Agriculture Reference
In-Depth Information
prcng system has caused serous prce and output nstablty n gran
markets (Wang 2001).
The rgdty of the state-monopolsed gran trade system and mstakes of
the grain trading companies added fuel to the flames of supply surpluses.
While domestic supply was increasing, there were net imports of 18.67
and 10.25 million tonnes of grain in 1995 and 1996, respectively, which
worsened the stuaton of domestc gran surpluses.
Faced with the low market prices, the government announced three
policies in 1998: all grain products were to be purchased by the state
gran companes at support prces that are hgher than market prces; the
state gran companes would have to sell gran at prces not lower than the
support prices, so that the state subsidy could be reduced; and bank loans
extended to these companes for the purpose of gran purchases were not
to be used for other purposes. In addition, in order to make the support
prices work, the grain market was monopolised by the state, and private
busnesses were prohbted from purchasng gran drectly from farmers.
These polces dd not acheve the goal of protectng farmers' ncomes
for several reasons. First, after two decades of market-oriented reform, it
was extremely difficult to entirely monopolise grain purchases. Second, the
role of policy executers given to the state grain companies conflicted with
their role as profit makers. To make profits or to avoid losses, they tended
to under-grade the quality of grain they were purchasing from farmers, or
make extra deductions for 'wet' and 'impure' grain, so that they could pay
no more than market prices. In some cases, they refused to purchase from
farmers, only from private dealers, so that under-the-table deals could be
made to share the price margin. Third, even if consumer prices could be
monopolised at a higher level than would clear the market, the demand
for grain was not under state control. As a result, the over-supplied grain
could not be sold off and the losses had to be borne by ether the state or
farmers. In addition, while farmers benefited little from the support prices,
the state had to bear the huge cost of storng a large amount of gran and
to nvest n many new storehouses.
Under these pressures, a few changes were made to partially liberalise
the grain markets. First, some low quality grains were excluded from
the support list in 2001. Second, up to 2002, the local grain market was
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