Analysis of the Current State of China's Agricultural Product Production and Marketing Structure and Suggestions for Improvement (Part 2)

Not long ago, before taking office, the new Director-General of the Agriculture and Food Agency, Hu Chung-yi, explained through an electronic media interview, using Japan as an example, the importance of farmers developing market-oriented and planned production concepts; also, immediately after taking office, he went to the dragon fruit production area in the Taichung region to inspect and exchange views on dragon fruit production and marketing with the director-general of the farmers' association, and pointed out that starting in February next year (2019), a "strategic agricultural alliance" will be promoted, planning the annual supply volume of agricultural products and carrying out industrial structural adjustment to avoid recurrence of production-marketing imbalance, with the first wave starting with crops such as onions, garlic, bananas, and pineapples.

Director-General Hu's concepts and measures give people a refreshing feeling. The Council of Agriculture has begun to think simultaneously from the production side and the marketing side to solve the long-standing problem of production-marketing imbalance in China's agricultural products. Although we cannot yet know the actual follow-up practices, from the bits of information revealed in the news we may perhaps get a rough idea; generally, the problem is to be improved through methods such as production/shipment registration, production-marketing coordination, production-marketing alliances, and strengthening the development of diversified channels.

To be strict, these methods have been used before. But perhaps due to reasons such as not being universally implemented, not being effectively promoted, inability to continue after personnel changes, scattered efforts with no visible results, and differing standards and opinions, the production-marketing problem has never been effectively overcome.

So how can the task be effectively accomplished in this opportunity for improvement? Personally, I believe that in addition to the measures announced by Director-General Hu mentioned above, the active role and positioning that the Council of Agriculture needs to play in this are very important. Below, based on my personal understanding, I propose several directions for thinking and methods for reference:

1. Production side: It is necessary to effectively grasp and regulate the national agricultural production situation.

If readers only look at the title, they will feel there is no difference from what Director-General Hu declared he would do. In fact, everyone understands this concept; it is just that for so many years it has never been achieved, and this is the main crux of China's production-marketing problem. If this problem cannot be overcome, will agricultural administration units forever only be able to do the thankless work of firefighting, bearing criticism with no day of recovery? Therefore, this article explores from which directions it can be laid out to break through this bottleneck.

(1) Set a reasonable average daily consumption volume for different agricultural products among the people.

Some countries in the European Union, in managing major agricultural products, set average daily consumption volumes based on their citizens' dietary habits as basic data for management. Farmer Lin Yu-hung also, in many articles he published, used his simple estimates of the average daily/annual consumption of a certain agricultural product by the people to review the problems between agricultural product output and price changes.

There are many methods for investigating average daily consumption, but the purpose of the investigation here is related to the grasp and management of agricultural product prices in wholesale markets. Therefore, a relatively quick and simple method can use the existing daily price and volume data of national wholesale markets, consider festival and seasonal factors, exclude abnormal values, and then estimate a reasonable average consumption volume of agricultural products in units of different months or different weeks (periods).

The reasonable average consumption volume here means that under this demand, the arrival volume at the wholesale market will ensure that the wholesale selling price of agricultural products is higher than (or at least breaks even with) the total of production cost at the place of origin plus transportation and marketing management costs. However, to avoid insufficient arrivals causing excessively high wholesale prices and burdens on consumers, this reasonable average consumption volume should not be set too low either. The national average consumption volume used as the basis for subsequent production management at the place of origin must be a reasonable interval number with a difference not exceeding 5-10%, rather than a single value.

Since the consumption of agricultural products has a certain proportion of substitutability, in addition to setting the average consumption volume of a single product, several product combinations should also be identified, and the total average consumption volume of the product combination should be set as basic data for management. In addition, to broaden and make flexible future use of the reasonable average consumption volume values, the supply volume flowing out through contract farming (and direct sales by producers) should also be included in the statistics later.

(2) Estimate the reasonable production area of agricultural products and carry out planting area allocation planning.

With the above basic data, this allocation planning will be persuasive. Based on this, we can estimate the required planting area for each agricultural product in each production period (calculated by week or month); then, according to the suitable production season and region of each fruit and vegetable crop, China's existing farmland soil environment and farmers' general usage conditions (planting habits), and considering the risk of future natural disaster losses, allocate reasonable and appropriate planting areas for various crops by region or county/city.

This work sounds simple, but even with the content and completeness of the data currently held by the agricultural administration departments, it should still require further optimization, inventory, integration, and manpower, as well as experience and wisdom, to plan complete and reasonable data for subsequent coordination and management of production order; this is the more mentally demanding part of developing this management foundation, but it is also the necessary foundation for establishing a good management system in the future.

