China Leaves Grain Price to Mercy of the Market

In a bold reform move, which will stimulate entrepreneurship in the farming sector, China's grain distribution sector has been given the green light to abandon protective prices.

In a telephone interview, Li Jingmou, general manager of China Zhengzhou Grain Wholesale Market, revealed that the central government is making full preparations for going ahead with the reform.

The move aims to help establish a free market grain price system and increase the inventory of high quality grains, said Li.

The Shanghai-based Jiefang Daily reported yesterday that the State Council, China's cabinet, has agreed to carry out the new reform policy in Zhejiang, Fujian and Jiangsu provinces and Shanghai Municipality this year. "The production, purchase and sale of grain will be fully opened up steadily (in the pilot areas)," the newspaper added.

Presently, farmers are required to sell their grains only to State-owned grain companies at a protective price, which is higher than the market price.

The new policy is considered a major step towards a full opening-up of grain prices nationwide.

It came following a trial reform which features a free market price system for summer grains in Zhejiang and Jiangsu provinces and Shanghai last year.

"If these experiments prove successful, the reform is estimated to spread to the whole country next year," Li said.

The State grain inventory, which stands at about 250 million tons, will be further increased to deal with possible price fluctuations, according to the general manager of the country's only national grain wholesale market.

Li said the key to implementing a free market grain price system is the establishment of a standardized and well-regulated grain market system.

The market-oriented reform of China's grain sector has lagged far behind that of other industries due to its extreme significance and sensitivity.

The central government has been burdened with subsidies for farmers in the form of protective prices, in order to motivate farmers and ensure abundant government grain reserves.

The government has lowered grain purchasing prices in recent years to offset a series of bumper harvests which have kept government granaries full of low quality grains.

The new policy is expected to encourage farmers to optimize crop mix and upgrade grain quality.

Li said the grain market reform will trigger further agricultural restructuring and make more farmers turn to growing cash crops.

On the other hand, millions of farmers may benefit from a much-needed boost to declining grain prices as the prices of major grains, especially quality wheat, are expected to jump "by a small margin" if a free price system is finally put into place by next year, Li said.






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