Agriculture Reference
In-Depth Information
liberalised in eight east coast provinces that had a grain trade deficit.
Third, decision making on support prices was transferred from the central
to the provincial governments, resulting in support prices moving closer
to market prces.
In spite of these changes, the support price system still conflicted with the
market mechanism, and generated more conflict following WTO accession,
because t encouraged domestc producton of gran whch dd not have a
comparative advantage, and therefore resulted in surpluses and lower market
prices. Further liberalisation of the grain market was needed.
Policy considerations in liberalising the grain market
There are several fears about lberalsaton of the gran market.
Without government protection, farmers may be hurt when the
market prce of gran s low.
Without the government purchase and supply of grain, food security
may not be assured when there are poor harvests or war threats.
Lberalsaton of the gran market and wthdrawal of government
subsdes would result n job losses n the state gran trade sector
of up to two mllon.
The accumulation of huge financial losses and non-performing loans
n the state gran sector has been a hot poltcal potato; once the
market is liberalised, the non-performing loans in the state sector
would need to be lqudated.
Contrary to these opinions, past experience shows that government
intervention has resulted in instability of grain supply, larger price
fluctuations, inefficient operations, and huge losses in the state grain
trade sector. The earlier the state grain trade sector is reformed, the more
quckly the losses can be avoded.
In those provinces in which the grain market has been liberalised,
the situation is satisfactory, that is price levels, demand and supply
are bascally stable; the formal state gran companes have been ether
prvatsed or restructured; and at least some of these busnesses have
become profitable.
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