Temporary Grain Market Support Purchases Become the Norm, Multiple Impacts Emerge in the Domestic Grain Price Market
To ease the pressure on grain storage capacity, Jilin Province encourages grain purchase and sales enterprises to engage in policy-oriented grain collection and storage, and five enterprises including Jilin Dongfu Rice Industry Company have obtained policy-oriented grain collection and storage qualifications. The photo shows the vertical silos invested in and built by Dongfu Rice Industry Company. Photo by Liu Hui, Economic Daily reporter
At present, tight storage capacity in major grain-producing areas has caused difficulties for grain purchasing. The main reason for the tight storage capacity is that grain has been harvested abundantly for many consecutive years, and grain depots everywhere are full. The deeper reason is that under the existing grain purchase and sales policies, grain prices have continued to rise for many years, private enterprises are cautious about purchasing, state-owned collection 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 agricultural product price formation mechanism, stimulating the vitality of the grain market, and changing the current situation in which grain market entities rely excessively on the market support purchase policy.
Multiple Inverted Grain Price Gaps
Multiple inverted price gaps, including between domestic and international grain prices, between major producing areas and major sales areas, and between finished grain and raw grain, have reduced the enthusiasm of grain processing enterprises to purchase grain, and grain has continuously flowed to state-owned collection and storage enterprises.
Ding Shengli, who works at the No. 8 operation station of the First Management Area of the 854 Agricultural Branch of Beidahuang Co., Ltd., has been engaged in rice cultivation 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 as a cushion, grain prices fluctuated sharply, and the returns from grain cultivation 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 cultivation also became better and better. In order to stabilize the land management area, he spent more than 10 million yuan last year to purchase the 12-year use rights to 4,500 mu of land.
Ding Shengli said that he now does not need to 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 market support purchase prices have become higher and higher, the purchase price of state-owned collection 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 collection and storage enterprises have always played the role of the main force in the grain purchasing market. This year, summer grain, oil crops, and early indica rice achieved another bumper harvest. In the early period after new grain came on the market, market prices were lower than market support prices. To protect farmers' interests, major grain-producing areas launched market support purchases on a large scale. Hubei, Jiangsu, Anhui, Henan, Shandong and other 5 provinces successively launched the minimum purchase price execution plan for wheat; Jiangsu, Anhui, Hubei, Sichuan and other 10 provinces successively launched the temporary collection and storage policy for rapeseed; Hubei, Anhui, Jiangxi, Hunan, Guangxi and other 5 provinces (regions) successively launched the minimum purchase price execution plan for early indica rice.
What was originally a temporary market support purchase 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 inverted price gaps, including between domestic and international grain prices, between major producing areas and major sales areas, and between finished grain and raw grain. This directly leads to more imports as harvests are larger, reduced enthusiasm among major sales areas to purchase grain from major producing areas, and lackluster purchasing by grain processing enterprises. Under such circumstances, state-owned collection and storage enterprises bear the important task of being the main channel for grain purchasing, purchasing without limit, and grain from 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-oriented grain at a profitable price through policy-oriented grain auctions regularly organized by the National Grain Trading Center. This “one in, one out” is not conducive to the formation of a market price mechanism. It is difficult to break the grain industry pattern of “strong rice, weak rice products” and “strong wheat, weak flour products,” and many enterprises are in a state of periodic operation. In addition, the inverted price gap between domestic and international grain prices makes it impossible to sell policy-oriented 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 state grain reserves is growing larger and larger, the pressure on storage capacity is growing greater and greater, and the fiscal burden is becoming heavier and heavier. In order to stimulate market vitality, the state encourages diverse market entities to participate in policy-oriented grain purchasing.
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-oriented collection and storage is to promote diversification of grain reserves and escape the dilemma of increasing pressure on state reserve storage capacity. While encouraging central and local reserves to become bigger and stronger, more encouragement should be given to diverse entities such as farmer households, farmer cooperatives, and leading enterprises to enter the grain reserve market. At the same time, more capable 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 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-oriented grain purchasing. Last year, 5 enterprises in Jilin Province obtained policy-oriented grain collection and storage qualifications, and 2 companies of COFCO participated in policy-oriented grain purchasing. Wang Junqi, manager of the procurement department of COFCO Biochemical 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 another COFCO processing enterprise, Huanglong Group, and the corn processing capacity of the two enterprises reaches 1.4 million tons. Now, affected by the domestic and international economic situation, corn deep processing profits are meager, and the enterprise is in a state of semi-suspended production. Since last year, the enterprise has participated in policy-oriented grain collection and storage, collecting and storing about 170,000 tons of grain in total.
During investigations in various places, reporters also learned that some cooperatives are now actively preparing to build grain storage facilities. Some are for temporarily storing grain and selling at staggered times to maximize the benefits of grain cultivation, while others are for storing policy-oriented grain on behalf of others. The Modern Agricultural Machinery Cooperative of Anquan Village, Changsheng Township, Kedong County, Heilongjiang, built a grain depot with 20,000 tons of storage capacity last year and is preparing to expand its storage capacity this year to carry out policy-oriented grain storage agency business.
Experts say that implementing diversification of grain reserves requires clearly defining the nature of policy-oriented reserve grain and ensuring a clear separation between policy-oriented reserves and commercial business. The grain rights of policy-oriented reserve grain belong to the state, it has a certain public welfare nature, and it is provided with fiscal subsidies by the state and 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-oriented grain auctions.
Target Price Reform Breaks New Ground
To stimulate the vitality of the grain market, it is necessary to comprehensively deepen the reform of the grain circulation system, improve the agricultural product price formation mechanism, and fully give play to the decisive role of the market in resource allocation.
Diversification of grain collection and storage can, to a certain extent, ease the pressure on grain storage capacity. However, more grain processing enterprises, traders, and even some cooperatives are all eagerly pursuing policy-oriented grain collection and storage, which will further squeeze the vitality of the grain market. Therefore, while encouraging grain purchase and sales enterprises to participate in policy-oriented grain purchasing, they should be encouraged even more to carry out market-based self-operated purchasing. Only in this way can the vitality of the grain market truly be stimulated and the entire grain industry chain be revitalized. This requires comprehensively deepening the reform of the grain circulation system, improving the agricultural product price formation mechanism, 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 collection and storage policies have become increasingly prominent and are difficult to adapt to the competitive environment for domestic and international agricultural products under globalization. Therefore, target price reform centered on direct subsidies for price differences has had to be adopted to replace the current price support policy for important agricultural products.
In fact, China's agricultural product market-oriented reform has already made major breakthroughs. Now the government only intervenes in the prices of important agricultural products such as grain, cotton, oil, sugar, and pork through minimum purchase prices or temporary collection and storage prices. At present, the degree of marketization in the price formation mechanism of important agricultural products is low, while a large number of general agricultural products have already established a mechanism in which prices are formed by the market. At present, on the premise of protecting farmers' interests, the government is promoting the gradual transformation of minimum purchase price, temporary collection and 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 to continue implementing the minimum purchase price policy for wheat and rice and the temporary collection and storage price policy for corn for some time in the future. 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. The first step can take corn as the object, and on the practical basis of verifying that it can indeed guarantee a certain degree of “basic self-sufficiency in grains,” the second step can then take the two major staple foods, rice and wheat, as the object and observe the impact on “absolute security of staple food” within a certain period of implementing target prices.