Friday, June 28, 2013

Calls for Reform of Grain Price Policy

China's agricultural policies are getting a lot of criticism for corruption and their role in rendering Chinese commodities internationally uncompetitive.  A reporter recently interviewed some farmers and summarized the response as, "While the minimum procurement price policy is not bad, the price is generally low and farmers' income is not high."

The National Development and Reform Commission recently bragged that it had raised the minimum price for rice 92 percent and the minimum wheat price 57 percent since 2008, and linked these price increases to the increase in grain output over the past six years. However, the NDRC also indicated last week that it plans to seek improvements in price support and subsidy policies to enlarge the role of the market mechanism, increase returns to farmers, and promote stable increases in grain output.

A Xinhua News Agency analyst named Ma Wenfeng said the minimum price policy doesn't benefit grain producers that much--the benefits accrue to middlemen who buy from farmers and sell to grain depots. A number of grain industry experts have pointed out that China is now importing about 10 percent of the grain it uses, which Ma says is directly related to the minimum price policy. The policy has raised prices above international prices, attracting imports.

The minimum price policy is also receiving criticism for corruption. The lightning rod for this critique was a suspicious fire at a Heilongjiang grain depot in May that occurred after an investigation team came to look into allegations of financial irregularities at the granary. The policy is also viewed as wasteful since the government spends 86 yuan on "management costs" for each metric ton of grain stockpiled grain held by depots.

State Council Development Research Center economist Cheng Guoqiang said at a grain industry conference last week that China has reached a critical point where the minimum price policy must be reformed. Cheng criticized the minimum price policy for distorting markets, warning that the government could end up stockpiling commodities at premium prices at high cost while imports pour in to the market. He called for adjustments in the policy that increase the role of the market and remove distortions such as a deficiency payment or revenue insurance approach.

Government propaganda linking the increase in rice and wheat
price supports to increases in grain production.

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