Chen Xiwen: the Adjustment Direction of China's Grain Policy

According to statistics, China's grain production has been increasing year by year since 2004. According to China's statistics, China's total grain output increased by 42 per cent from 430 million tons in 2003 to 607 million tons in 2014. Food production is expected to continue to increase in 2015. Judging from the statistics alone, China's grain output continues to increase, and so is the income of farmers.

Current situation of grain supply and demand in China

However, it is worth noting that with the continuous growth of domestic production, the amount of grain imports is also increasing year by year. In 2014, China imported 104 million tons of grain. As of October 2015, grain imports this year have reached 103 million, basically the same as the total imports for the whole of last year. Although the total amount of food imported in 2015 increased significantly compared with the same period in 2014, the total amount of imports decreased compared with 2014, indicating that international food prices are still on a downward trend. At present, China's domestic grain production is increasing, but grain imports are increasing, resulting in an increase in social stocks. The reason for this is that, first, there are contradictions in the domestic grain production structure, such as the dependence of soybeans on the international market has exceeded 80%; second, because China's agriculture, especially grain and other staple agricultural products lack international competitiveness. Due to natural endowment, the area of cultivated land in China is limited and the number of farmers is huge. At present, China has about 130 million hectares of arable land, while the number of contracted farmers has reached 230 million, with an average cultivated area of less than 0.5 hectares per farmer. This decentralized mode of agricultural production makes it very difficult for China's agriculture to improve its international competitiveness. Although China's grain output has been increasing in recent years, the production cost has also been rising, which has promoted the domestic grain price to rise gradually, even exceeding the price in the international market, resulting in more grain from the international market entering China.

Judging from the prices from January to September this year, the average prices of wheat, corn and rice in China's domestic wholesale market are 36.6%, 50.6% and 41.6% higher than the cost after import duty payment, respectively. The domestic grain price is higher than the international grain price, in addition to the high cost of domestic production, other reasons can not be ignored. First, international food prices have fallen sharply since 2011 and 2012. Second, the RMB exchange rate is strong, and the exchange rate against the US dollar continues to rise, which means that the price of US dollar-denominated grain will continue to decline after entering the Chinese market. Third, the price of the international energy market has plummeted in the past two or three years, which has caused the price of international shipping to plummet. The bulk price of grain shipped from New Orleans in the Gulf of Mexico of the United States to Huangpu Port in Guangdong, China, which was US $135 per ton in 2008, has now fallen to only US $35 per ton, meaning that the price per ton of grain shipped to China will be reduced by more than 600 yuan.

Thoughts on the Adjustment of China's Grain Policy

Under the complex situation that the international grain price is much lower than the domestic grain price and the grain import is increasing year by year, how to adjust the grain policy appropriately needs to make a comprehensive analysis of the relationship between grain supply and demand at home and abroad. Personally, I believe that the current low price of grain and energy in the international market will not be a normal state. Because of the current low international food prices, farmers in some big exporting countries have felt great pressure, and some have even faced the brink of loss. Several big oil exporters were also financially unsustainable and began to use the funds they had previously saved. Therefore, international energy prices and international food prices are not the norm from now on. Of course, the specific degree of recovery needs to be further analyzed in the light of the recovery of the global economy. However, it is a basic fact that the grain prices set by the Chinese government in recent years are significantly higher than those in the international market, and it is also a basic fact that China's grain supply exceeds demand with its own output plus imports and stocks.

In view of the above two basic facts, the Chinese government has made appropriate adjustments to the price formation mechanism, subsidy policy, and storage policy of major agricultural products since 2014. For example, last year, target price reforms for cotton and soybeans were implemented in Xinjiang, the three northeastern provinces and the eastern part of Inner Mongolia. On September 18 this year, the relevant departments announced that the temporary collection and storage price of corn in Northeast China was 2000 yuan per ton, which was significantly lower than that of last year. Last year, the average temporary collection and storage price of corn in Northeast China was 1.12 yuan / jin, 1.13 yuan / jin in Liaoning, 1.12 yuan / jin in Jilin, 1.1 yuan / jin in Heilongjiang, and 1 yuan / jin this year. In 2014, the government bought about 83 million tons of corn in the three northeastern provinces and Inner Mongolia, a price reduction of 240 yuan per ton compared with last year's price, equivalent to 20 billion yuan less than farmers' income from growing corn in Northeast China this year. Farmers certainly have a problem with this, but they also understand that the current temporary storage price of 2000 yuan per ton is still significantly higher than that in the international market, so all parties are very concerned about the next adjustment of grain policy.

Judging from the basic consensus formed by all parties, the government has implemented the policy of minimum purchase price and temporary purchase and storage price for 12 consecutive years, which has basically achieved the goal of stimulating grain production and increasing farmers' income. It is time for China's grain policy to be adjusted, but it is indeed a difficult choice to harm the interests of a large number of Chinese farmers.

At present, the basic idea of grain policy adjustment is to give full play to the basic role of market supply and demand in price formation, and the government gives farmers necessary subsidies outside the market. In the case of grain output growth, import growth and huge inventory growth, if we enter the warehouse at a high price and leave the warehouse at a low price, it will inevitably bring huge financial losses. Therefore, the adjustment of food policy should be considered comprehensively. At the same time, we should also see that the most important part of China's grain imports is soybeans, accounting for more than 70%. No matter how the reform is carried out, the pattern that China needs to import more than 70 million tons of soybeans cannot be changed for a long time. Because, according to China's per mu yield level, planting more than 70 million tons of soybeans requires at least 500 million mu (34 million hectares) of sown area, and China cannot have so much cultivated land to grow soybeans. Therefore, China needs to continue importing soybeans. In addition, the total import volume of the three major grains, barley, sorghum, DDGS (distiller's grain protein feed) and potatoes exceeded 30 million tons last year. Therefore, the pressure on domestic production from food imports is actually an increase in food imports other than soybeans, which is a structural problem.

