How can the grain price inversion be resolved? Encourage more entities to store grain
Currently, tight warehouse capacity in major grain-producing areas has caused problems for grain procurement. The main reason for the tight warehouse capacity is that grain has been harvested abundantly for many consecutive years, and grain depots everywhere are full to overflowing. A deeper reason is that, under the existing grain procurement and sales policy, grain prices have continued to rise for many years, private enterprises are cautious about purchasing, state-owned procurement and storage enterprises have become the main force in purchasing, and most grain flows to state reserve depots.
To solve this problem, the key lies in improving the price formation mechanism for agricultural products, stimulating the vitality of the grain market, and changing the current situation in which grain market entities rely excessively on the market-support procurement policy.
Multiple grain price inversions
Multiple inversion phenomena, such as the inversion between domestic and international grain prices, the inversion between grain prices in major producing areas and major sales areas, and the inversion between finished grain and raw grain prices, have led to a decline in the enthusiasm of grain processing enterprises to purchase grain, and grain has continuously flowed to state-owned procurement and storage enterprises.
Ding Shengli, who works at the No. 8 operation station of the First Management District of the 854 Agricultural Branch of Beidahuang Co., Ltd., has been engaged in rice planting for nearly 20 years. This year he planted 4,500 mu of rice, which is currently growing well, and it is estimated that it will be another bumper harvest year. He told reporters that before 2004, because there was no market-support policy to provide a floor, grain prices fluctuated sharply, and the returns from grain planting could not be guaranteed. After 2004, the state implemented the minimum purchase price policy for rice and raised the rice sales price year by year, and his returns from grain planting also became better and better. In order to stabilize the land operation area, last year he spent more than 10 million yuan to purchase the right to use 4,500 mu of land for 12 years.
Ding Shengli said that he now does not worry at all that the rice cannot be sold. The only difference from before is that previously he mainly sold rice to a rice processing enterprise. In the past two years, as the market-support purchase price has become higher and higher, the purchase price of state-owned procurement and storage enterprises has been higher than that of processing enterprises, so he chose to sell grain to the local grain depot.
Ding Shengli's choice is also the choice of many farmers. In recent years, state-owned grain procurement and storage enterprises have always played the role of the main force in the grain procurement market. This summer, grain, oil, and early indica rice achieved another bumper harvest. In the early stage of the new grain listing, market prices were lower than the market-support price. To protect farmers' interests, major grain-producing areas launched market-support procurement on a large scale. Hubei, Jiangsu, Anhui, Henan, Shandong, and other 5 provinces successively launched the minimum purchase price implementation plan for wheat. Jiangsu, Anhui, Hubei, Sichuan, and other 10 provinces successively launched the temporary storage policy for rapeseed. Hubei, Anhui, Jiangxi, Hunan, Guangxi, and other 5 provinces (regions) successively launched the minimum purchase price implementation plan for early indica rice.
What was originally a temporary market-support procurement has in fact become a normalized policy. However, as grain prices have continued to rise for many years, the current domestic grain market has seen multiple inversion phenomena, such as the inversion between domestic and international grain prices, the inversion between grain prices in major producing areas and major sales areas, and the inversion between finished grain and raw grain prices. This directly leads to more imports the greater the harvest, a decline in the enthusiasm of major sales areas to purchase grain from major producing areas, and a lack of enthusiasm among grain processing enterprises to purchase. Under such circumstances, state-owned procurement and storage enterprises bear the important responsibility of being the main channel for grain procurement, purchasing without limit, and grain in major grain-producing areas continuously flows to state reserve depots.
The state controls most of the grain sources and can effectively respond to fluctuations in the international grain market through macro-control. However, the state purchases grain at the minimum purchase price and also sells policy grain at a profitable price through policy grain auctions regularly organized by the National Grain Trade Center. This “one in, one out” is not conducive to forming a market price mechanism. The pattern of “strong rice, weak milled rice” and “strong wheat, weak flour” in the grain industry is difficult to break, and many enterprises are in a state of phased operation. In addition, the inversion between domestic and international grain prices makes it impossible to sell policy grain at a profitable price, which has also become the fundamental reason why most grain flows to the state treasury and reserves grow larger and larger.
Encourage more entities to store grain
The scale of the state grain reserve is growing larger and larger, the pressure on warehouse capacity is growing greater and greater, and the fiscal burden is also becoming heavier and heavier. In order to stimulate market vitality, the state encourages diverse market entities to participate in policy grain procurement.
Qin Fu, director of the Institute of Agricultural Economics and Development of the Chinese Academy of Agricultural Sciences, believes that one major measure to escape the dilemma of policy-based procurement and storage is to promote the diversification of grain reserves and escape the dilemma of increasing pressure on state reserve warehouse capacity. While encouraging central and local reserves to become bigger and stronger, more efforts should be made to encourage diverse entities such as farmers, farmer cooperatives, and leading enterprises to enter the grain reserve market. At the same time, more powerful private grain enterprises should be encouraged to participate in grain reserves. Under the major premise that state-owned grain enterprises ensure grain security, private enterprises should be allowed to activate the market vitality of grain reserves.
