Target Price Pilot Program for Agricultural Products Hands Price Formation to the Market
According to the requirements of the Central Document No. 1 and the arrangements of the State Council, this year the state launched pilot target price subsidies for cotton in Xinjiang, China and soybeans in Northeast China and Inner Mongolia. With the approval of the State Council, the National Development and Reform Commission, together with the Ministry of Finance and the Ministry of Agriculture, announced to the public on April 5 and May 17 the 2014 target price levels for cotton and soybeans, at 19,800 yuan/ton for cotton and 4,800 yuan/ton for soybeans.
Right now, the cotton harvest in Xinjiang, China and the soybean harvest in Northeast China and Inner Mongolia are approaching. To help readers fully understand the target price reform pilot, the reporter interviewed relevant experts on related issues.
What are the main contents of the target price reform pilot for cotton and soybeans?
The target price policy is an agricultural support policy that, on the basis of market-formed agricultural product prices, releases price signals to guide market expectations and protects producers' interests through price difference subsidies.
The main contents of the target price reform pilot include: First, abolishing the temporary purchase and storage policy for cotton and soybeans nationwide. The government does not intervene in market prices; prices are determined by the market, and producers sell cotton and soybeans at market prices.
Second, implementing target price subsidies for cotton in Xinjiang, China and soybeans in Northeast China and Inner Mongolia. The target prices for cotton and soybeans are announced before planting. When the market price is lower than the target price, the state provides subsidies to producers in the pilot areas based on the difference between the target price and the market price; when the market price is higher than the target price, no subsidy is issued.
Third, improving the subsidy method, with the target price subsidy amount linked to planting area, output or sales volume.
Why carry out the target price reform pilot?
Since the reform and opening up, China has persisted in advancing market-oriented reform of agricultural products, gradually liberalizing the prices of most agricultural products, and in 2004 fully liberalized the grain market and prices. After liberalizing agricultural product prices, in order to protect farmers' interests and stabilize agricultural production, since 2004 the state has implemented a minimum purchase price policy for rice and wheat in main producing areas, and since 2007 has successively implemented a temporary purchase and storage policy for corn, soybeans, rapeseed, cotton, sugar and others in main producing areas. When the market price in main producing areas is lower than the minimum purchase price or temporary storage price, enterprises designated by the state directly enter the market to purchase, guiding the market price to recover.
Since the implementation of the minimum purchase price and temporary storage policies, domestic grain prices have risen steadily, and cotton, oilseed and sugar prices have generally operated at high levels, effectively mobilizing farmers' enthusiasm for planting, maintaining the basic stability of production of major agricultural products, achieving “ten consecutive increases” in grain output, and achieving steady and relatively rapid growth in farmers' incomes, playing an important supporting role in stabilizing the overall price level and maintaining sustained and relatively rapid development of the national economy.
The minimum purchase price and temporary storage policies include the state's subsidies to farmers within the price, and are a direct price support policy of “combining price and subsidy.” The prerequisite for the effective implementation of this policy is that domestic market prices are lower than international market prices. In the past two years, on the one hand, international market prices for agricultural products have fallen sharply; on the other hand, domestic prices of major agricultural products have operated at high levels under the support of the minimum purchase price and temporary storage policies, and domestic prices have shifted from previously being lower than the international market to being higher than import costs. Due to changes in the above prerequisites, the implementation of direct price support policies faces new difficulties and challenges, especially prominent contradictions in agricultural products such as cotton and soybeans that have long industrial chains and are greatly affected by the international market. In 2013, China's temporary storage prices for cotton and soybeans were 20,400 yuan and 4,600 yuan per ton respectively, while the duty-paid import costs were about 15,580 yuan and 4,060 yuan per ton respectively, lower than domestic temporary storage prices by 4,420 yuan and 540 yuan respectively. Because domestic prices are substantially higher than import costs, market entities are unwilling to enter the market to purchase, and the state's storage pressure has increased sharply. Cotton storage volume exceeded 90% of total output, the price relationship between upstream and downstream was distorted, and market vitality weakened, which is not conducive to the sustained and healthy development of the entire industrial chain.
Carrying out the target price reform pilot and exploring reform to decouple the agricultural product price formation mechanism from government subsidies aims, on the premise of safeguarding farmers' interests, to fully give play to the decisive role of the market in resource allocation, hand price formation over to the market for decision, and promote coordinated development of the upstream and downstream of the industry.
First, the government does not intervene in market prices, and enterprises purchase at market prices, which is conducive to restoring the market vitality of domestic industries and improving the market competitiveness of domestic agricultural products.
Second, changing the government's subsidy method for producers from a “hidden subsidy” included in the price to a directly paid “explicit subsidy” allows producers to receive government subsidies clearly, which is conducive to reducing intermediate links and improving subsidy efficiency.
Third, fully giving play to the role of the market in regulating production structure is conducive to allowing efficient and competitive producers to stand out, improving the degree of organization and scale of agricultural production, incentivizing agricultural technological progress, and controlling production costs.
Of course, carrying out the target price pilot will also bring challenges to some enterprises. For example, during the temporary storage period, cotton ginning factories could directly sell the cotton they purchased and processed to the state, with guaranteed returns regardless of drought or flood, and did not need to bear market risks. But under the new situation, these enterprises need to face the market directly, find downstream users on their own and bear the risks of market price fluctuations, but this is also a normal situation under market economy conditions.
How is the target price determined?
During the pilot stage, the method of production cost plus basic return is adopted to determine the target price level. The reason for adopting this method is that it was determined on the basis of the current actual situation of agricultural production while taking into overall consideration factors such as protecting farmers' interests and giving greater play to the market.
First, it can better protect farmers' interests. The method of production cost plus basic return can better adapt to the actual situation of the rigid rise in China's agricultural production costs at the current stage. No matter how market prices and production costs change, it can ensure that farmers do not lose money in planting and have returns, preventing a sharp decline in production.