If the minimum purchase price for early rice is abolished, prices may fall back to levels of 10 years ago, just like corn
Recently, some experts have suggested abolishing the minimum purchase price for wheat and rice. Considering that the temporary purchase and storage policy for corn was already abolished in 2016, the abolition of the minimum purchase price policy for wheat and rice is also to be expected; the key question is when it will be abolished.
Below, let us discuss the situation of rice alone: if the minimum purchase price is abolished, how much will rice prices fall? In fact, corn is a very good reference.
After the temporary storage policy was abolished, the corn market price fell directly from 2400 yuan/ton to a low of 1400 yuan/ton, a drop of 1000 yuan per ton, which can be described as a cliff-like decline.So if the minimum purchase price for rice is abolished, how low will the market price fall?
At present, in 2016, the national minimum purchase price for early indica rice is about 3000 yuan/ton, while the selling price of local reserve early indica rice at the South China Grain Trading Center in Guangdong ( agricultural land, commercial and residential land, industrial land) is about 2100 yuan/ton,Both are early rice from roughly the same years, yet the price difference reaches 900 yuan/ton. Which one is closer to the market price?It should be the latter, because the latter has a higher transaction rate, above 90%, while the former has a transaction rate of only 7%. Moreover, from another angle, if 3000 yuan/ton is the market price of old rice in the production area, then enterprises in Guangdong can buy old rice from the South China Grain Trading Center at 2100 yuan/ton and immediately resell it to the production area at 3000 yuan/ton. After deducting intermediary costs, they would earn at least 700 yuan per ton net, which is completely risk-free arbitrage. We know that risk-free arbitrage opportunities can only exist in the short term and cannot exist for a long time (because risk-free arbitrage behavior will quickly eliminate the price gap), but such a price gap has already existed for several years. This can only mean that the price of 3000 yuan/ton is a "fake" market price, a price forcibly propped up by the government, and has no basis for existence - that is, at such a price level, not many actual transactions occur.
This also means that if the rice transaction price at the South China Grain Trading Center is taken as the benchmark, after the minimum purchase price is abolished, the early rice market price must fall by at least 700 yuan/ton. In fact, due to the chain reaction from abolishing the minimum purchase price, the early rice market price is very likely to fall by 1000 yuan/ton, just like corn, which means the price per jin will drop by 5 mao.
Why say this?
Because although the minimum purchase price supports new rice, due to the existence of substitution effects, the price of old rice is also indirectly propped up and is not fully marketized.If this support board of the minimum purchase price is completely removed, the market price of old rice will certainly be lower than it is now. I reserve a margin of 300 yuan/ton for this.
The reserved margin of 300 yuan/ton is simulated by reference to the price decline after corn abolished the minimum purchase price. Is that too much? Actually, it is not much. Because when corn abolished the minimum purchase price, the minimum purchase price policies for wheat and rice had not been abolished. Also due to substitution effects, after corn abolished the minimum purchase price, the minimum purchase price policies for wheat and rice still provided indirect support to corn, so the decline would not be too large. However,if rice abolishes the minimum purchase price and only wheat's minimum purchase price support remains, or even if wheat's minimum purchase price policy may also be abolished, then the price decline of early rice may be even larger than when corn abolished the minimum purchase price.
As for,middle and late indica rice, because the minimum purchase price support is not strong, after the minimum purchase price is abolished, the price decline will be relatively much smaller.However,japonica rice has relied heavily on the minimum purchase price in recent years. Once the minimum purchase price policy is abolished, its price will also collapse.As for how much it will collapse, interested parties can make simulated estimates according to the above approach.
After corn abolished temporary storage, its price fell directly to the level of 2006. With a drop of 1000 yuan/ton, early rice prices will probably fall to the level of 2008 and 2009, which is entirely possible.