Agriculture Reference
In-Depth Information
accumulated huge losses. An estimate by Zhang and Li (1998) indicates that
the amount of non-performng loans owed by the state gran sector to the
Chnese Agrcultural Development Bank reached 21.4 bllon yuan.
These huge losses by the state grain sector were completely unacceptable,
and grain marketing and distribution system reforms initiated in May 1998
were desgned to reduce the losses. Despte the contnung asserton that
the government buys the grain from farmers at protected prices, the new
polces requred state gran agences to sell gran at a prce that covers
the full costs incurred and preferably with a small profit margin. The state
grain agencies were also asked to improve their operational efficiency
through redundances and other measures.
The orgnal dea was gradually to lberalse the gran markets so that
government procurement prces would move close to market prces.
However, due to the fundamental flaw in the design of the policy, that is,
that the state grain sector was asked to carry out two conflicting duties—to
act as a government agency mplementng the protecton prce polcy
and to achieve financial soundness as a commercial entity—after one year
the declnng trend n gran prces ncreased and the government subsdy
contnued to soar. The government realsed the problem and slghtly
changed the policy in mid May 1999. The remedies included reducing
the scope of the prce support coverage and the support prce levels and
allowng gran processng and feed ndustres to purchase gran drectly
from farmers.
Another drect approach to achevng food securty has been the state
gran reserve polcy. The natonal government controls a large amount of
reserve grain stocks. However the volume of stocks held is a state secret.
The state stocks are managed by the State Admnstraton for Gran Reserves
(SAGR) and held by the grain bureaus. When there is a grain shortage,
reserves are sold to put downwards pressure on prices. However, the
management of state held stocks s seen as beng too bureaucratcally
constrained to effectively reduce price volatility (Lohmar 2002). Moreover,
mantanng the stockple s expensve. Nyberg and Rozelle (1999) estmate
that the costs of carrying over one ton of wheat, rice and corn were about
US$42, US$6 and US$39, respectively, being equivalent to over 20 per cent
of the prce of each commodty on the world market.
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