Cheng Guoqiang: The Logic and Path of China's Grain Price Reform

Cheng Guoqiang: The Logic and Path of China's Grain Price Reform

The inventory of corn storage is up to 250 million tons, and the low purchase price of rice is nearly 100 million tons. Since 2012, China's grain storage stocks have accumulated rapidly and are now at a historically high level.

Increasingly high food stocks and surges in imports have highlighted the urgency of reforming food prices such as temporary storage.

High food stocks worry

At present, China's high grain stocks are the result of a combination of factors, which are closely related to the continuous high-intensity stimulation of food policies including low purchase price and temporary storage, and the promotion of grain production in successive years. The profound impact of changes in international and domestic environment, such as lower prices, on food trade and consumer demand is directly linked.

In recent years, the market distortion mechanism formed by the continuous increase of the temporary storage price and the low purchase price, and the comprehensive subversion of the domestic grain market system and price relationship are the fundamental reasons for the formation of high grain stocks. For example, corn, the cause of its high inventory, is based on the market distortion of the temporary storage policy:

The temporary storage price “suddenly walks away” stimulates the overall increase of corn production. According to statistics, between 2008 and 2014, the national corn area expanded by 24% and production increased by 30%. In 2012, corn surpassed rice, and its total output exceeded 200 million tons, making it a large grain variety in China.

The increase in the price of temporary storage led to the upside of corn prices at home and abroad, and promoted the surge in imports of corn substitutes, by-products and downstream products, forming a situation of “foreign grain entering the market and domestic corn entering the warehouse”. In recent years, the growth rate of fuel ethanol in the United States has slowed down, and the expansion of corn production capacity has been stimulated by high prices in the early period. In addition, the US dollar has strengthened. The international corn market has entered a new round of low price in the second half of 2012. China has continuously increased the price of corn storage. As a result, the price of corn at home and abroad is upside down and the spread is constantly expanding.

At the same time, affected by the high price of domestic corn, the production cost of corn deep-processing products such as meat products and penicillin has risen, and the previous export has been reversed to import, which not only squeezes the domestic market of similar products, but also replaces domestic corn consumption to some extent.

Consumption is not prosperous, exports are blocked, resulting in low demand for effective corn, increasing domestic inventory pressure. Since domestic prices are significantly higher than international prices, domestic corn does not have export competitiveness at all and cannot eliminate stocks through export channels. Obviously, the mechanism for the reform of food price policy has already taken shape.

At the end of March 2016, the state announced the adjustment of the temporary corn storage policy to a new mechanism of “market-based acquisition” plus “subsidy” in the three northeastern provinces and Inner Mongolia Autonomous Region. This means that the eight-year temporary storage policy will be withdrawn and replaced by a “market-based acquisition”.

Looking further, at present, China's grain price policy reform not only has a mechanism of reversal, but also has favorable conditions for promoting food price policy reform in the macro environment at home and abroad, and is a good opportunity to start reforms in an all-round way.

First, domestic stocks are sufficient, and the global food supply and demand relationship is loose. It has laid a solid material foundation for reforming the reserve and other policies, and provided sufficient space for manoeuvre.

Second, it has a stable basis for grain production, which is the fundamental guarantee for promoting the reform of food price policy. Production capacity is in, food is there. If the main varieties have an imbalance between supply and demand, even if the stocks have been digested, as long as certain stimulus measures are taken, the grain production capacity can be converted into actual production, and the domestic market demand can be ensured.

Third, reform consensus and expectations have been formed. In recent years, the temporary storage policy has had a far-reaching impact on the grain industry, and various parties have long expected the national reform policy. Since the price of temporary storage in 2015 has been lowered, various market players have reached a consensus on the reform of food price policy, and it is generally believed that the price adjustment of corn temporary storage has not yet been put in place, and expectations for further adjustment of national policies will be formed.

The fourth is the pilot reform of the target price subsidy for soybeans and cotton since 2014, exploring the reform of the agricultural product price formation mechanism, and accumulating a rare operational experience and practical basis for the new round of food price policy reform.

Grain price reform logic

To solve the problem of high food stocks, we must not only adopt some special measures to digest the inventory of a single grain variety, but to systematically plan and reform the top-level design policy to fundamentally eliminate the inventory formation mechanism.

