How Should the Marketization of the Grain Pricing be Carried Out in China 02-04-2016

It seems that China’s government has finally chosen the way of marketization for the domestic grain pricing.


Source: Internet


Recently, the foreign media reported that China will cancel the grain price subsidy and will trust the grain pricing to the market; meanwhile, the principles of the market pricing, the price and subsidy separating, and the reform on the purchasing and storage system were mentioned in the No.1 Central Document released on 27th January.


The current grain price supporting policy was formulated after China joining in the WTO. The policy defined the lowest purchasing price of the wheat and rice as well as the temporary purchasing principle of the corn and bean after the financial crisis in 2008.


However, with the speeding up in terms of the process of industrialization and urbanization in the recent years, the labor cost, the domestic lowest purchasing price, and the temporary purchasing and storage price has constantly increased.


Take the price of wheat as an example, the purchasing price of the wheat of the third grade increased to RMB2.36 per kilogram in 2014 from RMB1.44 per kilogram in 2006, with the accumulative increase amount of 63.89%.


"As the domestic grain price became higher and higher while the international price has all the way declined in the past three to four years, the price (including the transportation expenses, insurance expenses, loading and unloading expenses, and the value-added tax on imports) of the foreign grain was much lower than the price of the domestic grain. The price gap between the domestic grain and the foreign grain is rapidly enlarging,” said Han Yijun, the professor of the School of Economics and Management, China Agricultural University. For the reasons above, China’s grain import volume has surged in the recent years.


According to Chen Xiwen, the vice director of the Office of Central Rural Work Leading Group, there are three reasons that lead to higher domestic grain price in China than the international standard. Firstly, China has constantly increased the lowest price and the temporary price of grain purchasing to offset the cost of the grain production since 2008; secondly, the international grain price has slumped since 2012, with 40% to 50% of decrease amount during 2012-2015; thirdly, apart from the influence of the exchange rate, the international energy price dived in the recent years, which further resulted in the slump of the sea transportation price.


According to statistics, the contract price of corn futures was 7.5 dollars in the Dalian Commodity Exchange (DCE) on March 2015, 3.69 dollars in the Chicago Board of Trade (CBOT) in the same period. We can see that China’s corn price is twice more than that of Chicago.


According to Chen Xiwen, the volume of China’s import grain was 120 million tonnes in 2015, while actually the gap between demand and supply of China was 20 million to 25 million tonnes.


A recent report from Financial Times pointed out that Chinese government’s price subsidy of the crops, especially for the corns, resulted in overstock of some grains. According to the statistics released by the China National Grain and Oils Information Center (CNGOIC), up to December 2015, China’s corn inventory reached up to 190 million tonnes, accounted for more than half of the global inventory.


For this issue, the No.1 Central Document proposed the reform on the corn purchasing system in accord with the principles of the market pricing and the price and subsidy separating; it also established the corn producer subsidy system on the basis of considering farmer’s fair return, financial capacity, the coordinative development of the industry chain, and the relation of market supply and demand.


According to Chen Xiwen, due to the government subsidy to the corn producers, China’s corn price was higher than that in the international market in the former a few years; now the government should abolish the subsidy so as to make the domestic corn price return to reasonable level in accord with the relation of market supply and demand.


For the reform, Han Yijun believes that the separation of the price support and subsidy support doesn’t mean to completely abolish the measure of price support, but to avoid the oversize and over intensified price support.


The No.1 Central Document has made it clear that wheat and rice, as the grain rations, would be purchased on the lowest price, but promised to further perfect the detailed policy. Among the three grain rations, the lowest purchase price of the wheat (third grade) in 2016, which has been released by the National Development and Reform Commission (NDRC) on October 2015, would be RMB118 per 50 kilogram, which is the same to that in 2015.  


What also worth concern is the subsidy policy formulated after the separation with the price support. In 2015, China launched experimental work of improved varieties subsidy, grain direct subsidy and comprehensive agriculture subsidy, while the agricultural support and protection subsidy was designed to support the cultivated land protection and grain management on the moderate scale.


Those subsidies which involved every farmer in are sort of generalized system of preference. The next step of the reform is to elaborate the details of the subsidies. For example, government may increase the subsidies to some specific groups, like the large growers, family farms, and cooperative groups, etc; it may also take some foreign policies as reference, like establishing credit record for the scale producers, supervising the spending of the subsidies, and improving efficiency on implementing the policy.


It is expected that the domestic grain price of China will in the downward trend after the reform on price support policy. In this way, famers’ interests will therefore be damaged, although the price gap between the domestic and international market would narrow.


According to Han Yijun, the market prices of all kinds of grains declined in 2015, among which the temporary purchase price of the corn decreased RMB0.24 per kilogram; thus resulted in about RMB150 billion losses in the agricultural sector. The huge losses caused by the declining prices would be hard to make up for in short terms.


"Generally, to ensure China’s food security in the new era, China should change the sole policy to some more systematic and precise ones.” said Han.


*This article is an edited and translated version by CCM. The original article comes from


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