Adhere to the principle of market pricing and accelerate the improvement of the agricultural futures market

Cheng Guoqiang, a researcher at the Development Research Center of the State Council, said on the 18th at the "2014 Zhengzhou Agricultural Products (Cotton) Futures Forum" held by the Zhengzhou Commodity Exchange that a series of new problems and new contradictions in the temporary purchase and storage policy for agricultural products are gradually emerging, especially under the new situation in which important changes have occurred in the domestic and international environment, and the existing support policies are facing increasingly severe challenges.

The reporter learned that during the 10 years in which China implemented the minimum purchase price and temporary storage policies, the cumulative increases in early indica rice, middle indica rice and late indica rice reached 92.9%, 91.7% and 106.7% respectively. Since October 2011, the domestic price of cotton has continued to be higher than the price after import duties, with the price gap at 3000-6000 yuan/ton.

With the support of the minimum purchase price and temporary storage policies, the prices of major agricultural products such as rice, wheat, corn, soybeans and cotton in China are now all higher than international market prices. The prices of agricultural raw materials and finished products are inverted, with strong rice but weak milled rice, strong wheat but weak flour, and strong cotton but weak yarn, and some industries have even suffered overall losses. The drawbacks of this mechanism are gradually appearing. "As the price gap with the international market widens, while the domestic market is affected by fluctuations, the inventory costs of purchasing and storage enterprises and processing enterprises also increase substantially," a cotton textile enterprise participant told the reporter.

"The current cotton market should adhere to the principle of market pricing, improve the price formation mechanism, let the market determine prices, reduce policy intervention and distortion as much as possible, and prevent policy implementation from evolving from production support into income support, that is, from coupled subsidies into decoupled subsidies. It is necessary to implement the principle that whoever plants receives subsidies, those who plant more receive more subsidies, and those who do not plant receive no subsidies, so as to ensure growers' enthusiasm," Cheng Guoqiang said.

Cheng Guoqiang introduced that the principle of reforming the target price system for agricultural products is to be oriented toward marketization, adhere to market pricing, minimize intervention in and distortion of the market, and effectively give play to the decisive role of the market in allocating resources and regulating the supply, demand and prices of agricultural products. For key products and key regions, explore the establishment of a direct subsidy mechanism linked to output and planted area and a price adjustment mechanism that causes relatively less market distortion.

Cheng Guoqiang said that the reform of the agricultural product price formation mechanism will develop in three directions. First, improve the minimum purchase price policy for wheat and rice. By locking the minimum purchase price level, implementing quantitative purchases by multiple entities, and strictly enforcing policy initiation and exit mechanisms, reduce the distorting effects of the minimum purchase price policy. In the future, when conditions are ripe, gradually replace the minimum purchase price policy with target price subsidies. Second, exit temporary storage in a timely manner. After gaining experience from the pilot target price subsidies for soybeans and cotton, gradually implement a target price system for important agricultural products such as corn, rapeseed and sugar. Third, eliminate institutions that affect the development of the agricultural product market system, and accelerate the establishment and improvement of risk management tools such as agricultural futures.

Cheng Guoqiang believes that, from the perspective of policy operation, the target price differs from the minimum purchase price and temporary storage price in that it does not directly affect the market price, but mainly plays a guiding role for price signals. When the market price of agricultural products is lower than the target price, farmers still sell freely according to market prices, and the government subsidizes the difference between the two according to their planted area and average yield. This can not only mobilize farmers' enthusiasm for production and effectively protect producers' basic income, but also give play to the important role of the market in regulating the supply and demand of agricultural products, reduce market distortion, and curb the momentum of excessive development of agricultural resources. At the same time, it can also mobilize the enthusiasm of various market entities and reduce the government's purchasing and storage pressure.