It is understood that at present some grain processing enterprises and traders with good storage conditions are actively participating in policy grain procurement. Last year in Jilin Province, 5 enterprises obtained the qualification for policy grain procurement and storage, and 2 companies of COFCO participated in policy grain procurement. Wang Junqi, procurement department manager of COFCO Bio-Chemical Energy (Gongzhuling) Co., Ltd., told reporters that the company is mainly engaged in deep processing of corn starch, corn salad oil, fructose, and other products. It is adjacent to Huanglong Group, another processing enterprise of COFCO, and the corn processing capacity of the two enterprises reaches 1.4 million tons. Now, affected by the domestic and international economic situation, the profit margin of corn deep processing is thin, and the enterprise is in a state of semi-suspension of production. Since last year, the enterprise has participated in policy grain procurement and storage, with a total of about 170,000 tons of grain procured and stored.
During investigations in various places, reporters also learned that some cooperatives are now actively preparing to build grain storage facilities. Some are doing so to temporarily store grain and sell at staggered times to maximize the returns from grain planting, while others are doing so to store policy grain on behalf of others. The modern agricultural machinery cooperative in Anquan Village, Changsheng Township, Kedong County, Heilongjiang, built a grain depot with 20,000 tons of warehouse capacity last year and plans to expand warehouse capacity this year to carry out policy grain storage agency business.
Experts say that implementing diversification of grain reserves requires clearly defining the nature of policy reserve grain and ensuring a clear separation between policy reserves and commercial operations. The grain rights of policy reserve grain belong to the state, have a certain public welfare nature, are provided with fiscal subsidies by the state, and are subject to grain regulation. Enterprises, cooperatives, and even farm owners participating in the grain storage plan may not dispose of reserve grain on their own. Wang Junqi told reporters that their company has no right to dispose of reserve grain on its own. If the company needs grain for processing, it must obtain it by participating in policy grain auctions.
Target price reform breaks the problem open
To stimulate the vitality of the grain market, it is necessary to comprehensively deepen the reform of the grain circulation system, improve the price formation mechanism for agricultural products, and fully give play to the decisive role of the market in resource allocation.
Diversification of grain procurement and storage can alleviate the pressure on grain warehouse capacity to a certain extent. However, more grain processing enterprises, traders, and even some cooperatives are all eagerly pursuing policy grain procurement and storage, which will further squeeze the vitality of the grain market. Therefore, while encouraging grain procurement and sales enterprises to participate in policy grain procurement, they should be even more encouraged to carry out market-based self-operated procurement. Only in this way can the vitality of the grain market truly be stimulated and the entire grain industry chain revitalized. This requires comprehensively deepening the reform of the grain circulation system, improving the price formation mechanism for agricultural products, and fully giving play to the decisive role of the market in resource allocation.
Lan Haitao, a researcher at the Industrial Economics and Technical Economics Research Institute of the National Development and Reform Commission, believes that the drawbacks of the agricultural product price support policy centered on the minimum purchase price and temporary storage policies are becoming increasingly prominent, and it is difficult for it to adapt to the competitive environment for domestic and international agricultural products under globalization. Therefore, it has become necessary to adopt target price reform centered on direct subsidies for price differences to replace the current price support policy for important agricultural products.
In fact, China's market-oriented reform of agricultural products has already made major breakthroughs. At present, the government only intervenes through minimum purchase prices or temporary storage prices for important agricultural products such as grain, cotton, oil, sugar, and pork. The degree of marketization in the price formation mechanism of important agricultural products is currently low, while a large number of general agricultural products have already established a mechanism in which prices are formed by the market. At present, under the premise of protecting farmers' interests, the government is promoting the gradual transformation of the minimum purchase price, temporary storage, and agricultural subsidy policies into a target price system for agricultural products, starting with soybeans and cotton and advancing subsidy pilots by variety.
It should be noted that grain is an important strategic material related to the national economy and people's livelihood. It is necessary to ensure basic self-sufficiency in grains and absolute security of staple food, and the implementation of the target price subsidy policy must be very cautious.
Qin Fu believes that to achieve the goals of basic self-sufficiency in grains and absolute security of staple food, it will still be necessary for a period of time in the future to continue implementing the minimum purchase price policy for wheat and rice and the temporary storage price policy for corn. This can, to a certain extent, ease the impact of the widening domestic and international price gaps for rice, wheat, and corn on the goals of basic self-sufficiency in grains and absolute security of staple food. In the future, even when conditions are ripe, implementing the target price policy for the three major grains should preferably be done in two steps. In the first step, corn can be taken as the object. After verifying on the basis of practice that it can indeed guarantee a certain degree of “basic self-sufficiency in grains,” the second step can then take rice and wheat, the two major staple foods, as the object and observe their impact on “absolute security of staple food” within a certain period after implementation of the target price.