Why the Reform of Grain Target Prices Admits No Delay
At present, all parties have considerable criticism of the high grain output, high procurement volume and high inventories, especially the somewhat oversized state reserves, attributing this entirely to the state's grain market-support procurement and temporary storage policies, and also calling them the chief culprit behind domestic grain prices being higher than international grain prices, the one-sided pursuit of grain quantity and the neglect of quality, with the call for de-stocking growing ever louder. Other views hold that the approach to agricultural development should be transformed, the responsibility of major grain-selling areas for food security should be implemented, the universal benefit system of grain and agricultural subsidies should be changed to a targeted benefit system leaning toward new agricultural operating entities, and grain target price subsidies should be implemented in a differentiated manner, and so on.
Some professionals also point out that the objectives and functions of national grain reserves should be optimized. The national grain reserve management system should be adjusted, the division of authority between central reserves and provincial reserves should be clarified, with central reserves undertaking only strategic reserve tasks and provincial reserves undertaking backup reserves, governments below the deputy-provincial level no longer bearing responsibility for grain reserves, so as to achieve a flat management structure and improve management efficiency. In addition, the non-reserve business of Sinograin should be strictly separated off, and the macro-control function of grain reserves should be strengthened.
It should be said that some views are quite correct, but blaming the high grain output, high procurement volume and high inventories on market-support or temporary storage procurement policies is rather biased. It is not that grain prices are unbearably high; being higher than international grain prices is also inevitable, since our materialized costs are far higher than those abroad. At the same time, the structural oversupply relative to demand and production exceeding demand are limited to only a few varieties, and over the long term domestic grain supply and demand will still be in a tight balance.
At present, it can be said that central grain reserves are on the large side, local grain reserve scales are on the small side, and moreover the grain procurement resources of Sinograin and local governments cannot be effectively integrated, even giving rise to buck-passing or disorderly competition. This is the problem that urgently needs solving.
According to analysis, grain in 2015 and beyond faces three major contradictions. First, the contradiction between a tight balance in total grain supply and demand and periodic surplus of some varieties. The “three highs” of high grain output, high procurement volume and high inventory volume are superimposed. In particular, continuous increases in corn output and a sustained decline in consumer demand have appeared simultaneously, with production and demand moving in opposite directions, and the characteristics of periodic surplus are very obvious. The rice market also shows supply exceeding demand, with sluggish sales.
Second, the contradiction between market-support prices facing a double squeeze and protecting the interests of grain farmers. At present, in Guangdong port, each ton of domestic corn, rice and wheat is about 750 yuan, 900 yuan and 500 yuan higher respectively than the duty-paid import price of the same variety, with the corn price gap even exceeding 1000 yuan at one point; the out-of-quota import prices of the three major grain varieties (paying a 65% tariff) are also lower than domestic prices. At the same time, the domestic grain production cost “floor” keeps rising. The gap between imported grain prices and domestic grain prices is approaching the “ceiling”, while the “floor” of grain production costs rises year after year, squeezing grain procurement and storage.
Under this double squeeze, the space for relying solely on open-ended procurement and raising market-support procurement prices to protect farmers' enthusiasm for growing grain is growing ever smaller and its effect ever weaker, and the current grain procurement and storage policy system faces unprecedented challenges and tests.
Third, the contradiction between appropriately utilizing international grain resources and imported grain impacting the domestic market. According to customs data estimates, grain imports in 2014 will exceed 95 million tons, of which soybean imports are about 70 million tons. Ren Zhengxiao said that in recent years, although in-quota imports of the three major grain varieties have been managed in an orderly manner, imports of non-quota varieties such as sorghum, barley, distillers' dried grains and dried cassava have increased rapidly; in 2014 the total imports of these varieties with obvious substitution effects approached 25 million tons, squeezing the domestic corn market share and intensifying the contradiction of production exceeding demand.
Apart from this, besides customs imports, the volume of low-priced rice imports through other channels remains considerable, breaking the pattern of a basic balance between domestic rice production and demand. The situation of “strong paddy, weak rice” has lasted a long time, and rice processing enterprises are struggling to operate. Grain production and inventory distribution are gradually concentrating toward core production areas, the procurement and storage pressure on major production areas is enormous, the market-support procurement policy will continue, and policy-driven grain inventories have been “snowballing” year after year, with the fiscal burden growing ever heavier.