(3) Establish a binding production order management system.

The government gives farmers great freedom to plant. As long as farmers believe their soil and climate conditions are suitable and they have sufficient technology and manpower, basically they can plant whatever they want. The government does not and cannot restrict what farmers may or may not plant; at most, it only warns farmers through persuasion that there may be a risk of excessive production and price collapse. Therefore, China's agricultural wholesale markets often suffer from sharp price fluctuations caused by overproduction and production-marketing imbalance, requiring agricultural administration departments to constantly step in, put out fires, and bear criticism.

According to observation, successive administrations have not failed to think about facing and solving this problem and have adopted some methods, but all ended without result or with little effect. I cannot comment on the reasons, but in summary, it is the failure to effectively manage the domestic agricultural production order. So is there a method that can establish a management system that both gives farmers freedom to plant and is binding on farmers' production order?

The idea proposed later in this article is actually very simple and direct, and agricultural administration experts must have thought of it or tried to implement it before; that is: "For farmers' planting activities, implement a (mandatory) registration system based on farmer identity combined with the planted land." But it may have lacked good supporting measures or an implementation foundation, and thus could not be effectively promoted. In this regard, this article proposes the following implementation methods and auxiliary measures for reference:

A. Establish a complete database of farmers and farmland by region or county/city.

B. When farmers engage in any planting activity, they need to register the planting in the central database through a designated agricultural administration unit or farmers' organization. Before planting registration, farmers can query in the information system whether the intended harvest period and intended output of the fruit and vegetable crop they wish to plant have already exceeded the reasonable allocated quantity previously set for that area and that production period under production order management. If exceeded, farmers may, on their own through the system or with the assistance of a farmers' organization, query and choose other fruit and vegetable crops to plant, or decide not to change the originally planned planting item.

C. Agricultural administration units shall take appropriate measures to support and encourage farmers' behavior of following production order, or let farmers who do not follow production order bear production risks themselves. Examples of feasible practices are as follows:

• When the total production volume of regulated fruits and vegetables in a region or county/city remains within the reasonable total volume control allocated for that region (or nationwide), the government should guarantee that the purchase price of the fruits and vegetables produced by farmers in that region in that fruit and vegetable production area remains above production cost. Whether and when to activate safeguard measures should be institutionalized, and the safeguard mechanism should not be only "deficiency subsidy"; multiple practices should be designed (such as adjusting marketing channels) for flexible use.
• When the estimated total production volume of regulated fruits and vegetables in a region or county/city exceeds the reasonable total volume control, if it becomes necessary to activate the purchase price safeguard mechanism for farmers in that region, then the current production volume of farmers who registered first should be fully guaranteed or guaranteed at a high proportion, but agricultural products produced by farmers who had already exceeded the control quota at the time of production registration shall not be guaranteed or shall only be guaranteed at a low proportion.
• When the place of origin meets the government's conditions for agricultural loss subsidies due to natural disasters, farmers who have registered production and conform to total volume control production shall be given full or high-proportion subsidies for the (estimated) production volume, but farmers who exceeded production volume control at the time of registration shall not be subsidized or shall receive low-proportion subsidy guarantees; the subsidy amount should consider the product's growth age at the time (degree of growth, etc.) and set different payment proportions.

D. If this management system is to be smoothly promoted and effective, several key measures must also be considered, promoted, and maintained, including:

• Considering legislation or administrative orders to enable farmers to comply with mandatory registration requirements.
• Establishing a complete registration guidance mechanism for farmers' groups.
• Building a complete farmer identity and land database, and developing an appropriate information system so that users and managers can quickly complete management and statistical analysis activities such as querying, registration, production, and forecast data.
• Developing complete, diverse, and fair production safeguard measures and immediate, effective grasp of purchase prices at the place of origin.
• Truly auditing whether farmers plant according to the registered content, to avoid speculative behavior by fake farmers and fake production to receive subsidy guarantees, or disorderly behavior of not producing according to the registered type. If any farmer fails to plant according to the registered content, the production share occupied by the original registration must be relinquished and the registration data content updated.

If the above system can overcome difficulties and be smoothly promoted, it is expected that after a period of time farmers will realize that planting behavior that follows production order management will provide more protection for their production profits. Thus they will gradually stabilize in their choice of crops to plant; and it is also hoped that on this basis, farmers' production technology can be further improved and more large-scale and competitive production organizations can be developed.

