Farm price targets 'will stabilize domestic market'

China's move to set up a target price system for farm products will stabilize domestic grain prices and encourage imports of products such as corn, soybeans and cotton, said industry experts.

The system will also raise the purchasing power of lower-income households when prices are high, while farmers will receive subsidies when prices fall too low, the National Development and Reform Commission said on its website on Friday.

According to this year's Number One Central Document, a guideline for agricultural development that's been issued by the central government for 11 consecutive years, China will modify its grain prices and allow farmers to get subsidies based on market price differences.

"The government is setting minimum prices for agricultural products and designating buyers for the harvest," said Li Guoxiang, deputy director of the rural development institute of the Chinese Academy of Social Sciences, a government think tank.

"Allowing the market to play a key role in the pricing of agricultural products can help boost the farm sector," Li said. "The country also wants to improve price subsidy mechanisms to ease the impact of higher prices on low-income consumers."

The NDRC said it will focus on pork, fertilizer, cotton, vegetable oil, sugar and other items with a "disproportionate impact" on low-income buyers. It chose a range of products and regions to carry out pilot reforms this year.

Changes in land productivity, combined with rapid urbanization, have had a negative impact on farm prices over the past three years, so it's time to set price targets while leaving room for farmers to make a profit, Li said.

Hu Zengmin, an analyst at the China National Grain and Oils Information Center in Harbin, said the domestic prices of many farm products are higher than world prices. That's helping drive imports.

China introduced floor prices for farm products in 2006 to protect farmers from price volatility. The government buys such products as wheat, corn and cotton for State reserves when market prices fall below floor prices.

Farm product prices in the United States and European Union are more market-driven, partly because of supply-demand relationships and the function of commodity markets such as the Chicago Board of Trade.

China still relies on stockpiling and floor purchase prices, supported by government subsidies, to regulate prices.

But the nation's minimum grain purchase prices have remained above world levels in the past three years, which prompted more imports of products such as soybeans, corn and cotton from the US, Argentina and India in 2013.

The price gaps "have made it difficult for domestic buyers to improve sales and are also driving up China's import volumes", Hu said.

"Although there is no shortage of staple grains in China, policymakers should consider letting the minimum purchase prices of domestic crops fall, bringing them more in line with international prices," said Zheng Fengtian, a professor at the school of agricultural economics and rural development at the Beijing-based Renmin University of China.

"To obtain greater advantages from the international market, increasing imports of non-staple grains and related products - such as soybeans, feed, meat, edible oil and deep-processed grain - will allow China to concentrate on the production of rice, wheat and corn to further ensure its grain security," said Zheng.