From the logic of reform, the key lies in the need to correct the excessive intervention of price support policies for the price of various food varieties, eliminate the market distortion mechanism, and establish a food price formation mechanism based on market pricing.

Why is reform difficult to advance? The essence is that because of the low purchase price, temporary storage and other food price policies, the goal is multiple, the function is misplaced, it is necessary to ensure the effective supply of grain (that is, "guarantee supply"), but also to protect farmers' grain-growing interests (ie, "guarantee income" The resulting interests are complex, which is related to national interests such as food security, as well as the multiple interests of local governments, the grain industry and agricultural producers, but the financial costs are all borne by the central government.

If you withdraw from the price support policy such as temporary storage, it will inevitably lead to a series of changes and conflicts of interest relations, leading to doubts about policy reform. In particular, relative to policy instruments such as direct subsidies, food price support policies have the characteristics of simple operation, direct benefits, and obvious effects. The implementation of price support policies for many years has formed a strong path dependence. Therefore, withdrawal from temporary savings reforms, etc., is likely to raise concerns about “guaranteeing supply” and “guaranteeing income” and the enthusiasm of farmers to grow their food.

“Protecting supply” and “guaranteeing income” are the two basic objectives of all agricultural policies in China, including food price support measures. When the domestic food supply is insufficient and the domestic price is lower than the international market, if the policy is properly implemented, the two goals can be taken into consideration at the same time. On the contrary, the two will conflict with each other.

OECD research shows that price support is less efficient for farmers to transfer income than policy measures such as spread subsidies, input subsidies, and area subsidies.

To promote the reform of food price policy, we must adjust the long-term practice of “guaranteeing supply” and “guaranteeing income”. We must optimize the allocation of policy functions and follow the principle of “bridge to bridge” and “return to the road”. Divide and cure the two goals. On this basis, the “guarantee gain” function of the food price policy was withdrawn, and it was returned to the original intention of “solving the difficulties of farmers selling grain”. In this way, it is possible to eliminate its intervention and distorting effects on the market by lowering or even canceling the price support, returning the grain price to the market mechanism, and directly subsidizing the measures to “ensure the income” to achieve targeted policy and price separation.

Withdrawal from the temporary storage policy and the implementation of market-based purchasing and storage will inevitably damage the existing interests of farmers to a certain extent. Therefore, it is necessary to make overall plans in the reform, and to establish a compensation mechanism for food price reform, so that the grain farmers can not benefit from the reform, the benefits are not reduced, and the enthusiasm for growing grain is effectively protected. That is to say, it is necessary to implement a food income subsidy measure that does not distort the market and achieve the goal of “guaranteeing income”.

The policy experience of supporting and protecting agriculture abroad shows that there is no fixed target model for agricultural policy adjustment and reform, such as food prices, and no policy can be used once and for all, and “everything should change”, all need to be adjusted according to the time and dynamically adjusted. . For example, since the implementation of the agricultural protection policy in the Great Depression in the 1930s, the United States has basically updated the agricultural bill every five years to dynamically adjust and gradually reform agricultural policy objectives and measures, and gradually form a systematic and complete agricultural support policy system. In contrast, China's low grain purchase price policy and temporary storage policy have been implemented for 10 years and 7 years respectively, and some subsidy policies have been implemented for 13 years. At present, it is also necessary to summarize, evaluate and adjust.

"Trinity" path

How to promote the reform of “market pricing and price compensation” and promote the formation of a new mechanism of “market-based acquisition subsidies”?

It is suggested that in accordance with the idea of ​​“oriented policy, price compensation, innovation regulation, comprehensive support”, the “three-in-one” combined reform of “removing grain prices to support grain yield subsidies and innovative grain regulation” will be adopted to form food price-based food price formation. Mechanism, the protection mechanism of farmers' interests with direct subsidies as the main body. The path of reform and the corresponding reforms are:

, withdraw from food price support. The starting point of the reform of food price policy is to withdraw from the market distortion mechanism. In this way, it is recommended to reduce the low purchase price of rice and wheat to a reasonable level without distorting the market in a phased manner, while withdrawing from the temporary corn purchase and storage policy this year. After the adjustment is in place, for the key grain varieties such as rice, wheat, and corn, take the purchase measures that do not distort the market and accompany the market.

