Cheng Guoqiang: Why should we explore the establishment of a target price system for agricultural products

2014-04-27 Society

the Central Document No. 1 proposes to "improve the price formation mechanism of important agricultural products such as grain"; "continue to adhere to the market pricing principle, explore and promote the reform of decoupling the agricultural product price formation mechanism from government subsidies, and gradually establish a target price system for agricultural products, and subsidize when the market price is too high. Low-income consumers, when the market price is lower than the target price, subsidize producers according to the price difference, and effectively ensure farmers' income"; "in 2014, launch Northeast and Inner Mongolia soybean, Xinjiang cotton target price subsidy pilot"

in accordance with the spirit of the No. 1 Central Document, in the future, my country will promote the improvement of the price formation mechanism of important agricultural products such as grain in accordance with the principle of market pricing and separation of price compensation. Gradually establish a target price system. The so-called target price subsidy means that the government determines the target price of agricultural products in advance. When the actual market price of agricultural products is lower than the target price, the government subsidizes agricultural producers according to the difference between the two to ensure their basic income; if the actual market price of agricultural products is higher than the target price, there is no need to start the target price subsidy policy.

So, why explore the establishment of a target price system for agricultural products? Since the beginning of the new century, China has implemented price support policies for agricultural products, such as minimum purchase prices and temporary purchases and storage, which, on the one hand, have played a key role in effectively mobilizing farmers' enthusiasm for growing grain, achieving "ten consecutive increases" in grain production and "ten consecutive increases in farmers' income", enhancing the ability to regulate and control grain and maintaining market stability. On the other hand, a series of new problems and new contradictions have gradually emerged, especially under the new situation of important changes in the domestic and foreign environment, the existing support policies are facing more and more severe challenges.

First of all, the price formation mechanism of agricultural products is distorted, and the role of the market is not effectively played. For example, since 2008, the state has raised the minimum grain purchase price for six consecutive years, which has effectively mobilized the enthusiasm of farmers to grow grain and expanded their income from growing grain. On the other hand, it has also made the grain market price "bottom" signal significant. The expectation of "only rising but not falling" has been strengthened, and the grain price formation mechanism and market price signal have been distorted, To a certain extent, the grain market has shown a "policy" trend.

Secondly, the prices of agricultural products at home and abroad are upside down, and the pressure on imports is increasing day by day. With the support of the minimum purchase price and the temporary storage policy, the current domestic prices of major agricultural products such as rice, wheat, corn, soybeans, and cotton are close to or higher than the international market prices. If domestic prices continue to rise in the future, the inversion of domestic and foreign prices is likely to expand further, which will put huge import pressure on the domestic market. For example, cotton and sugar have formed an unfavorable situation of "increasing domestic production-increasing national reserves-increasing imports-increasing national reserves", which not only increases the financial burden, but also affects the effect of policy implementation.

Third, the situation of agricultural resources and environment is grim, and the sustainable development of agriculture is facing challenges. Policies such as the minimum purchase price and temporary purchase and storage have effectively mobilized farmers' enthusiasm for growing grain and promoted grain production. At the same time, they have also led to prominent environmental problems such as soil degradation, over-exploitation of groundwater, over-use of fertilizers and pesticides, and agricultural non-point source pollution. Sustainable development is facing huge challenges.

The implementation of target prices to decouple the price formation of agricultural products from government subsidies can not only effectively mobilize farmers' enthusiasm for production, but also reduce distortions to the market, which is conducive to the decisive role of market allocation of resources. It is the basic direction of my country's agricultural product support subsidy policy adjustment in the future.

From the perspective of policy operation, the target price is different from the minimum purchase price and the temporary purchase and storage price, and does not directly affect the market price, but mainly plays a role in guiding the price signal of farmers. When the market price of agricultural products is lower than the target price, farmers still sell freely according to the market price, and the price difference between the two is subsidized by the government according to their planting area and average yield. This can not only mobilize farmers' enthusiasm for production, effectively guarantee the basic income of producers, but also play an important role in regulating the supply and demand of agricultural products, reduce market distortion, and curb the excessive development of agricultural resources. At the same time, it can also mobilize the enthusiasm of various market players and reduce the pressure on the government to collect and store.

The central government decided to carry out pilot projects of target price subsidies for soybeans and cotton in Northeast China and Inner Mongolia in 2014, reflecting the reform strategy of "pilot first and steady progress. That is, through the current contradictions of the more prominent soybean, cotton pilot, explore implementation methods, accumulate operational experience, and then steadily promote to other key agricultural varieties,

specifically, in the design of policy operations, subsidies to farmers according to planting area and output can also be considered according to sales volume. The basic principle is that the distortion of the market must be reduced as much as possible, the policy implementation must be prevented from evolving from production support to income support, and the effectiveness and sustainability of the policy must be maintained; the level of subsidies must be reasonable and appropriate, which not only guarantees the basic income of producers, but also government fiscal Expenditure can be affordable; implementation methods must be convenient and feasible, not only to ensure the directionality and accuracy of the policy, but also to be operable, and the masses can understand and accept, gradually form a target price subsidy system with clear direction, precise influence, convenient operation and remarkable effect.

(Author: State Council Development Research Center researcher Cheng Guoqiang)