Prices of Multiple Agricultural Products to Be Set by the Market; Experts Call for Protecting Farmers' Interests

China's agricultural product price regulation policy may be in for a historic adjustment. A reporter from Economic Information Daily recently learned from the Ministry of Agriculture that, regarding the direction of the next step in agricultural product price reform, the state has decided to implement differentiated support policies for different varieties. For the two staple grain varieties, rice and wheat, the minimum purchase price will continue to be maintained, while for varieties such as corn, soybeans, cotton and rapeseed, which have high demand elasticity, long industrial

chains and a high degree of linkage with domestic and international markets, emphasis will be placed on giving play to the decisive role of the market in price formation, guiding production through market price signals and adjusting supply and demand.

The reporter learned that, as a general mechanism of price formation under market economy conditions, the prices of the vast majority of China's agricultural products are already formed by market supply and demand. The measures by which the government truly intervenes in prices mainly include the minimum purchase price policy implemented respectively for the two key staple grain varieties, rice and wheat, in the main producing areas starting in 2004 and 2006, as well as temporary purchase and storage for bulk agricultural products such as corn, soybeans, rapeseed and cotton since 2008.

As time passed, international agricultural product prices ended their upward cycle and began to fall sharply, while domestic grain prices, supported by market-supporting purchases and temporary storage purchase prices, remained high for a long time. “After import duties are levied, the price of international grain and cereals is still much cheaper than domestic grain. For example, a jin of corn is nearly 0.5 yuan cheaper, a jin of wheat is 0.35 yuan cheaper, and a jin of rice is more than 0.5 yuan cheaper.” Han Jun, deputy director of the Office of the Central Leading Group for Financial and Economic Affairs, said that the situation is even more severe for China's oilseed crops and sugar crops. For example, sugar outside the quota is subject to a tariff as high as 50%, but the price of a ton of imported sugar is still about 500 yuan cheaper than Chinese sugar.

“When China joined the WTO, it promised that agricultural subsidies could not exceed 8.5% of agricultural output value. This is a limit on government subsidies that distort production and trade (one type of “Amber Box” policy), and now subsidies for some of our products have already exceeded the limit.” Han Jun said that as the squeezing effect of rising domestic grain production costs, the “floor,” becomes increasingly obvious, part of the “Amber Box” subsidies must now be converted into “Green Box” subsidies.

Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, said in an interview with the reporter that this adjustment has two meanings. First, it implements the spirit of the decision of the Third Plenary Session, letting the market play a decisive role in resource allocation while the government also plays a good role. Second, it targets some problems that actually exist at present, including the still-low land returns for farmers, the inversion of imported agricultural product prices, and tight domestic grain inventories.

In 2014, China decided to pilot the target price reform for cotton and soybeans in some regions, a reform regarded as a change from “Amber Box” policy to “Green Box” policy. Recently, a document published by the Ministry of Agriculture titled “Summary of Replies to Recommendation No. 1480 of the Third Session of the Twelfth National People's Congress” further clearly set out the direction of the next step of reform. In addition to soybeans and cotton, at least two other major varieties, corn and rapeseed, will also join the camp of market-oriented price reform.

Tu Xinquan, executive dean of the WTO Research Institute at the University of International Business and Economics, said that constrained by fiscal pressure, the proportion of agricultural subsidies among current WTO members is generally relatively low, while China's subsidies are still increasing, so external pressure exists, and developed countries believe China's level of agricultural subsidies is too high.

“Of course, this does not mean other countries have reduced their protection and support for agriculture.” Tu Xinquan said that in addition to subsidies, many countries use import taxes, tariff quotas and non-tariff barriers to restrict agricultural imports, and also adopt other means such as tax incentives to support agriculture. Taking Japan as an example, after joining the WTO, Japan used relevant WTO provisions to strictly limit the quantity of agricultural imports. Starting in the 1990s, the Japanese government also allocated large amounts of fiscal funds within the scope of “Green Box” policies allowed by WTO rules, for providing agricultural public services, improving agricultural infrastructure and promoting adjustment of the agricultural production structure.

Song Hong, assistant director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, told the reporter that in previous years China's agricultural products were mainly protected through purchase, which caused inventories to grow very quickly and also drove growth in domestic production. Because of the international competitiveness of some of China's agricultural products and foreign restrictions on imports, it is also difficult to absorb them through large-scale exports, and the pressure to digest accumulated inventories has become greater and greater. Liberalizing agricultural product prices is one way to solve the problem. However, Song Hong reminded that the relationship between protecting farmers' interests and the smooth and effective operation of the market must be well coordinated.