CHINESE State television has shined a light on the taboo topic of poor quality grains held in bulging government warehouses in one of the first official acknowledgments that the country’s vast agricultural reserves may have badly degraded.

    Undercover footage aired by State broadcaster CCTV this weekend, in a report entitled “Rats in the Granary,” documented officials at Sinograin warehouses in Northeast China buying old or inferior grain at discounted prices while filing paperwork to show they were buying new grain at the State-set price and rotating out old stock. Grain prices are subsidized by the government, which guarantees a minimum price.

    In the report, a chief manager at a State grain warehouse in Northeast China’s Jilin Province allowed his brother to put grain harvested in 2011, which he bought for 2.84 yuan (US$0.45) per kilogram, into storage while filing paperwork to show they were buying new grain at the State-set minimum price of 3.1 yuan per kilogram.

    More than 10,000 yuan was embezzled from the sale of 47 tons of grain due to the price gap. The new paperwork showed the grain as being harvested in 2014.

    In the report, a rice processing company manager surnamed Zhao said she bought more than 23,000 tons of grain from the same Liaoning grain storage last year, and the supposedly freshly harvested grain had changed color and smelled of mildew.

    She said in her 10 years of working in this field, the phenomenon of SOEs selling old grain as new is common. Buyers who complain usually agree to officials’ offers to “solve it personally,” or receive compensation.

    The Chinese Government guarantees a minimum price for the purchase of agricultural products by State-owned storehouses, in case the market price is low, in order to protect farmers.

    But in the CCTV report, Jilin farmers living just 2 kilometers away from a grain silo could only sell their grain to private merchants at discounted prices. “The storehouse only accepts products from people who have ‘guanxi,’ or connections,” said a farmer in the footage.

    The true quality of China’s grain reserves holds serious implications for global commodity prices. If the stockpiles include large amounts of unusable grain, China could be forced to increase imports sharply, causing international prices to jump.

    However, if the reserves are of good quality, then Beijing’s efforts to draw down its stockpiles by dumping them on the market would push prices down.

    Grain reserves in China have become swollen thanks to the government’s minimum price policy, which was designed to guarantee income for farmers and encourage them to grow grains. China is estimated to hold about 60 percent of the world’s cotton stocks and about 40 percent of its corn stocks.

    The minimum purchase prices have faced criticism for their rigidity, and because they remained above world price levels in the past four years, have prompted more imports of products such as soybeans, barley and sorghum from Brazil, Argentina and the United States in 2014.

    Since February 2014, China started a trial of a target price system for agricultural products. The new system is expected to allow the market to play a key role in the pricing of agricultural products.

    Under this system, which applies to pork, fertilizer, cotton, vegetable oil, sugar and other items, lower-income households will receive subsidies when prices are high, while farmers will receive subsidies when prices fall too low.

    However, plans to alter the price-setting policy face opposition from State-backed groups that have benefited from it, including the Xinjiang Production and Construction Corps, a quasi-military body that controls the lion’s share of cotton production along the tense border with Central Asia.

    A report from the American Chamber of Commerce earlier this year said that the guaranteed prices had resulted in “huge costs” for Sinograin, which manages China’s grain reserves.

    Central planners have acknowledged that China has insufficient land and water to produce enough grain for its 1.4 billion people. Soil pollution, especially in the country’s southern rice basket, has strengthened the case that the country would be better off growing labor-intensive cash crops and importing thirsty grains.

    One proposal is to draw down the excessive reserves built up over the past few years while slowly moving away from the policy of grain self-sufficiency.

    That transition could prove difficult if grain stocks turn out to be badly degraded. One media exposé last year said a State cotton storehouse had been found stuffed with old mattresses. Other Chinese reporters have witnessed farmers browbeating local storehouses into paying minimum prices for sprouted wheat that commercial processors would not accept.

    State auctions of grains and cotton regularly fail to sell, underscoring suspicions that the quality is too poor for commercial use. (SD-Agencies)A woman works in a State-owned storehouse in Liaoning Province. File photo