The specific policy design requirements are as follows: Corn fully implements market-based acquisitions, withdraws from temporary storage, and simultaneously withdraws rice and wheat price support measures in stages, reducing market distortion effects year by year. After the policy adjustments are in place, the price support policy with production stimulation is no longer retained. In the future, farmers will decide to expand or reduce the planting area according to the market price signals of various grain varieties.

As the market control measures supporting the reform, the basic function of the bottom-up acquisition measures is to solve the problem of farmers selling grain and not to protect farmers' income.

After the price adjustment is in place, the purchase price of the bottom must be accompanied by the market, and it must be able to compete with the price of imported substitute products to prevent import substitution.

Taking corn as an example, according to the current import CIF price, if the corn bottoming purchase price in the northeast producing area is 0.8 yuan/kg, it can basically block imported corn and sorghum to enter the domestic market. On the other hand, the national average grain-growing cost announced by the National Development and Reform Commission incorporates both land and labor opportunity costs. For farmers with contracted land, land costs should not be included in income estimates, so when estimating grain costs The land rent cost is deducted. According to the 2014 data, the national average corn cost is 2,129 yuan / ton, after deducting the land cost, it is 1,680 yuan / ton (that is, 0.84 yuan / kg).

In this way, it can not only make up for most of the cost of peasants' grain production, but also basically block the competition of imported products. It can also rationalize the relationship between domestic and overseas prices as well as upstream and downstream, and avoid stimulating the continued increase in production. In particular, it can avoid the irrational increase in the price of rent and production materials, which is conducive to improving the international competitiveness of China's corn.

After the price adjustment is in place, the purchase price of rice and wheat in the future will be set. Considering the competition of imported products and the cost of grain production, we should also consider the comparative income relationship between different grain varieties to avoid new resource concentration and structure. Unbalanced problem.

Second, supporting the implementation of the “grain income subsidy”. The “food grain subsidy” is a supporting measure for the reform of food price policy. It is mainly used to compensate for the impact of food price reform on farmers' income and effectively protect farmers' enthusiasm for growing grain. The “grain income subsidy” is essentially an upgraded version of the “target price subsidy”, which is not linked to specific grain varieties. Any grain variety has the right to receive subsidies and is a non-specific product subsidy (ie, subsidies for all food varieties). ).

There are two specific subsidies: First, subsidies are based on area. The subsidy standard per unit area is determined according to the reduction of grain yield after the price decline in the reform process, and the subsidy standard is raised year by year. In the future, the subsidy standards for grain income should remain relatively stable, and can be adjusted according to the supply and demand of grain and the overall requirements of regulation.

Subsidies by area, there are two specific design requirements: subsidies are not linked to specific varieties; subsidies only for the area of ​​the contracted land, can be decoupled from the land contracting rights, "who kind of who to fill." At the same time, it is necessary to simplify the policy operation and avoid problems such as difficulty in implementing the target price subsidy pilot. It is recommended to subsidize the actual producers according to the total amount of subsidies from provinces and municipalities.

Second, the income insurance for food and agriculture. In order to effectively circumvent the international rules on the level of food subsidies and further improve the efficiency of financial subsidies, we can consider the experience of the United States and other countries to pilot the implementation of “food and agricultural income insurance”.

That is, subsidies are issued through insurance mechanisms to make subsidies circumvent international rules. The specific operational idea is that the country will announce the target price of cotton before grain planting (such as corn, according to the temporary storage price in 2015, and moderately adjust according to supply and demand). Farmers estimate the grain sales income based on average yield and target price, and Insurance companies are insured, and the state gives farmers a certain percentage of premium subsidies. After the grain harvest, the farmers sell on the market according to the market price. After the end of the sales season, if the income of the farmers in the area is lower than the insured income, the insurance company will pay the difference; if the income from the grain exceeds the insured income, the insurance company will not pay.

Third, innovative food market regulation mechanisms. At the same time as exiting price support, the path dependence of existing food markets and support policies will be broken. Failure to adjust the regulatory system in a timely manner may lead to instability expectations of market players and even large fluctuations in food prices. After the state adjusted corn storage and storage prices in the second half of 2015, the sharp fluctuations in corn market prices have proved this judgment.

