Why can't the target price system for agricultural products replace the temporary storage system?
This year's No. 1 document of the CPC Central Committee proposed gradually establishing a target price system for agricultural products, which is of great significance. Establishing a target price system for agricultural products requires reforming the minimum purchase price system for grain and the temporary storage system for important agricultural products, but this does not mean that the minimum purchase price system for grain and the temporary storage system for important agricultural products should be completely abolished in the future. It is necessary to improve understanding, correctly handle the relationship between implementing the target price system for agricultural products and implementing the minimum purchase price system for grain and the temporary storage system for important agricultural products, and reasonably introduce the target price system for agricultural products.
The target price system for agricultural products cannot completely replace the minimum purchase price system for grain
At present, China implements a minimum purchase price system for two grains, rice and wheat. In practice, this system has the dual functions of “regulating prices” and “providing a bottom line for purchase and sales.” As a reform plan, if a target price system for agricultural products is established, it can replace the “regulating prices” function contained in it, enabling the market mechanism to play a better role, while transforming policy subsidies from implicit and difficult to control into explicit and controllable, and improving the rationality and effectiveness of the use of government subsidy funds. However, it cannot replace the “providing a bottom line for purchase and sales” function contained in it.
The minimum purchase price system for grain has a strong “regulating prices” function, mainly regulating the price level, controlling the range of price fluctuations, and ensuring that farmers obtain basic operating income. When purchasing grain, Sinograin mainly purchases at the minimum purchase price for grain, while processing enterprises and other socialized purchasing and sales enterprises determine their respective purchase prices according to the minimum purchase price for grain in that year. Before the implementation plan for the grain purchase price is launched, they purchase slightly above that level, and after the implementation plan for the grain purchase price is implemented, they purchase slightly below that level. For processing enterprises and other socialized purchasing and sales enterprises, grain purchasing requires a large amount of funds, and the purchasing and sales risks are relatively large. Unless grain production declines or there is a shortage of supply, the grain purchase price is lowered as much as possible. Even in years when the minimum purchase price plan for grain has not officially been launched, the minimum purchase price objectively plays a “regulating prices” role, is the basis for market pricing, and the continuous increase in the minimum purchase price is beneficial to protecting farmers' interests.
The minimum purchase price system for grain also has a strong “providing a bottom line for purchase and sales” function, mainly providing a guaranteed purchasing channel, ensuring that grain produced by farmers in major production areas can be sold promptly and smoothly, adjusting surpluses and shortages across regions and across years nationwide, and realizing post-production grain logistics turnover. China's rural areas have many people and little land. Major grain production areas are mainly located in economically underdeveloped areas. Overall, warehousing and logistics conditions are relatively poor, and grain processing enterprises are not developed. Grain production is affected by multiple factors such as weather and the market, with good and poor harvests. When grain production has a bumper harvest, it is easy for local enterprises to be unwilling to purchase or even compete to lower grade and lower price, creating “difficulty in selling grain.” For farmers, being able to sell grain smoothly after production and obtain income promptly is the most important thing. After the implementation of the minimum purchase price system for grain, through the intervention of Sinograin, during the grain purchasing season it mainly carries out designated purchases at the prescribed minimum purchase price, and then carries out warehousing adjustment and market auctions across regions and across years nationwide, helping farmers solve the problems after a bumper grain harvest of insufficient local enterprise warehousing and logistics facilities, local processing enterprises and other social purchasing and sales enterprises being unwilling to purchase or even competing to lower grade and lower price. This is a substantive and reliable protection by the state of farmers' interests in major production areas, and it also enables the state to grasp grain sources at relatively low cost for cross-regional and cross-year adjustment of surpluses and shortages nationwide. It is the material foundation and important means for the government to prevent inflation, protect people's livelihood, and enhance international economic competitiveness.
