Cultivating change on pristine Mongolian land

By Chu Daye in Erenhot Source:Global Times Published: 2017/5/1 20:58:39

Chinese farmers plot shift in grain trade

Du (left) displays a handful of rapeseed grown in Mongolia inside a warehouse at the Erenhot Jinguyuan Grain and Oil Co. Photo: Chu Daye/GT


Mongolian people resting with their dogs on a hill with houses situated on the slope in the background in Ulan Bator, Mongolia. File photo: IC


Workers unload bags of rapeseed imported from Mongolia at a train station in Erenhot, North China's Inner Mongolia Autonomous Region. File photo: IC

A group of Chinese grain traders are building a northern trade corridor by leasing land in Mongolia's pristine grasslands and Russia's untainted Siberia. Those crops are already landing on European dinner tables, and they now end up in Chinese stomachs as well.

"About 20 Chinese farming companies are cultivating more than 1 million mu (66,666.67 hectares) of land in Mongolia and shipping their harvests back into China," Hou Yongjun, president of Erenhot Jinguyuan Grain and Oil Co, told the Global Times on April 25.

Hou, a resident of Erenhot in North China's Inner Mongolia Autonomous Region, was among the pioneering Chinese farmers who leased land in Mongolia and Russia. "While farmers in East China's Zhejiang and Jiangsu provinces went to Africa, we chose to head north," Hou said.

Monday marked the 70th anniversary of the founding of the Inner Mongolia Autonomous Region.

Hou's company farms 160,000 mu of Mongolian soil on a 60-year lease. His company also worked on 300,000 mu of land in Russia's Siberia.

Since 2006, Hou has set up several agricultural joint ventures in Mongolia, producing 8,000 tons of rapeseed and 10,000 tons of wheat a year. So far, he has paid more than 7 million yuan ($1.01 million) in land-use fees.

"Many people think that Mongolia is mostly a desert. But vast areas of the country offer prime natural conditions with strong sunshine, green hills, virgin forests and pure water," Hou noted.

"We can lease vast areas there, in stark contrast to the highly fragmented plots cultivated by numerous farmers at home," Hou said, showing a farmer's love for the land.

Hou said that regulations in Mongolia and Russia impose strict limits on the use of fertilizers and cultivation of genetically modified crops, so his harvests offer pure, organic food.

It's also much cheaper to operate a farm in Mongolia or Russia.

"By rotation farming, my company is able to make profits with yields of 75 kilograms per mu, while domestic farmers struggle to break even with 200 kilograms per mu," Hou said.

Rotation farming is a key practice in organic agriculture. Planting different crops in rotation on the same land preserves the nutritional value of the soil, and it also reduces the need for fertilizers and pesticides.

By fast train to Europe

In November 2016, Hou decided to take advantage of cargo trains operated by CHINA RAILWAY (CR) Express that shuttle between China and Europe. These trains, which were established by China, boost connectivity and trade between China and its largest trading partner.

Several trains originating from cities such as Zhengzhou in Central China's Henan Province and Chongqing Municipality in Southwest China pass through Erenhot.

Due to its status as a North China transportation hub, Erenhot is designated as the sole port on the middle stretch of CR Express trains under a national blueprint covering the 13th Five-Year Plan period of 2016-20.

So far, 200 tons of linseed-based animal feed, the byproduct of edible oil production at Hou's processing plant, have been shipped by CR Express to the Netherland-based DF International BV as organic feedstock for milk cows.

"I don't want to ignore the issue of government subsidies to CR Express, but I want to point out that the CR Express is a new type of logistics service that offers a one-stop solution connecting our factory to our customers. It is a convenient alternative to other types of shipping," an executive at Hou's company told the Global Times.

"It isn't easy to get cargo that originates at Erenhot to Tianjin Port [in North China] for shipment by sea. Direct train transport is indeed ideal," Hou said. "The fact that the train service is faster than shipping also matters to us a lot, because we get paid quicker and that improves our liquidity."

Outdated facilities impede trade

Challenges are also ample for Hou's business. Some of those challenges are the very ones that the China-proposed "One Belt, One Road" (B&R) initiative, which treats improved infrastructure connectivity as a key way to boost trade, aims to solve.

Officially called the Silk Road Economic Belt and the 21st Century Maritime Silk Road, the B&R initiative was proposed in 2013.

In particular, the B&R initiative calls for establishing an economic corridor that better connects China, Mongolia and Russia.

Du Xi Ge, a Chinese national of the Mongolian ethnic minority and a business partner of Hou, said that the Mongolian railway system hasn't been modernized in half a century, and it isn't set up to handle shipments from small foreign traders.

