Re-recognize Agricultural risks and strengthen Agricultural Financial Services

Agriculture is undergoing profound changes in recent years. On the one hand, with the advance of industrialization and urbanization, the rural labor force has decreased, the contradiction between people and land has been alleviated, domestic and foreign capital has entered agriculture on a large scale, and new technologies and new organizational models have been gradually applied to agricultural production. This makes the supply side of agricultural production have the characteristics of scale and capitalization. On the other hand, from the point of view of demand, the diversification and high-end demand brought about by consumption upgrading is becoming the general trend, and the huge market space of the agricultural industry is eye-catching. In this context, the traditional understanding of agricultural risk is no longer appropriate, we need to re-understand the risk of agriculture.

The traditional investment concept holds that agriculture has high risks, long investment cycle and low return, and capital is often avoided in agricultural investment, especially in the stage of agricultural production, resulting in the lack of capital support for agricultural transformation. Admittedly, due to the particularity of the industry, agriculture does face greater price risk, natural risk, epidemic risk and so on, but combined with the author's practice and exploration of agricultural industry investment, the risk of agriculture is not greater than that of other industries. Capital should be rewarded in managing risks, not deterred.

Several problems of agricultural risk need to be re-recognized.

Re-recognize the cyclical problem of agriculture. The traditional idea is that the investment cycle of agriculture is very long, which leads to slow capital recovery and increased uncertainty. In fact, compared with many industries, the investment cycle of agriculture is not significantly long, and even the income cycle of some sub-industries is very fast, such as vegetables in one quarter, grain in two quarters, and raising chickens for 45 days. Raising pigs can produce income in 175 days, which is beyond the reach of many industries.

Re-recognize the profit problem of agriculture. The profit margin of pure agriculture (refers to farming and cultivation) is not low, and even the rate of return in some sectors is quite high. Although the listed company Eagle Farm and Animal Husbandry lost money in the first half of this year, its gross profit margin in previous years has been above 25%, and the net profit rate is basically about 10% or even more than 20%. Such profit margins are astonishing in the industrial industry, even in the real estate and financial industries.

But why is the profit of agriculture generally considered to be low? The main reason is that the traditional agricultural pattern is too scattered. First, the land is highly dispersed, and second, farmers' profits do not calculate their own labor and land costs. But such a train of thought and judgment is actually not valid. Because, agricultural leading enterprises can not still plant and breed in the way of ordinary farmers, but should earn more money in technology and management, and improve production efficiency through the integration of resources and factors.

Re-recognize the problem of natural disasters facing agriculture. The traditional view is that agriculture depends on nature for a living, which is greatly affected by natural disasters, while natural disasters have great uncertainty. Of course, natural risks such as wind and rain, drought and flood, hail, low temperature and low light really affect agricultural production, but if we look at it from a longer time span, occasional natural disasters are actually very normal. and regional natural disasters can not hinder the overall trend of agricultural development.

We find that the natural risk of agriculture is exposed, but the natural risk can be avoided to a great extent through human factors. For example, to strengthen the construction of irrigation and water conservancy facilities, through regional dispersion, industrial dispersion and other ways to disperse the potential risks of natural disasters.

Re-recognize the problem that agricultural products are not easy to store and maintain their value. This is also a major concern affecting financial institutions' acceptance of agricultural products as collateral. Admittedly, animals are facing the risk of epidemic disease, and it is inevitable that there will be wear and tear in the process of storage and transportation of agricultural products. These factors lead to instability in the value of agricultural products, thus affecting the enthusiasm of finance to enter agriculture. In fact, from a long historical period, the incidence of the epidemic and the loss rate of agricultural products are at a relatively balanced level, which can be expected.

Improper understanding of agricultural risks leads to the localization, short-term and conservatism of financial services.

With well-designed business models, advanced technologies and modern management concepts, agriculture can be transformed into an industry with fast cycles, high returns, natural disasters and controllable losses. Therefore, the biggest risk facing China's agricultural development may not be the external risks such as long cycle, low return, natural disasters, storage loss and so on, but the structural mismatch between the traditional concept and the financial system based on the traditional concept and modern agriculture, which will hinder the modernization transformation of agriculture, so it is a greater potential risk.

