Why are agricultural products hard to sell? Imports are not entirely to blame

To solve the problem of price inversion in major agricultural products, the pressing task is to comprehensively use means such as quota management, trade remedies, controls on the end use of imported products, inspection and quarantine, and “green box” subsidies. But the fundamental solution is still to adjust the agricultural structure in line with market demand and effectively raise the competitiveness of China's agricultural products.

A few days ago, when responding to the view that “once the China-Australia Free Trade Area agreement is signed, it will further hit the domestic dairy industry,” Ministry of Commerce spokesman Shen Danyang said such worries are understandable, but there is no need to exaggerate them excessively. Shen Danyang believes that the emergence of the domestic “difficulty in selling milk” phenomenon is related to the large price gap between domestic and foreign dairy products and to domestic companies increasing their use of imported dairy products, and is also related to the relatively low overall level of the domestic dairy industry and insufficient consumer confidence in domestically produced dairy products.

In fact, dairy products are not the agricultural product category with the largest import volume in China. At present, China mainly imports six major agricultural products: grain, cotton, oil, meat, eggs and milk. In addition to dairy products, each year it also imports more than 60 million tons of soybeans, nearly 15 million tons of grain, more than 4.5 million tons of cotton, more than 4.5 million tons of sugar, and more than 8 million tons of vegetable oil.

Because China has insufficient land, insufficient water and great pressure on resources and the environment, moderate imports are necessary to meet the diversified needs of the market. This not only helps domestic consumers buy high-quality and inexpensive products, but is also an important manifestation of China's agriculture participating in the international market. Experts believe that an appropriate amount of imported agricultural products can supplement domestic stocks and ease pressure on domestic resources and the environment. But the scale and pace of imports must be well controlled to prevent concentrated large imports of individual varieties from hitting domestic production and bringing adverse effects on farmers' employment and income growth.

It is worth noting that in recent years, the domestic market prices of major agricultural products such as grain, cotton, oil, sugar and meat in China have become comprehensively higher than the post-tax landed import prices within quota of foreign products, and some products were once higher than the post-tax landed import prices outside quota. Since the beginning of the new century, domestic and international prices of pork, wheat, sugar and cotton have successively begun to invert. In July 2013, domestic prices of rice and corn began to remain continuously higher than post-tax landed import prices within quota. In 2014, major agricultural products such as grain, cotton, oil, sugar and meat showed a comprehensive inversion. Data from the Ministry of Agriculture show that in November 2014, the domestic and international price gaps for the three major grains of rice, wheat and corn were as high as 1.08 yuan, 0.58 yuan and 0.52 yuan per kg respectively, all wider than in 2013.

Zhang Hecheng, director of the Market Department of the Ministry of Agriculture, believes that the fundamental reason for the price inversion is that China's agricultural resources are scarce, labor productivity is low and production costs are rigidly rising, which makes the market competitiveness of agricultural products weak; the direct reason is insufficient agricultural support and protection measures such as tariffs and subsidies.

China's agricultural production costs continue to rise while comparative returns decline. On the one hand, agriculture has fully entered an era of high costs. From 2006 to 2013, the average annual growth rates of production costs for rice, wheat, corn, cotton and soybeans in China were 11.0%, 11.6%, 11.6%, 13.1% and 12.0% respectively. At present, agricultural production costs are still rising. On the other hand, farmers' net returns from growing grain are declining. At present, farmers' net return per mu is only 682 yuan, down 2.4% from the previous year. Farmers' income from planting accounts for only 24.6%. As farmers' net returns decrease, their enthusiasm for production naturally cannot rise. Many farmers sigh, “a year of hard farming is not as good as a month of working away from home.”

At the same time, China's agricultural support and protection measures are insufficient. According to World Bank estimates, in 2013, China's agricultural value added per agricultural laborer was only 64% of the world average. However, China's average tariff on agricultural imports is only 15.2%, while the world average tariff level for agricultural products is 62%, and China has also given up the special safeguard mechanism for trade. Domestic agricultural subsidies still lag far behind those of developed countries. In addition, in recent years, continuously declining international shipping costs have helped widen the domestic and international price gap.

Experts believe that at present, the negative effects of price inversion are more prominent. Therefore, the pressing task is to comprehensively use means such as quota management, trade remedies, controls on the end use of imported products, inspection and quarantine, and “green box” subsidies to prevent the negative effects of price inversion from further expanding, and to hold the three bottom lines of farmers' income, grain production capacity and the supply of important agricultural products.

“From the perspective of a fundamental solution, the agricultural structure must be adjusted in line with market demand to effectively raise the competitiveness of China's agricultural products.” Zhang Hecheng believes that according to changes in market supply and demand and regional comparative advantages, the agricultural structure should be adjusted toward products in short supply in the market, high-quality specialty products, and integrated production, processing and sales. The multifunctionality and value-added space of agriculture should be expanded. In particular, brands should be used as a guide to promote the transformation of the development model of the processing industry, promote the transformation of the agricultural product processing industry from scale and quantity expansion toward quality improvement and structural optimization, and establish a benefit-sharing mechanism between agricultural product processing enterprises and farmers.