Domestic and international agricultural product price inversions will become the norm for a period of time
Market-oriented driving to stabilize grain production, increase incomes, improve quality and efficiency
In 2014, China's agricultural product supply was generally sufficient. Grain prices rose slightly amid effective government regulation, while cotton, oilseeds and sugar continued to fall, and fresh agricultural products fluctuated seasonally. Against the backdrop of continued declines in international bulk agricultural product prices, domestic and international prices of agricultural products became comprehensively inverted, and imports remained at a relatively high level. It is expected that in the coming period international agricultural product prices will still operate at a low level, and the “ceiling” of import prices will increasingly squeeze the reasonable upward space for domestic agricultural product prices. At the same time, the rigid rise of the “floor” of China's agricultural production costs will increasingly squeeze farmers' space for increasing income from grain production. How to proceed from market demand, improve the competitiveness of China's agricultural products, proactively respond to the double squeeze of the “ceiling” and the “floor”, and achieve stable grain production, increased incomes, structural adjustment, improved quality, increased efficiency and transformation of development methods has become an important strategic option for China's agricultural development under the new normal of economic development.
Domestic and international agricultural product price inversions will become the norm for a period of time
In recent years, domestic market prices (wholesale prices or port arrival prices) of major agricultural products such as grain, cotton, oilseeds, 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. The specific manifestations are as follows:
The price gaps for some varieties (the difference between the domestic market price of agricultural products and the post-tax landed import price within quota of foreign products) gradually widened. In November 2014, the 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 kilogram respectively, all wider than in 2013. Taking into comprehensive consideration factors such as international and domestic supply and demand conditions, it is expected that after 6 to 8 years they may break through the post-tax landed import prices outside quota.
For some varieties, price inversion shifted from volatility to persistence. Around the 1990s, domestic grain prices were formed under the “dual-track” system, and some varieties were once higher than international market prices. After entering this century, the domestic and international grain price gaps narrowed somewhat. With the full liberalization of China's grain market in 2004, especially the end of China's “WTO accession” transition period in 2006, domestic and international grain price inversion began to persist, shifting from inversion for some varieties to comprehensive inversion. Since the beginning of the new century, domestic and international price inversion for pork, wheat, sugar and cotton began one after another. In July 2013, domestic prices of rice and corn began to remain continuously higher than the post-tax landed import prices within quota, and in 2014 major agricultural products such as grain, cotton, oilseeds, sugar and meat showed a comprehensive inversion. It is expected that next year the output of most agricultural products worldwide will still be at a high level, market supply will be sufficient, and in addition the global economic recovery is slow, prices of energy and other bulk products are at a low level, and both food demand and industrial demand for agricultural products are growing relatively slowly. Prices will remain at a low level in the short term, domestic and international agricultural product price inversion will continue, and the price gaps may even widen further.
The fundamental cause of price inversion is that China's agricultural resources are scarce, labor productivity is low and production costs rise rigidly, resulting in weak market competitiveness of agricultural products. The direct cause is insufficient agricultural support and protection measures such as tariffs and subsidies. Due to resource constraints, the average operating scale of Chinese farmers is currently only equivalent to 1/3 of that of South Korea and Japan, 1/40 of that of the European Union and 1/400 of that of the United States. According to World Bank estimates, in 2013 China's agricultural value added per agricultural laborer was only 64% of the world average. China's 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 the same time, China's average tariff on agricultural product imports is only 15.2%, one quarter of the world average, and China has given up the special safeguard mechanism for trade, while domestic agricultural subsidies still lag far behind those of developed countries. In addition, in recent years the continuous decline in international shipping costs and the continued appreciation of the renminbi have helped expand domestic and international price gaps.
Responding to price inversion should have bottom-line thinking and resolutely hold the three bottom lines
Price inversion will have a profound impact on the overall situation of China's agricultural development. On the one hand, “moderate imports” are conducive to alleviating the increasingly tight pressure on agricultural resources and the environment. But on the other hand, price inversion stimulates imports, forming a “ceiling” for the reasonable rise of domestic agricultural product prices, and together with the continued rigid rise of the “floor” of domestic agricultural production costs, this creates a double squeeze on farmers' income from grain production. Under current conditions, the negative effects are more prominent. Therefore, the urgent task is to comprehensively use means such as quota management, trade remedies, control of the 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 ration production capacity and supply of important agricultural products.
From the perspective of addressing the root cause, it is necessary, in accordance with the spirit of the 18th National Congress of the Communist Party of China, the Third Plenary Session of the 18th Central Committee, this year's Central Economic Work Conference and the Central Rural Work Conference, to take reform and innovation as the driving force and accelerate the realization of agricultural modernization with Chinese characteristics. Specifically, it is necessary to be guided by market demand to drive stable grain production, increased incomes, improved quality and increased efficiency, and effectively improve the competitiveness of China's agricultural products.
First, adjust the agricultural structure in a market-demand-oriented way. It is necessary to aim at the major demand arising from the improvement of residents' consumption levels and the upgrading of consumption structure against the backdrop of urbanization, and, according to changes in market supply and demand and regional comparative advantages, promote the adjustment of the agricultural structure toward products in short supply on the market, toward high-quality specialty products, and toward the integration of planting, breeding, processing, production and marketing, develop urban modern agriculture, and expand the multifunctionality and value-added space of agriculture. In particular, it is necessary to use brands as a guide to promote the transformation of the development methods 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.
Second, improve the price formation mechanism for agricultural products with the goal of stabilizing grain production and increasing incomes. It is necessary to give full play to the positive role of the current agricultural product price support policy, and adhere to and improve the minimum purchase price policy for rice and wheat and the temporary storage policy for important agricultural products. It is necessary to actively and steadily advance the pilot program of target price subsidies for soybeans and cotton, and summarize the experience of price reform. It is necessary to explore market-based methods such as insurance and loans, and comprehensively build a “safety net” for preventing farmers' income risks. It is necessary to accelerate the construction of a market regulation system that meets the requirements of the new situation, and prevent sharp price fluctuations by strengthening domestic reserve regulation and encouraging the participation of diverse entities. It is necessary to strengthen information monitoring, early warning and release, carry out agricultural outlook activities, and give play to the guiding role of consumption.
Third, use agricultural product e-commerce as a platform to improve the circulation efficiency of agricultural products. It is necessary to accelerate the development of agricultural product e-commerce demonstrations, build a national agricultural product e-commerce support system led by national-level origin wholesale markets and with field markets as nodes, integrating logistics, information flow and capital flow, promote cooperation between various types of business entities and large e-commerce platforms, and jointly explore multiple marketing models such as graded and classified branded agricultural products and “field markets + e-commerce enterprises + urban terminal distribution”. It is necessary to accelerate the construction of village-level information service stations (personnel) and innovate agricultural product circulation models.
Fourth, use the cultivation of new types of business entities as a lever to improve the efficiency and benefits of agricultural production and operation. It is necessary to stabilize and improve the rural land contracting relationship, accelerate the development of appropriately scaled operations, accelerate the cultivation of new-type professional farmers, improve the agricultural socialized service system, continue to strengthen the construction of infrastructure such as farmland water conservancy, promote cost-saving and efficiency-enhancing technologies, and raise the level of agricultural mechanization.