The phenomenon of cheap grain harming farmers reappears: low grain prices and overstocking are the main causes

There has been a bumper grain harvest in China this year, but farmers are not happy because the sharp drop in grain prices may lead to a sharp drop in farmers' income. Since the beginning of autumn, the prices of corn and wheat in the main grain producing areas have fallen to varying degrees. Corn prices fell significantly, with household prices falling by more than 20 per cent on average, with the highest drop of 30 per cent compared with last year, while wheat also experienced a cliff decline before the National Day. At present, the purchase price of rice is generally stable, but there is also a small decline in some areas compared with previous years. The drop in grain prices has had a great impact on the grain trade, and according to media reports, markets in some areas are in a serious atmosphere of panic.

Some market analysts said that the across-the-board decline of the three staple grains is rare in previous years, and low international grain prices and a backlog of domestic stocks are seen as the main reasons for this round of grain price decline. The re-emergence of the phenomenon of "increasing production without increasing income" and "cheap grain hurting farmers" in the grain market this year will have an impact on many aspects and deserve special attention.

First of all, the sharp drop in food prices has directly affected the income of hundreds of millions of farmers. it is estimated that this year's sharp drop in grain prices may lead to negative income growth of hundreds of billions of people, which has a direct impact on China's realization of a well-off society in an all-round way. Second, the reduction in farmers' income caused by the sharp drop in grain prices will not only affect the consumer market. Third, the sharp fall in grain prices will lead to a decline in farmers' enthusiasm for growing grain, and may lead to grain price fluctuations in the second year.

In this situation, China's grain price policy needs to be done with caution. In the view of our research team, the sharp drop in grain prices has hit the market this year, although there are "accidental factors" of low international grain prices and overstocking at home, but the shortcomings of the domestic grain price purchase and subsidy policy system may be institutional reasons that can not be ignored.

Since 2004, China has fully liberalized the grain purchase market and purchase prices, and grain prices are formed by the market. After the liberalization of grain prices, in order to protect the interests of farmers and their enthusiasm for growing grain, the state has implemented the minimum purchase price policy ("supporting market price") for two key grain varieties, rice and wheat, respectively, in the main producing areas since 2004 and 2006. Every year, the state comprehensively considers the cost and income of grain, supply and demand, market price, macro-control and other factors, determines the minimum purchase price level of wheat and rice varieties, and releases it to the society before crop sowing, so as to guide farmers to plant and promote grain production. After the new grain is listed on the market, farmers sell grain on the market, and when the market price in the main producing areas falls more and is lower than the minimum purchase price, the state-designated enterprises (China Grain Storage Company) enter the market in accordance with the lowest purchase price to guide the market grain price to rise reasonably. Since 2008, the state has raised the minimum purchase price for grain for six consecutive years. In 2013, the minimum purchase price for rice and wheat rose to 1.39 yuan and 1.12 yuan per jin respectively, with an increase of 92% and 57% respectively for six years.

From the perspective of actual implementation, although the market purchase policy protects the interests of farmers, it needs to pay subsidies (indirectly subsidized by the government to state-owned purchasing and marketing enterprises). The direct consequence of this disguised price subsidy policy is to increase the market price of grain sales. distorts the market to determine the price. Under this kind of price distortion, first, the cost of subsidy is high, and a large number of state financial subsidies have entered the link of purchasing enterprises and reserves, and farmers have not directly benefited much; second, it has raised the processing costs of the grain industry in the middle and lower reaches, unable to optimize the allocation of resources in a market-oriented way, and the entire middle and lower reaches industry has been dragged down, directly blocking the smooth flow of the whole agricultural industry chain and affecting the healthy operation of the agricultural industry.

For example, due to the confusion of grain subsidies in Heilongjiang Province, thousands of unsubsidized grain enterprises have stopped production this year, and a large amount of grain has been continuously received from farmers' state warehouses at high subsidized prices by state-owned enterprises. however, processing enterprises cannot get raw grain at reasonable prices, but the warehouses of stored grain are full of food, and the grain stored in the warehouse has been unable to enter the production and consumption link for a long time. Of the 88 soybean processing enterprises above the scale of Heilongjiang, more than 90% have stopped production. In Jilin Province, a major corn province, Dacheng biochemical, a private leading corn processing company, was recently forced to stop production and had to be taken over by local state-owned enterprises backed by the government, which is also due to the price subsidy policy.

Both the United States and the European Union have huge subsidies to agriculture and farmers, but their subsidies are close to the market, and the subsidy policy is systematic. The subsidy policy of EU can be divided into two types: price support and direct subsidy. Price support refers to the use of a unified price of agricultural products within the EU, and the market price can be set freely within the scope of the common price. once beyond this range, the community will intervene to make it return to the set range. The price mechanism of the common agricultural policy consists of three parts: the target price, the intervention price and the threshold price. Agricultural direct subsidy is to provide direct monetary subsidy according to the output of each unit in different regions.

The United States began to use agricultural subsidy tools in 1933, and the agricultural subsidy policy has been evolving for more than 80 years. On the one hand, it bypasses the WTO [Weibo] rules, on the other hand, it balances the domestic and foreign price relations, so as to ensure the maximization of the price advantage of American agricultural products in international trade. Specifically, the American agricultural subsidy policy is mainly divided into five categories: loan differential subsidy, direct income subsidy, countercyclical subsidy, resource conservation subsidy and agricultural trade subsidy. In 2005, agricultural subsidies in the United States reached 25 billion US dollars, an increase of 68 per cent over 2001.

If you compare the amount of subsidies, China spends a lot of money on grain subsidies and storage. According to statistics, the annual subsidy to agriculture by the central government has exceeded 1 trillion yuan (including grain price subsidies), and the cost of grain collection and storage has reached hundreds of billions of yuan a year. Such a high financial input, but not in exchange for a significant increase in farmers' agricultural income, as well as a smooth operation of the agricultural product market, why is this so? How should it be reformed? These questions cannot be avoided.

Generally speaking, for the decline in grain prices leading to a reduction in farmers' income, we can no longer simply adjust subsidies in the way we did in the past, but should carry out systematic reform based on the price mechanism. In our view, the core is to give full play to the role of the market mechanism, adjust the object of subsidies, increase direct subsidies to farmers and increase farmers' income. In view of the serious distortion of grain market prices brought about by the purchase of supporting the market in our country, it is necessary to promote the reform of the decoupling of grain price formation mechanism from government subsidies, and on the premise of protecting the interests of farmers, we will promote the gradual transformation of the minimum purchase price, temporary acquisition and storage, and agricultural subsidy policies to the target price system of agricultural products.

The sharp drop in grain prices affecting farmers' income and consumption is only a manifestation of China's grain price policy. Around the grain price formation mechanism, China needs to push forward the reform cautiously, systematically but resolutely, and finally realize the healthy operation and normal development of the grain market by means of financial subsidies.