July 1, 2011


China vows financial support for state grain purchases 


The Agricultural Development Bank of China (ADBC) is moving to ensure adequate financial resources are available to help replenish government grain and edible oil reserves.


The agricultural policy bank said recently that it will make funding of reserve buying a priority, expanding support for the China Grain Reserves Co, the state stockpiler, so that it will be able to store more grain.


The announcement comes on the heels of data from the Ministry of Agriculture showing that wheat output in the country rose for an eighth consecutive year this year and amid a programme of government grain auctions aimed at fighting inflation that has drawn down government-held stocks.


In 2011, the Agricultural Development Bank will grant around RMB138 billion (US$21.3 billion) in loans to 3,515 grain businesses to support summer grain purchase, with 70% of loan recipients being state and local grain stockpilers as well as state-owned grain traders, and 30% being leading grain processors and private grain traders.


This is up 28.6% from 2010, sources said, without specifying how much of the funds will be spent to support state reserves.


"We guarantee the funds for policy grain purchase will be put in place to help government hold more grain," an official with the bank said in the report.


Policy grain mostly refers to grain reserves held by central and local governments. Government grain reserves are released to ensure supply when market prices are high.


So far this year, the government has sold around 12 million tonnes of wheat from state reserves, roughly 10% of China's full-year demand, according to reports.


The 3,515 enterprises plan to buy a combined 55 million tonnes of wheat, around half of China's annual output and an on-year increase of 12%, as well as 4.8 million tonnes of rapeseed, up 8%, sources said.


State-owned firms are buying wheat from farmers at a much slower pace than last year. As of June 20, they had purchased only 4.1 million tonnes of newly harvested wheat in major producing areas, compared with 11.3 million tonnes as of the same date last year, according to data from the State Administration of Grain.


Lack of credit amid monetary policy tightening has forced many buyers to stay on the sidelines. Once these companies get sufficient loans, they will re-enter the market to buy more wheat, supporting wheat prices, analysts said.


A director of ADBC pointed out that lender will provide sufficient capital for summer grain purchase so as to support the State to control grain resource. Meanwhile, efforts shall be made to coordinate with related departments to launch the plan for lowest wheat purchasing price in order to purchase more grain.

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