The negative effects of Agricultural subsidy Policy

With the rapid development of economy, China's agricultural policy has also begun to transform. After 2000, in order to ensure the enthusiasm of farmers to produce grain, the minimum protection price has been raised continuously. Up to now, China's domestic grain prices are much higher than those in the international market, and stocks of grain such as corn continue to hit new highs.

Take grain prices in May 2015 as an example, the domestic prices of wheat and corn in China are more than twice that of the international market. China's agriculture is no longer competitive in the world. If imports are opened, China's agriculture will be completely destroyed by the international market. There are three main reasons: first, the increase in domestic production costs, mainly due to the rapid increase in labor costs; second, the appreciation of the RMB exchange rate; and third, the sharp increase in China's grain stocks such as corn. it makes the international market think that China will reduce imports in the short term, and worry that China will dump surplus grain, so grain prices in the international market are depressed.

As a matter of fact, China has encountered problems in agricultural subsidies in Europe, the United States and Japan. In the 1970s, international food prices were high. In order to increase farmers' income and promote farmers' income independence, the European Community and Japan successively adopted and strengthened agricultural price support policies, which decoupled domestic prices from international prices. With the decline of international food prices after the 1980s, due to political pressure, it is difficult to support prices down, and continue to increase, and finally domestic prices began to be higher than the international market, resulting in the loss of agricultural competitiveness of developed countries. At the same time, the financial burden of agricultural subsidies is getting heavier and heavier, which takes up a lot of government budget. EU agricultural subsidies accounted for more than 60% of the EU budget around 2000. Price support has led to massive food overproduction and a surge in food reserves in the European Union. In Japan, farmers' agricultural income, especially the proportion of rice planting income in household income, has dropped to less than 1 pound 3. Agricultural price subsidies have limited help to farmers' income, but if the subsidy is removed, it will damage farmers' income after all, and the resistance is still great.

In the face of the fact that domestic prices are constantly deviating from international market prices and the competitiveness of agriculture is declining, it is necessary for China to learn from the lessons of Europe and Japan. China's agricultural subsidy policy must be reformed to prevent the trap of agricultural subsidies from being repeated in China.

To reform, we must return to a basic question: why subsidize agriculture? Agriculture has many functions, including the function of ensuring food security, the function of farmers' income source, the function of environmental ecology, the function of cultural transmission and so on. For the present stage, the most important thing is to ensure the function of food security and the source of farmers' income. For Europe and other countries, increasing farmers' income is the main goal of agricultural subsidies. From the perspective of policy formulation, raising the protective price acquisition can meet these two functions at the same time: it can not only promote food production, ensure food security, but also increase farmers' income, killing two birds with one stone. This is also the reason why grain protection price acquisitions are popular in Japan, Europe and now China. It is clear that the history of Japan and Europe, as well as the reality of China, shows that open acquisitions at rising protective prices will lead to a decline in agricultural competitiveness. More importantly, with the decline in food prices in the international market, the financial burden of subsidies will increase day by day, thus oppressing the financial system of the government as a whole.

The Chinese government is also aware of the problem and began to implement target price subsidies to support the conversion of some agricultural products, thereby reducing price distortions. However, there are two problems in the target price subsidy: first, after the target price subsidy, the government is no longer open to purchase, the money of the subsidy is spent, but it does not control the storage of grain, which can not meet the goal of ensuring food security. Second, in practice, how to define the price difference and the amount of subsidy? Due to the differences in land quality and output, how to calculate subsidies has become a big problem. From the actual situation of the implementation of target price subsidies for cotton in Xinjiang, there are many acts of fraudulent compensation.

The reform of agricultural subsidies in China must classify the ways of subsidies according to their objectives. It must be clear which subsidies belong to ensuring food security and which support belongs to increasing farmers' income. For example, in order to ensure food security, we can also implement protective price acquisitions, the state to maintain a certain amount of reserves, but the number of acquisitions should be limited, not open acquisitions. As for supporting farmers' income, it is better to learn from Europe and directly issue subsidies according to the area of contracted land or the agricultural population, so as to reduce market distortions and transaction costs and benefit farmers directly.