Agricultural product price reform to enter two-way subsidy channel

The minimum purchase price and temporary storage policies that have lasted for many years are forcing agricultural product price reform to accelerate.

Recently, reporters learned from multiple sources that agricultural product price reform may continue to be a focus of the 2015 "No. 1 Document," and is expected to expand the scope of pilot programs as well as pilot varieties. Relevant departments are studying the specific price reform plan.

"The government's minimum purchase and storage has already replaced the market price, and the grain distribution channels have degenerated into sole reliance on Sinograin. If this is not changed, it will not only create fiscal pressure on the government, but also make our country's agricultural products increasingly less competitive internationally," said a management person in charge of hedging at a large domestic agricultural product enterprise.

Zhang Zhixian, deputy director of the China Grain Network Yida Research Institute, told reporters that the national temporary storage policy has made the minimum purchase and storage price far higher than the market price, thus departing from the real market price. Therefore, the current price formation mechanism for agricultural products must be changed.

Price reform urgently needs to accelerate

"The minimum purchase price and temporary storage policies that have lasted for many years have many problems, and agricultural product price reform is imperative, but whether it can achieve obvious results is still difficult to judge now," multiple agricultural product distribution enterprises and agricultural product production enterprises said in interviews with this newspaper's reporters.

Reviewing the process of our country's agricultural product reform, reporters found that since 2004 our country has comprehensively launched the idea of market-oriented grain reform. The reform transformed enterprise operating mechanisms and was devoted to solving institutional problems such as "old people, old accounts, and old grain"; however, after the implementation of the minimum purchase price policy for grain, market-oriented grain reform stalled and even regressed.

The most intuitive manifestation is that the government's purchase price gradually replaced the market price, and the original multi-channel operating model became sole reliance on Sinograin.

"Because the government purchase and storage price is much higher than the reasonable market price, ordinary agricultural product enterprises worry about losses after purchase and do not dare to rashly enter the market to purchase. Basically, designated enterprises entrusted by Sinograin carry out bottom-line purchases, and ordinary enterprises can only collect grain on behalf of Sinograin to maintain operations," Zhang Qiang, a practitioner in agricultural product futures, told reporters. This has made most agricultural product operating enterprises have to rely on Sinograin, this big tree, for guaranteed returns regardless of drought or flood.

The original intention of this minimum purchase price and temporary storage price was to help farmers "stop losses," but in actual implementation, the minimum purchase price and temporary storage price became a "target price" aimed at increasing farmers' income.

According to statistics, since the introduction of policy-based purchase and storage in 2004, purchase and storage have been launched in all years for rice except 2008, 2010 and 2011, for wheat except 2011, and for corn except 2010; soybean and rapeseed have respectively launched purchase and storage for 5 consecutive years; cotton has launched purchase and storage for 3 consecutive years, and sugar for 2 consecutive years.

In 2013, the minimum purchase prices for rice and wheat were 1.39 yuan and 1.12 yuan per jin, respectively 0.67 yuan, 93% and 0.42 yuan, 60% higher than in 2004 and 2006; corn and rapeseed increased by 60% and 38% cumulatively; the temporary storage price for soybean increased by 24% cumulatively by 2013.

Behind this, as of 2013, our country's "four subsidies" to grain farmers -- direct grain subsidies, comprehensive agricultural input subsidies, improved seed subsidies and agricultural machinery purchase subsidies -- had reached 170 billion yuan, an increase of 10.72 times over 2004.

"It appears that the minimum purchase price has always been regarded as a lever to protect farmers' returns; however, the fact is not so. While the state introduced the protective price, the prices of other related products also rose one after another, increasing the cost composition of agricultural product prices; therefore, farmers did not gain too much benefit because of the protective price either," Zhang Qiang pointed out.

On the other hand, because our country's agricultural product prices have moved further and further away from international prices due to the government's "market support," they are deviating from the real market price. This minimum purchase and storage price in our country has caused agricultural products of the same variety to lose competitiveness in the international market. Taking soybean as an example, on November 25, the distribution price of imported soybean was 3,760 yuan to 3,780 yuan per ton, while the ex-factory price of commercial beans in the Heilongjiang production area was 4,000 yuan to 4,560 yuan per ton, with a price difference of about 800 yuan/ton.

