The target price reform for agricultural products is a live-wire operation
Reporter: How effective has the target price reform for agricultural products implemented since last year been?
Chen Xiwen: Price subsidies, or price support, are a very important form by which governments of various countries support and protect agriculture. Although the target price seems to be separated from price subsidies, this system actually has very mature experience in the United States and has been run quite well there. The biggest difference between China and the United States is that we have far too many farming households. The United States has a total of more than 2 million farming households nationwide, while China has 230 million farming households, 115 times theirs. So if you want to distribute money to every household, the workload is extremely large.
But judging from the current situation, last year a one-year pilot target price subsidy system was implemented, one in Xinjiang, China for cotton, and one in the three northeastern provinces and eastern Inner Mongolia for soybeans. Overall, the effect of the cotton system now seems better than that of soybeans. Of course, it cannot be put quite so absolutely, because the soybean harvest period is later. The very important reason why cotton currently appears to have a better effect is that it is very different from general grain circulation. When cotton is harvested, it is seed cotton, and seed cotton cannot be sold directly; it must be sold to a ginning factory, and only after the ginning factory gins it into lint cotton can it enter the market. So the flow of cotton is specific. Because cotton is to enter the auction market, from the cotton perspective, the lint cotton produced by each ginning factory has a specified weight and standard, and every bale of lint cotton has a strict serial number. So exactly how much lint cotton a factory has produced is very easy to count. Then there is also a certain ratio between lint cotton and seed cotton, so if I know how much lint cotton you produced, I know how much seed cotton you took in; it cannot be falsified. It is precisely this special link in cotton purchasing that also makes the cotton price easier to implement without errors. Grain is different. Anyone who is willing to buy can buy.
It should be said that after the target price system was implemented for cotton in Xinjiang, China, farmers did not suffer much loss, because the price set by the government at 19,800 yuan/ton was only 600 yuan lower than the year before last; by retail price comparison, it was only 600 yuan lower. In fact, it was only 6 yuan less per kilogram of cotton, so the impact was not too great. But it liberated the market: farmers could sell at market prices, ginning factories could buy at market prices, and the result came out. Then the market price of our entire lint cotton was expressed independently, more than 13,000 yuan per ton. Compared with the former temporary storage price, that was almost only two-thirds of it, close to the international market. Then the cotton market took shape, and farmers did not suffer too much loss. But this was in Xinjiang, China, because it is our country's main cotton-producing region. For non-Xinjiang cotton regions, the target price is different. You buy and sell at market prices, but the government subsidy for cotton farmers in non-Xinjiang regions is no more than 2,000 yuan per ton at most. There it needs more than 6,000 yuan in subsidy, while here it is 2,000. Then cotton in the Yangtze River and Yellow River basins will certainly see a large reduction in production this year. But as far as the current supply and demand are concerned, a little reduction will not have much impact. We will see what to do later. So the cotton target price should be said to have achieved very important results, but we still need to see more. Without two cycles, it is still not clear; it must be tried further, and whether to expand it further must also be considered.
Reporter: Against the background of the new normal of the economy, fiscal pressure is also relatively great. Will this part of fiscal input be reduced?
Chen Xiwen: The Premier's government work report states this very clearly: no matter how difficult the finances are, policies benefiting farmers cannot be weakened but can only be strengthened, and funds supporting agriculture can only be increased and cannot be reduced. Of course, there are also new problems in our current subsidies. As I just mentioned, experts, including your media, often write that this subsidy is not good. That is not how this matter works. Some things simply have to let the market balance themselves. But it is true that some of our subsidies have failed to play a very good role. There is this problem, so the next step is that the subsidies themselves must also be reformed.
Another point is that you have to adapt to the requirements of the WTO. We are a WTO member, and our total agricultural subsidies cannot exceed 8.5% of the total value of agricultural production. This is our commitment. And for sensitive products, such as the grain, cotton, and oil crops just mentioned, the subsidy amount for each product cannot exceed 8.5% of the total production value of that product. Vegetables, for example, cannot be subsidized; you cannot take that money and subsidize here; that is not allowed. It is precisely this system that also restricts us. For some subsidies, our 8.5 has already approached the upper limit, and some have even exceeded it. If cotton is not changed, it will exceed it. You can see that cotton can only be subsidized at 8.5%. If international cotton were now truly allowed to enter freely, it would be about 10,000 and a little more, subsidized to 10,500. But our current purchase price is 19,800 yuan/ton, almost nearly doubled. Of course, it exceeds a lot. Some others are also approaching the limit, so we also have to study how to reform this subsidy. The reform must be able to adapt to WTO rules. WTO rules say that our kind of price subsidies for agriculture, price subsidies for means of production, and so on, are all called amber box subsidies. Amber box subsidies are the restricted 8.5% kind, but it does not restrict your green box subsidies. Can I move this amber box subsidy to the green box? The most prominent green box subsidy is to shift subsidies that distort cost prices to direct subsidies for farmers' incomes. That can be reformed.
Reporter: Will market-supporting purchases be cancelled?
Chen Xiwen: The Premier's government report states very clearly that for two grain varieties, namely wheat and rice, we will continue to implement the purchase price. Among those implementing temporary purchase prices are cotton and soybeans. The pilot for cotton and soybeans is limited to Xinjiang, China and the northeast region; for others, things will still be done as they should be.
Reporter: That is, some experts also say that market-supporting purchases are no longer suited to development.
Chen Xiwen: Then you have to come up with a good method. Many experts talk about separating price from subsidy and so on. Because you must see very realistically the difference between us and the United States. As I just said, the number of farming households is 115 times theirs. Something very successful there may, when brought here, have costs so high that you simply cannot operate it. In the United States it is very clear: the whole country has 2 million farming households, and at the U.S. Department of Agriculture every farming household has a household registration there. Where your farm is, what its latitude and longitude are, how large the land area is, how much of it is cultivated land, and what it mainly used to grow are all perfectly clear. For us it is very difficult to make clear. This is a major difference between our traditional smallholder Eastern country and the New World countries. Their very successful experience may not work when brought here.
In the past some experts also proposed, for example, can you stop subsidizing by land and instead subsidize when he sells, subsidize when you purchase? This is of course a good method, but the problem is that now it is not only the government that purchases; many grains are purchased by enterprises. Do you give the subsidy money to them? If you then want them to subsidize farmers, are you at ease? So these things are not simple. Putting forward an opinion looks very easy, but real operation must proceed from reality. This kind of reform, let me describe it, is a "live-wire operation." You cannot say that once I have thought it through, then the next step is how to do it. You must keep annual production proceeding normally. In this process, you cannot let grain output fluctuate greatly, and you cannot let farmers' incomes decrease. All these issues must be considered. So under the condition of live-wire operation, reforming while operating, it must be relatively cautious and be advanced with strengthening.
You talk about market-supporting purchases. The result of our support in the end is that we supported our own main products to a price higher than the international market price, and then outside products could come in. Processing enterprises are unwilling to use domestic products because outside ones are cheaper. That complicates our situation. This means the bottom level we supported was too high. But then again, it is not that the government insists on raising it so high; it is because farmers cannot cover costs if it does not reach this level. If farmers are not subsidized, they have no enthusiasm. Then you have to consider what methods to use to reduce and lower farmers' costs. Then advancing a series of innovations in business entities, innovations in the business system, and deepening scaled service operations are all related to lowering costs. Of course, lowering costs is also related to subsidies. Subsidies are direct subsidies or indirect subsidies, and what method to use for subsidies. There are still many issues to study here.