A Reasonable Approach to Establishing a Target Price System for Agricultural Products
This year's No. 1 Central 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 purchase and storage system for important agricultural products, but this does not mean that the minimum purchase price system for grain and the temporary purchase and storage system for important agricultural products should be completely abolished in the future. It is necessary to deepen 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 purchase and 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 grain crops, rice and wheat, and this system has the dual functions in practice of “regulating prices” and “providing a floor for purchase and sales.” As a reform plan, if a target price system for agricultural products is established, it can replace the “price regulation” function contained therein, enabling the market mechanism to play a better role, while at the same time transforming policy subsidies from implicit and difficult to control into explicit and controllable ones, improving the rationality and effectiveness of the use of government subsidy funds. However, it cannot replace the “floor purchase and sales” function contained therein.
The minimum purchase price system for grain has a strong “price regulation” function, mainly regulating the price level, controlling the range of price fluctuations, and ensuring that farmers obtain basic operating returns. During grain purchasing, 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 that year's minimum purchase price for grain; before the implementation plan for the grain purchase price is launched, they purchase at the upper edge, and after the implementation plan for the grain purchase price is implemented, they purchase at the lower edge. For processing enterprises and other socialized purchasing and sales enterprises, grain purchasing requires a large amount of capital, and the purchasing and sales risks are relatively large. Unless grain output 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 has not been officially launched, the minimum purchase price objectively plays a “price regulation” role and is the basis for market pricing. The continuous increase in the minimum purchase price is beneficial for protecting farmers' interests.
The minimum purchase price system for grain also has a strong “floor purchase and sales” function, mainly providing a guaranteed purchasing channel, ensuring that grain produced by farmers in major producing areas can be sold promptly and smoothly, conducting cross-regional and cross-year adjustment of surpluses and shortages nationwide, and realizing post-harvest logistics turnover of grain. China's rural areas have many people and little land, and the major grain-producing areas are mainly located in economically underdeveloped regions. Overall, warehousing and logistics conditions are relatively poor, and grain processing enterprises are not well 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 prone to situations in which local enterprises are unwilling to purchase or even compete to lower grades and prices, creating “difficulty in selling grain.” For farmers, being able to sell grain smoothly after it is produced 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 conducts warehousing adjustment and market auctions nationwide across regions and across years. This helps farmers solve the difficulties after a bumper grain harvest of insufficient local enterprise warehousing and logistics facilities, and local processing enterprises and other social purchasing and sales enterprises being unwilling to purchase or even competing to lower grades and prices. This is the state's substantive and reliable protection of farmers' interests in major producing areas, and it also enables the state to grasp lower-cost grain sources 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 livelihoods, 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, and it is easy to rise but difficult to fall. After purchasing at the minimum purchase price, it is necessary to organize timely sales on the market. When policy design is not thorough and domestic prices remain substantially higher than international prices for a prolonged period, it may distort the market, and it may also bring huge fiscal risks, as well as phenomena such as rent-seeking and corruption. However, this system is relatively simple to operate and can mainly be completed through the enterprise-based operations of Sinograin. Its efficiency is relatively high, and it is also relatively reliable in terms of management and control, providing strong protection for farmers' basic operating returns. By contrast, the main function of the target price system for agricultural products is to provide policy subsidies or compensation for market losses. Such subsidies are explicit and controllable in nature and can reduce market distortions 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 specialized management system and requiring specific producers and specific consumers to carry out specialized registration and declaration in accordance with unified regulations and accept review, and the corresponding transaction costs and fiscal expenditures will increase substantially.
The target price system for agricultural products also cannot completely replace the temporary purchase and storage system for important agricultural products
At present, China implements a temporary purchase and 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 floor 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 “price regulation” function contained therein, but it cannot replace the “floor purchase and sales” function contained therein.
The main defect of the temporary purchase and storage system for important agricultural products is that reasonable pricing of the temporary purchase and storage price is difficult, and it is easy to rise but difficult to fall. After temporary purchase and storage, it is necessary to organize timely sales on the market. If there are reasonable losses, they must be borne by the government. If the temporary purchase and 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 and is mainly completed by state-owned circulation and reserve enterprises under vertical central management and some processing enterprises and other organizations. Its efficiency is relatively high, and its protection of farmers' basic operating returns is relatively strong. By contrast, the main function of the target price system for agricultural products is to provide policy subsidies. If the system is reasonably designed, it can better allow the market to play a decisive role in resource allocation, but the government's subsidy work is very complex and has important conditions, and fiscal expenditures may not decrease but instead increase.
The main problems faced in practice by the minimum purchase price system for grain and the temporary purchase and storage system for important agricultural products
China began establishing the minimum purchase price system for grain in 2004, and began establishing the temporary purchase and 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 purchase and storage of corn; in 2008-2013, it launched temporary purchase and storage of soybeans and rapeseed; and in 2011-2013, it launched temporary purchase and 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 stage of implementation of 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 recent years, due to large fluctuations in international agricultural product prices, China's agricultural product prices were significantly lower than international market prices. The state's “price regulation” mainly considered protecting domestic farmers' basic operating returns so that they would only increase and not decrease, and insufficiently estimated and considered the large fluctuations in international agricultural product prices and their effects. In policy operations, it was not possible to achieve “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 stage of production development, market regulation, and government expenditure will fall into a dilemma.