How to tackle rising agricultural product prices
Looking at factors on both the supply and demand sides, there should be no problem in maintaining a basic balance between China's grain production and consumption for some time to come. Therefore, there is no reason for grain prices to surge or plunge.
However, external factors are not encouraging. Western countries' grain subsidies of around 300 billion USD per year and their encouragement of fallow land are an important reason why international grain prices remain high. Another important factor is the quantitative easing monetary policy implemented by the US government after the financial crisis - in plain terms, recklessly printing money to offset the huge debts brought by the financial crisis, which has driven up the prices of global resource products.
How to tackle rising grain prices
A normal market economy country does not prohibit speculation, but guides speculation toward innovation.
The purpose of curbing speculation and setting industry entry rules is to prevent a spiral of price increases; the main measures are information disclosure to accept public oversight, and resolutely cracking down on illegal speculative trading.
China Economic Times: So what attitude should we adopt toward rising grain prices?
Ding Ningning: Personally, I believe grain prices should rise slowly. Looking at the industrialization history of Western developed countries, because the improvement in agricultural production efficiency is far lower than that in manufacturing, there is an obvious price scissors gap between agricultural products and manufactured goods. But if prices are too low, no one will engage in agricultural production, thus affecting the basic needs of human survival. Therefore in the long run, contrary to manufactured goods, the price trend of agricultural products is a slow rise.
Judging from our policy practice over the past 10 years, the state grain purchase price "rising steadily" is also entirely correct. The state purchase price rises by 5% to 10% each year, which both protects farmers' interests and stabilizes grain production. The selling prices of agricultural products naturally also "rise steadily", but structural price fluctuations are relatively large. That is, the prices of minor grain varieties fluctuate greatly, and the prices of high-quality grain varieties fluctuate greatly. There are both reasonable and unreasonable factors in this.
After reform and opening up, we gradually lifted price controls on the agricultural product market, and we must not return to the past state of planned control just because the prices of certain agricultural products are currently too high. Under general market economy conditions, the correct approach is not to impose price control measures on agricultural products whose prices have risen too fast, but to encourage production and curb speculation.
Since Western industrialization, every traditional industry has protected its own producers, kept product prices stable, and not allowed speculative capital to enter freely. If outside capital wants to enter, it must reveal its identity, and at the very least be traceable. With us, by contrast, it comes without a shadow and leaves without a trace. The reason is simple: the market as many people understand it is a speculative market. For example, Wenzhou real estate speculator groups roam everywhere, and local government officials even welcome them warmly. They are eager for them to drive housing prices up, so they can then sell land, with officials and businesses joining hands in land speculation. A normal market economy country does not prohibit speculation, but guides speculation toward innovation, such as the US Nasdaq. In our agricultural product and grain markets we overly worship competition and lack industry entry rules, which is why abnormal price fluctuations occur.
The agricultural product and grain markets of Western countries ultimately all develop into relative oligopolies. We now prevent domestic enterprises from monopolizing, only to be monopolized by international giants. This is the government's greatest policy failure.
In the grain market there must be a "national team". The national team need not be state-owned enterprises. The so-called national team refers to domestic-funded monopoly enterprises with which the government can communicate and through which it can influence market prices. I believe such enterprises should be cultivated, rather than broken up and then left for foreigners to control. This involves the issue of industry and market entry. In plain terms there are just two points: first, entering the industry must require registration; second, domestic grain traders should be encouraged to grow bigger. It should be noted that the problem is even greater in edible oil, where we basically have no enterprises of our own - all are foreign-funded. Arowana, Luhua - all are controlled by foreign capital. How do you negotiate with them? On what grounds do you stop them from raising prices? The purpose of curbing speculation and setting industry entry rules is to prevent a spiral of price increases; the main measures are information disclosure to accept public oversight, and resolutely cracking down on illegal speculative trading.
Why chaos has emerged in the grain purchasing market
Even if industry entry measures are adopted, grain purchasers should sign long-term contracts with farmers, rather than negotiating at harvest time each year, otherwise it is unfair to farmers.