Prominent "Inverted" Grain Market Phenomenon: Agricultural Product Price Reform Needs Coordinated Advancement

The “inverted” phenomenon in China's grain market is prominent, agricultural product price subsidies are already close to the upper limit of the WTO “Amber Box” subsidy rules, and market-supporting procurement is becoming increasingly unsustainable. Adjusting grain procurement prices cannot simply mean reducing fiscal subsidies and directly requiring domestic bulk agricultural product prices to align with international prices, nor can it mean unrealistically reducing small-scale farmer cultivation and one-sidedly pursuing economies of scale. It must be considered in a coordinated way and policies implemented prudently. We need to explore support and protection policies that have little market-distorting effect, are more precisely targeted, are highly operable and comply with WTO rules, while supporting the goal of protecting agriculture

This year, the state lowered the temporary procurement price for corn by 0.13 yuan per jin, while the minimum procurement prices for wheat and rice remained unchanged. This adjustment is consistent with the current agricultural and grain situation, and also signals to the market that the state's price subsidy methods will respect market rules even more, and that support and protection for farmers will continue to increase in strength while becoming more scientific and reasonable.

Reform is necessary, and subsidies are essential. The approximately 10% reduction in the temporary corn storage price does indeed affect farmers' incomes, especially grain farmers in major producing areas. For small-scale farming households planting 3 to 5 mu each, the decline in corn income is limited. For large-scale farming households, income from directly selling grain will decrease noticeably. However, because new state policy projects and subsidies have begun to favor large-scale farming households, and because large-scale farmers have certain advantages in grain quality, processing and sales, this has to some extent mitigated the impact of the price reduction on total income.

Currently, the grain market presents a complex situation of domestic and international price inversion, inversion between major producing areas and major sales areas, and inversion between raw grain and processed grain, making adjustment of grain procurement prices inevitable. From the perspective of international competition, market-supporting prices face a “ceiling.” Since 2004, the state has successively implemented minimum procurement price policies for rice and wheat, and since 2007 has implemented temporary storage policies for soybeans, cotton and others. After 2008, market-supporting prices rose year after year. After 2011, international grain prices continued to decline, leading to widening price gaps between domestic and international agricultural products and increased import pressure. Last year, domestic prices of agricultural products such as grain, cotton, oil and sugar were all higher than the post-tax landed import prices of foreign products within quota. According to the WTO “Amber Box” subsidy rules, China's subsidies that directly affect agricultural product prices should not exceed 8.5%, and are currently close to this limit.

From the perspective of the domestic grain industry, market-supporting procurement is becoming increasingly unsustainable. Yearly increases in market-supporting prices have strengthened the expectation that grain prices “only rise and never fall,” reinforcing the market's “policy market” characteristics. In particular, corn, cotton and sugar have already formed a strange cycle of “domestic production increase, state reserve increase, import increase, state reserve increase again.” In grain and cotton procurement, the government bears the main responsibility, creating a situation of “domestic goods entering warehouses while foreign goods enter the market,” placing a heavy fiscal burden while downstream processing enterprises and consumers both bear higher costs.

Faced with this phenomenon, it is neither possible to simply reduce fiscal subsidies and directly require domestic bulk agricultural product prices to align with international prices, nor to unrealistically reduce small-scale farmer cultivation and one-sidedly pursue economies of scale. It must be considered in a coordinated way and policies implemented prudently. Agricultural policy is not purely industrial policy; it concerns rural development and social stability. The price formation mechanism for agricultural products directly determines farmers' interests and the stable supply of agricultural products. It is necessary to safeguard food security and market stability, consider competitive relations in the international market, and even more importantly consider the livelihoods and moderate prosperity of hundreds of millions of farming households.

Therefore, adjustments to agricultural product prices and agricultural subsidy policies must be coordinated. Agricultural product prices should mainly be determined by the market, letting the market play a decisive role in resource allocation. At the same time, support policies for agriculture and farmers should continue, but support policies must also be continuously improved. We need to explore support and protection policies that have little market-distorting effect, are more precisely targeted, are highly operable and comply with WTO rules, while the goal of supporting and protecting agriculture is not only to increase output, but also to improve efficiency and quality.

At present, the approach to agricultural product price reform has been clearly defined, and the ongoing target price reform for cotton and soybeans is a reflection of this approach. This reform comprehensively considers factors such as production costs, farmer profits and domestic-international price gaps, separates subsidies from prices, and greatly reduces intervention in prices. Of course, the adjustment and reform of grain procurement prices is intricate and complex, and must be actively and prudently advanced on the premise of ensuring food security and ensuring farmers' enthusiasm for growing grain and continuously rising incomes. With the growth of new agricultural business entities and the acceleration of appropriately scaled operations, China's agricultural competitiveness will continue to strengthen, and support for the price reform of grain and other major agricultural products will also become increasingly strong.