By Cheng Guoqiang, Research Fellow, Director-General of International Corporation Department, Secretary-General of Academic Committee of DRC

In accordance with the guiding principles set out in No. 1 Central Document, China will follow the principle of pricing by market and separating pricing from subsidies, and improve the pricing mechanism for grains and other major agricultural products, so as to gradually formulate a target-oriented pricing system.

Exploring the establishment of a target-oriented pricing system for agricultural products is due to some major changes taking place in the domestic and external environment. Since 2000, China has been facing stern challenges relating to its agriculture-friendly policies such as the minimum grain purchasing price and temporary purchasing and storage of major agricultural products. There are some issues relating to China’s agricultural products such as distorted pricing mechanism for agricultural products, market role is not brought into full play, price inversion of agricultural products between domestic and overseas market as well as mounting pressure on imports. In addition, there are growing restraints on agricultural development and resources environment and sustainable agricultural development is facing a number of challenges.

Implementation of target-oriented prices to let the pricing of agricultural products get separated from government subsidies can not only effectively motivate farmers’ initiative in production but also reduce the distortion of market rules, which could help market play its decisive role in allocating resources. This should be the basic approach for China to adjust supportive polices in providing subsidies for agricultural products.

From the perspective of policy operation, target-oriented prices are different from the minimum purchasing price and the temporary purchasing and storage price, as they do not exert any influence on market price, but mainly play the role of sending signals to farmers in learning about pricing for agricultural products. In view of the actual formulation and implementation of relevant policies, subsidies to farmers can be given either on the basis of growing areas and total production, or according to sales volume. The fundamental principle is to reduce as far as possible the distortion of market rules, avoid policy implementation evolving from support for production to support for income, and ensure the effectiveness and persistency of policies. Subsidies should be kept at a rational and suitable level to guarantee basic income of producers and stand within government expenditure; methods must be easy for implementation and ensure that the polices are targeted, precise, operable and acceptable to the farmers. All these are intended to form a target-oriented and easy for implementation pricing and subsidy system with clear goals that could produce positive influence and outstanding results.

For more detailed information, please refer to here.