Agricultural product price reform requires proper coordination between the government and the market

Not long ago, the "Several Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting Price Mechanism Reform" was issued. The Opinions point out: the price mechanism, as the core of the market mechanism, plays a decisive and critical role in resource allocation. The continuous advancement and deepening of price reform has played an important role in establishing and improving the socialist market economy system and promoting sustained and healthy economic and social development. The signal released by the Opinions is very clear, fully demonstrating the determination and force behind letting the “invisible hand” decide resource allocation. This conforms to the requirements and spirit of the Third Plenary Session of the 18th Central Committee of the Party: “let the market play a decisive role in resource allocation and better bring into play the role of the government.”

The issuance of the Opinions this time also clearly proposes to improve the price formation mechanism for agricultural products, to focus on giving play to the role of the market in price formation, to implement differentiated support policies for different varieties, and to gradually expand the scale and scope of implementation of “green box” support policies. Continue to implement and improve the minimum purchase price policy for rice and wheat, reform and improve the corn purchase and storage system, continue to implement the pilot reform of target prices for cotton and soybeans, and improve the measures for issuing subsidies, etc.

⟦NL> Looking back at the history of China's agricultural product price reform, the approach to implementing agricultural product price reform has been consistent, namely returning the pricing power of agricultural products to the market. As early as 1985, China liberalized the purchase and sale prices of the vast majority of agricultural and sideline products; in 1992, it liberalized the prices of live pigs and pork; immediately afterward, in 1999, it liberalized the purchase price of cotton; and in 2004, it liberalized the grain purchase market and prices. Since the 18th National Congress of the Party, especially since the Third and Fourth Plenary Sessions of the 18th Central Committee, many substantive reforms have been made in reforming the pricing of agricultural products, up until the issuance of the Opinions this time. It can be seen that after a long period of active exploration in agricultural product price reform, having the market determine prices has become the direction of reform, which is determined by the production characteristics and circulation patterns of agricultural products. As is well known, agricultural products, especially grain, have large demand elasticity, long industrial chains, and a high degree of linkage with domestic and international markets. Guiding production through market price signals and regulating supply and demand can effectively optimize resource allocation and reduce social welfare losses.

Unlike price reform for other products, implementing agricultural product price reform must take into account food security, agricultural production efficiency, and farmers' incomes. In response to a series of current contradictions in the field of agricultural product production and circulation, such as the relatively large price gaps between domestic and international grain and the distortion of prices along the upstream and downstream of the industrial chain, the issuance of the Opinions this time is timely. It can not only effectively solve the current prominent problems, but will also play an important role in promoting the long-term improvement of the domestic and international agricultural product trade environment, reducing the pressure on government fiscal expenditures, and improving the price formation mechanism of the industrial chain. At the same time, the positive externalities brought by price reform will attract more positive factors into the agricultural sector, which is undoubtedly a major positive for agricultural production and agricultural product circulation. Moreover, with the gradual promotion of the target price management system in the crop sector, together with the trend of continuously increasing imports of most agricultural products, the degree of linkage between agricultural product prices and the international market will increase. This will help smooth cyclical fluctuations caused by supply and demand factors, thereby reducing large short-term rises and falls in spot prices and playing an important stabilizing role in increasing farmers' incomes.

How should agricultural product price reform be advanced? First, the “invisible hand” must be fully used. From the performance of past agricultural product price fluctuations, the forms of fluctuation are mainly divided into four types: trend, cyclical, seasonal, and occasional. Although the performance of each type of fluctuation is not entirely the same, fundamentally speaking, agricultural product prices are determined by supply and demand relationships, and the relatively stable nature of demand for agricultural products makes supply often the primary factor in studying agricultural product prices. The factors affecting the supply of agricultural products include not only natural causes, such as planting scale, weather, and epidemics, but changes in domestic and international market factors also have an important impact on the level of supply. The resulting impact often occurs through four paths: demand stimulation, cost pushing, investment, and international pricing. Among these are investment and trading operations at the technical level, macroeconomic adjustments at the policy level, and changes in supply and demand relationships at the basic level. The impact is complex and often difficult to fully grasp, but the market has internal stability and trading rules and can effectively reflect the value of agricultural products through prices. Therefore, regulating the circulation of agricultural products through the market, the “invisible hand,” is undoubtedly the best choice at present.

Second, in advancing agricultural product price reform, the “visible hand” cannot be ignored. In order to strengthen the precision of government regulation, the role of the government must be better brought into play. The government can directly or indirectly influence agricultural product prices through purchase and storage policies and by setting target prices. At the same time, it should increase fiscal support for agriculture, optimize the structure of fiscal support for agriculture, improve the incentive effects of fiscal support for agriculture, and improve relevant preferential policies for the production and circulation of agricultural products to guide production. In addition, the government should also strengthen the construction of the market environment, carry out planning and layout for the existing markets for agricultural product production and circulation, develop modern warehousing and logistics facilities, raise the level of informatization of rural agricultural products, and build electronic platforms suitable for modern agricultural product production and circulation.

In short, for the smooth implementation of agricultural product price reform, it is necessary both to avoid improper intervention by the “visible hand” and to help correct “market failure.” Only when the “two hands” are properly coordinated can we truly achieve what the Opinions state: “whatever prices can be formed by the market should be left to the market,” improve the country's system and capacity for governing prices, build a scientific, standardized, and transparent modern price regulatory system, and thereby establish an agricultural product price system that conforms to the characteristics of the socialist market economy.