To say that China's grain prices are higher than those on the international market means that only grain imported within tariff quotas has such a large gap. However, the number of tariff quotas promised by China when it joined the WTO was limited, with 9.636 million tons/year for wheat, 7.2 million tons/year for corn and 5.32 million tons/year for rice. Judging from the import situation within the tariff quota, only more than 2.5 million tons of wheat, more than 2.5 million tons of corn and more than 3 million tons of rice were imported last year, totaling 8.18 million tons, accounting for only about 40% of the tariff quota. Only 1% tariff is imposed on this part of imported grain, so the price is much lower than the domestic price.

When China joined the WTO, it promised that if the import volume of the three major grains exceeded the tariff quota, it would adopt the normal tariff rate, i.e. 65%. After exceeding the tariff quota, the three major grains in the international market are currently unable to enter the Chinese market. However, in the international trade in the past two years, there has been a phenomenon of importing corn substitutes to avoid tariff quotas. The import of barley, sorghum, DDGS, cassava and so on to replace corn, so that domestic corn sales have been impacted, there is a backlog of slow sales, which is currently facing China's grain market outstanding problems. Therefore, the question for the Chinese government and farmers to consider is what measures to adjust domestic food prices to curb arbitrary growth in imports of corn substitutes.

Domestic food prices should be brought back to levels close to those on international markets. This will help curb grain imports, reduce domestic grain stocks and restore domestic grain market circulation. For farmers 'income loss, the government can adopt the green box subsidy policy allowed by WTO to compensate, which is decoupled from grain output and grain price.

Policy adjustment should consider farmers 'interests and their impact on the international market

Of course, the above is the preliminary idea of adjusting the grain policy at present, and there will be many difficulties in the specific implementation process. Specifically speaking, in terms of total production, China's total grain output (excluding soybeans and potatoes) exceeds 500 million tons, ranking first in the world. However, for the Chinese government, in adjusting its food policy, it is necessary to consider not only food security, but also the survival and development of more than 600 million farmers still living in rural areas. Therefore, China's grain policy is not only a simple industrial policy, but also a major economic and social policy related to the survival and development of 600 million farmers. China has both confidence and worry in ensuring national food security. History teaches us that if agricultural policies are not appropriate and harm farmers 'interests, they will lead to a continuous decline in food production.

Since 1978, when China began its reform and opening-up policy 37 years ago, China's grain output has experienced two sharp fluctuations. The first was around 1984. From the early days of reform and opening up in 1979, grain output increased at a rate of about 5% for six consecutive years until 1984, when grain output exceeded 800 billion jin (more than 400 million tons) for the first time. The government adjusted its food policy, but farmers did not accept it, so food production declined for four consecutive years. It was not until 1989 that food production recovered to the level of five years ago. The second was in the late 1990s. China's grain output reached 512.3 million tons in 1998, the highest level of the 20th century. However, starting in 1999, grain production began to decline, falling to 430 million tons in 2003. Then, spurred by a series of policies, grain production began to rebound from 2004 until 2008, when it surpassed 1998. Grain output "a downhill, an uphill", a total of ten years on the road to recovery.

Therefore, judging from historical experience, the Chinese government should be particularly cautious in adjusting its grain policy. The reform of grain pricing mechanism, subsidy policy for farmers and grain storage policy should fully consider farmers 'interests and avoid a sharp drop in grain output again.

At the same time, China, as the largest grain producer and an important grain importer, the adjustment of grain policy will also have a great impact on the international grain market. At present, China imports more than 100 million tons of grain (grain + soybean + potato) from the international market every year, making it the largest grain buyer in the world. Changes in its grain policy will have a greater impact on the global grain market. Especially since the outbreak of the global financial crisis in 2008, the old dynamic structure of global economic growth has been broken, and the new dynamic structure has not yet been formed. The current vicious competition in the fields of energy, mineral resources and food, regardless of cost, is unsustainable.

Considering various factors at home and abroad, the next step of the Chinese government's grain policy is to appropriately reduce the current output, but will strive to maintain the stability and improvement of production capacity. Some policies have been put forward in the recommendations of the 13th five-year Plan just adopted, such as the pilot project of crop rotation and fallow, the implementation of the strategy of "storing grain in the land and technology", and so on. This has actually sent a signal of appropriate adjustment of recent grain production to a certain extent. However, as a large country with a population of 1.37 billion, China must adhere to the national policy of relying on its own capabilities to ensure food security. In the proposal of the 13th five-year Plan, it is still emphasized that the basic supply of grain and the absolute safety of food rations. The Chinese people's food rations are basically wheat and rice, and there will be no major adjustment to this major policy. Demand other than rations will be regulated more by the international market, which will be a long-term policy. In a sense, the long-term stability of China's grain supply and demand is also conducive to ensuring global food security. When adjusting its grain policy, China should also adopt a responsible attitude towards the global grain market, coordinate domestic and international grain markets, and seek the best combination between domestic grain production and moderate imports.