Purchase Prices of the Three Major Staple Grains Fall; Experts Suggest Raising Pensions and Other Measures to Cope

[Farmers' Income May Suffer Losses of Hundreds of Billions; Purchase Prices of the Three Major Staple Grains Fall Across the Board] Since the start of autumn this year, the value of corn and wheat in major grain-producing areas has fallen to varying degrees. Corn has fallen by an average of more than 20%, with the largest drop reaching 30% compared with last year. Analysts say that this year special attention must be paid to the impact of the sharp fall in grain prices on the incomes of hundreds of millions of farmers; a negative income growth in the hundreds of billions will affect the consumer market and is expected to affect 1% of GDP.

A across-the-board decline in the three major staple grains is rarely seen in past years. Low international grain prices and domestic inventory backlogs are both regarded as the main causes of this round of grain price declines.

Ma Wenfeng believes that farmers' incomes have fallen in a straight line this year, which will naturally affect farmers' lives. Subsidies to farmers are needed through fiscal transfer payments, but the WTO has requirements on subsidies for China's agricultural products. If farmers are directly subsidized, developed countries will object. The best method is to subsidize farmers by raising pensions and other means. If rural consumption increases, economic growth will naturally follow.

Netizen @-DIDIAO: "Farmers' Income May Suffer Losses of Hundreds of Billions; Purchase Prices of the Three Major Staple Grains Fall Across the Board": As far as I know, one mu of land produces about 1000 jin of grain, and the actual purchase price of grain now is only 8 mao per jin. After deducting the costs of seeds, pesticides, chemical fertilizers, irrigation, and harvesting, the profit is only 300 yuan per mu. With an average of 5 mu per household, the annual grain-growing income is only 3000 yuan. This is enough to drive farmers crazy! Experts say the best method is to subsidize farmers by raising pensions and other means. If rural consumption increases, economic growth will naturally follow.

China's agricultural prices are far higher than those of South America and Southeast Asia, while the land quality is poor and there are also factors such as heavy metals and agricultural residues. This kind of agriculture has no competitiveness at all and relies entirely on subsidies. The question is, how much longer can the subsidies last?

Ma Wenfeng, an analyst at Aige Agriculture, said in an interview with reporters that this year special attention must be paid to the impact of the sharp fall in grain prices on the incomes of hundreds of millions of farmers. A negative income growth in the hundreds of billions will affect the consumer market and is expected to affect GDP growth by 1%.

The Three Major Staple Grains Fall Across the Board

After the National Day holiday, corn in various places has been harvested one after another and entered the purchasing stage, but farmers in many places found that this year's corn purchase price was 20%-30% lower than in previous years.

A reporter from Huaxia Times conducted a random sample survey of several major grain-producing areas. Among them, the price of wet corn harvested in Changchun, Jilin, was 6 mao per jin, nearly 3 mao lower than in previous years; in Changgou Township, Jining, Shandong, last year's price for sun-dried corn (meeting purchase standards) was a little over 1 yuan, while this year it was only 8 mao, a drop of more than 2 mao. A farmer in Handan, Hebei, told the reporter that the local corn purchase price had remained at around 8 mao, down more than 20% from previous years.

This year in the Beidahuang area, grain achieved a bumper harvest, but grain prices likewise dealt a heavy blow to farmers' enthusiasm. The official report from Qitaihe City said that after corn harvesting, most entered the market directly; the purchase price of corn cobs with 30% moisture was 0.35 yuan/jin, and corn kernels were 0.65 yuan/jin, 0.1 yuan/jin lower than the 0.75 yuan/jin in the same period of 2014, a decline of 13.3%.

Zhang Aiqin, a farmer from Sunji Village, Zhouzhai Township, Dangshan County, Anhui Province, told a reporter from Huaxia Times that the price of sun-dried corn in the same period last year was 1.07 yuan/jin, and this year it was 0.78 yuan/jin, and there were especially few buyers, mainly sold to dealers. "My family's 7 mu of land sold for 5243 yuan last year. This year the corn was hit by insect damage, output fell, and the price was lower. This year's total income was 3588 yuan, 1655 yuan less. I won't plant next year; I'll contract out all the land."

Besides corn, the price of wheat has also fallen sharply. During this year's National Day holiday, wheat prices experienced a cliff-like decline rarely seen for years. China Grain Information Network said that in most areas, the purchase price of second-grade wheat by milling enterprises quickly fell from between 1.15-1.20 yuan/jin before the holiday to between 1.05-1.10 yuan/jin, a drop of about 0.1 yuan/jin. This left most people involved in the wheat trade at a loss, and the market fell into a severe atmosphere of panic.

Generally speaking, after the national state reserve market-supporting purchase ended on September 30, wheat prices would experience a wave of decline, so that milling enterprises would have a process of taking over the market, but this year's decline in wheat prices has rarely been seen in past years.

A person in the wheat industry introduced that this sharp decline was triggered by Shandong. Local market-supporting purchases ended, but grain depots in various places still had large convoys of wheat unable to enter storage this year, especially in the two cities of Liaocheng and Dezhou, where the wheat could only be sent to flour mills, and the flour mills could not digest it and directly pushed prices down.

