in the open, and the public attention has also been triggered.
Though the public have various doubts for the reason of the blaze, the police have eliminated the possibility of people’s intentionally burning down the warehouse, and point out that the fire is caused by the short circuit of a distribution box. Throwing off the reason for the fire, we may also have more introspection for this matter: one most basic question is what is the reason for the “overloaded operation” of the warehouse? According to the announcement of Heilongjiang Branch Company of CGRC, the grain depot occupies an area of 222,000 square meters, and the fixed capacity of the warehouse is 76,000 tons, but now it has the state temporary grain reserves of 150,000 tons. According to the explanation of the company, for the reason why the storage amount has exceeded the original reserve amount, one important reason is “the purchase without limitation.” According to the temporary collection and reserve policy that have been started by the state and the requirements of Heilongjiang Province, the company and its subordinate enterprises “should collect the surplus grains of farmers as much as possible.” Therefore, this Warehouse left part of the grain stored in the open.
In fact, it’s quite common that the storage amount exceeds the reserve amount in CGRC. Why should CGRC store so much grain? This may be a more fundamental problem. For the reason why the state-steering type grain reserve system should be established, the original idea is for the food safety in emergency period. But viewing from the experience of other countries, we may have a better choice.
For the grain reserves, there are two types: market-based type and government-oriented type. Under the former one, market is the main source of grains, and the government hardly controls the reserve amount of grains, thus the government realizes the balance between supply and demand of the gain market only through indirect means of laws and financial policies etc. However, under the latter one, the government directly possesses more grain reserves, adjusts the supply and demand of the grain market through the purchase and underselling, thus realizing the stable prices. Among economically developed countries, except Japan, all other countries mainly adopt the market-based type; while in many developing countries, such as India and China, they adopt the government-oriented type. In these countries, the performance of China stands out extremely. From 2009 to 2010, the amount of grain reserves of China’s government reached 37% of the whole market supply amount, ranking highly No.1 in the world; for Japan and India, the percentage is 15%; for the U.S. and Canada, the governments do not control any grain in hands at all.
The advantages of the market-based type are obvious. Through the price mechanism, the reasonable reserve amount is formed. If there are more market demands for grains, thus triggering the rising of prices, then the grain operators will put their grain reserves into the market; if there are less market demands, then the grain operators will buy in reserves with low prices. The grain operators in the market realize the balance of supply and demand of grains just through such a way of selling grains in case of high demands and buying in grains in case of low demands.
The biggest advantage of the market-based type is that it can reduce the operation cost of grain reserves as far as possible. Because the purpose of grain reserves of a grain operator is to seek profits, so the market supply and demand must be calculated so as to realize his cost minimization. By comparison, the cost of the government-oriented type is very high, because the grain reserves of the government are not for the purpose of making profits, so the problem of low efficiency management mostly exists: this not only is embodied in the low efficiency use of funds, at the same time, but also the embezzlement of relevant resources by the internal management for private purposes can not be excluded. Of course, the biggest malady for the government-oriented type grain reserve system lies in that due to the excessive intervention of the government on grains, the grain prices are unable to reflect the true supply and demand of the market —— for example, only 5 tons of rice are needed on the market, but the government orders that there must be 10 tons, the other 5 tons are just a waste.
Though the grain reserve system based on market can save government expenditure, improve the efficiency of capital operation, and in advanced countries in Europe and America, its achievements have been displayed, why does China still want to establish the government-oriented type reserve pattern? I think one major reason is the prejudice on market. Though some of us believe the market, they even believe the market failure. They think that when a grain disaster happens, “hoarding and speculation” will occur for those companies whose purposes are for making profits, at that time, if the government has insufficient grain reserves in hands, the benefits of the common people will be damaged. It is said that in 2008, the grain reserves of the whole U.S. was only the supply for 24 days. Larry Muttrah, president of “American Agricultural Movement,” an American peasant right organization, laughed and said, such little amount of wheat in the state warehouse of the U.S. “are not enough for every American to eat a small piece of biscuit.” Since such a problem even exists in the U.S., then China has more reasons to adopt the government-oriented type. But we should know that the U.S. is a big country for grain export, and China is an importing country.
Just under such a train of thought, our country has strengthened the government-dominated role in laws. For example, in the Grain Circulation Management Regulations, it is clearly regulated that “the state-owned grain purchase and sale enterprises should …give play to the main channel role in grain circulation,” and “the state should strengthen the grain circulation management, and enhance the ability to regulate and control the grain market.” But through the performance in recent years, the maladies of the government-oriented type grain reserve system have gradually appeared, not only there are various efficiency problems mentioned as above, at the same time, because of the absence of supervision, it has led to a series of corruption problems which have seriously influenced the image of the system of CGRC.
For how to solve these problems, in my view, the most important matter is to reduce the amount of governmental grain reserves. The reason why we have the blind faith on the government for the issue of grains, one very important reason is that some people excessively believe that “when there are grains in our hands, we don’t feel panic.” But in today’s world, with the perfection of social division of labor, it is not necessary for everyone to plant crops, and it’s not necessary for grains to be stored in the warehouse of one’s own home. The advancement of the grain futures market may even let others to produce the next year’s grains for you. In this sense, this big fire should let us rethink profoundly the grain reserve system that is currently too relying on the spot market and the grain reserve scale is too huge.
Originally published on China Times | 2013-6-5
