Why agricultural product price reform must be coordinated and balanced

The “inversion” phenomenon in China's grain market is prominent, agricultural product price subsidies are already close to the upper limit of the WTO's “Amber Box” subsidy rules, and market-supporting purchases are becoming increasingly difficult to sustain. Adjusting grain purchase prices can neither simply reduce fiscal subsidies and directly require domestic bulk agricultural product prices to align with international prices, nor can it unrealistically reduce small-scale farmer planting and one-sidedly pursue economies of scale. It must be considered in a coordinated way and policies implemented prudently. We must 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

This year, the state lowered the temporary corn purchase and storage price by 0.13 yuan per jin, while the minimum purchase prices for wheat and rice remained unchanged. This adjustment not only conforms to the current agricultural and grain conditions, but also shows the market that the state's price subsidy measures 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 necessary. The temporary corn storage price was lowered by about 10%, which indeed has an impact on farmers' income, especially for grain farmers in major producing areas. For small-scale farming households, each household planting 3 to 5 mu, the decline in corn income is limited. For large-scale growers, income from directly selling grain will decrease noticeably. However, because new state policy projects, subsidies, and so on have begun to favor large-scale growers, and because large-scale growers have certain advantages in grain quality, processing, and sales, this has to a certain extent reduced the impact of the price cut on total income.

At present, the grain market presents a complex situation of inversion between domestic and international prices, inversion between major producing areas and major sales areas, and inversion between raw grain and finished grain, so adjusting grain purchase prices is inevitable. From the perspective of international competition, market-supporting prices face a “ceiling.” Since 2004, the state has successively implemented minimum purchase price policies for rice and wheat, and since 2007 it has implemented temporary storage policies for corn, soybeans, cotton, and others. After 2008, market-supporting prices rose year after year. After 2011, international grain prices continued to fall, leading to a widening price gap between domestic and foreign 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's “Amber Box” subsidy rules, China's subsidies that directly affect agricultural product prices should not exceed 8.5%, and they are now close to this limit.

From the perspective of the domestic grain industry, market-supporting purchases are becoming increasingly difficult to sustain. The year-by-year increase in market-supporting prices has strengthened the expectation that grain prices will “only rise, not fall,” reinforcing the market's “policy market” characteristics. In particular, corn, cotton, and sugar have already formed a strange cycle of “domestic output increases, the state increases reserves, imports increase, and the state increases reserves again.” In grain and cotton purchasing, the government has assumed the main responsibility for grain and cotton purchasing, creating a situation of “domestic goods entering warehouses while foreign goods enter the market,” with a heavy fiscal burden, while downstream processing enterprises and consumers have all paid relatively high costs.

Faced with this phenomenon, we can neither simply reduce fiscal subsidies and directly require domestic bulk agricultural product prices to align with international prices, nor unrealistically reduce small-scale farmer planting and one-sidedly pursue economies of scale. We must consider things in a coordinated way and implement policies prudently. Agricultural policy is not a 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 both to safeguard food security and market stability, and to consider competitive relations in the international market, and even more to 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 and balanced. Agricultural product prices should mainly be determined by the market, so that the market plays a decisive role in resource allocation. At the same time, support policies for agriculture and farmers should continue to be upheld, but those support policies must also be continuously improved and refined. We must 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 thinking behind agricultural product price reform is already clear, and the target price reform for cotton and soybeans currently being advanced is an embodiment of this thinking. This reform comprehensively considers factors such as production costs, farmers' profits, and domestic and international price differences, separates subsidies from prices, and greatly reduces intervention in prices. Of course, the adjustment and reform of grain purchase prices is intricate and complex, and must be actively yet prudently advanced on the premise of ensuring food security, ensuring farmers' enthusiasm for growing grain, and ensuring continuously rising incomes. As new types of agricultural operating entities grow and appropriately scaled operations accelerate, China's agricultural competitiveness will continue to strengthen, and support for the price reform of grain and other major agricultural products will also become stronger and stronger.