How should the target price reform for agricultural products be carried out?
The predicament and direction of the reform of the target price system for agricultural products
China's food security implements the strategy of "taking self-sufficiency as the mainstay, basing itself on domestic production, ensuring production capacity, moderate imports, and scientific and technological support," firmly holding the rice bowl in our own hands. This year's No. 1 Document proposed the target price system for agricultural products, and through price mechanism reform, smoothing the relationship between supply and demand is of great significance to ensuring China's food security. What is the target price system for agricultural products? It 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. In 2014, pilot programs for target price subsidies for soybeans in Northeast China and Inner Mongolia and for cotton in Xinjiang were launched, exploring pilot programs for target price insurance for agricultural products such as grain and live pigs, and carrying out pilot programs for marketing loans for entities operating grain production on a large scale. If the pilot programs are further expanded in the future, many unresolved difficulties still lie ahead, mainly including:
The first is the extent to which international prices should be referenced in determining the target prices of agricultural products?
When the government sets target prices for agricultural products, how should it balance international prices? Should domestic grain prices be higher than international grain prices? Many consumers believe that since China is a developing country, China's grain prices should not be higher than international grain prices. Taking rice as an example, in recent years the wholesale price of Northeast rice in the Beijing market has been more than 4,000 yuan per ton, while on the international market the price of rice from Vietnam, for example, is below 400 US dollars per ton. If below 400 US dollars is calculated at an exchange rate of 6, that is more than 2,000 yuan, which means China's current rice price is nearly double that of Vietnam. This is also the main reason for the surge in rice imports and smuggling in China in recent years. But from a longer time period, taking the composite price index of 13 international rice prices as an example, calculated at the RMB central parity exchange rate, international rice prices rose from 2 yuan per kg in 2003 to 4.33 yuan per kg in 2008, while during the same period China's rice price went from 1.72 to 2.93 yuan per kg. This means that compared with international prices, China's grain prices are not high. From a long-term trend perspective, China's rice price will still have strong expectations of increase. At present, the world's major rice exporters are Vietnam, Pakistan, India, Thailand and others. Except for Thailand, the farmers' incomes in these rice-exporting countries are less than half of those of Chinese farmers. If rice is sold at international prices, that is suitable for farmers in these countries, but for Chinese farmers, if they sell at international prices, it is estimated that a large number of farmers would no longer grow rice.
The other two major crops are wheat and corn. Global corn and wheat are basically supplied by large farms in the United States, Brazil, Canada, Australia and others, while China produces them through smallholders with less than 10 mu of arable land per household on average. If the target pricing of these two crops is also based on international grain prices, doing so would also be unfair to China's smallholders. This is because China's average annual yield per mu is not low compared with theirs, but China's per capita arable land is too limited. The target prices of these crops cannot be set by looking only at international grain; they must also take into account Japan and South Korea, which are also East Asian smallholder economies like China. According to the experience of Japan and South Korea, in order to ensure self-sufficiency in rice as a staple food, the corresponding rice prices are much higher than international prices, at 5-10 times the international price during the same period. China's two major staple foods, wheat and rice, can only be compared with smallholder economies such as Japan and South Korea. If China's prices were set according to international grain prices, Chinese farmers would all abandon their land.
If China does not adhere to the strategy of grain self-sufficiency and instead relies heavily on the international market, it is estimated that the effect of a large country with a population of 1.3 billion would push international grain prices up several times. From this perspective, international grain prices cannot be viewed only statically.
