Wednesday, January 5, 2011

Shandong's Price Control Mechanism

Shandong Province announced a new mechanism for controlling agricultural prices to start this year. The system's goals are to stabilize agricultural prices and protect the interests of both the urban poor and farmers, while "tilting" the benefits of rising prices toward farmers.

The system is referred to as "one fund, one reserve, two guarantees." The "fund" is a special fund for agricultural product subsidies. The "reserve" refers to a complete commodity reserve system that is intended to buy and sell commodities to stabilize prices. The "two guarantees" refers to income thresholds for receiving welfare payments that links subsidies for low-income people to the rise in prices. Details on the program are sparse.

The "tilting" of benefits is not explained. It is probably intended to somehow prevent speculators and traders from earning all the profit when prices are rising.

Other measures for reducing agricultural prices include reducing fees for highway tolls, rail transportation, entry fees at wholesale markets and supermarkets' slotting fees. It also calls for continued price controls for fuel and gas for fertilizer factories to maintain the supply of fertilizer.

A Peoples Daily article earlier in 2010 calls for a better mechanism for controlling agricultural prices. The article calls for more commodity reserves. Apparently, bureaucrats will know exactly the right time to buy and sell reserves to even out market prices. The article hails the sale of sugar, frozen pork, and even live sheep reserves into the market this year.

The article also praises seven provinces' subsidy mechanisms that links payments to increases in prices. In June this year, Guangzhou gave temporary commodity price subsidies of 30 to 50 yuan per month per person for 3 months. A lady named Zhou got 450 yuan and immediately bought her daughter a package of milk. Ms. Zhou said, “If there was no subsidy, we couldn’t make soup in our home.”

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