Chen Xiwen: a rational look at the upside-down situation of grain prices at home and abroad

People from all walks of life are very concerned about the food problem, and I would like to focus on this issue.

Judging from the domestic production situation, this year is the 12th consecutive year of grain production, and the output is expected to reach about 1.23 trillion jin. Compared with 12 years ago, the annual output has increased by more than 360 billion jin, which is a very remarkable achievement.

At present, people from all walks of life focus on two aspects: first, for a period of time, China's domestic grain prices are significantly higher than those in the international market, resulting in a situation of upside down grain prices at home and abroad. Second, whether the ongoing reform of the grain price formation mechanism will affect the income of farmers.

At present, China's domestic grain prices are indeed significantly higher than those in the international market. Judging from the average price from January to September, the wholesale price of wheat in China is about 37% higher than the cost of foreign wheat imported on shore within the tariff quota, the price of rice is 42% higher, and the price of corn is 51% higher.

This situation occurred after 2012. What's the reason? Mainly in order to protect the interests of farmers, in recent years, the government has continued to raise the minimum purchase price for grain purchase and the temporary collection and storage price of corn and soybeans. The price implemented this year is still the price set in 2014. Compared with 2011, the domestic minimum purchase price in 2014 increased by 32% for early indica rice, 29% for middle and late indica rice, 21% for japonica rice, and 13% and 20% for temporary collection and storage prices of corn and soybeans respectively. It is not difficult to see that the price difference at home and abroad is obviously larger than the range of domestic price increases. From this we can see that it is not entirely due to the rise in domestic food prices that there is such a large price difference, there must be other reasons.

What are the other reasons? There are three main aspects: first, international food prices have fallen sharply since 2011. After the outbreak of the global financial crisis in the autumn and winter of 2008, countries around the world basically adopted strong fiscal and financial stimulus policies. under the supply of a large amount of money, there was a round of general inflation. as a result, commodities such as grain have been greatly affected, and prices have increased significantly. But the subsequent global economic recovery was so slow that there was a new round of tightening, with commodity prices falling significantly, as did food prices. Compared with the peak of international food prices in 2011 and 2012, current food prices on the international market have fallen by 40 to 50 per cent. It can be said that the main reason why domestic grain prices are higher than those in the international market is the sharp decline in international grain prices. Second, since China's exchange rate reform, the exchange rate of RMB against the US dollar has been rising. At present, the renminbi has risen at least 25 per cent against the dollar. This means that when agricultural products settled in dollars are converted into renminbi, the price on the Chinese market will fall by about 25%. Therefore, the change of RMB exchange rate will obviously affect the price difference of grain at home and abroad. Third, international energy prices have plummeted in the past year or two, resulting in a sharp drop in international shipping prices. Grain is a commodity, and international trade basically depends on shipping. In 2008, the freight rate from the Gulf of Mexico to Huangpu Port in Guangzhou, China was US $135-138 per ton. By September 2015, the price had fallen to $32. Due to changes in exchange rates and seaborne prices, the price of imported grain has fallen by at least 1000 yuan (RMB) per ton compared with before 2011.

Although the reasons for the grain price differences at home and abroad are complex, there is no doubt that efforts must be made to improve the competitiveness of China's agriculture. Therefore, it is necessary to carry out the reform of grain price formation mechanism, grain subsidy policy and grain collection and storage system. Some of these reforms have been introduced. For example, the pilot project of target price reform is being carried out for cotton in Xinjiang and soybeans in Northeast and Inner Mongolia. In September 2015, the temporary collection and storage price of corn in Northeast China dropped to 1 yuan from 1.12 yuan per jin last year. Corn growers in the three eastern provinces and Inner Mongolia will reduce their income by 20 billion yuan as a result. This involves a complex problem, that is, to make the prices of agricultural products competitive without harming the reasonable interests of farmers. This is the difficulty. In this regard, the central government has made clear the guiding ideology of grain price reform, that is, the formation of prices is determined by the market and the interests of farmers are protected by the government. This reform will be carried out step by step through the separation of price and compensation.

At present, there is another view that since China's grain lacks international competitiveness and at the same time gives a lot of subsidies to farmers, can we grow less at home and buy more internationally? This is also a train of thought, but the food issue can not make such a simple logical reasoning. First of all, it should be pointed out that the domestic and foreign grain price difference mentioned above is the price difference between imported grain and domestic grain within the tariff quota. But China, like other WTO members, needs to protect its own industrial security and farmers' interests in accordance with the rules. Therefore, we promise to give tariff preferences when the import of grain in the international market is within a certain amount, that is, the tariff quota system. China has promised an annual tariff quota of 9.63 million tons for wheat, 7.2 million tons for corn and 5.32 million tons for rice. If the quantity of imports does not exceed this limit, a tariff of 1% will be imposed. But if the quantity exceeds the tariff quota, the WTO rules allow China to impose a tariff of 65 per cent, so the price of grain imported beyond the tariff quota is higher than the domestic price. The idea of more imported grain is understandable, but the question is: should tariff quotas be abolished? If we do not abolish the tariff quota and 65% tariff, it will be very difficult for foreign grain to enter; if it is abolished, it will have a tremendous impact and even long-term impact on Chinese agriculture and Chinese farmers.

Therefore, reform must be carried out in two aspects: one is the reform of price formation mechanism and subsidy mode. The second is the reform of the agricultural management system. Through the development of large-scale operation through land transfer, due to the need to pay land rent, it is difficult to sustain in the case of falling food prices. It is under this background that through the development of land joint-stock cooperative system, land trusteeship and other management forms, farmers bypass the problem of land rent and implement large-scale operation, so that land contractors and operators form a mechanism of sharing risks and benefits, which is conducive to expanding the scale of management and improving competitiveness. This may be one of the directions of the reform of the management system of China's agriculture, especially in the production of bulk agricultural products in the future.