Experts reveal that in recent years grain production costs have risen rapidly and prices have stayed high. For wheat and paddy, our government implements a minimum purchase price. If the current minimum purchase price is compared with the price in 2010, the price of wheat has risen by about more than 60%, and the price of paddy has risen by nearly 100%, that is, over just six or seven years. It should be noted that grain prices have only risen in the past five or six years, and the original base was very low. It should also be noted that grain production costs are rising substantially, with human capital alone doubling, even several times over. Looking at the elderly and women in rural areas, jokingly called the “8341 unit” growing grain, one can see that grain growing is a weak sector and is by no means the main body of farmers' income. Therefore, one cannot casually claim that domestic grain prices are too high; it depends on what they are compared with. The relatively low income of farmers from growing grain remains the biggest problem constraining modern agriculture.
The state has made clear that the market-support price of wheat in 2015 will remain unchanged from 2014. The temporary storage price of corn in 2014 also remained unchanged from 2013. This sends a strong signal that policy-driven grain procurement and storage is tightening the upward price range. If the production-demand and supply-demand situation for wheat and corn in 2015 is normal, and given that the construction of 100 billion jin of warehouse capacity can be expected, the scale of local grain reserves increases, and the procurement and storage contradictions in major grain production areas such as Northeast China consequently shrink, grain prices are very likely to enter a downward range.
Grain purchasing and sales are entering a new cycle, experts assert. Since wheat and corn will continue to be subject to minimum purchase price procurement and temporary storage procurement in 2015, before grain target price subsidies are fully implemented, reforming the existing market-support or temporary storage procurement methods and entities should draw on lessons learned, making local grain purchasing and selling enterprises and Sinograin both procurement entities, with separate loans and separate repayment, to avoid scrambling for grain sources and disrupting the market and prices. At the same time, implicit subsidies should be changed to explicit subsidies: for grain farmers or rural cooperatives, each jin of grain sold is given a subsidy equal to the price difference between the market price and the market-support price.
In recent years grain procurement and storage have encountered unprecedented problems and contradictions. First, effective warehouse capacity in major grain production areas is insufficient, especially in Northeast China where procurement and storage contradictions are prominent and warehouse capacity is tight. In major grain production areas, especially grain departments at and below the grassroots level, most warehouses are dangerous old warehouses, the “Grain Security Project” has not yet achieved full coverage, and the basic grassroots work is large in volume and wide in scope, urgently requiring policy support and strong funding to get started.
At the same time, several erroneous ideas or tendencies pervade the grain industry and deserve attention or clarification. First, that the state holds too much grain inventory, that the minimum purchase price policy for grain is utterly useless, severely distorting the market and prices, driving up grain prices, and leading to ever greater differences between international and domestic grain prices. Second, that with money there is grain, that international grain prices are low, that large quantities of grain can be imported, and that overseas farming can also be realized. Third, that food security is a matter at the national level, that whoever grows grain loses money, and that local or grassroots major grain production areas believe food security does not create GDP and in fact has no place in the arrangement of economic work.
Giving fuller play to the market and improving the price and market regulation mechanisms for agricultural products is an important institutional arrangement for better mobilizing farmers' enthusiasm for production and safeguarding national food security under the new situation. First, on the premise of protecting farmers' interests, promote the gradual transformation of the minimum purchase price, temporary storage and agricultural subsidy policies toward a target price system for agricultural products. Starting with soybean and cotton, advance subsidy pilots by variety: when the market price of the product is lower than the target price, subsidize farmers to ensure their basic income; when a rise in the market price of the product causes the overall price level to rise too rapidly, subsidize low-income groups to safeguard basic livelihood.
Clarify government responsibilities. The central government focuses on regulating grains, cotton, oilseeds, sugar crops and so on, while other agricultural products are mainly regulated through the market, and local governments must also bear responsibility for stabilizing the market. On the basis of ensuring basic self-sufficiency in grains and absolute security of staple food, give full play to the role of imports and exports and national reserves in regulating market supply and demand, and prevent excessive fluctuations in agricultural product prices.