COFCO who doesn’t take advantageous control of wheat and soybean industries expects to take control of rice industry. A new production mode is incubating in Heilongjiang Province of China which is the main producing region.
COFCO takes stakes in Chinese local banks and takes use of local banks’ financial advantages to gran loans to rice companies. The rice company collects rice from the agricultural collaborative companies and then sells to COFCO, therefore COFCO gradually taking control of the rice industry chain of the whole region.
“Every year we can get a loan of 60 million RMB from Heilongjiang Bank to buy rice from the market.” The head of Hongxin Rice Industry Company says. Heilongjiang Bank is a local commercial bank in Heilongjiang Province of China, and COFCO is the second largest shareholders.
COFCO Rice decides to provide seeds, fertilizers and technology for farmers. Finally all the rice comes to COFCO. According to the statistics available, COFCO TRUST has set up 30 agricultural finance trusts, the accumulative scale reaching more than 3 billion, involving 36 agricultural foodstuff enterprises and over 100,000 acres’ cultivated field.
“Actually, our plant is the rice hub for COFCO.” The head of Hongxin Rice Industry Company says, “Though our company has realized 100 million RMB total output value, it’s still just an individual workshop compared with COFCO Rice.”
Hongxin Rice Industry Companyis located in Yilan County of Heilongjiang in China It’s founded in 2004, registered with 30 million RMB, the annual output value of which didn’t exceed 20 million RMB in 2008.
However, its annual output value abruptly surged to 110 million RMB in 2009 and has been over 100 million RMB in the next three years. The driver behind Hongxin Rice Industry Company’s great performance is COFCO.
“Our work actually is to buy rice from farmers, remove rice hulls and sell semi finished products to COFCO.” The head of Hongxin Rice Industry Company thinks that the great reason why COFCO supports Hongxin Rice Industry Company is because Hongxin “can get rice from farmers”. Hongxin Rice Industry Company has almost spent 3 years in building up relationships with farmers. Chinese farmers are not manageable.
Hongxin Rice Industry Company is a member of Yilan County Rice Association which has 6 cooperative cartels including 280 household farmers and 31,000 acres’ farmland. The rice amount which Hongxin Rice Industry Company sold to COFCO in 2010 was 18,000 tons, accounting for 10% of the total rice output in Yilan County. Farmers sold their products of general kinds to those cooperative cartels at the price 1.8 to 2 RMB, and then cooperative cartels sold the rice to Hongxin Rice Industry Company at the price 3 RMB.
In China northeast provinces which are the main rice production areas, rice companies are competing for rice. Since 2009, COFCO Rice has been driving contractual plantation to control upstream rice source. In rice production areas, COFCO Rice introduces top seeds, guides farmers to grow by using top cultivating method, and promote standardized plantation. Till 2010, farmland which is counted as “contractual plantation” of COFCO is close to 230,000 acres which can yield 110,000 tons of grain.
In regard with Hongxin Rice, its cooperation with COFCO is a good deal for COFCO Rice not only brings no worries of product sale, but also can help Hongxin Rice Industry Company gain fund loan. Every year Hongxin Rice Industry Company can get a highest loan of 60 million RMB from Heilongjiang Bank which is a local rural bank founded in 2009.
In the early days of 2007, COFCO took stakes of Daqing City Commercial Bank as a strategic investor. After Heilongjiang Bank’s foundation, COFCO has become its second largest shareholders. After COFCO joined Daqing City Commercial Bank, COFCO required the Bank to kick off “agricultural supply chain finance” mode which is focusing on providing working capital for “contractual agriculture” mode to buy grain.
COFCO Trust designs the trust of land contracting management right for farmer’s cooperative cartels and provides guaranty for cooperative cartels’ loans. Farmers take its land contracting management right as shares in the cooperative cartels, and cooperative cartels carry out scale farming and distribute the income on the basis of minimum income and profit dividend. At last COFCO takes control of the land management right. Till now, COFCO Trust has set up more than 30 agricultural financing trusts with the accumulative scale over 3 billion RMB related to 36 agricultural enterprises and over 100,000 acres of farmland.
In order to control upstream grain source, COFCO is competing against Wilmar International Limited in Yilan County of Heilongjiang Province of China which is the main grain production area. In 2010, COFCO invested 10 billion RMB in grain further processing, meat breeding processing, grain and oil warehousing, dairy industry etc. Five months later Wilmar immediately invested 750 million RMB in a 1 million tons’ paddy rice processing project.
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