2. Marketing side: Strengthen the correlation between agricultural product prices at the place of origin and wholesale prices, and establish a complete cold chain warehousing adjustment and backup mechanism.

The transport of agricultural products from the place of origin to wholesale markets has now developed into many different methods; different crops and different production areas also adopt different main transport methods. But no matter which transport method is adopted, the roles involved, according to the definition of the Agricultural Products Market Transaction Act, can only include farmers, farmers' groups, suppliers, and transporters; if using folk terms, there are also origin wholesalers, storage and transport operators, pure transport operators, and consignment wholesalers in wholesale markets (although some of the above terms differ, they refer to people of the same category).

According to the record of the development history of agricultural product marketing in Taiwan, China's large farmers' groups mainly include 4 major systems: the farmers' association system, the agricultural cooperatives union system, the fruit marketing cooperative system, and the national agricultural cooperatives union system. These four major systems basically assist their member farmers and members in joint marketing of agricultural products (including necessary grading, simple processing/pre-storage, packaging, and other operations in the process), delivering agricultural products to various auction markets.

Referring to Table 2-1-2 on page 162 of the Development History of Agricultural Product Marketing in Taiwan and the 2014 Fruit and Vegetable Marketing Statistical Annual Report of Taipei Agricultural Products Marketing Corporation, of the 489,800 metric tons of vegetables traded by Taipei Agricultural Products Marketing Corporation in 2014, 345,000 metric tons (about 70%) were delivered to the Taipei auction market through the joint marketing system to complete transactions. Of the 210,900 metric tons of fruit traded in 2014, 129,700 metric tons (about 60%) were delivered to the Taipei auction market through the joint marketing system to complete transactions. Therefore, in the Taipei fruit and vegetable auction market, 30% of vegetables and 40% of fruit were still transported to this auction market through transporters (or other) channels to complete transactions.

It is a reasonable assumption that the storage, transport, and handling costs of agricultural products from the place of origin to the wholesale market are relatively stable. However, observing information on wholesale market prices and origin prices, it is often found that the origin purchase price and the wholesale market transaction price of agricultural products do not maintain a fixed price difference range. This is a phenomenon shown by the trading market; especially when agricultural product prices rise, the gap between the origin purchase price and the wholesale market price becomes larger accordingly. Is this because insufficient arrivals of agricultural products cause increased handling costs in the marketing chain? It should not be; this is what columnist Chiao Chun called the decoupling phenomenon between origin purchase prices and wholesale market prices. This is also the reason farmers often complain that the price difference benefits are not reasonably returned to producers.

Conversely, when agricultural product wholesale prices fall, looking at the gap between origin prices and wholesale market prices often gives a clear message: wholesale market prices cannot be compared with origin purchase prices because a certain amount of product loss and marketing and management costs will occur in the process. From this it can also be inferred that the loss risk when agricultural product prices fall does not (necessarily) fall on the operators who play the marketing role in between.

Intuitively, this price difference problem should be more likely to occur at the channel end of transporters or consignment wholesalers, and not at the channel end participating in the joint marketing system. But according to a phenomenon revealed in a June book excerpt this year (If Farmers Could Do This), quite a few farmers still do not trust the channels of the joint marketing system and instead trust familiar large wholesalers more. What is the reason for this?

To solve this problem, it is necessary to review and reshape the relationship between farmers and farmers' groups, transporters, origin wholesalers, or suppliers, and through big data records and analysis to (in real time) identify problem points; adjusting the production-marketing structure in this link is an important issue for improving farmers' production income. Basic practices can be pursued in the following directions:

• Improve farmers' bargaining power over the origin purchase prices of their agricultural products.
• Increase the responsibility of farmers' groups, transporters, origin wholesalers, or suppliers to share farmers' production risks.
• Increase the element of transporters, origin wholesalers, or suppliers developing toward the role of "service providers."

How to do it? The following proposes several methods for reference:

(1) Promote long-term stable relationships between farmers and transporters, origin wholesalers, or suppliers.

General farmers who currently do not participate in the joint marketing system should also have origin wholesalers they are familiar with and deal with more often, but they may mostly be in an unequal position; farmers may be regarded as appendages of the wholesalers (not allowed to let other wholesalers take their source of production) without feeling it.