"Using Mongolia's aged train network can be a headache. When our farm produce passes through Mongolia, it often has to make way for Mongolia's exports of iron ore and coal, which are the lifeblood of its economy," Du told the Global Times on April 25.

"Making space for small shipments of grain further complicates railway management in Mongolia, so cargoes take longer to move."

It can take 10 days or more to get  grain cargo pass through Mongolia. That's long enough for the harvests to rot or even ignite, Du said.

Some proposed solutions include setting up a "green channel" for farm  produce or overhauling the Mongolian railways, according to Du.

New status for Erenhot

Hou and Du said that it is a watershed development that the Erenhot railway port gained approval and certification from China's central government to import grain. The two businessmen said they pushed the idea until it became a reality.

The new status has attracted companies such as Inner Mongolia Dongxin Agricultural Technology Development Co, which invested in a facility near the train depot that handles, stores and processes grains such as linseed and rapeseed, all of which have been imported from Russia, Kazakhstan and Mongolia.

Hao Xiaodong, deputy general manager of Dongxin, said that his company invested 30 million yuan in a depot facility that can dump dry bulk cargo such as grain into pits beneath train carriages, greatly increasing offloading efficiency.

Construction of the first phase began in mid-April, and it is expected to become operational by the end of September, according to Hao.

"In China, grain is transported in gunnysacks, and importing grain means hiring people to bag them at overseas locations and de-bag them in China. In Russia and Mongolia, labor costs are high, so grain is not transported in gunnysacks," Hao told the Global Times on April 25.

The depot facility will reduce loading/unloading costs by $60 to $460 per ton, giving imported grain a price edge, Hao said.

Hao's company looked carefully at all of China's existing land ports, from the Xinjiang Uyghur Autonomous Region bordering Kazakhstan to Manzhouli, a city in eastern Inner Mongolia that is China's largest land port on the border with Russia.

"Erenhot definitely had the edge in geography, both in terms of distance to Beijing and the level of difficulty in dealing with the limits of rail cargo capacity, so we came here," Hao said.

Yet the city will only get the chance to be considered as a viable channel for grain imports once its handling capacity is lifted, Hao said, adding that his company's partners such as Wilmar International have a high quantity threshold.

A news release on the Erenhot government website on March 22 said that the city plans to build itself into the largest overland port for imported grain, handling 2.37 million tons a year after upgrading its facilities and services.

Grain imports have grown rapidly since the city's status as a grain import port was granted.

According to a statement by the port authority, rapeseed imports via the Erenhot Port reached 36,000 tons during the first quarter of this year, up 298.3 percent year-on-year and more than in all of 2016.

Grain imports will fully utilize Erenhot's inherent advantages, Hou said.

"Our city isn't a manufacturing base, so almost everything that we sell to Mongolian buyers is transported by truck from coastal areas of China. Many of these trucks return to their bases empty and they are willing to carry goods on their way back for nominal rates. That means Erenhot has the lowest truck freight cost for returning vehicles in the region," Hou said.

Now that there are trains carrying imported grain for unloading at the city, trucks can carry them back to markets in North and East China at low cost, making Erenhot a hub for the import, storage and distribution of grain from Mongolia and Russia, noted Hou.

Conditions change, attitudes shift

"Our arrival on the scene also changed local people's ideas about farming and increased the value of agricultural land in Mongolia. Before, hardly anyone wanted land for farming, but now some Mongolians have turned to the land to make a living," Hou said.

A veteran trader at Erenhot surnamed Zhang said that the expansion of Chinese-cultivated farms in Mongolia could redirect the border trade of agricultural produce in just two years.

"Nowadays, we have vegetables and fruit transported from the coastal and central regions of China for export to Mongolia, and the farmers here also raise a limited amount in greenhouses. But when the farms run by Chinese and Mongolians achieve economies of scale, and the Mongolian market becomes saturated, what we could see is a reversal of the export and import movements," Zhang said.

"Mongolian customers prefer organic agricultural produce, so they won't choose vegetables and fruit grown in China where farmers use fertilizers. This automatically excludes produce that can't be grown in Mongolia," noted Zhang.

"We weren't welcomed at first, but now we are accepted by the Mongolians and Russians. International relationships, the expanding economic climate and the B&R initiative are behind these changes in attitude," Hou said.

"Many Russian traders are looking east for business, and they often call us. In the old days, we used to call them 'big old brother.' Now, they call us by that term," said Hou, noting that almost every Russian farm has hired a Chinese interpreter.


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