First of all, there is a structural deficiency in the support of financial capital to agriculture, which is due to the evaluation of agricultural assets. For example, in real estate development, banks and shadow banks are interested in financing and supporting real estate because people believe that houses are liquid and can be sold at a good price. By the same token, because most financial institutions do not believe that agricultural output is profitable, they are not willing to accept many agricultural assets as collateral, such as agricultural land, biological assets and other core means of agricultural production.

Second, related to this, the duration of financial products for agricultural enterprises is excessively concentrated in the short term. Due to the traditional specious understanding of agricultural risk, the profitability and long-term value of agriculture can not be found or recognized, so financial capital is not willing to make long-term investment to help agriculture establish the foundation of long-term development. The lack of long-term assets is the root cause of China's large but not strong agriculture, including basic irrigation and water conservancy facilities, high-quality breeding livestock and so on. There is nothing wrong with the short-term investment behavior of financial institutions for the purpose of risk control and profit pursuit. However, from the practice of agricultural production, the period of 1-3 years is simply unable to cultivate the long-term assets of agricultural production. Due to the lack of infrastructure construction, China's agricultural production is relatively fragile, that is, agriculture is still dependent on heaven for a living, and the risk is high.

Third, with the combination of exaggeration of agricultural risks and institutional conservatism, China's financial institutions may miss many opportunities. For a single financial enterprise, it misses the opportunity to make a profit, but for the agricultural security of the country as a whole, it may miss major development opportunities. China's financial resources are mainly concentrated in state-owned financial institutions, especially state-owned banks. But on the one hand, because of the instinct from banks to control risks, and because of the unique decision-making system of state-owned enterprises, state-owned banks tend to be conservative. In retrospect, some classic cases in the field of agricultural investment are basically dominated by foreign investors, although the involvement of foreign financial institutions in China's agriculture is not so deep in the Internet industry, not so deep as to endanger the national security of agriculture, but we should still have a sense of crisis.

To re-recognize the risks of agriculture is to make finance better serve agricultural enterprises.

We believe that the real risk of agriculture does not originate from the natural attribute of agriculture, but from the human attribute of agriculture. For example, the governance level of agricultural enterprises is lower than that of most industries, which is a very important factor restricting the performance of agricultural profits, which is particularly prominent in financial management. The financial fraud in A-share listed companies basically takes place in the agricultural field. However, the overall statements of the agricultural industry after listing audit and review are true and credible, especially relative to many unlisted, small and medium-sized agricultural enterprises.

When we make full use of agricultural enterprises, we find that cash transactions and cash payments are very common, financial vouchers and account books are confused, and capital budget and allocation are arbitrary, which brings great convenience to financial decoration and even fraud. Financial mistrust of agricultural enterprises is also one of the reasons why enthusiasm for financial support for agriculture is affected. We also call on financial institutions on different occasions to strictly check the financial data of enterprises, one way is to introduce listing audit. For example, ordinary farmers' interest in agricultural production has declined sharply, and the characteristics of land ribs are obvious, which directly leads to the waste of land and other means of production, which is also a phenomenon worthy of attention and a risk worthy of vigilance. The income of farmers who go out to work in most areas has far exceeded their agricultural production, especially grain cultivation, so that the vast majority of cultivated land has not been optimally utilized; at the same time, it is also difficult to expect ordinary farmers or agricultural enterprises to carry out long-term infrastructure construction, which in turn makes it difficult for farmers or agricultural enterprises to increase their income in real terms, and may form a vicious circle.

In a word, we should not only face up to the risks of agriculture, but also abandon the traditional improper understanding of agricultural risks. The risks derived from natural attributes are not terrible. For financial capital, financial innovation can avoid risks or reduce losses as far as possible. We should innovate our ideas and establish reasonable expectations for agriculture. The decent and long-term characteristics of agriculture are: first, there is a wide demand, which is different from most industries; second, there is a lot of room to improve profitability through technology and management. The second is strategic innovation to grasp the links of real long-term value in the field of agriculture. The traditional financial support for agriculture was more combined with the strategy of agricultural industrialization, because it was thought that the added value of agriculture was low and needed to rely on industry to enhance the added value of agriculture. This tendency of industrialization has objectively caused an objective negative effect, that is, ignoring the basic agricultural production, which has become a bottleneck, and leading to rapid excess processing capacity in various subdivided industries. The weak link in China's agriculture is still in the upstream and the infrastructure and basic livestock related to planting, while it is the upstream that is really attractive in the next 10 years.