The target price reform for agricultural products is suitable for non-staple grain varieties
Our country's food security implements the strategy of “taking self-reliance as the main approach, basing itself on domestic production, ensuring production capacity, moderate imports, and technological support,” firmly keeping the rice bowl in our own hands. This year's No. 1 document of the Party Central Committee proposed the target price system for agricultural products, which is of great significance for ensuring our country's food security by rationalizing the relationship between supply and demand through price mechanism reform.
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, there are still many difficulties to be resolved.
The basis for determining the target price of agricultural products
To what extent should international prices be referenced?
When the government sets the target price of agricultural products, how should it balance international prices? Should domestic grain prices be higher than international grain prices? Many consumers believe that since our country is a developing country, our country'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 Vietnamese rice is below 400 US dollars per ton, which at an exchange rate of 6 would be more than 2,000 yuan. This means that our country's current rice price is nearly double that of Vietnam, which is also the main reason for the surge in rice imports and smuggling in our country in recent years. But from a longer time period, taking the comprehensive 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 in 2008, while during the same period our country's rice price went from 1.72 yuan 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, our country's rice price still has great expectations for further increases. At present, the world's major rice exporters are Vietnam, Pakistan, India, Thailand, and others. Except for Thailand, the farmers in these rice-exporting countries have incomes less than half of those of our country's farmers. If sold at international rice prices, this would be suitable for farmers in those countries, but for our country's farmers, if they sold at international prices, it is estimated that a large number of farmers would no longer grow rice.
The other two bulk 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. If the target pricing for these two crops is also based on international grain prices, doing so would also be unfair to China's smallholders. This is because our country's average annual yield per mu is not low compared with theirs, but our country's per capita arable land is too limited. The target prices for these crops cannot be set by looking only at international grain; they must also take into account Japan and South Korea, which like our country are East Asian smallholder economies. According to the experience of Japan and South Korea, in order to ensure self-sufficiency in staple food rice, the corresponding rice prices are considerably higher than international ones, at 5-10 times the international price during the same period. Our country's two major staple foods, wheat and rice, can only be compared with smallholder economy countries 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 our country does not adhere to the strategy of grain self-sufficiency and purchases large quantities from 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.
Target price formulation must consider the comparative returns of grain
Farmers have opportunity costs when engaging in grain production. At present, grain is the most emphasized in official discourse in our country, but the returns for grain-growing farmers are the lowest. If this continues over time, it will dampen farmers' enthusiasm for growing grain. The price of grain and the prices of other agricultural products, the price of grain and the wages from working elsewhere, and the price of grain and the price of agricultural inputs must not diverge too greatly.
In recent years, the production costs for our country's farmers to grow grain have risen rapidly, the prices of agricultural inputs have continued to climb, and the comparative benefits of growing grain have declined rapidly. For example, in Shandong, farmers growing greenhouse vegetables can normally earn 30,000 to 50,000 yuan per mu from one greenhouse, and at worst can still earn 3,000 to 5,000 yuan. But what about a mu of land planted with wheat? When I went to Henan for field research, Henan farmers told me that growing wheat now is basically unprofitable, with profits essentially at zero. Especially in northern regions such as Hebei, growing wheat generally requires watering several times, and each watering costs 40-50 yuan. If the cost of labor is deducted, there is basically little to gain from growing wheat; if labor costs are ignored, one can earn two to three hundred yuan per mu. Farmers in North China generally grow two seasons a year, wheat in summer and corn in autumn. Wheat earns no money, while corn earns more than 1,000 yuan per mu, and rice per mu is about the same. Yet farmers' per capita arable land is also very limited. In recent years, domestic vegetable and fruit prices have basically multiplied several times, while by contrast the price increases of the three major staple grains have not been large.
Grain purchase prices should continue to be raised
The current collection and storage system has led to Sinograin becoming overwhelmingly dominant, and the enthusiasm of enterprises and farmers for collection and storage has been severely suppressed. This has caused the minimum purchase price policy to bring enormous pressure on the state finances, occupying an astonishing amount of fiscal funds. How to break the monopoly and mobilize the enthusiasm of enterprises, farmers, and local governments requires comprehensive consideration.
With the improvement of living standards, our country's grain production-demand gap has widened year by year, and grain imports have reached a record high. China's total grain supply and demand is tightening, the grain self-sufficiency rate has fallen below 90%, and last year's grain imports amounted to more than 77 million tons. Chen Xiwen, director of the Office of the Central Rural Work Leading Group, believes that “over the past decade, behind the continuous growth of total grain output has been even faster consumption growth, and even the supply of certain products cannot keep up with the growth of social demand.” From now until 2020, it is widely regarded as 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 farmer income?
First, subsidies to farmers, large grain-growing households, and major grain-producing counties should continue to be increased. This is because when grain prices cannot rise rapidly, increasing subsidies can reduce the losses from farmers' opportunity costs. At present, the income gap between urban and rural areas and between industry and agriculture in our country is growing wider and wider. At present, half of farmers' income comes from farming the land. If the income obtained from growing grain is too low, it will affect the overall increase in our country's farmers' income and cause the income gap between industry and agriculture in our country to widen further. An excessively large income gap will affect the stability of our 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 does not diverge too greatly from the income of those engaged in other industries. The state should improve interest compensation for major producing areas and compensation for arable land protection, and accelerate making agriculture obtain reasonable profits. The scale of agricultural subsidy funds should continue to be increased, 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 farmer cooperatives.
Second, grain purchase prices should continue to be raised. Although grain is the most important staple food for our country's residents, among all current agricultural products it is the least profitable. Its value is not reflected in the price, which shows that our country's current grain pricing mechanism still needs improvement. In setting grain prices in the future, we cannot look only at international grain prices; we should also learn from the experience of countries such as Japan and South Korea. 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; it should take more into account farmers' income, price fluctuations, and social stability. Our country has a smallholder economy, and in an economy fully dominated by the market, price fluctuations are unavoidable, which poses no small challenge to a smallholder economy. How to both let the market mechanism play a decisive role in resource allocation and also have the government assume necessary development responsibilities in a comprehensive balance is a topic of no small difficulty. Target price reform is relatively suitable for non-staple grain 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.