"After flour giants in Hebei and other places learned the news that wheat purchase prices in Liaocheng and Dezhou were falling rapidly, they all responded quickly and began to lower wheat purchase prices. The prices of these flour enterprises are often the market's weather vane, ultimately transmitting to the whole country," the person said.

Not only wheat and corn, but rice has also not performed well this year. Data from many places show that rice prices have been stable with a decline. Yang Zhica, a farmer in Dangtu County, Anhui, told the reporter that this year's rice price fell by about 1 mao compared with previous years, and the several hundred mu of land he planted brought in tens of thousands of yuan less. The reporter's sample survey in Heilongjiang showed that the current rice price is basically consistent with previous years.

Ma Wenfeng said that the largest price declines this year were in corn and wheat. Among them, corn is mainly used for feed, while rice bran used as feed will also be affected. The main transmission to prices occurs in the feed link, and inventory backlogs also have an impact. "But corn alone has a very large impact."

Impact on GDP May Reach 1%

Despite the state's market-supporting purchase policy, the policy can hardly affect the market. Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, said in an interview with Huaxia Times that the state-regulated price is 1 yuan, but the market has fallen 30% relative to the regulated price. "This shows that the influence of state power is weakening. China's corn market price has already aligned with the international market and is declining in sync with the international market, and the gap will become smaller and smaller."

Affected by the global economy, commodity prices generally fell this year, and global agricultural product prices fell accordingly, forming a price gap with China's grain prices. Ren Zhengxiao, director of the State Administration of Grain, wrote in Qiushi in September that at present the international prices of soybeans, corn, wheat, and rice are 1175 yuan, 923 yuan, 626 yuan, and 1143 yuan per ton lower than domestic prices respectively, and this has brought a certain impact to the domestic market. The quantity of grain imports has continued to increase, squeezing out domestic market sales share.

The latest statistics from China Customs show that in September 2015 China's imports of cereals and cereal flour were 3.13 million tons, and from January to September were 26.08 million tons, an increase of 81.2% compared with the same period last year. In the first nine months, cumulative soybean imports were 5964 tons, compared with 5274 tons in the same period last year, an increase of 13% year on year.

"The transmission of international grain prices to the domestic market occurs partly through direct imports and partly through information transmission. However, because China implements quota management on grain imports, this transmission is more a matter of information transmission," Li Guoxiang said.

Of course, in addition to imports through normal channels, there is also a large amount of smuggled grain. A relevant person disclosed to a reporter from Huaxia Times that major grain smuggling cases have been repeatedly uncovered this year, and smuggling has formed a complete chain within China, endangering national food security.

In addition to international factors, excessive domestic grain is also a main reason. At present, there is a backlog of domestic grain. On October 8, the State Administration of Grain issued a notice using two "unprecedented" phrases to describe the current grain storage situation: "At present, China's grain inventory has reached a new high. The quantity of grain stored by various grain and oil storage enterprises is unprecedented, and the quantity of state policy grain stored in open-air and simple storage facilities is also unprecedented."

Ma Wenfeng believes that this year's grain price decline of more than 20% directly affects farmers' disposable income by nearly 100 billion. Based on a simple calculation using the 78% consumption propensity of Chinese farmers in the first half of the year, this year's sharp fall in grain prices directly affects the rural consumer market and may affect GDP growth by 1 percentage point.

"Last year the profit from corn was 46 billion, and this year the profit is negative 97.7 billion. Compared with last year, farmers' disposable income has fallen by 143.7 billion yuan from this item alone." This is the result calculated based on the agricultural product cost-benefit accounting system published by the National Development and Reform Commission, changes in fertilizer prices during the corn production period and current price changes, and domestic corn planting. "Calculated according to the consumption propensity in rural areas, the impact on gross national product is roughly 650 billion." Ma Wenfeng explained that the 650 billion was calculated as follows: last year the National Development and Reform Commission announced a net profit of 81 yuan per mu of corn, and this year it is about negative 179 yuan. The current corn planting area is 382 million mu. From earning 81 yuan to losing 179 yuan, the difference is 260 yuan. Multiplying the two gives close to 100 billion. If this is then combined with the farmers' consumption index for calculation and divided by the 0.22 consumption multiplier effect, it is roughly 650 billion.

Ma Wenfeng said that last year the net profit per mu of wheat was 87 yuan, and this year it is 33 yuan. Farmers earn 54 yuan less per mu. Multiplied by the national wheat fields, this is roughly 12.4 billion in net profit, a decline of about 19 billion. If divided again by 0.22, it is more than 80 billion. This year's GDP is roughly on the scale of 70 trillion, and wheat and corn together affect GDP by 1 percentage point.

Ma Wenfeng believes that farmers' incomes have fallen in a straight line this year, which will naturally affect farmers' lives. Subsidies to farmers are needed through fiscal transfer payments, but the WTO has requirements on subsidies for China's agricultural products. If farmers are directly subsidized, developed countries will object. The best method is to subsidize farmers by raising pensions and other means. If rural consumption increases, economic growth will naturally follow.