China may reduce corn planting area as grain reform reaches a critical juncture

China may reduce corn planting area as grain reform reaches a critical juncture

The State Council executive meeting held on November 11 revealed an important piece of information: to solve the increasingly severe problem of farmers struggling to sell their grain, the next step is for the relevant ministries and commissions to roll out a series of policies and measures to safeguard grain security and raise the benefits for grain-growing farmers.

After this State Council executive meeting, Economic Observer learned from multiple channels that for some time now, the National Development and Reform Commission, the Ministry of Finance, the Ministry of Agriculture and other parties have been actively discussing various policy measures to solve “the current difficulty farmers face in selling grain”, “reform the grain price formation and purchasing and storage mechanism”, and “adjust the grain planting structure”. Regarding the implementation of the target price reform for staple grains and the expansion of policies such as “transporting grain from the north to the south”, the relevant ministries and commissions have not yet reached a consensus.

This year, among domestic grains, the one whose price fell sharply due to the very prominent contradiction between supply and demand was mainly corn.

An expert close to the National Development and Reform Commission analyzed and said that the next step, the various policies and measures introduced around the difficulty of selling grain, grain purchasing and storage, and the grain planting structure will also mainly address the increasingly prominent contradiction between corn supply and demand.

In easing the current difficulty of selling grain, in the short term a subsidy policy will be introduced to encourage grain processing enterprises to enter the market and buy grain; in terms of the grain price formation and purchasing and storage mechanism, the main approach is to expand the pilot reform of target prices, and it is expected that next year target price reform will also be implemented for sugar, rapeseed and corn; for adjusting the grain planting structure, the main approach is to moderately reduce the corn planting area through promoting pilots such as “changing grain to feed”, “changing grain to soybeans” and cropland rotation and fallowing.

Easing the difficulty of selling grain

On November 19, in response to problems such as the sharp drop in grain prices and the difficulty farmers face in selling grain in some major grain-producing areas, the National Development and Reform Commission, together with the Ministry of Finance, the Ministry of Agriculture, the State Administration of Grain and other departments, jointly held a media “briefing”.

In this round, the grain whose price fell the most and whose impact on the income of grain-growing farmers was relatively obvious was corn. According to statistics from the State Administration of Grain, in late October, the average purchase prices per 100 jin of corn in Henan, Hebei and Shandong were 75 yuan, 84 yuan and 89 yuan respectively, down 34.2%, 27% and 22.6% from the same period the previous year. After entering November, affected by the state's launch of the temporary storage corn purchase policy, corn prices in several major domestic corn-producing areas basically all showed a small recovery-type increase.

To ease the severe difficulty of selling grain as quickly as possible, this year's corn purchasing and storage policy was launched more than 20 days earlier than last year, with the deadline at the end of April next year. According to Zhou Guanhua, director of the Regulation Department of the State Administration of Grain, this move helps farmers in major corn-producing areas sell grain in a timely manner and also reduces losses caused by corn mildew.

At present, corn prices in the major corn-producing areas of Northeast China, as well as in Henan, Hebei, Shandong and other places, are basically stable, but compared with last year's corn market prices, the decline is still relatively large, and the losses caused to grain-growing farmers are still difficult to make up for.

The aforementioned expert close to the National Development and Reform Commission analyzed and said that the grain of which the state now has the largest inventory is corn. For example, the corn purchased and stored by the Jilin Branch of Sinograin has already reached a state where it cannot be sold, cannot be transferred out, and cannot be stored any further. Around the State Council executive meeting on the 11th of this month, the National Development and Reform Commission, the Ministry of Finance and other parties had been discussing the introduction of a policy to encourage corn processing enterprises to enter the market and buy grain. It was initially agreed that the subsidy amount for grain-purchasing enterprises would be 200 yuan per ton, and it is expected that the announcement of this policy will not be too far off.

There is already precedent for the state implementing subsidies for enterprises purchasing corn. It is reported that in the autumn of 2009, the relevant departments at that time predicted that the country would have a bumper corn harvest that year. To avoid the problem of difficulty selling grain in the major corn-producing areas of Northeast China, they made an exception and introduced a subsidy policy to encourage some state-owned grain enterprises other than Sinograin and large provincial-level private grain enterprises in the south to go to Northeast China to purchase corn. At that time, the subsidy amount for grain-purchasing enterprises was 70 yuan per ton.

The aforementioned expert close to the National Development and Reform Commission added that this year's severe oversupply in domestic corn production was due not only to the relatively rapid expansion of corn planting area, but also to another important reason: a large increase in imports of corn substitutes such as sorghum and barley. In the short term, relying solely on implementing a subsidy policy for enterprises purchasing corn will still make it difficult to raise the domestic market price of corn.

The difficulty of subsidy reform

In the relevant reform of the domestic grain price formation and purchasing and storage mechanism, implementing target prices is an extremely important new reform policy.

The National Development and Reform Commission and other parties have made clear that for wheat and rice, the minimum purchase price policy will still continue to be implemented in 2016, while as for whether corn will also continue the temporary storage policy or implement target price reform, Fang Yan, deputy director of the Rural Department of the National Development and Reform Commission, replied to Economic Observer on November 5 that it is still under study and has not yet been finally determined.

Last year's target price pilot for soybeans and cotton was a new grain reform policy. Judging from the current progress of the pilot, the target price system has already produced many problems, such as difficulty in implementation and excessively large subsidy amounts.

Some experts believe that the conditions for expanding the target price pilot domestically are not yet in place, and the timing is not mature enough. Once the pilot scope and variety scope are expanded, it may cause large fluctuations in grain prices.

Fang Yan believes that the implementation of the target price pilot should be evaluated more comprehensively. For example, “the target price has been implemented very well in the Xinjiang Production and Construction Corps.” Her suggestion is that relevant departments should strengthen research on price insurance for agricultural products, especially policy research on how to integrate target prices and price insurance, so as to resolve the contradictions and problems that have emerged in the target price pilot.