Why Are China's Grain Prices Higher Than the International Market? Chen Xiwen Says the Reasons Are Complex
On November 4, the State Council Information Office held a press conference, inviting Chen Xiwen, deputy head and director of the Office of the Central Leading Group for Rural Work, and Han Jun, deputy director of the Office of the Central Leading Group for Rural Work, to interpret the spirit of the Fifth Plenary Session of the 18th Central Committee and present the Comprehensive
On November 4, the State Council Information Office held a press conference, inviting Chen Xiwen, deputy head and director of the Office of the Central Leading Group for Rural Work, and Han Jun, deputy director of the Office of the Central Leading Group for Rural Work, to interpret the spirit of the Fifth Plenary Session of the 18th Central Committee and present the Comprehensive Implementation Plan for Deepening Rural Reform and other related matters. Chen Xiwen, deputy head and director of the Office of the Central Leading Group for Rural Work, explained why China's grain prices are higher than the international market.
The following is the transcript:
CCTV reporter:
I have two questions for the two experts: First, this year's Plan proposes 5 key areas and 26 major measures. The first of these is deepening the reform of the rural collective property rights system. Does this mean that in the next stage of rural reform, reform of the collective property rights system is the most important and most fundamental, and where are the focus and key points of this reform in the next stage? Second, the prices of this year's three major staple grains have drawn great media attention. First, the market transaction prices are relatively low. What is the reason for this situation? This year the temporary storage price for corn was lowered for the first time, and the minimum purchase prices for wheat and rice were also kept flat. Does this show that our current policy-based purchasing is already somewhat strained? It happens that the Plan released this time also proposes reforming and improving the corn purchase and storage policy and improving the minimum purchase price policy for rice and wheat. Can you reveal some details in this regard? Thank you.
Chen Xiwen:
Placing reform of the rural property rights system first among the five key areas, as you just said, has a foundational significance and role for the entire rural economic system. Rural China is in fact an economic organizational form in which public ownership plays the leading role while diverse forms of ownership develop together. Its main body is of course the rural collective economy. About 45% to 46% of our entire national land area belongs to rural collective ownership, including 1.8 billion mu of cultivated land, as well as forest land, grassland and unused land. Nearly half of the national land area belongs to the collective ownership of farmers. Therefore, the collective economy clearly occupies an important position in the rural economic system. Of course, there are also state-owned forest farms, state-owned farms, supply and marketing cooperatives and other state-owned or other-ownership economies, as well as farmers' individual and private economies, farmers' cooperative economies and so on, so the rural economy is composite in nature. It should be particularly emphasized here that the reform of the property rights system of the rural collective economy does not mean that other economies are being neglected. In fact, our documents on the reform of state-owned forest farms, the reform of state-owned forest areas, the reform of state-owned agricultural reclamation, and the reform of supply and marketing cooperatives are all being issued one after another, and high importance is also attached to safeguarding the rural individual and private economies and so on. It is simply that because the collective economy accounts for a very large proportion of the entire rural economy, and if we speak of household registration in rural areas, it concerns the vital interests of more than 900 million farmers, all closely related to the property rights system of the rural collective economy.
According to the formulation of this Plan, everyone can see that the reform of the rural collective property rights system mainly involves three major aspects:
The first aspect: the main part of the rural collective economy is cultivated land. According to the results of the second detailed land survey, the existing retained cultivated land is 2.02 billion mu, of which about 200 million mu is not very stable, for example because it occupies forest land, grassland, or is below the water level line of rivers and lakes and may be submerged when water rises, and so on. In this sense, cultivated land involves hundreds of millions of farmers. We now have 230 million rural households that have contracted collective land. So how to further clarify the property rights system of the cultivated land system is a very big problem we currently face. Before this, the central government had already issued a notice, and all localities are also carrying it out. It is called the confirmation, registration and certification of rural land contractual management rights. This work has now been in its third year of pilot trials. From the current situation, progress has been very smooth. Last year it was proposed to carry out province-wide pilot trials in three provinces, and this year it has already begun within the scope of 12 provinces. Among the more than 2,200 agricultural counties, cities and districts nationwide, more than 2,200 county-level units, each unit has its own pilot trial being advanced. By June this year, 260 million mu of farmers' contracted cultivated land had had their contractual management rights clarified, and some had begun to issue certificates. Through confirmation, registration and certification, farmers' land contractual management rights are stabilized over the long term, the nature of usufructuary rights is clarified, and farmers' property rights are safeguarded.
