Improve the price formation mechanism of agricultural products

[realizing the separation of price and compensation, separating the function of protecting income implied in the price in the past and sharing it by the subsidy system is the basic idea of agricultural product price reform.]

The No. 1 document of the Central Committee for three consecutive years since 2014 has particularly emphasized the need to improve the price formation mechanism of grain and other important agricultural products, gradually establish a target price system, and reform the acquisition system at the same time. To further improve the price formation mechanism of agricultural products is not only an important part of deepening rural reform, but also a top priority. If the formation mechanism of the price of important agricultural products is not reasonable, the role of the market mechanism will be out of the question, there will be no solid foundation for increasing farmers' income, and the national food security will lose its foundation.

Why should we reform and improve the price formation system of important agricultural products?

In 2004, the State Council issued document No. 17, that is, the guidance on further deepening the reform of grain circulation system, which marked the full liberalization of both sides of the purchase and sale of agricultural products in China, and at the same time formed a set of new market regulation and control system of agricultural products. The new market regulation and control system for the purchase of agricultural products has three pillars: the first pillar is the abolition of the previous protective price acquisition, opening up the market, and when necessary, the state implements the minimum purchase price and temporary purchase and storage policy; the second pillar is the implementation of four subsidies to agricultural producers after the abolition of agricultural tax, the total amount of which has reached more than 160 billion yuan by 2015 The third pillar is the establishment of an import and export control mechanism based on tariff quotas under the background of China's entry into WTO. These three pillars form the basic framework for the regulation and control of agricultural products in the new period.

Generally speaking, over the past decade or so, the operation of this framework system has been effective on the whole, which has promoted China's grain income and production for 12 consecutive years, and brought about a rapid increase in farmers' income for 12 years. At the same time, it has provided a solid foundation for the development of the national economy in this period.

However, on the other hand, we also need to pay special attention to, that is, due to operational problems or lack of experience, there are some deviations in this regulation and control system in the course of actual operation, so that some contradictions begin to accumulate gradually. so now we must carry out reform.

There are mainly four problems in the existing regulation and control system of agricultural products purchase market.

The first problem is that the price of policy-oriented collection and storage has risen rigidly, that is, it has only gone up, which has led to the widening of price differentials at home and abroad and increased import pressure. We collectively refer to the acquisition of the minimum protective price and temporary storage as policy storage. China has implemented the minimum purchase price policy for rice and wheat since 2004, and the temporary purchase and storage policy for corn, soybean, cotton, sugar and rapeseed since 2007. There is not much difference between these two policies, but the minimum purchase price should be announced before sowing, and the temporary purchase and storage will not be announced until the crops are listed on the market. The implementation of these two policies has been relatively stable in the first few years, and the minimum purchase price and temporary storage price have not changed much from year to year. But since 2008, agricultural production costs have risen rapidly (by an average of 8% per cent a year), mainly because land costs and labor prices have risen too fast. In order to make up for the rapid rise in the production cost of growing grain for farmers, the state has greatly increased the minimum purchase price and temporary storage price for four consecutive years since 2009. The average domestic prices of rice, wheat and soybeans began to exceed the FOB prices of the international market in 2010, and by 2013 they had fully exceeded the dutiable prices of imported agricultural products within the quota. At present, the domestic prices of wheat, rice and corn are 34.2%, 39% and 43.8% higher than the dutiable price, respectively. In addition, 65% tariff will be levied in addition to the quota, that is to say, the current price of three kinds of grain in the country is far away from the extra high tariff price, and there is about 20%, 30% firewall. If the price of domestic agricultural products continues to rise, once the tariff price of imports outside the quota is exceeded, this barrier will be broken.

Now we have encountered a dilemma: under the original regulation and control system, in order to cope with the rising production costs of farmers, we had to raise the purchase price, otherwise farmers would not have the enthusiasm to grow grain without income. However, once the price of domestic agricultural products exceeds the cost price of imports, that is, the ceiling price (we call the dutiable price within the quota and the tariff price outside the quota as the ceiling price), the import of a large number of foreign agricultural products is inevitable.

