Grain prices and agricultural subsidies will be separated, Chen Xiwen makes clear statement

China Youth Online, November 4 (China Youth Daily · China Youth Online reporter Hao Shuai) “The formation of grain prices should stay close to the market while also taking into account farmers' legitimate income. This is a very important principle for the future formation of China's grain prices.” At the press conference held today by the State Council Information Office, Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, responded to the current situation in which domestic grain prices are higher than foreign grain prices and domestic grain transaction prices are falling.

Chen Xiwen said the reasons domestic grain prices are higher than foreign grain prices are: first, our agriculture itself lacks competitiveness. Second, our protection policies have kept grain prices rising continuously. Third, international grain prices are falling. As well as freight and exchange rate issues.

Chen Xiwen explained that, from China's actual situation, in order to motivate farmers' enthusiasm and protect farmers' reasonable income, the state has in recent years continuously and appropriately raised the temporary storage price and the minimum purchase price, which has created a situation opposite to the trend of prices on the international market. We kept raising prices while the international market kept falling, and after passing this point China's grain prices became higher than the international market. Of course this is the simplest analysis; in fact, China's grain prices being higher than the international market is not entirely due to domestic price increases, because the increase in domestic prices is clearly lower than the decline in international market grain prices.

So why does the inverted grain price situation occur? Chen Xiwen explained that there are other factors, including exchange rate changes. The RMB exchange rate has generally remained strong in recent years, meaning imported agricultural products bought with US dollars become cheaper.

For example, a ton of soybeans costs 500 US dollars. If calculated at the past exchange rate of 1:8, that is 4,000 yuan. Now the exchange rate is 1:6. The same ton of soybeans bought for 500 US dollars comes in at only 3,000 yuan, which is 1,000 yuan cheaper.

Second, global energy prices have fallen, causing global shipping prices to fall sharply. Bulk agricultural products are basically traded internationally by sea. Compared with 2008, when grain was shipped in bulk from the US Gulf to Huangpu Port in Guangzhou, China, the freight cost was about 135-138 US dollars per ton. Now the freight cost is 35 US dollars per ton, so each ton is 100 US dollars cheaper in freight, equivalent to more than 600 yuan cheaper in RMB.

Faced with the problem of inverted grain prices, how should it be handled? Chen Xiwen said that, for example, for wheat and rice, in places where the minimum price has already been implemented, the price level will remain unchanged. The minimum purchase prices for wheat and rice implemented in 2015 were not raised, and 2016 is still under study. The corn price was announced by the relevant department on September 18 this year. Compared with last year, the temporary storage price for corn in major producing areas was reduced by an average of 0.12 yuan per jin. The previously set temporary corn storage price was 1.13 yuan per jin in Liaoning, 1.12 yuan per jin in Jilin, and 1.11 yuan per jin in Heilongjiang. This time it was reduced by an average of 0.12 yuan, that is, to 1 yuan per jin. But it should be noted that whether it is the 1 yuan temporary storage price announced by the government this year or the current market price, it is still higher than the international market.

Chen Xiwen told reporters that in the future prices and subsidies will be separated. Prices will mainly be formed by the market, and only then will market participants become active. In the past, subsidies and prices were mixed together, so prices were higher than market prices, and grain dealers, grain traders and processing enterprises became inactive. After separating prices and subsidies, the market can be activated: farmers sell grain at market prices, and business entities buy grain at market prices, thus enlivening the grain market. If the market price is too low, what should be done? The government should adopt appropriate policies and directly subsidize farmers, but do so separately from prices. This is the basic major principle, and the future trend will also be like this: “price and subsidy” separated, prices close to the market, and the price formation mechanism close to the market.