China Grain Price Reform Imminent, Official Says

China's leading rural policy advisor promised reform of the corn pricing mechanism soon after the "two meetings" of communist party officials conclude in March. The reform should be announced ahead of spring planting, he said. In a departure from the past party line, the advisor called for reform of wheat and rice prices as well, although he said he himself doesn't know whether this will occur.

Chen Xiwen, vice director of the leadership group on rural work, made the statements at a meeting on rural affairs sponsored by Farmers Daily on February 27. Chen said the reform of the mechanism for determining corn prices would move ahead because the grain is used as an industrial raw material and animal feed and because corn has the most prominent contradictions with excessive inventories and other issues. Chen did not specify whether the reform would be a lowering of the "temporary reserve" price for the 2016 crop or an elimination of the program altogether.

Chen Xiwen gives his important speech. (Source: Caixin)

In previous discourse Chen has often spoken of detaching subsidies from prices. In his latest statement Chen emphasized that it was critical that farmers not bear large losses. He made a vague statement explaining that the amount of subsidy given to farmers is set by the budget approved by the National Peoples Congress. This may have been a promise that subsidies would offset the loss from lower prices, or maybe it represents a deflection of blame from communist party officials to the Peoples Congress for any losses inflicted on farmers.

Most previous statements on grain policy insisted that minimum prices for wheat and rice would continue even if all other prices were liberalized. The National Development and Reform Commission has already announced minimum prices for the wheat harvest that will occur in may-June and the rice that will be harvested from July to November.

In the February 27 statement Chen insisted that it is necessary for wheat and rice prices to be liberalized as well. Although reforms for these food crops are very sensitive, Chen said, the reform will fail if only the corn price is reformed because relative prices between crops will become "chaotic." He said wheat/rice prices must be reformed without dragging it out too long.

Chen said the communist party's "central document number one" specifically called for reform of corn prices, and that reform will certainly go forward. However, Chen said that he himself doesn't know whether rice and wheat prices will be reformed.

Chen said the wide gap between domestic and international prices makes the reform necessary. He said that the tariff rate quota that limits imports of corn, wheat, and rice insulates the domestic market now. But if Chinese grain prices rise to 65% above international prices in 5-to-7 years, Chen said the protection of the tariff rate quota will be "completely lost." (65% is the tariff on grain imported outside of the tariff rate quotas.)

Echoing comments made in January, Chen said reducing grain output is appropriate because the current level of grain production is not needed. Supply side reform that reduces production costs and adjusts the mix of crops is necessary, he said.

The March 1 Farmers Daily has a headline emphasizing that the supply of agricultural commodities is plentiful, "an achievement on China's tongue."