Agriculture Reference
In-Depth Information
In nominal terms, quota prices rose slightly in the 1980s at a time of
high inflation. From 1985 to 1990, the real price of the major grains (as a
weighted average of the prices of rice, wheat and corn) fell by 22 per cent.
Market prices played a role at the margin, whereas government prices had
a larger mpact on gran producton because the volume of state purchases
was so large (Wang 2001). As the result of low government prices, grain
output remaned at the 400 mllon tonnes level n the mddle and late
1980s, while demand for grain increased significantly. The above-quota
prces have converged to a level close to market prces snce the early
1990s and fluctuated in line with market prices because of less government
nterventon. Ths seems to be the man reason for gran producton reachng
440 mllon tonnes n the early and mddle 1990s.
Stimulated by the improvement in grain supply, the government decided
to liberalise the quota control system in 1993. However, most of the state-
owned grain dealers have become partially profit-oriented and expected to
make profits from holding grain stocks. This resulted in supply shortages and
sudden increases in market prices in the short run, which led farmers to hold
their products for expected higher prices. Facing sharp increases in market
prices and shortages, the government decided to give up the planned reform
and, instead, to increase the quota prices substantially in 1994. Quota prices
were further increased in 1995-97 to encourage grain production. In 1997,
the level of quota prces n real terms (as a weghted average of the prces
of rice, wheat and corn) was 51 per cent higher than in 1993 and 20 per cent
higher than in 1985 (Ministry of Agriculture, various years). Domestic prices
of several grain products significantly exceeded the world market prices. At
the same time, the central government introduced a 'provincial governor
responsibility system' to insure local self-sufficiency of grain supplies.
Responding to the higher prices, the area sown to grain increased by
4 per cent and gran yeld per hectare ncreased by 10 per cent between
1994 and 1998. Total grain output reached 504 million tonnes in 1996 and
512 million tonnes in 1998. This output far exceeded domestic demand and
resulted n decreases n market prces snce 1997.
From 1996 to 2000, market prices of rice, wheat, corn and soybean
dropped by 39 per cent, 35 per cent, 44 per cent and 44 per cent, respec-
tvely (authors' calculatons on the basis of data, Information Centre,
Ministry of Agriculture). A model simulation shows that the rigid government