We must pay close attention to establishing a new grain control system that is compatible with the reform of food price policy, and reconstruct the structural relationship and stability mechanism of the grain market. This requires that the policy must be promoted from the current “increased production orientation” led by price-directed direct intervention, and the “competitive-oriented” transformation based on “price separation and market mechanism” is gradually formed on the basis of policy subsidies. A new regulatory system that combines tools such as guidance, risk management, reserve regulation, and trade supplementation.

When the food supply is tight, comprehensive support measures are adopted to “guarantee supply” and “guarantee income”, to make full use of the positive role of import trade and to improve the effective domestic supply level; when the food supply is relatively affluent, we must weaken the role of price policy to subsidize The policy is based on “guarantee income”, focusing on improving the competitiveness of domestic grain, strictly controlling imports, and achieving a basic balance between domestic supply and demand.

The specific policy tools and control mechanisms are as follows: “Food production subsidy” is a structural adjustment tool for the new grain control system. The purpose is to guide farmers to fallow crops on cultivated land by providing income compensation, withdraw from overloaded grain production capacity, promote grain structure adjustment, promote agricultural ecological restoration, environmental protection, and enhance the sustainable development of agriculture. The policy should be designed in accordance with the terms of the WTO Green Box Policy and is not linked to any agricultural production.

Under the background of the current inventory pressure, it is recommended that the “food capacity subsidy” standard be equivalent to the “grain grain income subsidy” implemented during the same period. This provides an opportunity for farmers to choose between farming (acquisition of non-specific production subsidies) and non-species (capacity subsidies). In the future, if there is a shortage of food supply, the “food capacity subsidy” will be lowered or stopped accordingly.

From the perspective of the operability of the policy, it is recommended that administrative divisions be used as a unit to centrally contiguously implement land rotation crop fallow plans in some areas, or stop farming for high-standard farmland construction, and include capacity subsidies for the planned land area. For households that have taken the initiative to adjust grain structure in other regions, they may also consider granting “food capacity subsidies”.

Establish an expected management mechanism. This is the key to promoting effective policy reform measures. It is recommended to determine the grain price reform and related supporting policies and measures as soon as possible, and through a variety of channels (such as semi-research institutions, people, etc.) before the end of the year, to issue essays to the outside world, strengthen the interpretation of public opinion in the early stage of the policy, and effectively guide social expectations. On this basis, detailed policy plans and measures were officially announced before the Spring Festival and widely publicized in various ways. Among them, it is necessary to focus on organizing the training and publicity of the county and village groups so that everyone knows and everyone understands, so that every grassroots cadre and grain farmers are familiar with the new policies and understand new methods to ensure that the policies can be implemented without any compromise. In place.

Strengthen food market risk management. According to the new situation and new requirements after the reform of the grain price policy, we must promptly develop and research market risk management tools, speed up the introduction of futures, insurance and Other Products suitable for the new agricultural business entities, effectively diversify and manage the market risks of agricultural producers.

New grain control reserves. After the reform of the grain price policy is in place, the implementation of the bottom-up acquisition measures for major grain varieties will be able to turn part of the grain storage into regulatory reserves while solving the difficulties of farmers selling grain. The establishment of grain control reserves is aimed at high-low-sucking, low-peak and valley filling, and maintaining the stability of the grain market. In this way, it will help to further strengthen the material basis of the national food macro-control, so that the grain special reserve is positioned to ensure food security and respond to emergencies. The grain control reserve is mainly responsible for maintaining market stability and forming a national grain reserve system with clear division of labor and clear responsibilities. . It is suggested to refer to the grain special reserve management method for institutionalized and legalized management of grain control reserves.

Severely crack down on smuggling and effectively regulate food imports. It is estimated that according to the current domestic and international food price calculations, if measures are taken to strictly control food imports, it can increase the feed demand of nearly 30 million tons of domestic corn and the demand for deep processing of 15 million tons, which is 50% and 80% higher than no measures. %.

Therefore, it is necessary to crack down on smuggling and take measures to prevent and control the impact of smuggled products on food price policy reform. In order to promote the reform of grain prices, digest the inventory of temporary storage, and ensure the stability of the domestic market to provide effective support.