By Han Jun, Development Research Center of the State Council (DRC)

Research Report No 12, 2012

I. Put Emphasis on Supply and Stabilize the Market

1. Stabilize grain production

In 2011, China's grain yield increased for the eighth consecutive year, registering a total output of 1.1424 trillion jin (two jin make one kilogram) and an annual increase of 4.5%. The harvest in 2011 is the result of a combination of relevant factors including "supporting policy, booming market, hard work and favorable weather". The yield increase can mainly be attributed to more supporting policies, steady food price, extensive popularization of major high-yield technologies and fewer-than-average natural disasters. The successive yield growth in eight years has laid a solid foundation for China's food security. Calculation based on grain supply suggests that China's grain self-sufficiency has dropped to 90%. As China's major imports are soybeans instead of cereals, however, the major cereals like rice, wheat and corn are more than 98% self-sufficient. Despite the successive growth in grain output, China still remains vulnerable to frequent and severe natural disasters, and the grain harvests still rely heavily on favorable weather conditions. The restraint arising from land and water resources is getting severer and it is difficult to strike a balance between grain supply and demand. The material input and cost on labor have been rising continuously and the problem of relatively low profitability in grain production still stands prominent. Despite their great contributions, major grain producing regions are in a disadvantaged situation with food production as the leading industry. In 2011, the 13 major grain producing provinces accounted for 76% of the country's total output and contributed 90.5% to the rise in output. However, a typical concern in some of the major grain producing provinces is that grain production, instead of being an advantage, has become a burden. Let's take Jilin Province as an example. The Province has decided to produce 10 billion jin more than before under the nationwide goal of 100 billion jin in grain output increase. It has planned for ten major projects, which are expected to involve an accumulated investment of 21.75 billion yuan. Apart from the 8.95 billion yuan investment from the central government, the rest are expected to be raised at the provincial, municipal and county levels. This remains a big problem at the current stage. China's second grain producer Henan Province has been the lowest in terms of per capita fiscal expenditure over the past several years. In 2009, its per capita fiscal expenditure stood at merely 3,063 yuan, while the figure of Shanghai was 15,563 yuan, which is more than 4 times higher. To stabilize grain production, therefore, is still a primary task while handling the three-dimensional rural issues, namely the problems of agriculture, rural areas and farmers. From the policy perspective, in order to stabilize grain production, we should first mobilize the farmers' initiative in planting grain crops and the local governments' initiative in emphasizing grain production.

(1) Keep a reasonable grain price

Compared to the residents' income and the overall price level, the present grain price is not very high. Reasonable price increase is a way to guarantee grain supply and balance the interests of agriculture and industry, and also an important part of the strategy of using industrial returns to subsidize agriculture. We should reasonably adjust grain price and steadily increase the floor price for wheat and rice procurement.

(2) Optimize the long-term mechanism of financial subsidy to farmers growing grain crops

Over the recent years, the prices for diesel oil, fertilizer and agricultural services as well as the cost on labor have been increasing consistently, which has led to cost increase of grain planting. The favorable effect of subsidies has been offset by the increase of prices and the profit from grain planting has been reduced, which has raised complaints among farmers. We should strengthen financial subsidy to grain growers and increase the subsidy to a level reasonable enough to compensate farmers' cost in growing grains and also guarantee for them an appropriate level of profit.

(3) Optimize the benefit compensation mechanism for major grain producing regions

In 2011, the central finance rewarded a total 20 billion yuan to 200 major grain producing counties throughout the country (10 million yuan for each county). Such a rewarding policy has helped to alleviate to a certain extent the financial difficulty of the major grain producing counties and protect their initiative in grain production. However, the general feed-back from these counties suggests that the rewarding amount is relatively small. The average reward capital for each mu (15 mu make one hectare) stood at merely 11 yuan in Henan's major grain producing counties in 2011. The amount is less than 0.015 yuan per jin if calculated on grain output. At the current stage, the financial difficulty of major grain producing counties stands as a prominent problem and the central finance should grant them rewards according to the per capita financial resources at the county level, ensuring availability of adequate funds for basic expenditure and for social undertakings and improving their initiatives in developing grain production.

(4) Continue tapping the potential of improving the yield on per unit of land It's difficult to realize balanced yield increase over large areas by relying on single technology, therefore, we should integrate and popularize advanced and practical technologies, promote the combination of improved varieties and advanced methods, and facilitate the application of good agricultural machinery and processes.

2. Guarantee the supply and market stability of edible oil, cotton, sugar and fresh agricultural products

We should handle well the collection and storage of cotton and avoid big fluctuation of price so as to protect the interests of cotton growers. The price of sugar has witnessed big increase for three consecutive years, but the price increase has failed to lead to corresponding production increase and sugar production has been in stagnation for three years in succession. This can be mainly attributed to the decline of comparative benefit in planting sugarcane and the lack of enthusiasm among farmers. It's therefore becoming extremely urgent to set out relevant policies to support sugar production. We should also promote pig rearing on large scales and optimize the pre-arranged plan for market regulation so as to avoid the price cycle of "bigger increase followed by sharp fall".

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