The implicit defect of the minimum purchase price system for grain is that reasonable pricing of the minimum purchase price is difficult; it is easy to raise but difficult to lower. After purchasing at the minimum purchase price, it is necessary to organize timely sales on the market. Under circumstances where policy design is not thorough and domestic prices remain substantially higher than international prices for a sustained period, it may distort the market, and may also bring huge fiscal risks, as well as phenomena such as rent-seeking and corruption. However, this system is relatively simple to operate, can mainly be completed through the enterprise-oriented operation of Sinograin, is relatively efficient, is relatively reliable in management and control, and strongly protects farmers' basic operating income. By comparison, the main function of the target price system for agricultural products is to provide policy subsidies or market loss subsidies. Such subsidies are explicit and controllable, can reduce market distortion, and better allow the market to play its role in resource allocation. However, because Chinese agriculture is mainly based on small-scale production, government handling work will be relatively complex, requiring the establishment of a special management system and requiring specific producers and specific consumers to carry out special registration and declaration in accordance with unified regulations and accept review. The corresponding transaction costs and fiscal expenditures will increase substantially.
The target price system for agricultural products also cannot completely replace the temporary storage system for important agricultural products
At present, China implements a temporary storage system for important agricultural products such as corn, soybeans, rapeseed, cotton, and sugar crops. This system is similar to the minimum purchase price system for grain and also has the dual functions of “regulating prices” and “providing a bottom line for purchase and sales” for agricultural products produced by farmers. As a reform plan, if a target price system for agricultural products is established, it can replace the “regulating prices” function contained in it, but it cannot replace the “providing a bottom line for purchase and sales” function contained in it.
The main defect of the temporary storage system for important agricultural products is that reasonable pricing of the temporary storage price is difficult; it is easy to raise but difficult to lower. After temporary storage, it is necessary to organize timely sales on the market. If there are reasonable losses, they must be borne by the finance department. If the temporary storage price is set unreasonably, it may distort market operations, disrupt the reasonable price ratio and price difference relationships among different agricultural products, and may also bring huge fiscal risks. However, in terms of policy operation it is relatively simple, mainly completed by state-owned circulation and reserve enterprises and some processing enterprises under vertical central management, is relatively efficient, and strongly protects farmers' basic operating income. By comparison, the main function of the target price system for agricultural products is to provide policy subsidies. Under a reasonable system design, it can better allow the market to play a decisive role in resource allocation. However, the government's subsidy work is very complex and has important conditions, and fiscal expenditure may increase rather than decrease.
The main problems faced in practice by the minimum purchase price system for grain and the temporary storage system for important agricultural products
China began establishing the minimum purchase price system for grain in 2004 and began establishing the temporary storage system for important agricultural products in 2008. In 2005—2006, 2009, and 2012, the state launched the implementation plan for the minimum purchase price of indica rice; in 2007 and 2012, it launched the plan for japonica rice; and in 2006—2009, 2012, and 2013, it launched the plan for wheat. In 2008, 2012, and 2013, the state launched temporary storage of corn; in 2008-2013, it launched temporary storage of soybeans and rapeseed; and in 2011-2013, it launched temporary storage of cotton and sugar. After the implementation of these two systems, they played an important role in increasing farmers' income, promoting production development, ensuring market supply, and stabilizing price levels. However, in practice, due to changes in domestic and international markets, the next step in implementing these two systems faces challenges.
In these two systems, the implicit assumption for ensuring the reasonable operation of the systems is that domestic prices are lower than or equal to the import cost price on the international market, and at the same time the determination of domestic prices itself must be reasonable; otherwise, they may be impacted by the international market. In previous years, due to large fluctuations in international agricultural product prices, China's agricultural product prices were significantly lower than the international market. The state's “regulating prices” mainly considered protecting domestic farmers' basic operating income so that it would only increase and not decrease, and did not sufficiently estimate and consider the large fluctuations in international agricultural product prices and their impact. In policy operation, it was not possible to realize “minimum” and “temporary.” At present, China's agricultural product market prices are generally higher than international prices, leading to rapid growth in agricultural product imports and beginning to create distortions in the rationality of price changes and impacts from the international market. If a new mechanism to protect farmers' interests is not introduced in a timely manner, the next step in production development, market regulation, and government expenditure will fall into a dilemma.