Why are the prices of grain, cotton, oil, sugar and meat comprehensively inverted? It is not all caused by imports

To solve the problem of price inversion for major agricultural products, the pressing task is to comprehensively use quota management, trade remedies, end-use control of imported products, inspection and quarantine, "green box" subsidies and other means. 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 concern 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 worry is understandable, but there is no need to exaggerate it excessively. Shen Danyang believes that the emergence of the domestic "difficulty in selling milk" phenomenon is related to the relatively large price gap between domestic and foreign dairy products and domestic enterprises' increased 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 domestic dairy products.

In fact, dairy products are not the agricultural product variety 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, every year it also imports more than 60 million tons of soybeans, nearly 15 million tons of grains, 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 diverse 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 hurting 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 foreign 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 foreign 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, resulting in weak market competitiveness of agricultural products. 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 income from growing grain is declining. At present, farmers' net income 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 income decreases, their enthusiasm for production naturally cannot rise. Many farmers sigh, "A year of hard farming is not as good as one 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 imported agricultural products is only 15.2%, while the world average tariff level for agricultural products is 62%, and China has 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 foreign price gap.

Experts believe that at present, the negative impact of price inversion is more prominent. Therefore, the pressing task is to comprehensively use quota management, trade remedies, end-use control of imported products, inspection and quarantine, "green box" subsidies and other means to prevent the negative impact 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 addressing the root cause, it is necessary to adjust the agricultural structure in line with market demand and 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 and 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 to guide the transformation of the development mode of the processing industry, promote the transformation of the agricultural product processing industry from scale and quantity expansion to quality improvement and structural optimization, and establish a mechanism for sharing interests between agricultural product processing enterprises and farmers.