As a result of its convenient location, Yanzhou, a city of north China’s Shandong Province is a particularly profitable grain depot centre and one which is experiencing a period of steady growth.

“Cooperation with some of the world’s top 500 grain giants is boosting our revenues”, an official of Yanzhou Grain Bureau told 21st Century Business Herald in September.

A partnership with the Yihai Group - a subsidiary of ADM (Archer Daniels Midland Company) – that started in 2005 was Yanzhou’s first experience of cooperating with an international company. As the partnership developed, Yanzhou’s revenues increased.

Although Central Government has made an announcement requiring crop production bases in northeast and south China to stop giving crop purchasing license to foreign companies, foreign funds are still streaming into China.

According to Shanghai Securities News, through 80 grain agents in Yanzhou, foreign groups are able to purchase around 40,000 tons of grain per year.

A new business model

Yanzhou’s government announced that in 2007 the Yihai Group invested 600 million yuan (US $85 million) in businesses in Yanzhou, including a peanut oil pressing project, a grain and cooking oil logistics project, and others. The Yihai Group’s activities have expanded from grain to the chemical industry.

Following the Yanzhou business model, the grain business in cities like Cangzhou in Hebei Province and Zhoukou in Henan Province is also attracting attention from the Yihai Group. The new business model not only commissions local grain agencies to purchase and manage stocks, it also establishes processing plants and explores sales and market channels.

Other international companies, such as Bunge, are now eyeing the Chinese market as well.

Huang Dejun, Manager of Beijing Orient Agribusiness Consultant Company, believes that this development was inevitable in China as a consequence of the introduction of innovations to the grain market in 2004.

Introducing free market principles to the purchase and sale of grain after 2004 created problems for many local grain depots, as they no longer had access to government subsidies. On the other hand, it created an opportunity for foreign investment to enter the Chinese market, as local grain depots needed to find solutions to their financial problems.

“I believe this is a win-win result both for our company and for China’s local grain depots,” said an official of Yihai Group responsible for the Chinese grain market department. “Because they can achieve substantial increases in revenues, local grain depots are willing to cooperate with us.”

As publicly available data indicates, a grain depot in a town in central China’s Hebei Province stored 2,500 tons of corn for Yihai Group during the first 8 months of this year, earning 121,500 yuan (US$17,750) in revenues for the depot.

In addition, the percentage of soybeans owned by foreign investment is remarkable. About 80% of pressed soybeans are divided among four grain giants: ADM, Bunge, Cargill and Louis Dreyfus.