Agricultural Choice of Fund and Fund demand of Agriculture

Agriculture is not a natural weak industry. Its weakness in the national economic structure is caused by the relevant systems of social politics and economy. As China's economy crosses the Lewis turning point, the choice range of China's agricultural development continues to expand, and the profit space of agriculture is increasing day by day, so that many industrial and commercial capitals enter the agricultural field, which has become a landscape of China's pale and weak investment circles in recent years. Chinese agricultural enterprises have become hot spots for international and domestic equity funds and investment companies.

Fund's agricultural choice: modern agriculture is a new economic growth point

On August 26,2014, KKR & Co (Kohlberg-Kravis Equity Investment Company), an established leveraged buyout fund in the United States and one of the most successful industrial investment institutions in financial history, signed an investment agreement with Fujian Shengnong Development Co., Ltd., a Chinese chicken processing enterprise, to inject US $400 million to subscribe for 18% of Shengnong Development. Prior to this, Kohlberg Kravis Equity Investment Company made the first round of investment of US $100 million in Modern Animal Husbandry after the "melamine tainted milk powder" incident in 2008, and added US $50 million in 2009, so that the scale of Modern Animal Husbandry gradually developed from the original 3 pastures and 24,000 cows to 22 pastures and nearly 180,000 cows, and was successfully listed on the Hong Kong Stock Exchange in 2010. In addition, on June 6, 2014, KKR and Baring Asia, Hopu Fund and Boyu Capital jointly formed a consortium to form a strategic partnership with COFCO Meat, and will jointly invest in the company with existing shareholders of COFCO Meat to build and manage large-scale modern pig farms and meat processing plants in China. It can be seen that agricultural enterprises in China have become important targets of international investment institutions due to special circumstances such as population base and market size.

Profit-seeking is the basic attribute of the fund. International investment funds invest in domestic agricultural enterprises, mainly because they are interested in the profitability of Chinese agricultural enterprises in the future and see the growth potential of capital in agricultural enterprises. Modern agriculture, which will become a new economic growth point in the post-industrial era, has its own internal economic logic.

First, the change of food consumption structure is the endogenous driving force for agricultural economic growth. China's industrialization and urbanization have brought about changes in food consumption structure and consumer recipes, thus promoting the diversification of agricultural production and providing conditions for the modernization of agriculture. The preference of consumers in developed industrialized countries for specialty products and fresh products has also created an international market for China's agricultural development, increasing employment rates and land productivity. For example, the return rate of land produced by horticulture is 10 times that of grain, and driving jobs in various links of the industrial chain such as horticulture production, product processing, packaging and marketing.

Second, the extension of agricultural industry chain and the vertical integration of production organizations in international food market are the prerequisites for agriculture to become a high-return industry. The extension of agricultural industrial chain is based on production, extending forward to prenatal seedling industry and agricultural facility industry, and extending backward to processing, circulation and consumption links. In the process of extension and integration of agricultural industrial chain, the traditional mode of self-sufficiency and household management has been replaced by large-scale and intensive modern management mode, forming an industrial system with complete chain and organic combination with industry and commerce. Obviously, once the agricultural industry chain is integrated, its industrial organization will be centralized from decentralization, agricultural products will be changed from the original buyer's market to the seller's market, and the market discourse power of agricultural enterprises will continue to increase, thus improving the profitability of agricultural enterprises.

Third, food safety issues accelerate the integration of the industrial chain. Food safety is not only a matter of the ethical standards of food suppliers, but essentially a matter of the organization of food production and circulation. If enterprises can get through the production, processing and circulation of agricultural products, they can effectively control the product quality and avoid the product quality crisis caused by the problem of an uncontrollable link in the industrial chain. Food safety management will cause chain reaction to agriculture, on the one hand, food safety management will not enter the vertical integration of enterprises and products out of the market, thus changing the market structure of food; on the other hand, the vertical extension of the industrial chain helps enterprises grasp the high profit link in the chain, thus reducing the risk brought by single link management.

Fourth, China's huge domestic demand for agricultural products has once again highlighted the value of agricultural investment. Take white chicken industry as an example, chicken as one of the important sources of animal protein, its demand is growing rapidly. Chicken consumption in China Taiwan and Hong Kong accounts for nearly 40% of the total meat consumption, while domestic chicken consumption accounts for only 17%. China's per capita chicken consumption is 10 kg per year, which is lower than the US's 43 kg per capita, and there is still room for growth. Broiler production has also become a trend of concentration to large-scale enterprises, the market share of large-scale enterprises increased from 12% in 2007 to 30% in 2014, but compared with 95% concentration in mature markets such as the United States, it is still at a low level. Therefore, the agricultural industry investment fund will change the industrial form of agriculture by combining its flexible contract organization with many links in the agricultural industry chain.

