China will sever the link between produce prices and government subsidies to build price mechanism that benefits both both customers and farmers, China's top economic planner said.

The reform will subsidize consumers when the market price is too high while giving farmers allowances when the market price is below the target , the National Development and Reform Commission (NDRC) said in one statement.

The pilot reform will be applied to certain kinds of farm produce in selected regions to allow the market to play the decisive role in pricing. The target price will factor in overall cost, margins for farmers and price gaps between domestic and overseas markets.

Currently China sets the grain price by deciding the floor purchase price and adjusts it according to conditions. The policy raised the cost of government purchases and brought risks to grain circulation.

The "No.1 Central Document", the central government's first policy document of 2014, decided to build a target price mechanism for farm produce and establish new agricultural management systems.