Viewing the predicament of China's Grain and Oil processing Industry from the Transformation of COFCO

On the eve of the Spring Festival of the year of the Goat, some media reported that the pilot scheme of Cofco's state-owned capital investment company had been approved and that Cofco was making specific arrangements and arrangements and formulating detailed plans in accordance with the requirements of the State-owned assets Supervision and Administration Commission.

We can see why Cofco, which used to take grain and oil management as its main business, has become the leader of China's grain industry and one of the world's top 500 enterprises to transform into an investment company. According to the 2014 performance forecast, the company expects to lose HK $765 million. Cofco's other major listed company, China Foods, lost about HK $64 million in the first half of 2014, and full-year results for 2014 are not yet known.

Compared with the poor performance of its main business, Cofco's return on investment is much better. In 2011, 2012, 2013 and the end of March 2014, Cofco's investment income was 5.496 billion yuan, 6.273 billion yuan, 5.142 billion yuan and 956 million yuan respectively, accounting for 67.57%, 107.62%, 154.93% and 156.21% of operating profit respectively. The investment income is more than 100% of the operating profit, which means that without the profits contributed by the investment business, the profits of other businesses of Cofco may be at a loss.

The plight of Cofco in grain and oil management is only a microcosm of China's grain and oil processing industry.

After the substantial reduction in grain production in 2013, China has adopted a series of major policy measures to increase the total domestic grain output for 11 consecutive years. In 2014, the country's total grain output reached 1.2142 trillion jin, an increase of 10.3 billion jin or 0.9% over the previous year, reaching a record level.

The continuous increase of grain production and bumper harvest has laid a relatively rich material foundation for ensuring the domestic grain supply. The "tight balance" of the supply of major grain varieties has been greatly improved, and the people's three meals a day have been basically guaranteed.

With the sustained and steady development of China's grain production, the grain production of the world's major grain-producing countries and China's neighboring countries is increasing day by day. Unlike China, grain exports from the world's major grain-producing countries and China's neighboring countries not only continue to grow in quantity, but also the most lethal is the low price.

The total cost of soft red wheat from the United States No. 2 to the Chinese port after tax payment was 2226 yuan in mid-January 2014, 2124 yuan at the end of December, and the highest was 2558 yuan per ton, while the lowest purchase price of wheat in China in 2014 was 2360 yuan per ton. American wheat prices continue to decline in 2015. On January 2nd, the total cost of soft red wheat from the United States to the Chinese port was 2026 yuan per ton, but it dropped to 1932 yuan on February 11th.

On February 13, 2015, Thai rice with a crushing rate of 5% was quoted at US $405 to US $415 per ton, about RMB 2530.6 to RMB 2593, which was $55 higher than that of Vietnamese rice of the same specification, that is, RMB 343.65 per tonne. Indian rice with a crushing rate of 5% was quoted at US $395 to US $405 per ton, about RMB 2468 to 2530.5 yuan, and US $50, or 312.4 yuan, higher than the price of Pakistani rice of the same specification. The lowest purchase price of mid-late indica rice in China in 2014 is 2760 yuan per ton.

According to the Ministry of Agriculture, in November 2014, the domestic and foreign price differences of rice, wheat and corn were as high as 1.08 yuan per kilogram, 0.58 yuan and 0.52 yuan per kilogram, respectively, all larger than in 2013.

In the context of such a large price gap at home and abroad, foreign grain has entered the Chinese market on a large scale. According to customs statistics, China imported 19.51 million tons of grain and cereal flour in 2014, an increase of 33.8% over the same period last year. Of this total, 2.97 million tons of wheat were imported and 2.55724 million tons of rice were imported, an increase of 312940 tons or 13.94 percent over the same period last year. Although the total amount of imports accounts for a small proportion of domestic consumption, the imported grain, which is far lower than the domestic grain price, has not only firmly stood in the market of the main grain shortage areas of our country, but also constantly eroded the market of the main grain producing areas of our country. as a result, domestic grain is mainly purchased and stored at the lowest purchase price of the government. Very few domestic grain processing enterprises can turn on production, and a large number of national processing enterprises are in the predicament of small losses and big losses, struggling to support the plight of years.

Grain is a special commodity related to the national economy and people's livelihood, and grain processing enterprises are also related to the national economy and people's livelihood. Although China implements the marketization of grain purchase and marketing and the diversification of business subjects, if the current situation is allowed to develop, our national grain processing enterprises will undoubtedly follow the old path of oil processing enterprises in the near future.

Reviewing the oil processing and oil market in China, it is not difficult to see that it was the lack of control to liberalize the oil market at that time, foreign oil swarmed in, and a large number of domestic oil enterprises either closed down, or were acquired and merged by foreign-funded enterprises. After some troubles, foreign investors controlled China's oil processing enterprises and terminal retail market, and our country lost its right to speak on edible oil from then on.

Cofco, which has strong strength, is now difficult to support in the grain processing industry, which shows to what extent is the dilemma of China's grain processing enterprises?

As an important link between production and consumption, food processing is indispensable. Just as we cannot put our rice bowls in the hands of our people, we must not leave the vital link of food processing under the control of foreign investors.

If there is once foreign capital controls the grain processing link, it can then control the consumption link and finally the production link. By then, foreign investment will dominate China's grain market. Not only the interests of grain consumers are damaged, but also grain producers suffer, so it is difficult to maintain domestic stability.

To protect the national grain processing industry is to protect the interests of domestic grain producers and consumers and protect the national food security. Therefore, like paying attention to grain production, the relevant state departments should use a variety of policies and measures, such as tariff leverage, credit policy, and cracking down on smuggling, to support the development of national grain processing industry at critical times.