Funding needs for agriculture: Agricultural investment funds are the new driver of innovation in agriculture

The rational expectation of high growth of modern agriculture has aroused the investment enthusiasm of industrial capital and financial capital to agricultural enterprises. At present, the annual growth rate of biological agriculture industry in many countries has reached 25%-30%, and the output value of biological agriculture in developed countries and regions such as the United States and the European Union is doubling every five years. However, from the analysis of existing investment cases in China, we find that the investment focus of both industrial capital and financial capital is mainly concentrated on the capital injection to existing enterprises or the integration of industrial chain, while the lack of financial support for agricultural entrepreneurship behavior and the lack of agricultural venture capital. For example, the Guiding Opinions on Financial Support for Large-scale Agricultural Production and Intensive Operation jointly issued by CBRC and Ministry of Agriculture in September 2014 pointed out that the financial innovation purpose of financial institutions is to support the merger, reorganization and acquisition of leading agricultural industrialization enterprises, and to integrate upstream and downstream enterprises of agricultural core enterprises. However, the existing rural financial system lacks the support system for agricultural entrepreneurship, especially for the lack of financial support for agricultural entrepreneurs 'behavior, thus making China's agricultural development lack of internal dynamic mechanism. So, how should finance support innovation and entrepreneurship in agriculture? The key is to carry out financial innovation and establish equity investment systems such as venture capital fund, private equity investment fund and agricultural industry investment fund for opportunity equity investment.

Firstly, the intrinsic mechanism of innovation drive is entrepreneur behavior choice, and the transformation of entrepreneurship into entrepreneur behavior needs the support of equity investment fund represented by agricultural industry fund. In the modern economic system, finance is not only an important factor of economic growth, but also an important condition for entrepreneurs to grow endogenously in the economic system. Without a low-cost financial system, the entrepreneurial cost of farmers with entrepreneurial qualities will be high, and the evolution of rural industrial structure will also lose its inherent motivation. Agricultural industry fund mobilizes social capital into agriculture field by means of equity contract, provides financial support for farmers 'entrepreneur behavior, reduces transaction cost of farmers' entrepreneur behavior, and constructs micro-foundation of agricultural industrial structure evolution. In the integration of agricultural industry chain, entrepreneurs need to introduce advanced technology and advanced ideas into these agricultural enterprises, and increase the integration of modern agricultural technology and information technology such as computing technology, Internet and Internet of Things in subdivided fields. In addition, the extension of agricultural industry chain needs to introduce advanced concepts such as Internet-based pre-sale and customization into agricultural enterprises, which makes the production and sales of enterprises more targeted and personalized. At present, the online ordering and delivery of organic food to households have entered the practice of business model. All these creative behaviors need not only the support of funds, but also the effective allocation of human capital. Agricultural industry investment fund is the optimal contract arrangement in existing financial contracts, which can integrate the two into the same economic organization.

Second, agricultural industry investment fund is a financial contract arrangement that provides equity financing for growing agricultural enterprises in the process of agricultural modernization and provides financial support for the extension of agricultural value chain. In the basic principle of "joint investment, shared income, shared risk", the transaction entities through continuous bargaining reached after the financial contract. From the content of the contract, the Agricultural Industry Development Fund uses the modern trust relationship mechanism to concentrate and invest scattered funds by issuing fund bonds, and directly invests in agricultural industrialization leading enterprises or agricultural projects with market potential in the form of equity, promotes the scale, specialization, intensification and commercialization of agricultural enterprises, reduces the cost of entrepreneurs 'behavior, improves entrepreneurs' expectations for the future, and thus gives investors a more stable return. With the expansion of the consumer market and the progress of agricultural science and technology, the value and added value of domestic agricultural products are deeply explored and the industrial value chain is extended, especially in such fields as high-end food consumption market, agricultural e-commerce, seed industry, cold chain logistics, Internet of Things, etc. The participation of industrial investment funds provides stable financial support for the exploration of new business models, and provides technical support for the transformation from traditional agriculture to modern agriculture through post-investment cultivation.

Third, unlike securities investment funds, agricultural industry investment funds are investment funds established by the government based on industrial policy preferences. The government is one of the fund suppliers of agricultural industry investment fund. There are three ways for the government to supply funds: one is that the government shares in private industry investment fund, and the private industry investment fund invests in the target company; the other is that the government or other institutions create their own industry investment fund, and invest in the target enterprise according to the government's industrial preference; the third is that the government and other institutions jointly create industry investment fund to cultivate related industries. The first way is difficult to make the industrial fund become a tool for the government to adjust the agricultural industry. The second way is equivalent to returning to the old way of supporting agriculture by finance, and it is easy to lead to the empty position of the owner. Therefore, it is the best choice for agricultural industry investment fund to adopt government funding as one of the sponsors and jointly initiate the establishment of agricultural industry investment fund with other institutions. This way can not only promote the diversification of agricultural industry fund investment subjects, but also provide a smooth channel for private capital capitalization, thus facilitating the government to use agricultural industry investment funds to incite agricultural entrepreneurial activities.

