Economic Analysis of Agricultural subsidy in China; the present of Agricultural income subsidy Policy

Agricultural subsidy is the most important and commonly used policy tool in a country's agricultural support and protection system, and it is the transfer payment made by the government to agricultural production, circulation and trade. Its purpose is to ensure the safety of domestic agriculture, maintain the price stability of agricultural products and ensure the income of farmers. From the way farmers benefit, agricultural subsidies can be further subdivided into two ways: price support (indirect subsidies) and direct subsidies.

The evaluation of the advantages and disadvantages of agricultural product price support policy and farmers' direct subsidy policy includes the following two aspects: first, from a short-term and long-term point of view, the quantity and distribution of related economic benefits and costs; second, financial support and the convenience of implementing these policies.

Comparison between Price support and income subsidy Policy

As two ways of agricultural subsidy policy, agricultural product price support and grower direct subsidy arrangement have different economic benefits and costs, and their respective financing channels and policy operability are also different. All of these have important policy implications.

In the short term, the adoption of agricultural product price support policy by a government can increase the income of farmers without increasing the financial burden of the government. but the cost is that the welfare loss to domestic consumers is much greater than the income subsidies that agricultural producers receive from the government. The social cost expenditure directly subsidized by agricultural growers may only account for half of the total social cost of agricultural price support policies. However, the above two alternative agricultural subsidy policies are not omnipotent, when and only if the temporary decrease in demand, rather than the abnormal increase in supply leads to a continuous decline in the price of agricultural products, agricultural product price support policies or grower direct subsidy arrangements can play the greatest role and increase the income of agricultural growers.

In the long run, if a government adopts the price support policy of agricultural products, it will not be able to achieve the "leverage" effect of financial funds in the short term, and will greatly increase the government's financial expenditure, which will further lead to the surplus of agricultural products and the misallocation of resources. The long-term effect of the price support policy is far worse than that of direct subsidies to growers, at least the direct subsidy policy will not cause the loss of consumer welfare and the misallocation of economic resources. However, in the long run, the implementation effect of the direct subsidy policy should be further subdivided into two situations: first, if the government direct subsidy has nothing to do with the output of agricultural products, then the long-term effect of the direct subsidy arrangement for the growers of agricultural products, it does not have any impact on economic efficiency and market prices of agricultural products, and its policy effect is only equivalent to a "bonus". Second, the government direct subsidy is based on the output of agricultural products, and the long-term effect of implementing the direct subsidy arrangement is equivalent to reducing the cost input of farmers, and will lead to the right shift of the supply curve, resulting in a decline in the market price of agricultural products on the one hand. On the other hand, it also continues to increase the financial burden of the government. In the end, the long-term arrangement of government direct subsidies based on the output of agricultural products will cause farmers to still get the average profit of planting agricultural products, while the actual benefits of government financial subsidies will be distributed by all consumers.

The problem of China's Agricultural Price support Policy

From the perspective of the actual implementation effect, with the implementation of China's agricultural price support policy, while achieving its originally designed policy objectives, the negative effects of the policy are also gradually emerging.

First, the market mechanism is distorted. The excessive amount of storage affects the exertion of the market mechanism and is not conducive to the healthy development of the industrial chain. As a result of the unlimited collection and storage policy, the stock of grain, cotton and oil in reserve far exceeds the usual reserve, which deviates from the original intention of the policy of "bottom purchase". At the same time, the normal operation enthusiasm of all kinds of market subjects in circulation and processing has declined, and the delivery and storage has become the only goal. the formation of a de facto state monopoly of purchase and marketing hinders the development of multiple market entities and the healthy development of the industrial chain. Take the textile industry as an example, the domestic cotton price is running high under the support of the temporary storage policy, resulting in the domestic cotton price even higher than the imported cotton yarn price, the international competitiveness of textile enterprises has been weakened, the market share has been continuously reduced, and the operating rate of enterprises is generally inadequate. profits have declined, the whole industry is struggling, and business continues to be in the doldrums.

