Domestic grain prices are 50% higher than foreign prices: this is the cost of a high degree of grain self-sufficiency
Abstract: Domestic grain prices are on average half higher than foreign prices. In domestic consumption, the share of rice and corn is high, while the share of wheat and soybeans is low. If weighted by consumption volume, the result is about the same, also around 50%. Such high domestic grain prices are one of the costs paid for a high degree of grain self-sufficiency.
As mentioned earlier, our current grain supply situation is “a high degree of self-sufficiency in grains, and absolute security of staple foods.” From the data, in 2012 the self-sufficiency rates of rice, wheat, and corn were 99%, 97.3%, and 97.6%, respectively. The self-sufficiency rate of soybeans was lower, only 18.4%, but soybeans account for a small proportion of the overall grain composition, so the overall grain self-sufficiency rate was still 88%. After seeing this set of data, the author's first reaction was one of relief: our food security does not appear to have major problems, and the self-sufficiency rate is still very high.
However, amid the rejoicing, we should also ask one question: what price have we paid for this? Was this price paid wisely? You should know that everything in this world has a cost, and nothing comes for free. If the cost is not paid by yourself, it is paid by others; if it is not paid now, it is paid in the future. To borrow a line of underworld slang from a movie: if you are out in the world, sooner or later you have to pay it back.
Domestic grain prices are 50% higher than foreign prices
A high degree of grain self-sufficiency means not importing much. If foreign prices are high, or if domestic and foreign grain prices are about the same, then importing less is understandable. So what is the actual situation? Figure 1 compares the domestic and international prices of four major grains. You really do not know until you compare, and once you compare, you get a shock. The prices of the four grains, rice, corn, soybeans, and wheat, are all far higher domestically than internationally, by 73, 180, 530, and 103 USD/ton, respectively. In proportional terms, they are higher by 17%, 88%, 60%, and 33%, respectively.
The simple average of the above four percentage figures is 50%, meaning that domestic grain prices are on average half higher than foreign prices. In domestic consumption, the share of rice and corn is high, while the share of wheat and soybeans is low. If weighted by consumption volume, the result is about the same, also around 50%. Such high domestic grain prices are one of the costs paid for a high degree of grain self-sufficiency.
A note on the data is needed here. The data in the figure above are from the end of 2013, but domestic soybean prices fluctuated greatly. In the first 3 quarters of 2013, they were around 2.3 yuan per jin, and by the end of the year they soared to more than 3 yuan, an increase of about 30%. Since 2014, price fluctuations have still been relatively large. At the high point, it was more than 3 yuan, and at the low point, it was less than 2.3 yuan. Considering that a price of more than 3 yuan does not reflect the average level of domestic soybean prices, the domestic soybean price in the figure above uses an average price of 2.4 yuan. If the price from the end of 2013 were used, the domestic and foreign price gap would be even larger.
Looking at this 50% domestic and foreign price gap, a very natural question is: since foreign grain is so cheap, why not buy more? If more foreign grain were bought, domestic prices would fall, and the price gap should not be this large. First, we should ask whether it is because freight rates are high, so that once it is bought and shipped in, it becomes expensive.
No, such a large price gap is far from being explained by transportation costs. The Americas are rich in land resources, and much of our grain imports come from the Americas. Considering the differences between South America and North America, freight rates are not completely the same either, ranging from more than 30 USD to more than 40 USD. No matter how you look at it, this transportation cost of less than 50 USD per ton cannot explain a grain price difference of as much as several hundred USD. Even for rice, which has the smallest price gap, it is still 73 USD/ton, greatly exceeding the range that transportation costs can explain. The price gaps for corn, wheat, and soybeans are all above 100 USD, so they are even less explainable by transportation costs.
The practical significance of grain price subsidies
What maintains such a large grain price difference is the domestic grain protective price. In other words, domestic grain prices are not set by the market. Instead, the government sets a purchase price and buys openly at that price, unaffected by market supply and demand. At present, this price is set much higher than the international market, reportedly to protect farmers' interests. Here we can make a rough calculation to see how much subsidy farmers actually receive, and whether this subsidy can fundamentally improve farmers' lives.
Considering that grain imports have other costs, let us calculate transportation costs a bit higher, at 50 USD per ton, and deduct 50 USD from the domestic and foreign price gap. In this way, after deducting transportation costs, the price gaps for rice, corn, and wheat are still about 23, 130, and 53 USD per ton, equivalent to 7 fen, 4 mao, and 1 mao 6 fen per jin in RMB. Soybeans have low planting area and yield per unit area, and imports are very large, so they are temporarily excluded from the calculation. According to data from the statistical yearbook, the yields per mu of rice, corn, and wheat in China are about 900 jin, 780 jin, and 670 jin per mu, respectively. Converted this way, the subsidies are 63 yuan, 310 yuan, and 110 yuan per mu, with a simple average of about 160 yuan. Calculated at 2 mu of land per person, the subsidies are 126 yuan, 620 yuan, and 220 yuan, respectively, and the total subsidy for a three-person household reaches 380 yuan, 1,860 yuan, and 660 yuan.
In reality, what crop to plant in the field is not entirely a free choice, and is greatly affected by factors such as nearby irrigation facilities, soil conditions, and climate conditions. However, even if farmers plant corn, which has the highest subsidy, the subsidy is only more than 600 yuan per mu per year, and less than 2,000 yuan for a three-person household, which is less than one month's wages from working in the city. At today's income level, this subsidy really does not amount to much for farming households, and does not change their income level or living conditions. If it has any effect at all, it is that farmers hesitate a little when considering going to the city.