Structural overcapacity in agricultural production also calls for supply-side reform
It is the beginning of the year, and the 2016 No. 1 Central Document focused on the “three rural issues” is about to be issued. The reporter learned that the “Several Opinions of the Central Committee of the Communist Party of China and the State Council on Implementing New Development Concepts, Accelerating Agricultural Modernization, and Achieving the Goal of Building a Moderately Prosperous Society in All Respects (Discussion Draft)” announced at the Central Rural Work Conference at the end of last year has been listed as the draft of this year's No. 1 Document. From the title, it can be seen that the No. 1 Document will also focus on agricultural modernization for the fourth consecutive year. Compared with the previous two years, this year, while adhering to the basic approach of advancing agricultural modernization, it further proposes implementing new development concepts and achieving the goal of building a moderately prosperous society in all respects.
Previously, the state had intensively issued a series of heavyweight agricultural policy documents, involving important topics in the process of agricultural modernization such as rural e-commerce, reform of agricultural reclamation, and deepening rural reform. From the “13th Five-Year Plan” recommendations of all 31 provinces, autonomous regions, and municipalities, each province, autonomous region, and municipality also placed the focus of agricultural development on modernization, actively responding to the state's new concepts for agricultural development.
“The No. 1 Document will specifically implement the ‘13th Five-Year Plan’ and put forward the goal of building a moderately prosperous society in all respects. The construction of modern agriculture must follow the five major development concepts of innovation, coordination, green development, openness, and sharing to strengthen weak areas and weak links.” Li Guoxiang, a researcher at the Rural Development Institute of the Chinese Academy of Social Sciences, told the reporter that this Central No. 1 Document, to be issued in the opening year of the “13th Five-Year Plan,” will set the foundation and provide guidance for China's medium- and long-term agricultural development.
Supply-side reform: structural adjustment of agriculture
Major agricultural provinces including Heilongjiang, Shandong, and Zhejiang all set goals for optimizing the agricultural structure in their “13th Five-Year Plan” recommendations. Among them, Heilongjiang Province will give prominence to developing green and organic agricultural products and high-quality, efficient crop cultivation, and develop contract farming
The reporter learned that “supply-side reform,” a concept proposed in resolving industrial overcapacity, will also be applied to agriculture this year.
“Similar to the industrial sector, China's agriculture also has the problem of structural overcapacity in production capacity. This is specifically manifested in excessively high inventories of agricultural products such as corn and cotton, while soybeans, white sugar, and others rely excessively on imports, capacity allocation is unreasonable, and the situation in which farmers increase production without increasing income frequently occurs.” Industrial Securities said in a research report.
In fact, the problem of structural overcapacity in domestic agricultural products can no longer be underestimated. Last year, due to overcapacity and a large backlog of inventories that led to a decline in market prices, China's temporary corn storage price, which had been implemented for seven years, was also lowered for the first time to 1 yuan per jin. The vast number of corn growers faced the predicament of a bumper year without a bumper harvest, and the impact even spread to downstream links in the industrial chain such as corn deep-processing enterprises and farmers.
Behind this problem, the first issue is that the corn planting structure urgently needs adjustment. At the National Planting Structure Adjustment Work Conference held on December 26 last year, Vice Minister of Agriculture Yu Xinrong specially instructed that the task of reducing corn planting in the “Sickle Bend” region by more than 10 million mu must be fully completed. He pointed out that the current development of the planting industry faces many difficulties and problems, and structural contradictions are more prominent.
After sorting through the “13th Five-Year Plan” recommendations of various places, the reporter found that major agricultural provinces including Heilongjiang, Shandong, and Zhejiang all set goals for optimizing the agricultural structure in their “13th Five-Year Plan” recommendations. Shandong Province proposed deepening the adjustment of the agricultural structure and developing refined agriculture with high standards, deep integration, long chains, good quality, and new methods. Heilongjiang Province will also adhere to market orientation in the next five years, give prominence to developing green and organic agricultural products and high-quality, efficient crop cultivation, optimize the planting structure, and develop contract farming.
On the other hand, the structural supply problem also reflects the chronic problem that China's current price mechanism for agricultural products is still not perfect. This Central Rural Work Conference proposed improving the price formation mechanism and purchase and storage policies for grain and other important agricultural products, so as to provide impetus for structural reform of agriculture. In the “Several Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting Price Mechanism Reform” issued in October last year, improving the price formation mechanism for agricultural products had already been proposed. This includes continuing to implement and improve the minimum purchase price policy for rice and wheat, reforming and improving the corn purchase and storage system, and continuing to implement pilot reforms for target prices of cotton and soybeans, among others.
An official from the Ministry of Agriculture told the reporter, “At present, China's spatial layout and policy system centered on agricultural production have basically taken shape, but there will still be relatively large changes in market circulation in the future. This is highly consistent with the requirement put forward at the 2013 Central Rural Work Conference to adhere to market orientation and consumption orientation in developing agriculture.”
In addition, to truly implement supply-side structural reform, it is also necessary to improve the quality and efficiency of the agricultural supply system and truly form an effective supply of agricultural products with a reasonable structure and strong guarantees, attaching great importance to reducing inventory, lowering costs, and strengthening weak links. Xie Gang, an agriculture analyst at Zhongtai Securities, pointed out, “For the agricultural industry, the direction of future transformation is not large-scale operation and pure ‘high yield,’ but rather ‘reducing production costs, improving agricultural efficiency and competitiveness’ and ‘establishing the concept of big agriculture and big food,’ integrating horizontally or vertically with an industry-chain mindset to improve overall efficiency.”