Second, the national collection and storage prices are in a dilemma. At present, the prices of domestic labor, land and other factors of production are rising, and the prices of the three major domestic grain varieties are generally more than 600 yuan per ton higher than those in the international market. If we continue to raise the price of supporting the market, it is bound to further widen the gap with the price of international agricultural products, leading to a further surge in imports; not raising the price of supporting the market will dampen the production enthusiasm of farmers and endanger the national strategic security. In 2014, China imported 200.84 billion jin of grain, an increase of 332% over 2003 before the implementation of the market support policy. From 2011 to 2013, when the cotton temporary storage policy was implemented, domestic cotton imports reached an average of 4.215 million tons, accounting for 61 per cent of domestic cotton output, an increase of 48 per cent compared with 2010 before storage. In 2013, 4.15 million tons of cotton were imported, of which 660000 tons were imported with full tariffs outside quotas, nearly double that of the same period last year, and the "firewall" role of tariff quotas was basically lost.

Third, excessive storage has caused a sharp increase in pressure in all aspects. Grain and cotton inventory, internal and external price difference, import quantity, operating costs of processing enterprises, financial subsidies, occupation of credit funds, potential risks and regulatory pressure remain high. In 2014, the state government subsidized 38.5 billion yuan for the temporary storage of grain and oil, and 21.8 billion yuan for the minimum purchase price, with a heavy financial burden. According to the forecast of the current inventory level of cotton, the state finance needs to invest more than 16 billion yuan in interest and storage costs every year; according to the reserve cotton auction price, the potential loss has exceeded 25 billion yuan. In addition, the loss of aging and degradation of grain and cotton in long-term storage also needs the national financial burden.

The reality of Agricultural income subsidy Policy

The existing basic policy framework of agricultural subsidies in China takes the "four subsidies" as the main body and other subsidies as the supplement. That is, the "four subsidies" based on direct subsidies for growing grain, comprehensive direct subsidies for agricultural materials, subsidies for the purchase of agricultural machinery, and subsidies for improved varieties, at the same time, new agricultural subsidies such as subsidies for agricultural insurance premiums, subsidies for key agricultural production links, and subsidies for major key technologies for disaster prevention, reduction, and stable production have been included, and the framework of agricultural subsidy system in line with China's national conditions at the present stage has basically taken shape. After nearly 10 years of development, the scale of agricultural income subsidy in China has increased from 11.6 billion yuan in 2004 to 200 billion yuan in 2014.

From 2004 to 2013, in order to ensure the strategic goal of basic self-sufficiency in agricultural products, China adopted a policy of simultaneously increasing agricultural price support and income subsidies, and achieved "ten consecutive increases" in grain production. However, in view of the fact that the agricultural product price support policy that has been adopted for ten years has been unable to achieve the "leverage" effect of financial funds in the short term, the government's financial burden has become increasingly heavy, which further leads to the surplus of agricultural products and the misallocation of resources. Since 2014, the central government has tried out the "target price subsidy system", or the fifth subsidy policy, for two varieties of cotton and soybeans. According to the thinking of the current policy design, if the "target price subsidy system" is successfully tried out on two varieties of soybean and cotton, it will be further extended to wheat, rice, corn and other major grain varieties, and replace the "agricultural product price support system" with high cost and obvious side effects. So, can "target price subsidy" replace "price support" policy? Or can the "target price subsidy policy" not only increase farmers' income but also ensure the stability and high yield of major grain varieties?

In fact, since 2004, China has gradually established an agricultural subsidy system dominated by "agricultural product price support policy" and supplemented by agricultural "four subsidies". Among them, the "agricultural product price support policy" mainly plays the role of guiding the price of agricultural products to rise steadily and stimulating farmers to increase output, while the agricultural "four subsidies" are decoupled from the output of agricultural products. It does not change with the production cost and market situation, and has no impact on economic efficiency and the market price of agricultural products, and its policy effect is more and more similar to a "bonus". If, according to the thinking of the current policy design, the "target price subsidy" is used to replace the "price support" policy, in the short term, agricultural subsidies will only increase the "fifth subsidy". In the long run, China's subsidy system linked to the output of agricultural products will gradually transition to a subsidy system decoupled from output, and the policy implication behind it is to give up stable increase in production. The main goal is simply to improve farmers' income, which is not consistent with China's current basic national conditions, and belongs to the policy adjustment of high input, low fairness and low efficiency.