Puzzling Rice Policy Reversal

China announced an increase in its minimum price for indica rice and is encouraging production of the early-season rice crop that are reversals of recent rice policies. The early-rice directive is alternately viewed as a measure to stem the decline in rice output and as a countercyclical rural employment program for migrant workers trapped in their villages. This year's policy also includes an apparently symbolic upper limit on rice procurement that might be a gambit to bring the minimum price policy into compliance with WTO rules without making any material changes in the program.

A notice on this year's minimum prices for rice issued February 28 by the National Food and Strategic Reserves Administration announced minimum prices of 2420 yuan/metric ton for early indica rice, 2540 yuan/metric ton for middle and late indica rice, and 2600 yuan for japonica rice. The indica (long grain) minimum prices were raised by 20 yuan/mt from their 2019 values. These were the first increases in minimum prices since 2014. The japonica (medium grain) price was the same as last year.

China's minimum prices for rice, 2015-20
Year	Early indica	Middle-late indica	Japonica
2015	2700	2760	3100
2016	2660	2760	3100
2017	2600	2720	3000
2018	2400	2520	2600
2019	2400	2520	2600
2020	2420	2540	2600

The announcement also introduced a 50-million-metric-ton upper limit on annual procurement of rice at minimum prices. Limits are 20 mmt of indica and 30 mmt of japonica rice. The first 45 mmt of procurement can be purchased from any of the eligible provinces, but the final 5 mmt will be allocated among provinces based on unspecified needs for procurement. The document did not specify whether the limit will be based on the calendar year or marketing year (fall rice procurement typically runs from October to February, overlapping calendar years).

The upper limit on rice procurement is unlikely to be binding since China has never procured 50 mmt of rice at minimum prices. The largest volume ever procured through the program was 40 mmt in 2013; only 15 mmt was procured during 2019. (A similar upper limit on procurement of wheat at minimum price that exceeds past procurement volumes was also introduced for 2020.) So why bother imposing this limit? The limit may be intended to bring China technically into compliance with WTO rules for domestic support. By introducing the limit, China might declare that only 50 mmt of rice is "eligible" to be purchased at minimum prices, a sleight of hand that could alter the arcane domestic support calculations in a way that reduces the value of price supports reported to the WTO without making any actual changes in the program.

Another reversal of recent rice policy was issued in a February 18 State Council statement that encouraged revival of double-cropping of rice. The statement was attributed to Premier Li Keqiang. Since the 1950s China has intermittently encouraged farmers to grow 2 crops of rice on the same land when grain supplies were tight--an early crop planted in the spring followed by a late crop harvested in the fall. The policy has been reversed several times during supply gluts. In the last few years officials had embraced the decline in double-cropping of rice because the early-season crop is shunned by consumers, requires a lot of labor and water, and is unprofitable for most farmers.

There are two competing interpretations of the double-cropped rice revival. An article on China Grain Net thinks the reversal was stimulated by alarm over statistics showing a 1.2-percent decline in rice output last year and a drop in area planted to less than 30 million hectares. Area planted in early rice dropped 7.1 percent and early rice output fell below 30 mmt for the first time since 2004. The anonymous author reports that production of the early-season rice crop plunged 40 percent or more in a county in Jiangxi Province where he/she conducted a survey last year, due to high costs, lack of labor, and clogged irrigation ditches.

A China BRICS analyst connects the resumption of double-cropping to the coronavirus crisis. He notes that China has no shortage of rice and speculates that the encouragement of early rice production is an employment policy meant to absorb the labor of migrant workers stuck in their home villages because they are unable to return to their jobs.

A February 25 directive issued by Xi Jinping to carry out spring planting and continue implementing rural policies during the coronavirus reiterated Li Keqiang's command to stabilize grain production and to restore double-cropped rice production.

Hunan Province's February 26 press conference on coronavirus prevention and control featured measures to "stabilize double-cropped rice" output by "struggling" to ensure that 10 million mu of land is devoted to concentrated production of early rice seedlings.