Therefore, in order to return to the principle of market pricing, the price formation mechanism for agricultural products must be decoupled from government subsidies. On January 19, 2014, the State Council issued the "Several Opinions on Comprehensively Deepening Rural Reform and Accelerating the Promotion of Agricultural Modernization," clearly proposing the principle of market pricing, gradually establishing a target price system, and launching target price pilots for soybean in Northeast China and Inner Mongolia and cotton in Xinjiang, ultimately rationalizing the price formation mechanism and letting the market determine prices.

International prices "forced" to wait and see

"This year temporary storage was cancelled for soybean and cotton, but in order to ensure producers' interests and our country's food security, the national level still designed a target price system." The introduction of the target price is precisely the breakthrough point of this round of agricultural product price reform pilots.

The so-called target price system means that the government sets a target price for agricultural products. When the actual market price is higher than the target price, low-income consumers are subsidized; when the market price is lower than the target price, producers are subsidized according to the price difference.

Compared with temporary storage, Zhang Zhixian believes that the target price system protects the party affected by the market through two-way policy subsidies. As for the setting of the target price, it is formulated based on factors such as past market prices and the production costs of agricultural products.

Among them, the price collection period for cotton is September to November of the current year, and for soybean it is October of the current year to March of the following year. The cotton and soybean trading volumes in these two price collection periods can respectively reach about 85% and 80% of annual sales, basically able to represent the actual selling prices in the pilot areas.

For example, the national target price for soybean announced in 2014 was 4,800 yuan/ton, that is, 2.4 yuan per jin; this means that if the corresponding market price in the future is lower than 4,800 yuan/ton, producers will be subsidized, and if the market price is higher than 4,800 yuan/ton, then no subsidy will be given.

Because the soybean target price collection period ends in March 2015, the corresponding market price has not yet been fully reflected until now. A soybean dealer interviewed in Jilin Province told reporters that this year's soybean market is different from previous years because, without the guidance of the purchase and storage price, ordinary dealers do not dare to purchase in large quantities or simply buy only as much as they use.

Then, compared with dealers' wait-and-see attitude, what attitude do soybean growers hold toward the target price?

This newspaper's reporters interviewed multiple soybean growers in Jilin. "It may be that publicity has not been sufficient; most farmers are still not very clear about the target price system." A farmer surnamed Duan in the Jilin area told this newspaper's reporters that he planted more than 30 mu of soybean this year. Although he had already sold it, the price was lower than in previous years, at 4,300 yuan per ton, a difference of 500 yuan/ton from the soybean target price of 4,800 yuan/ton set in Jilin. Logically, he should be able to receive a subsidy, but because his grain selling price of 4,300 yuan/ton does not represent the market price corresponding to the target price, whether he can receive a subsidy now still looks like an "unknown."

If 4,300 yuan/ton is set as the soybean market price in the Jilin area, then the target price and the market price have a difference of 500 yuan/ton. According to information obtained by this newspaper's reporters through investigation, in the Jilin area, soybean yield is about 200 kg per mu. After conversion, each mu of soybean planted can obtain 100 yuan in government subsidies.

In response, the farmer surnamed Duan said that if each mu could really be subsidized 100 yuan, then soybean could still continue to be planted, but if each mu could not reach the 100 yuan policy subsidy, then next year he would consider switching to other crops.

According to the "Implementation Plan for the Pilot Work of Soybean Target Price Reform in Jilin Province," in 2014, the purchase and storage policy was cancelled within the scope of Jilin Province, the government no longer intervenes in the market price, and the price is completely determined by market supply and demand. Producers sell soybean at market prices. As for whether the target price subsidy will become a "protective price" for producers, it cannot yet be determined.

Zhang Zhixian believes that in our country, land is basically contracted to households, and what is planted on the land is entirely up to the farmers themselves. If the market price of soybean is too low and farmers cannot receive subsidies, farmers may very well switch to other crops with good economic returns.

"Since agricultural product price reform has already started, the number of pilot varieties submitted will naturally gradually increase as the pilots expand. After the soybean and cotton pilots, which variety will be introduced?" Zhang Zhixian believes it may be sugar or rapeseed, while corn and wheat, which involve a wider scope, may be ranked last.