Comprehensive Market-Oriented Design for Corn Leads the Direction of Grain Price Reform
Reducing corn planting area, lowering the temporary state reserve purchase price for corn, steadily digesting existing stockpiles, and separating prices from subsidies…… policies on corn have been introduced in succession over the past days.
For this agricultural product, which currently has the most severe imbalance between production, supply and marketing, its price reform has become the top priority for both the government and the market. Market observers analyze that this will also become an important breakthrough in the reform of grain pricing and the purchase and storage system. Agricultural product price reform is the prerequisite for agricultural marketization; only when agricultural product prices are truly market-oriented can the relationship between production, supply and marketing be genuinely rationalized.
The "Recommendations of the Central Committee of the Communist Party of China on Formulating the Thirteenth Five-Year Plan for National Economic and Social Development" proposed reforming the price formation mechanism for agricultural products and improving the purchase and storage system for grain and other important agricultural products. In practice, the previously implemented target price reform for cotton and soybeans and the lowering of the temporary state reserve purchase price for corn have already been useful attempts in this regard.
After the planning recommendations were issued, the Ministry of Agriculture immediately issued the "Guiding Opinions on Corn Structural Adjustment in the 'Sickle Bend' Region," proposing that by 2020, through measures suited to local conditions and scientific construction, the corn planting area in non-advantageous production regions be reduced by more than 50 million mu compared with the current level.
Advancing corn price policy reform step by step and making market regulation the primary means of corn structural adjustment was the message revealed at the subsequent National Development and Reform Commission discussion meeting on corn structural adjustment policies and measures.
Greatly reducing direct government participation in corn market activities such as purchase, storage, allocation and auctioning to restore the vitality of the corn circulation market; increasing subsidy intensity for advantageous corn production regions, converting grain to feed in non-advantageous production regions, and providing appropriate compensation to farmers participating in fallow land pilot programs - these measures for advancing planting structure adjustment chart the industry's future from the perspective of addressing both root causes and symptoms.
The State Council executive meeting on the 11th determined measures to stabilize grain production and increase grain-growing income, and specifically proposed steadily digesting existing stockpiles and converting eligible temporary-reserve corn into national one-time reserves, which triggered heated market discussion. Market interpretation is that the concepts of canceling temporary reserves and parity-price auctions are being replaced; after temporary reserves become national reserves, the state can flexibly control the timing of corn release and sell and rotate according to market demand and market prices.
Finance Minister Lou Jiwei elevated grain price reform to a new height. In a recent speech at Tsinghua University, he specifically mentioned the serious problems existing in the corn industry chain, arguing that liberalizing prices and letting the market allocate resources is in fact the market allocation of labor and land resources. He emphasized that releasing the agricultural population is China's most important potential factor for crossing the middle-income trap, and that agricultural reform and improving agricultural production efficiency are the key to releasing the agricultural population.
Chen Xiwen, deputy head of the Central Rural Work Leading Group, said after the state lowered the temporary reserve purchase price for corn this year that the next step is to push further forward, with the principle of separating prices from subsidies and letting prices be mainly formed by the market. After separation, farmers sell grain at market prices and business entities purchase grain at market prices, which can activate the market.
The market has responded positively to all of the above. Li Zhengqiang, chairman of the Dalian Commodity Exchange, said in Guangzhou on the 12th that "the exchange will cooperate with the relevant national 'price-subsidy separation' policy and promote the improvement of the grain price formation mechanism."
Hu Xiaodong, a senior business manager at Xiamen ITG Logistics Co., Ltd., who has long been on the front lines of the grain circulation sector, believes that after the planting structure is rationally adjusted, farmers' incomes will increase; as government policy participation in the market decreases, market activity will increase; the market will therefore need to increase goods circulation volume by 200 million tons, and logistics enterprises in land, sea and rail transport will all benefit; corn deep-processing enterprises will thrive; the return of prices to the market will facilitate linkage between domestic and international markets, investors will analyze and predict market trends according to market rules, corn futures will become the variety with the largest trading volume and open interest, and starch futures in the same industry chain will also become active as a result.
In fact, the "Planning Recommendations" set out a whole set of agricultural reform directions: "developing various forms of appropriately scaled operations," "promoting coordinated grain, economic crop and feed production…integrating planting, breeding and processing," "advancing the orderly transfer of land management rights in accordance with the law and building a policy system for cultivating new types of agricultural business entities," "cultivating new-type professional farmers," "deepening rural financial reform and improving the agricultural insurance system," and so on. These are not isolated from the reform of the agricultural product price formation mechanism, but complement and reinforce each other. With scaled operations, state subsidies can be more targeted and more efficient, and to a certain extent the statistical, fiscal, tax, and financial difficulties generated during the pilot target price subsidy programs for soybeans and cotton can be reduced or even avoided.
This year is the first year of the lowered temporary reserve price for corn. The recent decline in corn prices may cause land rental costs for scaled planting to fall to a certain extent. New-type business entities with the means to do so in advantageous production regions can take this opportunity to appropriately expand planting scale, thereby lowering production costs and obtaining economies of scale, and can also achieve greater development when the state increases subsidy intensity for advantageous production regions.