It turns out that the space for the effective operation of the regulation and control system is between the production cost of agriculture (that is, the floor price) and the import cost (that is, the ceiling price), but with the continuous rise of the floor price and the continuous pressure of the ceiling price, it gradually squeezes the regulation space, which is the most prominent problem that the agricultural product price system is facing now.

The second problem is that the price of policy collection and storage is dominant, which affects the role of the market mechanism. The policy purchase and storage price is actually higher than the market price, so that only the stored grain and cotton are collected in accordance with the requirements of the state, and have to be collected, while other market entities have no enthusiasm to enter the market, which forms the so-called policy city. completely shielded the role of the market mechanism, and there is only one main body in the whole circulation link.

The third problem is a large inventory backlog. Because the purchase and storage price is higher than the market price, according to the requirements of the state, the whole acquisition, storage and depot are subsidized, so it must be sold at a reasonable price, but because the selling price is higher than the market price, the goods cannot be sold at all. This leads to a big increase in grain production after each price increase, and after a big increase, grain enters the national grain depot, cannot get out, and is piled in the warehouse, resulting in a backlog.

The fourth problem is that the pressure on subsidies is increasing. With the increase in the amount of purchase and the inability to get out after entering the grain depot, the amount of subsidy has also increased. After the storage costs, storage costs, coupled with the acquisition costs of financial subsidies, at the same time, if the acquisition at a high price and a loss at a low price out of the warehouse, this has caused great pressure on the finance. Under the background that the finance has entered a period of low growth, the price control system of agricultural products in the past has to be reformed.

The basic thinking of reforming and perfecting the Price formation Mechanism of important Agricultural products

Since 2013, the State Council has instructed the National Development and Reform Commission to take the lead in studying the reform of the price formation mechanism of agricultural products. Our research shows that the fundamental reason for the above problems in the current price formation mechanism and acquisition and storage system is that it has given too much policy function of "income protection" to the minimum purchase price and temporary acquisition and storage system in practice. Policy practice in recent years has proved that policy-based collection and storage should not bear too much income protection function, but should mainly stabilize market price fluctuations and protect the basic income of farmers growing grain. The income of guaranteed farmers should not be borne by the price of grain collection and storage, but should be completed by the subsidy system. Prices should reflect the relationship between supply and demand, but should not adjust income, nor should they participate in distribution. Facts have proved that it is impossible to guarantee income with price, and it also affects the role of market price mechanism.

The idea to solve this problem is to realize the separation of price and compensation-- to separate the function of protecting income implied in prices in the past and to be shared by the subsidy system. Let the price of agricultural products be determined by supply and demand and play a role in regulating supply and demand-- this is the basic idea of agricultural product price reform.

There are a few more points that need to be explained here. First of all, the ultimate purpose of regulating and controlling the price market formation mechanism of agricultural products is to ensure national food security, so when reforming the agricultural product price system, we should pay special attention not to forget the regulation and control objectives. Food security includes three aspects: first, the foundation of food security should be the security of production capacity, not necessarily the security of output; second, the ability to control international resources; and third, the necessary reserves and adjustment capacity. Secondly, it is necessary to make clear the objectives of market regulation, that is, the total amount is basically balanced, the market fluctuation can be controlled, protect the interests of farmers, and promote market development. In particular, it should be emphasized that market fluctuations are controllable. In the past, we were too sensitive to market fluctuations. Now it seems that as long as we set a range, if prices fluctuate normally within this range, we should not intervene. In addition, we should have the means to adjust prices to ensure that prices of agricultural products fluctuate within a reasonable range. At the same time, it is necessary to prioritize different varieties of agricultural products and make it clear what is regulated by the central government and what the central government can put directly to the market, which can make the whole regulation and control system more accurate and stable.