22 January 2019
China will let the market play a more decisive role in the pricing of farm products. Photo: Bloomberg
China will let the market play a more decisive role in the pricing of farm products. Photo: Bloomberg

POLICY WATCH: Govt to reduce role in farm produce market

China is seeking to reduce government interference in the pricing mechanism for agricultural products and allow market forces to play a more decisive role in the sector.

The National Development and Reform Commission, which oversees the nation’s economic policies, said it would push forward reforms that would break the connection between the pricing of farm products and government subsidies.

Starting this year, several agricultural products, including cotton and soybean, will be placed under the new pricing mechanism, in which low-income consumers would be subsidized when the prices are too high and producers would receive subsidies when the prices are too low, the commission said in the statement posted on its website earlier this month.

“Under the new pricing system, the government would establish target prices for different products while leaving room for farmers to make a profit, instead of setting a minimum price for the products,” said Li Guoxiang, a researcher at the Chinese Academy of Social Sciences.

While the government is leaving it to the market to determine the prices of farm products, authorities will set target prices based on the demand and supply situation. Still, the actual selling prices can be above or below the target prices. For products that sell substantially below the target price, the government will subsidize farmers, and for those that fetch prices higher than the target price, it will subsidize low-income groups.

The pilot reform will first be applied to specific kinds of farm produce in selected regions, and gradually widen its coverage. The target price will factor in overall costs, profit margins for farmers and price gaps between domestic and overseas markets.

At present, the government resorts to stockpiling, establishes a “minimum purchase price” for several farm products, and assigns buyers for the products.

The system helps farmers recover their costs and buy necessary inputs for the next planting season, but it also spawns many problems, foremost of which is that it distorts the market prices. It also makes the buyers, mostly state-owned grain companies, overly reliant on public funding.

Experts call for a change of the current subsidy system because it has raised the prices of some crops to levels higher than those in the international market. The artificial pricing system has also made it difficult for domestic buyers to improve sales and has also driven up the country’s import volumes.

Aware of the situation, China’s top leaders decided to give top priority to food security when they mapped out the country’s economic goals for the year during a key meeting last month.

– Contact the reporter at [email protected]



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