The second aspect: rural non-resource operational assets. In our words, in the past people talked more about things like township and village enterprises; now it more includes things like the property economy and logistics economy that occupy rural land and were established using investment from the rural collective economy. This block should be said to be very large in quantity, assets worth several trillion yuan. In the past, this block of assets was indeed not well managed in some places, was controlled by a small number of people, and the benefits were not shared with farmers. This Plan proposes that through the reform method of the shareholding cooperative system, the collective operational assets should, through a certain form and in a way recognized by the people, be confirmed as rights to each household and each farmer. In their operation and management, farmers must actively participate, must be informed, and must have the right to supervise, and with respect to operating income, every member of the collective organization holding shares has the right to dividends.
The third aspect: among the rural non-operational collective assets, there are also some kindergartens, primary schools and clinics. These assets are all collective assets, but they are not operational.
At the current stage, the Implementation Plan proposes mainly to improve their efficiency and how to better provide public services to farmers. What we call reform of the collective property rights system mainly refers to these three aspects. Among them, the land issue also has content richer than cultivated land, including how to reform the state land expropriation system, including how to reform the rural homestead system, and so on. All of these are covered in this Plan, and pilot trials have already been deployed in 33 county-level units. They were already deployed last year, and the pilot trials are currently being advanced.
Some contents of the land system reform conflict with the current legal system. With the approval of the Standing Committee of the National People's Congress, in these 33 pilot locations, during the pilot period, which runs to the end of 2017, the relevant legal provisions involved within the scope of the pilot are temporarily not implemented. When the pilot ends, the results of its pilot reform must be evaluated, and after evaluation it will be determined whether to amend the law or restore the original law for implementation. All this work is underway. This is the first question, the collective property rights system.
The second question concerns grain and prices. The Implementation Plan has in fact already put forward very principled and major opinions on the formation mechanism of the entire grain reform, namely that the formation of grain prices should be close to the market while also taking into account farmers' lawful returns. This is a very important principle for the future formation of China's grain prices. Everyone knows that since 2004 we have implemented the minimum purchase price policy in the main producing areas of rice and wheat, and it is still being implemented today. Since 2007 we have implemented the temporary storage price for corn, and since 2008 the temporary storage price for soybeans. The temporary storage prices for these two varieties are implemented only in the three northeastern provinces and the northeastern region of Inner Mongolia; other regions do not have temporary storage prices for these two varieties.
The current situation is just as was mentioned earlier: the grain situation is indeed very complex. On the surface, I would summarize it as three quantities continuously growing. First, this year is the 12th year, the 12th consecutive year, in which domestic grain output has continuously grown. Second, since 2010 the quantity of grain we import has continuously grown. Third, current grain inventories are continuously growing. How did such a situation arise? To a greater extent this situation has been brought about by economic globalization. Of course we have our own problems to solve, but more importantly it is still economic globalization. Since the global financial crisis occurred, its impact continued after 2010, and globally there appeared weak demand for bulk commodities. In addition to bulk commodities like agricultural products, this also included energy products and mineral products, all of which saw large declines in prices. If international market grain prices are compared with 2011, the current international market prices of the three major staple grains have fallen by roughly 40%-50%. This is the global situation.
From China's actual situation, it should be said that in order to mobilize farmers' enthusiasm and safeguard farmers' reasonable returns, the state has in recent years continuously and appropriately raised the temporary storage price and the minimum purchase price, so that a situation opposite to the direction of international market prices has appeared. We kept raising prices while the international market kept raising prices; after passing this node, China's grain prices came to be 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 you can see that the increase in domestic prices is clearly lower than the decline in international market grain prices.
