Farmers should orient their production toward market demand.
On the 3rd, the State Council Information Office held a press conference on the interpretation of the "Several Opinions on Increasing the Intensity of Reform and Innovation and Accelerating Agricultural Modernization" and related matters. Chen Xiwen, deputy head of the Central Rural Work Leading Group and director of its office, attended the press conference and answered questions from reporters.
Reporter from the Financial Times:
My question is, you just mentioned the inventory problem. Because the prices of agricultural products are too high, higher than prices on the international market, China's grain inventory is now quite large, and some people also worry that the quality is not good. Could you explain this issue? How big a problem do you think the current inventory problem is, and how should it be resolved? Thank you.
Chen Xiwen:
As for the situation you mentioned, in fact, starting from last year's spring sowing, various places reported to the central government that in some places the original inventory was already full, and if there were new purchases this year, where would they be stored? This is a relatively big problem. As was just mentioned, the inventories of some of China's major agricultural products are relatively large, and this is currently a prominent problem. The most prominent problem is actually what was just mentioned: if what is purchased domestically is to be sold, its price is higher than that of products on the international market, so marketing enterprises and processing enterprises may be more willing to use imported foreign products. This has led to the continuous rise of this part of the domestic inventory.
Looking at the current situation, the reform of the price formation mechanism that we proposed in the past was mainly intended to solve this problem. For example, our cotton inventory is relatively large, and in previous years our cotton imports were also relatively large. Our own annual cotton production is about 7 million tons. But at the highest point, the year before last, imports were about 6 million tons. So there was the problem that most of the domestic purchases went into warehouses.
Implementing target price reform is also a commonly used method internationally. The government promulgates a target price, but the actual market price is an equilibrium price formed according to global and national supply and demand relations. For example, for cotton, looking at the current situation, the equilibrium price in China is about 13,600-plus yuan per ton, which is similar to the international market price. But for the Xinjiang region, Xinjiang is China's most important cotton-producing area, the target price given by the government there is 19,800 yuan/ton. There is a difference of 600 yuan in between. Farmers can only sell cotton according to the market price, and the government subsidizes them for the difference. In regions other than Xinjiang, the subsidy level is not so high. It is precisely by adopting this method that the domestic cotton selling price is actually continuously declining, because the year before last the temporary selling price for cotton in the Xinjiang region was 20,400 yuan, this year's target price is set at 19,800, and the actual market price formed is 13,600. Farmers will gradually produce according to market prices.
Looking at the current situation, we also understand that cotton farmers in various places this year, in terms of planting willingness, are themselves willing to plant less cotton and produce other products needed by the market. This will appropriately reduce ineffective supply and ensure the balance of market supply and demand. On the other hand, for some important agricultural products in our country, such as the three major grains, such as cotton and sugar, after China joined the WTO, it promised to implement a tariff quota management system for these products. One point is very clear: imports within the tariff quota I promised are subject to low tariffs, and those exceeding the quota will be subject to high tariffs. In the past, some places did not implement this strictly, and objectively speaking, there was a lot of smuggling. Now, from this perspective, we will more strictly implement our commitments to the WTO and bring these products subject to tariff quotas strictly into formal channels for import. This will also prevent such a large impact on domestic supply. Therefore, on the basis of last year's implementation of target prices for cotton and for soybeans in Northeast China and Inner Mongolia, we will further summarize experience, let the market play the main role in price formation, and in this way convey to farmers a correct message about market demand, let farmers carry out production according to market demand, and gradually resolve the contradictions formed over these years.