Therefore, the government should assist farmers in improving this relationship and establish an equal cooperative relationship between farmers and wholesalers similar to "contract farming production." It would be best if the content of the relationship could be written down in black and white. The content and conditions of cooperation may include the following models:

• The purchase price during the production period guarantees purchase on a certain quality basis by reference to a certain percentage of the average wholesale price of the product in a certain wholesale market over a certain period; farmers may not resell the product to other wholesalers without justified reason.
• The purchase price during the production period guarantees purchase at or above XX minimum price; farmers may not resell the product to other wholesalers without justified reason.
• No guarantee of purchase, but agreeing to transport the product to a certain wholesale market for sale at XX cost.
• Other

In order to facilitate the establishment of this long-term stable relationship between both parties, wholesale markets may make relevant incentive measures, such as providing dedicated unloading sites, priority auction rights, or preferential transaction management fees to such transporters and suppliers who establish specific cooperative relationships with farmers (this may be handled by extending Article 23 of the Agricultural Products Transaction Act). After all, the source of livelihood of transporters is the products produced by farmers. If transporters want to earn profits or opportunity profits from the marketing price difference of agricultural products, then transporters should share farmers' risks or give farmers the income they deserve. They must not deliberately suppress farmers' income through methods akin to exploitation (buying low and selling high) or refuse to share farmers' production risks while the government alone bears the consequences of farmers' production risks.

In addition, if the good management of production order mentioned in the first item above can be established and maintained, in addition to reducing the sharp rises and falls of agricultural products caused by production-marketing imbalance and reducing the room for middlemen to earn such opportunity profits, farmers' relatively stable choice of production crops will also help facilitate and establish long-term relationships between both parties.

(2) Make transaction information between farmers and farmers' groups, transporters, origin wholesalers, or suppliers real-time.

The establishment of long-term stable relationships in point (1) basically requires this mechanism to facilitate it and allow the competent agricultural administration authorities to conduct appropriate auditing and restraint.

The spirit of enacting the Agricultural Products Transaction Act is the recognition that providing a public market trading system and promptly disclosing detailed transaction information is an important environmental foundation for maintaining reasonable agricultural product market prices. Therefore, a public, real-time "origin purchase transaction price" should also be an important environmental foundation for safeguarding farmers' rights and interests in origin selling prices; however, this transaction information does not need to be made public to the market, only to the government competent authorities, so as to serve as reference for management, auditing, and handling the aforementioned farmer production safeguard measures.

According to Article 18 of the Agricultural Products Transaction Act: "Suppliers in Items 2 to 6 shall keep transaction data; when necessary, the competent authorities of municipalities directly under the Central Government, counties (cities) may inspect them (in practice, actual inspection behavior should be very rare)." The implementation of this plan can be handled according to this article; that is, the central competent authority develops a real-time registration system for transaction data between farmers and sellers (different from the current "Agricultural Product Production and Marketing Supply Chain Integration Service Platform" or upgrading it).

The government may require transporters, origin wholesalers, or suppliers to complete transaction data registration in the system before they may conduct transactions in the wholesale market. In this way, the government can obtain real-time data from the origin farmer transaction end in the wholesale market. Afterward, the competent authority obtains transaction data from the wholesale market end (which should include the consignment area in the future), cross-checks and compares the data from both sides, identifies unreasonable points, and further investigates the causes as the basis for eliminating abuses and adjusting policies or management methods.

For the collection of farmer-end transaction data, it is necessary to consider the accuracy of the data and have anti-fraud measures to avoid subsequent misjudgment in policy and management, and to prevent opportunistic psychology among those with ulterior motives seeking improper benefits when safeguard measures are implemented in the future.

(3) Establish a complete cold chain warehousing supply adjustment and backup mechanism.

In the production of agricultural products, climate conditions are a major influencing factor; this may cause a bumper harvest, and disaster losses often cause poor harvests. Therefore, using cold chain warehousing for pre-storage and temporary storage of agricultural products is an important method for adjusting the supply volume of agricultural products in wholesale markets, and is also a backup measure for production order management.

The importance of cold chain warehousing has received attention from the government's agricultural administration departments, but in addition to building cold chain warehousing facilities for wholesale markets themselves, government competent authorities should also consider, integrate, and plan to promote the establishment of private specialized companies, estimate the nationwide cold chain warehousing demand, establish standard-compliant agricultural product cold chain specialized warehousing capacity, and a database system capable of grasping real-time available space, warehousing locations, and stored product quantities; together with forecast data for production during the production periods of major agricultural products, prepare early for responsive adjustment measures according to pre-established supply adjustment mechanisms for various products. In this way, changes in agricultural product prices can be effectively controlled and managed under the free market mechanism.

The above are the improvement suggestions proposed in this article regarding the current situation and problems of China's production-marketing structure. It is hoped that these suggestions will contribute to improving the constitution of China's agricultural product production-marketing structure.