Fourth, food security requires the help of agribusiness investment funds to improve governance. Agricultural production enterprises in China are generally located in villages and towns, and their entrepreneurs and actual managers are basically farmers. They not only lack modern market ideas, but also lack relevant legal consciousness. Once their behavior exceeds the supervision of the community, their behavior is easy to fall into the pit of opportunism, which leads to their own product safety and environmental protection consciousness weak, causing food safety problems. To this end, the most effective way is to invest funds in enterprises through equity investment funds, while sending lawyers, managers and financial professionals to assist in the modernization of enterprises, thus creating a number of responsible industry leaders and promoting their listing. Through listing, enterprises consciously realize standardization and accept more social supervision to ensure food safety.

Development Direction of Rural Finance: Multi-level Financial System with Equity Investment as Engine

With the development of industrialization and urbanization, the production organization form and business model of agriculture have changed. The folk finance with folk loan and association as the main body will be difficult to meet the financing demand of modern agriculture. Agricultural finance will gradually become independent from rural finance and become a new financial form.

The financing subject of rural finance is generally peasant households. Influenced by industrialization, urbanization and informatization, peasant households present two development trends, either integrating into the flood of industrialization and urbanization, transferring to the secondary and tertiary industries through the way of transforming agriculture into non-agricultural labor force, or expanding production scale through land circulation by utilizing existing agricultural knowledge to become high-income peasant households. In the process of the evolution from low-income farmers to high-income farmers, farmers will evolve from small producers to owners of family farms. In this transformation process, the role of capital mechanism is obvious: the existing and potential capital level not only determines farmers 'credit demand, but also determines farmers' actual ability and level of obtaining credit resources, and farmers 'credit demand and actual level of obtaining credit will eventually have an important impact on farmers' income level. In this process, a circular and progressive capital formation mechanism is formed: actual capital level-credit demand and supply-potential capital level increase-further credit demand and supply... However, in this "self-fulfilling" and "self-reinforcing" capital enhancement mechanism, how to improve the existing and potential capital level of farmers? Self-accumulation or capitalization? Farmers can improve their capital level through self-accumulation and asset capitalization, but the former is slow, while the latter needs a series of property rights reform and financial innovation. For farmers, agricultural industry investment fund is more conducive to improving the capital level of farmers, activating the potential capital of farmers when increasing the actual capital of farmers. Agricultural industry investment fund is helpful to farmers 'entrepreneurial behavior, reduces the cost of farmers' entrepreneurial spirit to entrepreneurial activities, and thus provides micro-mechanism for the perfection of agricultural industry chain and innovation of agricultural business model.

According to the basic pattern of rural financial market in China at present, large commercial banks and policy banks provide credit services for a small number of large agricultural enterprises, credit cooperatives or farmers and rural enterprises with certain mortgage ability provide credit support, while most other farmers and small and micro enterprises are difficult to obtain funds through formal financial market. With the decline of rural population scale and the growth of urbanization, the scale and intensification of agriculture will accelerate the demand for finance by agricultural organizations, especially the demand for capital market, and agricultural industry fund has important significance in this process. Therefore, in deepening the reform of rural financial system and mechanism, the State Council clearly proposed to "encourage the establishment of agricultural industry investment funds, agricultural private equity investment funds and agricultural science and technology venture capital funds", and improve the financing ability of agricultural enterprises and the self-development ability of enterprises through equity investment.

In fact, the development of specialization and industrialization of agricultural investment mode also needs agricultural industry investment fund. As early as 2008, Hubei Xintan Industrial Park initiated and Aoxin Venture Capital managed a high-growth green ecological agriculture fund with a scale of RMB 100 million yuan. Since then, in 2009 and 2010, several investment funds focusing on agricultural industry have been established, and after 2011, there has been explosive growth. Compared with VC/PE-dominated investment patterns in emerging industries such as TMT and new energy, as well as consumer services and medical care, institutions and enterprises with industrial backgrounds occupy a dominant position in the field of agricultural investment. For example, agricultural industry funds in Beijing and Henan are led by local agricultural investment companies. COFCO Group and New Hope Group independently set up their agricultural industry funds. Paradise Silicon Valley and Dakang Animal Husbandry jointly set up agricultural industry merger and acquisition funds. Agricultural Bank of China Gaotejia Agricultural Industry Fund is also based on Agricultural Bank's industrial resources in agricultural investment. Due to the long agricultural industry chain, high dispersion of enterprises and high natural risks, from the perspective of investment, large capital demand and long investment cycle increase investment costs and investment risks. Therefore, agricultural industry investment needs more financial means such as micro-loan, agricultural guarantee, agricultural insurance and so on, so as to form a multi-level rural financial system with equity investment as the engine in agricultural field and rural areas.