Why has such a complex situation arisen? There are other factors as well. Other factors include changes in exchange rates. The RMB exchange rate has generally remained strong over these years. After August this year it depreciated slightly. Overall, compared with before the reform of the RMB exchange rate mechanism, the RMB has strengthened by about 28%. A strong RMB exchange rate means that imported agricultural products bought with US dollars will be cheaper when they come in. For example, one ton of soybeans at 500 US dollars, if calculated as in the past at an exchange rate of 1:8, and not counting other costs and fees, comes in at 4,000 yuan. Now the exchange rate is 1:6. The same one 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, leading to a large decline in global shipping prices. We all know that bulk agricultural products like grain are basically traded internationally by sea. If compared with 2008, I checked the data: in 2008, shipping grain in bulk from the US Gulf to Huangpu Port in Guangzhou, China, cost about 135-138 US dollars per ton. Now if you look, the freight per ton is 35 US dollars, so freight per ton is 100 US dollars cheaper, which converted into RMB is more than 600 cheaper. The emergence of such a complex situation in grain prices has many factors. First, our agriculture's own competitiveness is insufficient. Second, our protection policies have caused grain prices to keep rising. Third, international grain prices are falling. Fourth, the freight issue. Fifth, the exchange rate issue. So this is constituted by many complex factors.
Faced with such problems, handling them cannot be oversimplified. As you just said, in the past two years our policies for the three major staple grains have basically been, for example, to keep the price level unchanged for wheat and rice in places where the minimum price has already been implemented. The minimum purchase prices for wheat and rice implemented in 2015 were not raised, and 2016 is still in the process of study. The corn price was announced by the relevant departments on September 18 this year. Compared with last year, the temporary storage price for corn in the main producing areas was lowered by an average of 0.12 yuan. The corn temporary storage price we set in the past was 1.13 yuan in Liaoning, 1.12 yuan in Jilin, and 1.11 yuan in Heilongjiang. This time it was lowered by an average of 0.12 yuan, that is, to 1 yuan. Therefore, one can also see that the entire market, including areas inside the passes where the temporary storage price was not implemented, is also seeing market prices fall. But it should be seen 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.
From this angle, lowering the corn temporary storage price also takes into account the current complex situation of grain prices. Grain-growing farmers cannot be allowed to suffer too much loss, and attention must still be paid to safeguarding their interests. The next step is to continue pushing forward. The principle is to separate price from subsidies. Whether it is our current minimum price or temporary storage price, to a certain extent price and subsidy are combined. In the future, separating price and subsidy, with price mainly formed by the market, will make market entities active. In the past, when subsidy and price were put together, the price was higher than the market price, and so grain merchants, grain traders and processing enterprises became inactive. After separating reform and subsidy, the market can be activated. Farmers sell grain at market prices, and operating entities purchase grain at market prices, thus invigorating 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 price. This is the basic major principle, and the future trend is also like this: “price and subsidy” separated, prices close to the market, the price formation mechanism close to the market, and attention paid to protecting farmers' reasonable interests. Thank you.
The following is the transcript:
CCTV reporter:
I have two questions for the two experts: First, this year's Plan proposes 5 key areas and 26 major measures. The first of these is deepening the reform of the rural collective property rights system. Does this mean that in the next stage of rural reform, reform of the collective property rights system is the most important and most fundamental, and where are the focus and key points of this reform in the next stage? Second, the prices of this year's three major staple grains have drawn great media attention. First, the market transaction prices are relatively low. What is the reason for this situation? This year the temporary storage price for corn was lowered for the first time, and the minimum purchase prices for wheat and rice were also kept flat. Does this show that our current policy-based purchasing is already somewhat strained? It happens that the Plan released this time also proposes reforming and improving the corn purchase and storage policy and improving the minimum purchase price policy for rice and wheat. Can you reveal some details in this regard? Thank you.
Chen Xiwen:
Placing reform of the rural property rights system first among the five key areas, as you just said, has a foundational significance and role for the entire rural economic system. Rural China is in fact an economic organizational form in which public ownership plays the leading role while diverse forms of ownership develop together. Its main body is of course the rural collective economy. About 45% to 46% of our entire national land area belongs to rural collective ownership, including 1.8 billion mu of cultivated land, as well as forest land, grassland and unused land. Nearly half of the national land area belongs to the collective ownership of farmers. Therefore, the collective economy clearly occupies an important position in the rural economic system. Of course, there are also state-owned forest farms, state-owned farms, supply and marketing cooperatives and other state-owned or other-ownership economies, as well as farmers' individual and private economies, farmers' cooperative economies and so on, so the rural economy is composite in nature. It should be particularly emphasized here that the reform of the property rights system of the rural collective economy does not mean that other economies are being neglected. In fact, our documents on the reform of state-owned forest farms, the reform of state-owned forest areas, the reform of state-owned agricultural reclamation, and the reform of supply and marketing cooperatives are all being issued one after another, and high importance is also attached to safeguarding the rural individual and private economies and so on. It is simply that because the collective economy accounts for a very large proportion of the entire rural economy, and if we speak of household registration in rural areas, it concerns the vital interests of more than 900 million farmers, all closely related to the property rights system of the rural collective economy.