The second is that the setting of target prices must take into account the comparative returns of grain. Farmers have opportunity costs when engaging in grain production. At present, grain is emphasized most in official discourse in China, but the returns of grain-growing farmers are the lowest. If this continues over time, it will dampen farmers' enthusiasm for growing grain. The price of grain cannot be pulled too far apart from the prices of other agricultural products, from the wages of going out to work, or from the prices of agricultural inputs. In recent years, the production costs of Chinese farmers growing grain have grown rapidly, agricultural input prices have continued to climb, and the comparative returns of grain growing have fallen rapidly. For example, in Shandong, farmers growing greenhouse vegetables can normally earn 30,000 to 50,000 yuan from one greenhouse on one mu of land, and at worst can still earn 3,000 to 5,000 yuan. But what about one mu of land planted with wheat? When I went to Henan for research, farmers in Henan told me that growing wheat now is basically unprofitable, with profits basically at zero. Especially in northern regions such as Hebei, growing wheat generally also requires irrigation several times, and each irrigation costs 40-50 yuan. If the cost of labor is excluded, there is basically little to gain from growing wheat. If labor costs are ignored, one mu of land can earn two to three hundred yuan. Farmers in North China generally grow two seasons a year, wheat in summer and corn in autumn. Wheat earns no money, corn earns more than 1,000 yuan per mu, and rice is about the same per mu. Yet farmers' per capita arable land is very limited. In recent years, domestic vegetable and fruit prices have basically multiplied several times, for example beef at more than 50 yuan per jin. Compared with this, the price increases of the three major staple grains have not been large.
The third is the optimal scale of collection and storage.At present, the collection and storage system has led to Sinograin being dominant alone, and the enthusiasm of enterprises and farmers for collection and storage has been severely suppressed. As a result, the minimum purchase price policy has brought enormous pressure on state finances, and the fiscal funds occupied are astonishing. How to break the monopoly and mobilize the enthusiasm of enterprises, farmers and local governments requires comprehensive consideration.
With the improvement of living standards, China's grain production-demand gap has widened year by year, and grain imports have hit a record high. China's total grain supply and demand is tightening, the grain self-sufficiency rate has fallen below 90%, and last year imported more than 77 million tons of cereals. Chen Xiwen, director of the Office of the Central Rural Work Leading Group, believes that “behind the continuous growth of total grain output over the past decade is even faster consumption growth, and even the supply of some products cannot keep up with the growth of social demand.” From now to 2020, it is widely believed to be a period of accelerated urbanization, and food demand will be even greater.
How can the reform of the target price system for agricultural products be better carried out to promote increased grain production and increased farmers' income?
The first is to continue increasing subsidies to farmers, large grain-growing households, and major grain-producing counties.Because when grain prices cannot rise rapidly, increasing subsidies can reduce the loss of farmers' opportunity costs. At present, the income gap between urban and rural areas and between workers and farmers in China is growing wider and wider. At present, half of farmers' income comes from farming. If the income obtained from growing grain is too low, it will affect the overall improvement of Chinese farmers' income, causing the income gap between workers and farmers in China to widen further. Excessive income disparity will affect the stability of Chinese society, and farmers' income should be increased through subsidies. Japan, South Korea, the European Union and the United States provide large agricultural subsidies, so that the income of grain-growing farmers is not pulled too far apart from the income of those engaged in other industries. The state should improve compensation for the interests of major producing areas and compensation for arable land protection, and accelerate efforts to allow agriculture to obtain reasonable profits. It should continue to increase the scale of agricultural subsidy funds, with new subsidies concentrated in major producing areas and advantageous producing areas and tilted toward new types of production and operation entities such as specialized large households, family farms and farmers' cooperatives.
The second is to continue raising grain purchase prices.Although grain is the most important staple food for Chinese residents, among all current agricultural products it is the least profitable. Its value is not reflected in its price, which shows that China's current grain pricing mechanism still needs improvement. In setting grain prices in the future, it is not enough to look only at international grain prices; experience from countries such as Japan and South Korea should also be drawn on. Otherwise, it will severely dampen farmers' enthusiasm for growing grain, and may even cause large fluctuations in grain prices and affect social stability.
Grain has never been a purely economic issue; it should be a political-economic issue. Therefore, the target price of grain should not be viewed purely from an economic perspective either, but should take more account of farmers' income, price fluctuations and social stability. China has a smallholder economy, and in an economy fully dominated by the market, price fluctuations are inevitable, which is no small challenge for a smallholder economy. How to both let the market mechanism play a decisive role in resource allocation and at the same time have the government bear the necessary development responsibility requires comprehensive balance. Target price reform is more suitable for non-staple varieties such as cotton, soybeans, rapeseed and sugar, while for the three major staple grains, especially the two major staple foods wheat and rice, a prudent attitude should be adopted, so as not to affect or even dampen farmers' enthusiasm for growing grain, and thereby trigger large fluctuations in domestic grain prices and lead to factors of social instability.