By Ye Xingqing, Qin Zhongchun & Jin Sanlin, Research Department of Rural Economy of DRC

Research Report No 146, 2015 (Total 4831)

Abstract:

Agricultural price support policy, featured by minimum purchasing price of grain and the temporary purchase and storage of major agricultural products, is regarded as an essential component of China's agricultural support policy system. It effectively enhanced farmers' crop-growing initiatives, raised grain production and farmers' income level, and maintained the stability of agricultural product market. However, over the past decade, from the establishment to the implementation of the system, these policy instruments are facing more and more restraints and incompatibilities or even setbacks have surfaced, mainly including overuse of minimum purchasing price and temporary purchase and storage of major agricultural products, which have baffled growth of entities in a policy-oriented agricultural product market. The rigid rise of market-based purchasing price set by the central government has led to the popping up of the inflection point in advance due to price inversion both at home and abroad. The pricing principle of "cost plus reasonable profits" and "cost plus basic earnings" has made the government-set price higher than the long-term market equilibrium price, resulting in oversupply and overstock as well as rampant rent-seeking and corruption within the purchasing and stockpiling system. The ultimate solution to all these problems is to reconstruct the agricultural price support policy across the board.