New grain giant to manage China’s reserves

by

Dr. Michaela Boehme | Agricultural Policy Expert | 29 August 2022

A new state-owned grain enterprise—China Enterprise United Grain Reserve Company Ltd. (中企联合粮食储备有限公司)—was established on 18 August to manage China’s grain reserves, according to local news reports.[i] The company is a joint venture between China’s two major grain companies Sinograin and COFCO and is anticipated to streamline management of the nation’s huge grain reserves.

China operates a complex grain reserve system, where provinces are required to stockpile a minimum amount of wheat, rice, cotton, sugar, and other strategic ag commodities as a means of controlling price volatility and ensuring supply. These reserves are released through an auction system as the availability of grains and oilseeds in the domestic market declines following harvest.

Grain reserves are generally auctioned off onto the national grain market in a tightly controlled manner. For instance, grain reserve authorities were auctioning off some 500,000 tons of wheat weekly in early 2022, but sales stopped on 25 April, reportedly due to the war in Ukraine, leading to immediate price increases.[ii]

The National Food and Strategic Reserves Administration (NFSRA), a national-level agency administered by NDRC (National Development and Reform Commission), is responsible for stocking, rotation, and management, working in close collaboration with China’s key grain SOEs (state-owned enterprises), which manage grain reserve handling on the ground.

The new joint venture grain company is part of the state’s efforts to reform the grain reserve system, which has been plagued by reports of corruption and mismanagement. [iii] For example, poor safety standards and corruption in some of the reserve facilities led to sporadic fires, endangering grain stocks.[iv] Recent corruption charges against Zhang Wufeng, former head of NFSRA, have given rise to further speculation on the state of the grain reserve system. [v]

Since 2007, China has also operated a strategic pork reserve, the only reserve of its kind in the world today. Under the administration of the Ministry of Commerce and managed by COFCO, it consists of both a live hog reserve and a frozen pork reserve.[vi] Pork reserves are released onto the market to prevent consumer prices from rising above a certain level. In recent years, the reserve has also operated in the reverse direction, buying pork off the market to stabilize producer prices.

In the 1980s, China launched a “vegetable basket” program to improve supplies of non-staple foods to cities. The program is managed at the city-level and focuses on production, distribution, and marketing, rather than simply stockpiling. Next to infrastructural support such as improving cold storage, it also seeks to address problems with food safety and price fluctuations.[vii]

The specifics of how China’s reserves operate and how much inventory they hold are tightly held state secrets. Consequently, there are no publicly available statistics on the amount of grains, pork, and other foods currently in stock. In November 2021, China’s Ministry of Agricultural and Rural Affairs announced that the nation’s grain reserves were at historically high levels, with wheat inventories sufficient to meet consumption demand for 18 months. The United States Department of Agriculture estimates that China’s 2021/22 grain inventories stand at 353 million tons – more than half of the world’s total reserves.[viii]

(With contributions by Dr. Ahmatjan Rouzi, DCZ).

 

Sources:

[i] CCTV (18 Aug 2022): 中企联合粮食储备有限公司在京揭牌成立 (China Enterprise United Grain Reserve Company Ltd. was inaugurated in Beijing), available online at https://jingji.cctv.com/2022/08/18/ARTIT9Q0JJPj8h7hW6gfiM4C220818.shtml, (last accessed 24 Aug 2022).

[ii] World Grain (26 Apr 2022): China stops wheat reserve auctions, available online at https://www.world-grain.com/articles/16818-china-stops-wheat-reserve-auctions, (last accessed 26 Aug 2022).

[iii] Dim Sums (2022): Grain Corruption and „Air” in the Granaries, available online at http://dimsums.blogspot.com/2022/01/grain-corruption-and-air-in-granaries.html, (last accessed 24 Aug 2022).

[iv] SinoInsider (12 Aug 2018): Risk Watch: Burning Grain Reserves Expose China’s Food Crisis, available online at https://sinoinsider.com/2018/08/risk-watch-burning-grain-reserves-expose-chinas-food-crisis/, (last accessed 26 Aug 2022).

[v] Caixin Global (15 Jun 2022): Former Head of China’s National Food Stockpile Falls Under Graft Probe, available online at https://www.caixinglobal.com/2022-06-15/former-head-of-chinas-national-food-stockpile-falls-under-graft-probe-101899593.html, (last accessed 24 Aug 2022).

[vi] Schneider, Mindi (2011): Feeding China’s Pigs, In: Institute for Agriculture and Trade Policy, available online at https://faculty.washington.edu/stevehar/Pigs--Schneider.pdf, (last accessed 24 Aug 2022).

[vii] Gale, Fred (2013): Growth and Evolution in China’s Agricultural Support Policies, In: USDA Economic Research Report Number 153, available online at https://www.ers.usda.gov/webdocs/publications/45115/39368_err153.pdf?v=0, (last accessed 24 Aug 2022).

[viii] USDA (2021): Grain and Feed Update, available online at https://apps.fas.usda.gov/newgainapi/api/Report/DownloadReportByFileName?fileName=Grain%20and%20Feed%20Update_Beijing_China%20-%20People%27s%20Republic%20of_01-20-2022.pdf, (last accessed 24 Aug 2022).

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