According to the formulation of this Plan, everyone can see that the reform of the rural collective property rights system mainly involves three major aspects:
The first aspect: the main part of the rural collective economy is cultivated land. According to the results of the second detailed land survey, the existing retained cultivated land is 2.02 billion mu, of which about 200 million mu is not very stable, for example because it occupies forest land, grassland, or is below the water level line of rivers and lakes and may be submerged when water rises, and so on. In this sense, cultivated land involves hundreds of millions of farmers. We now have 230 million rural households that have contracted collective land. So how to further clarify the property rights system of the cultivated land system is a very big problem we currently face. Before this, the central government had already issued a notice, and all localities are also carrying it out. It is called the confirmation, registration and certification of rural land contractual management rights. This work has now been in its third year of pilot trials. From the current situation, progress has been very smooth. Last year it was proposed to carry out province-wide pilot trials in three provinces, and this year it has already begun within the scope of 12 provinces. Among the more than 2,200 agricultural counties, cities and districts nationwide, more than 2,200 county-level units, each unit has its own pilot trial being advanced. By June this year, 260 million mu of farmers' contracted cultivated land had had their contractual management rights clarified, and some had begun to issue certificates. Through confirmation, registration and certification, farmers' land contractual management rights are stabilized over the long term, the nature of usufructuary rights is clarified, and farmers' property rights are safeguarded.
The second aspect: rural non-resource operational assets. In our words, in the past people talked more about things like township and village enterprises; now it more includes things like the property economy and logistics economy that occupy rural land and were established using investment from the rural collective economy. This block should be said to be very large in quantity, assets worth several trillion yuan. In the past, this block of assets was indeed not well managed in some places, was controlled by a small number of people, and the benefits were not shared with farmers. This Plan proposes that through the reform method of the shareholding cooperative system, the collective operational assets should, through a certain form and in a way recognized by the people, be confirmed as rights to each household and each farmer. In their operation and management, farmers must actively participate, must be informed, and must have the right to supervise, and with respect to operating income, every member of the collective organization holding shares has the right to dividends.
The third aspect: among the rural non-operational collective assets, there are also some kindergartens, primary schools and clinics. These assets are all collective assets, but they are not operational.
At the current stage, the Implementation Plan proposes mainly to improve their efficiency and how to better provide public services to farmers. What we call reform of the collective property rights system mainly refers to these three aspects. Among them, the land issue also has content richer than cultivated land, including how to reform the state land expropriation system, including how to reform the rural homestead system, and so on. All of these are covered in this Plan, and pilot trials have already been deployed in 33 county-level units. They were already deployed last year, and the pilot trials are currently being advanced.
Some contents of the land system reform conflict with the current legal system. With the approval of the Standing Committee of the National People's Congress, in these 33 pilot locations, during the pilot period, which runs to the end of 2017, the relevant legal provisions involved within the scope of the pilot are temporarily not implemented. When the pilot ends, the results of its pilot reform must be evaluated, and after evaluation it will be determined whether to amend the law or restore the original law for implementation. All this work is underway. This is the first question, the collective property rights system.
The second question concerns grain and prices. The Implementation Plan has in fact already put forward very principled and major opinions on the formation mechanism of the entire grain reform, namely that the formation of grain prices should be close to the market while also taking into account farmers' lawful returns. This is a very important principle for the future formation of China's grain prices. Everyone knows that since 2004 we have implemented the minimum purchase price policy in the main producing areas of rice and wheat, and it is still being implemented today. Since 2007 we have implemented the temporary storage price for corn, and since 2008 the temporary storage price for soybeans. The temporary storage prices for these two varieties are implemented only in the three northeastern provinces and the northeastern region of Inner Mongolia; other regions do not have temporary storage prices for these two varieties.
