(Yicai Global) Aug. 19 -- Two state-owned grain giants, COFCO and China Grain Reserves, also known as Sinograin, have formed a new joint venture to ensure food supply in the country.

The pair has set up China Enterprise United Grain Reserve to manage the country’s grain reserves through equity cooperation, ChinaNews reported yesterday.

The two giants have collaborated for long even though their businesses have some overlap. COFCO is China’s largest grain enterprise focusing on the processing and trade of rice, wheat, and edible oils. Meanwhile, Sinograin is the main body that manages central grain reserves.

A new level of deepening ties was expected. In February, the State-owned Assets Supervision and Administration Commission of the State Council said Sinograin and COFCO will form JVs for grain storage and oil processing.

China will promote business integration in the sectors of steel, ports, and grain, while considering the establishment of new central state-owned enterprises in due course, the SASAC said early this year.

Collaboration can increase efficiency. Sinograin should focus on public welfare business, while COFCO should focus on commercial business, so that they can withdraw from non-core business areas where they do not have competitive advantages, Liu Xingguo, researcher at the China Enterprise Confederation, said to Yicai Global.

Currently, the firms' business overlap compete with each other in some segments. Sinograin formed an oil processing company in 2008, ranking third in scale in China, rivaling COFCO’s oil processing business. Meanwhile, COFCO is qualified to store grain on behalf of the central government.

Structures of central state-owned enterprises will become more reasonable through mergers, acquisitions, and restructuring, Liu said. Their main businesses will turn more prominent, their allocation of resources more efficient, and their competitiveness increasingly strong, Liu added.

The establishment of China Enterprise United Grain Reserve is of great significance to better ensure the safety of the nation's grain reserves, Zhang Xueyong, deputy director of the reform bureau of the SASAC, said at a meeting yesterday.

Next, the JV will accelerate integration and improve the efficiency of operations to make greater contributions to food security, Zhang added.

Editor: Emmi Laine, Xiao Yi