Agricultural product price reform helps eliminate subsidy dependence
The overall approach of agricultural product price reform is to promote the gradual shift of policies such as temporary state purchasing and storage toward a target price system for agricultural products. The state no longer directly enters the market to purchase, allowing price formation to truly reflect market supply and demand, while the government protects farmers' interests through methods such as out-of-price subsidies. Price reform must properly handle the relationship between protecting farmers' interests and market allocation of resources, and must also take into comprehensive account the systematic coordination of various policies.
According to reports, China's agricultural product price policy is undergoing a historic adjustment. Following cotton and soybeans, the two major varieties of corn and rapeseed will also join the ranks of market-oriented price reform.
The price formation mechanism for agricultural products is directly related to agricultural and rural economic development and farmers' income. In 2004, China liberalized the grain purchase and sales market, but the state did not leave it entirely alone; instead, it established an agricultural product price regulation system, successively implementing a minimum purchase price system for rice and wheat, and a temporary state purchasing and storage system for corn, soybeans, rapeseed, cotton and others. These policies all regulated market fluctuations through state pricing and designated purchasing entities, which could both send price signals to stimulate the production of bulk agricultural products and help increase farmers' planting income, directly driving eleven consecutive years of grain production growth.
As the agricultural situation at home and abroad has changed, the original policies face new problems. A prominent manifestation is that some agricultural products have to a certain extent contracted “subsidy dependence syndrome.” The original intention of implementing the temporary state purchasing and storage policy was that when prices were too low, the state would take purchasing measures above market prices to prevent farmers from suffering excessive losses. In a normal year, market-support purchasing should have a contingency plan but not be activated. This was originally a bottom-line regulatory measure, yet it gradually evolved into a routine measure, with market-support purchasing and storage volumes growing larger and purchase prices rising higher. Some products formed a de facto state monopoly, leading to an excessively heavy fiscal burden and making it difficult for processing and trading enterprises to enter the market.
If the reform of the price formation mechanism for agricultural products is not advanced, the dilemma plaguing some agricultural products will be difficult to break. The original price regulation policies were established against the backdrop of domestic prices being lower than international prices. Due to the rigid rise in agricultural costs, the domestic market prices of major agricultural products have now comprehensively exceeded international market free-on-board prices. This puts domestic market regulation in a dilemma: activating market-support purchasing would bring burdens to enterprises and public finances; if market support is not provided, it could affect farmers' income and production enthusiasm.
At present, the state is piloting target price reform for cotton and soybeans in some regions, which is an innovation in the thinking behind agricultural product price reform. The overall approach of price reform is to promote the gradual shift of policies such as temporary state purchasing and storage toward a target price system for agricultural products. The state no longer directly enters the market to purchase, allowing price formation to truly reflect market supply and demand, while the government protects farmers' interests through methods such as out-of-price subsidies. From the current perspective, the price reform for soybeans and cotton has been successful, greatly reducing the price gap between domestic and international markets and also easing inventory pressure.
This year's agricultural product price reform reflects a change from “Amber Box” policies to “Green Box” policies. Subsidizing agriculture is a common practice among countries, but price subsidies are constrained by WTO rules. According to the rules, China's “Amber Box” subsidy ceiling is 8.5% of agricultural output value, while “Green Box” policies have no ceiling. Support for agriculture will naturally need to increase in the future, but the subsidy methods need to be transformed and optimized. This year, the state implemented the “three subsidies in one” reform, merging the current “Amber Box” policies of improved seed subsidies and comprehensive agricultural input subsidies with the “Green Box” policy of direct grain-growing subsidies into a “farmland production capacity protection subsidy,” all converted into “Green Box” policies.
Advancing agricultural product price reform requires properly handling the relationship between protecting farmers' interests and market allocation of resources. No matter how the price formation mechanism and regulatory methods are changed, farmers must never be made to suffer losses; this is the bottom line of reform. Due to the particularities of agricultural production and agricultural product markets, the government must bear part of the market risk to ensure farmers' basic returns. At the same time, tolerance for agricultural product price fluctuations should be appropriately increased; in the past, there was excessive sensitivity to price fluctuations. Contingency plans should be formulated to respond to excessive market fluctuations, and a fluctuation range should be established, with fluctuations within the range regarded as reasonable.
Agricultural product price reform must also take into comprehensive account the systematic coordination of various policies. It is necessary to consider the differences between bulk agricultural products such as grain, cotton, oil and sugar and fresh agricultural products such as vegetables and fruits, choose regulatory methods according to the particularities of production, circulation and consumption of different agricultural products, and set regulatory targets based on the comparative advantages, supply and demand conditions and trade situations of different agricultural products. At the same time, attention should be paid to the linkage of measures at each stage, with synchronous implementation of policies such as production subsidies, agricultural insurance, marketing loans and compensation for the interests of main production areas.