The current situation is just as was mentioned earlier: the grain situation is indeed very complex. On the surface, I would summarize it as three quantities continuously growing. First, this year is the 12th year, the 12th consecutive year, in which domestic grain output has continuously grown. Second, since 2010 the quantity of grain we import has continuously grown. Third, current grain inventories are continuously growing. How did such a situation arise? To a greater extent this situation has been brought about by economic globalization. Of course we have our own problems to solve, but more importantly it is still economic globalization. Since the global financial crisis occurred, its impact continued after 2010, and globally there appeared weak demand for bulk commodities. In addition to bulk commodities like agricultural products, this also included energy products and mineral products, all of which saw large declines in prices. If international market grain prices are compared with 2011, the current international market prices of the three major staple grains have fallen by roughly 40%-50%. This is the global situation.
From China's actual situation, it should be said that in order to mobilize farmers' enthusiasm and safeguard farmers' reasonable returns, the state has in recent years continuously and appropriately raised the temporary storage price and the minimum purchase price, so that a situation opposite to the direction of international market prices has appeared. We kept raising prices while the international market kept raising prices; after passing this node, China's grain prices came to be 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 you can see that the increase in domestic prices is clearly lower than the decline in international market grain prices.
Why has such a complex situation arisen? There are other factors as well. Other factors include changes in exchange rates. The RMB exchange rate has generally remained strong over these years. After August this year it depreciated slightly. Overall, compared with before the reform of the RMB exchange rate mechanism, the RMB has strengthened by about 28%. A strong RMB exchange rate means that imported agricultural products bought with US dollars will be cheaper when they come in. For example, one ton of soybeans at 500 US dollars, if calculated as in the past at an exchange rate of 1:8, and not counting other costs and fees, comes in at 4,000 yuan. Now the exchange rate is 1:6. The same one 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, leading to a large decline in global shipping prices. We all know that bulk agricultural products like grain are basically traded internationally by sea. If compared with 2008, I checked the data: in 2008, shipping grain in bulk from the US Gulf to Huangpu Port in Guangzhou, China, cost about 135-138 US dollars per ton. Now if you look, the freight per ton is 35 US dollars, so freight per ton is 100 US dollars cheaper, which converted into RMB is more than 600 cheaper. The emergence of such a complex situation in grain prices has many factors. First, our agriculture's own competitiveness is insufficient. Second, our protection policies have caused grain prices to keep rising. Third, international grain prices are falling. Fourth, the freight issue. Fifth, the exchange rate issue. So this is constituted by many complex factors.
Faced with such problems, handling them cannot be oversimplified. As you just said, in the past two years our policies for the three major staple grains have basically been, for example, to keep the price level unchanged for wheat and rice in places where the minimum price has already been implemented. The minimum purchase prices for wheat and rice implemented in 2015 were not raised, and 2016 is still in the process of study. The corn price was announced by the relevant departments on September 18 this year. Compared with last year, the temporary storage price for corn in the main producing areas was lowered by an average of 0.12 yuan. The corn temporary storage price we set in the past was 1.13 yuan in Liaoning, 1.12 yuan in Jilin, and 1.11 yuan in Heilongjiang. This time it was lowered by an average of 0.12 yuan, that is, to 1 yuan. Therefore, one can also see that the entire market, including areas inside the passes where the temporary storage price was not implemented, is also seeing market prices fall. But it should be seen 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.
From this angle, lowering the corn temporary storage price also takes into account the current complex situation of grain prices. Grain-growing farmers cannot be allowed to suffer too much loss, and attention must still be paid to safeguarding their interests. The next step is to continue pushing forward. The principle is to separate price from subsidies. Whether it is our current minimum price or temporary storage price, to a certain extent price and subsidy are combined. In the future, separating price and subsidy, with price mainly formed by the market, will make market entities active. In the past, when subsidy and price were put together, the price was higher than the market price, and so grain merchants, grain traders and processing enterprises became inactive. After separating reform and subsidy, the market can be activated. Farmers sell grain at market prices, and operating entities purchase grain at market prices, thus invigorating 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 price. This is the basic major principle, and the future trend is also like this: “price and subsidy” separated, prices close to the market, the price formation mechanism close to the market, and attention paid to protecting farmers' reasonable interests. Thank you.