COFCO: Boosting agricultural supply-side reforms to safeguard food security

Company profile
 
Founded in 1949, COFCO is China’s largest food processing company and its unique advantages in global distribution, fully-integrated value chain, and its seat in the world’s largest emerging market and development potential make it one of the world’s leading agribusinesses. COFCO is China’s largest food processing company, with products covering all the main categories of Chinese daily consumption, including rice, wheat, corn, oil and oilseeds, sugar, cotton, meat products, dairy products, wine, tea, and so on in over 140 countries and regions of the world. We have also established packaged foods, finance, and real estate as three major complementary businesses.
 
At present, COFCO has total assets of 544.4 billion yuan, an annual revenue of 470.9 billion yuan, total annual turnover of 150 million tons, a global storage capacity of 31 million tons, an annual processing capacity of 90 million tons, and an annual port transit capacity of 65 million tons.
 
Challenges
 
The structural adjustment of corn is essential to the success of China's agricultural supply-side reform. The reform of corn purchase and storage system is the first to be affected and a hard battle in the agricultural supply-side reform. In 2016, the state policy on temporary storage of corn which had lasted for 9 years came to an end and the corn policy was adjusted to "market pricing and separating the price from the subsidy". Some purchasing enterprises choose to wait and see after losing the price protection. With fewer buyers, farmers are having a hard time selling grains.
 
Meanwhile, as most of the corn deep-processing products are used for food, its demand increases rather slowly. However, corn destocking is urgently needed. Corn is the biggest in terms of volume in COFCO's 13th five-year target, the largest variety of COFCO's trade business in scale, and the key to build an integrated platform for the purchase and sale of grains. Therefore, how to ensure the steady progress of agricultural supply-side reform and structural adjustment of corn concerns about the development of COFCO 's main business.
 
Solutions
 
COFCO, as the executive body of the national food security, is promoting the adjustment of the national corn structure in an all around manner from planting, purchasing and deep-processing.
 
Keeping purchasing in the market
 
COFCO, as the main force of central SOEs, enters the market actively and delivers positive signals to break the expectation that the price of corn will continue to fall, which stabilizes people's confidence in the market and drives more market players to enter the market and purchase corn. In the end of September, 2016, just as the fresh grains were accessible in the market, COFCO was immediately listed to purchase corn. It firstly enters the market, actively supports the market and keeps staying in the market. It never stops purchasing because of price fluctuation or transfers the losses caused by price fluctuation to the farmers to influence their profit. It also sets up more sites in villages to increase purchase volume to effectively solve farmers' difficulties in selling grains.
 
Exploring deep-processing of corn
 
COFCO actively explores how to open up new demand growth space and turn corn output into effective supply to ease the pressure of corn stocks. COFCO is leading in two main aspects. One is corn-based fuel ethanol. COFCO has currently realized deep processing of corn straw to produce cellulosic ethanol, which reduces environmental pollution caused by straw burning, increases the farmers' income and provides new energy.
 
Except for corn-based fuel ethanol, the other is corn-based biodegradable material. Biodegradable material is a national emerging industry and an important way to solve corn stock conversion. COFCO has the national leading polylactic acid demonstration project. The polylactic acid obtained from deep processing of corn extends the industrial chain of corn deep processing under the background of market acquisition of corn. This new material, which is harmless and non-toxic to human body and is environmental friendly, renewable and biodegradable, can effectively avoid and alleviate the problem of "white pollution" caused by non-degradable petroleum-based plastics at present.
 
Adjusting planting structure
 
To adapt to the trend of consumption upgrading, COFCO starts from supply-side feedstock and guides farmers to adjust planting structure with contract agriculture, aiming to promote intensive scientific planting and drive the upgrading of regional agricultural product supply. In 2016, COFCO introduced advanced planting technology and started to instruct farmers to plant high-quality and high value-added waxy corn crops on a trial basis in Jilin province.
 
For those farmers who still want to plant traditional corn varieties, COFCO has launched “COFCO Jilin corn planting supply chain integrated agricultural service trust project” since 2014. The land used in the project is transferred by the cooperative. Local property financing companies provide guarantees, COFCO Trust provides trust loans, and COFCO Biochemical is responsible to purchase corn. Some value-added services, including agricultural services, agricultural insurance and seeds, are introduced at the same time. The land shall be planted by the cooperative in accordance with the unified planting standards, unified seed supply, unified soil testing for formulated fertilization, unified disease and insect control and unified mechaninery operation.
 
Achievement
 
Social benefit
 
Stabilizing grain market. At the first year of implementing corn market acquisition, the amount of corn purchased by COFCO increased rather than decreased. COFCO, who purchased 15.50 million tons of corn in the northeast three provinces and one district in the season of 2016/17, is the biggest acquirer, having served the reform of national food policy and maintained the stability of national food market.
 
Destocking of corn. Corn-based fuel ethanol is currently the most feasible way to destock corn in a large scale. It is expected that the consumption of gasoline will increase to 140 million tons by 2020 and that the demand of fuel ethanol will reach 14 million tons, which can destock 42 million tons of corn. If 5% of our nation’s petroleum-based plastics is replaced, our yearly demand for biodegradable material will be 4 million tons and the annual shortfall is about 4 million tons. If we achieve the replacement according to this proportion, it can generate over 10 million tons of corn consumption each year.
 
Helping farmers increase income. The high value-added waxy corn planted in the way of contract agriculture can guarantee that farmers receive high and stable returns. According to the contract, the price of per hectare of waxy corn is 5000 yuan higher than that of common corn. With the increased input in isolation measures, trust and integrated agricultural services being deducted, the income that farmers gain from planting a hectare of waxy corn can increase by around 3000 yuan. Besides, the warehousing, logistics and processing accessible to waxy corn will benefit more farmers. Those farmers who plant traditional corn varieties can save the planting cost by over 1000 yuan per hectare from purchasing productive resources to agricultural machinery operation by trusteeing their land than by planting by themselves.
 
Economic benefit
 
 
 
While actively safeguarding the stability of national food market and ensuring that farmers’ income from food and agriculture doesn’t reverse, COFCO has realized certain operating benefit. The overall marginal contribution has reached over 90 million yuan, and the average marginal contribution per ton reaches 20 yuan. In the development of waxy corn, COFCO invested 65.86 million yuan in research and development in 2017. The polylactic acid project developed over 10 new varieties and new formulas, and was granted several patents. In 2017, COFCO successfully guided farmers to plant 17,000 mu of waxy corn on a trial basis, thus building a stable waxy corn planting base, which increases effective raw material supply for COFCO to develop special modified starch.
 
Prospect
 
During the 13th Five-Year Plan period, COFCO’s share of state-owned capital in the field of agricultural and food products will increase to over 80%, and the annual operation of corn will be 30 million tons, which will better play its role as the main force in the country’s macroeconomic regulation and control. The guarantee capacity for national food security will be enhanced and better serve the agricultural supply-side structural reform.