Is the corn price determined by the market or dominated by policy?

The price for the state's temporary purchase and storage of corn has been finalized this year at 1 yuan per jin, at most 0.12 yuan per jin lower than last year. This is the first cut since the corn temporary storage policy was implemented in 2007. This subtle change sends a signal to the market: the temporary purchase and storage policy that sets a high price floor has reached a crossroads. As the price gap at home and abroad widens, domestic corn stocks grow ever larger, and the market's reverse-pressure mechanism grows stronger, should the corn price follow policy's lead or answer the market's call?

Policy intervention cannot fully keep pace with the market

Wang Wuhou, a large-scale corn grower in Northeast China, heard as early as last month that the temporary corn purchase and storage price might be lowered. He made a decisive call: keep the portion of corn harvested in early September for use on his own farm and not sell it.

Wang Wuhou: After we harvest our corn, we don't sell it. We have our own sheep farm and cattle farm, so we keep it as feed for the sheep and cattle.

Wang Wuhou no longer anxiously waits for the grain depot to purchase and store his crop, but instead finds his own way out. This precisely illustrates the awkward position of the corn temporary storage policy: policy intervention cannot fully keep pace with the market. Now in its eighth year, the corn temporary storage policy has much to reflect on.

In recent years, the corn temporary storage price has basically only risen, never fallen, while international corn prices have continued to slide. Warehouses are so full of corn bought under the domestic temporary storage program that there is no room to stack more, and the price gap between domestic and imported corn has widened further. Clearly, if corn production, supply and sales continue to rely on the government setting a high price floor, that path is already unworkable. Li Guoxiang, a researcher at the Chinese Academy of Social Sciences' Institute of Rural Development, explains it this way.

Li Guoxiang: The temporary purchase and storage policy is a policy that intervenes in the market. Domestic corn has shifted from being too tight to relatively loose and even in surplus, yet the temporary corn purchase and storage policy has not been lowered accordingly. Under market economy conditions, price reflects the relationship between supply and demand, and is determined by supply and demand.

“Corn is not suited to the government taking on everything”

If there is more corn on the market and the price still cannot fall, then why not simply set a minimum purchase price for corn? A person from a relevant state department said that in fact the temporary corn purchase and storage policy has already deviated from the idea of “acting only when action is needed.” The temporary storage price is already similar to a minimum purchase price, and corn, unlike rice and wheat, is not tied to absolute food security, so it is not suited to the government taking on everything.

Relevant person: If even temporary purchase and storage cannot continue, then if a minimum purchase price were adopted, the current predicament would only become more serious and harder to navigate.

If the government cannot take on everything, then there should be choices and trade-offs. At first, four categories of agricultural products - corn, cotton, soybeans and rapeseed - were successively protected by the temporary purchase and storage policy. Today, the temporary storage protection net for cotton, soybeans and rapeseed has been removed and replaced with another way of subsidizing farmers. Is the protection for corn now excessive?

Relevant person: Do we need to protect so many varieties? Do we need to spend such great effort protecting them? This is a question worth reflecting on. Next, given that overall agricultural protection is not being reduced, is it necessary to optimize the variety structure and regional structure of protection?

The original intent of the temporary purchase and storage mechanism - to protect farmers' interests - is good, and the original intent of its design mechanism is also good. It is only that in the process of implementation, rigidity set in, and in the end it became increasingly out of step with the times. There is now a consensus that this rigid temporary purchase and storage mechanism must be reformed. The key is how to reform it. If the policy were simply cut off and pricing left entirely to the market, would that work?

Processing and trading company owner: For corn price rises and falls, it is best that the market has the final say

As the owner of a corn processing and trading company, Manager Jia's view voices what most downstream enterprises feel: it would be best to cancel the corn temporary storage policy and let the market have the final say on whether corn prices rise or fall.

Manager Jia: For us, we could better control and grasp the market. Prices would fluctuate with market conditions. When corn comes onto the market in concentrated volumes, the price will certainly fall, but after falling to a certain level, in the Northeast and across the whole country generally, during the period from April to October, the price will rise again.

Farmers: Not happy about canceling temporary purchase and storage

But if policy slams on the “emergency brake” and the temporary purchase and storage policy is completely canceled, most farmers would not be happy.

The introduction of the corn temporary storage policy both protected farmers' interests and stabilized agricultural production, and its significance cannot be ignored. Xu Shengquan, a farmer in Inner Mongolia, said farmers fear that when the harvest is good, it will be hard to sell their grain. The temporary purchase and storage policy solved this worry of farmers very well. If in the future the corn harvest is good but the price is driven very low, farmers lose money and the government does not care, then should farmers still plant corn?

Xu Shengquan: For us, what is most beneficial is still for the state to set the price, because when the state sets the price, the subsidy to ordinary people is relatively large. If you let the market set the price, those production enterprises will surely drive the price down. As for ordinary people, we just have to follow state policy; whatever it sets, that is what we count on.

Caught in a dilemma, how to choose?

Keeping it has the embarrassment of keeping it; retreating has the difficulty of retreating. We must both protect farmers' interests and let the market mechanism work. The corn temporary storage policy is truly caught in a dilemma.

However, Cheng Guoqiang, a researcher at the Development Research Center of the State Council, believes that by lowering the corn temporary storage price this year, government intervention has already made a certain concession. Setting the price at 1 yuan was mainly in consideration of supply, demand and price conditions in domestic and international markets, with overall coordination of the interests of all sides, so that the temporary storage price is as close to the market as possible. Of course, Cheng Guoqiang hopes this is only a beginning, and that the next “upgraded version” of the policy will bring more pleasant surprises.

Cheng Guoqiang: This year's new grain is about to come onto the market, so it should be said that this is a transitional arrangement that had to be made. We look forward to the adjustment of the temporary storage policy this time being followed, starting next year, by the introduction of new policies that are more reasonable, do not distort the market, and can also protect farmers' interests.