By Jin Sanlin, DRC

2018-10-30

As the reform on purchasing and storage system implemented, China’s grain production becomes further marketized, supply and demand relations as well as price of grain fluctuate more frequently. The growing impacts of both domestic market and international market raise higher requirements for improving the food regulation and control. Under the new situation, the food control policy system could be further improved with the idea of“treating grain output and grain production capacity with different measures; optimizing grain reserves and making a comprehensive and proper balance towards the competition between imported grain and home-produced grain”. Regulations need to be lifted in some unnecessary areas and efforts should be truly made over urgent issues, so as to effectively improve the food regulation and control capacity in light of market-based operating mechanism and an open economy.

I. Partial adjustments of the food control policy since 2014

Economic attributes of low demand elasticity of grain and its social attribute as basic necessity determine that the government must implement macro regulation and control to ensure the basic stability of the domestic grain market. Since the reform and opening-up, China’s grain production has been constantly marketized, and the government’s regulation and control policy also have been gradually improved. Since 2004, the food control policy system has gradually come into being with increasing grain output as the main goal, and supporting the market through purchasing and storage as the major policy tool, supplemented by expectancy management, demand management and balancing the market with supply of the storage grain. Since 2014, based on the new changes in the relationship between food supply and demand and the new problems emerged in the grain industry, the government has made the following adjustments on the food control policy which had been implemented in the previous period: to gradually cancel the temporary purchasing and storage policy for soybeans and corn; to lower the minimum purchasing price of rice and wheat to enhance price elasticity; to implement grain destocking policy with corn as the focus; and to encourage the development of the grain deep processing industry. These policy adjustments have begun to return the pricing right back to the market. As a signal, price can be brought into play to adjust the grain demand and supply in the market. More and more farmers are able to change grain growing varieties according to the price signal and market demand. The cancellation of the temporary system of purchasing and storage has made the price of corn to fall back to the normal level of the market, thus the import of corn and its substitutes declined sharply and the stored corn has been sold quickly. The demand-supply relationship in the whole grain market have improved, and the dilemma of high grain output, high import and high inventory has begun to ease. The market-based reforms have achieved gratified results.

II.Challenges and problems faced by the current food control policy

Overall, the reforms since 2014 are only partial explorations; it is therefore short of overall planning on the food regulation and control policy system for medium and long term. Some deeply-rooted problems have not been resolved, while some new problems have emerged in practice: new approaches about the grain production capacity security cannot be fully met; it lacks overall planning on the food regulation and control policy system for medium and long term; it has not set out new measures for the new pattern of integration of the market at home and abroad; and the foundation for implementing food regulation and control is weak.

III.Approaches and suggestions on improving the food regulation and control policy system

Under the new situation, we need to focus on improving the food regulation and control capacity in light of market-based operating mechanism and an open economy, comprehensively handle the relationship between output regulation, proper storage and moderate import, and establish a food control policy system with clear objectives, sharp boundaries and simple operation. The overall approach is treating grain output and grain production capacity with different measures; optimizing grain reserves and making a comprehensive and proper balance towards the competition between imported grain and home-produced grain. The food control policy framework in the new era includes supply-side regulation policy, regulation policy in circulation, and demand-side regulation policy. Some policy options are made as follows. First, the capacity protection policy and incentive system need to be improved. Before the peak of China’s grain demand comes, it is necessary to maintain stable and orderly improvement of grain production capacity for a long term. Therefore, the strategy for grain production capacity safety need to be stick to for a long time. Second, the national grain output control mechanism need to be established and improved mainly through expectancy management to implement guided regulation and control on food production. Third, new tools need to be created for food production control policy. In accordance with the principle of separating price from subsidies, the purchasing and storage policy of rice and wheat should be reformed fundamentally, and the system of “producer subsidy + storage purchasing at the cost price” should be implemented. Fourth, the reform should be carried out on the grain reserve management mechanism. Against the backdrop of highly decentralized and market-oriented grain purchasing and selling, grain storage will be the main way for the government to regulate and control the market. Fifth, the import and export regulation and control policies should be improved. For agricultural products with large domestic supply and demand gaps, efforts should be made to set up a stable import regulation mechanism, including regularly releasing information on domestic production, import, inventory, and consumption to effectively guide international market expectations; and further improve the import tariff quota management system according to the principle of transparency and predictability. Sixth, a neutral demand management policy should be implemented. We need to gradually clear up and abolish policies on subsidies for the grain deep processing industry and market access restrictions, mainly using social regulatory measures such as environment inspection and safety supervision so as to restrain the development of unsafe grain deep processing industry which is of high energy consumption and heavy pollution.