a. No.1 Document of the CPC Central Committee and the State Council of 2014 provided that a national food security strategy addressing the new situation should be established. Based on the consideration of factors including resources and environment constraints, supply and demand of grain in China, as well as the changes in the international trade environment, the national food security strategy should be based on the following principles, notably, maintaining appropriate level of production capacity with the support of science and technology, and thus to guarantee a higher level of self-sufficiency, with moderate levels of imports as supplement.
The minimum price procurement policy for wheat is a good example of this strategy. Wheat is one of the two major staple food grains for Chinese people with fundamental importance, and thus, the most supportive measure of minimum price procurement was designed for this product, since it had been expected to effectively protect the farmers’ incentive to produce wheat. The consecutive increase of wheat production in the last 12 years also proved that the objective of promoting wheat production has been successfully achieved.
However, with unfavourable market conditions in recent years, the market mechanism was distorted and the government became the only buyer in reality, which led to high level of stockpiling and posed tremendous pressure and challenge for agricultural production. Targeting at resolving these problems, the government decides to carry out market-oriented reform, which will allow the market to play a central role in formulating the price and thus improve the efficiency of circulation of grain products. The reform will be carried out on a product basis, and the reform of minimum price procurement policy for wheat and rice will be carried out very cautiously.
b. i. China has been consistently adhering to the principle of market orientation in reforming the grain production and procurement system. In the process of reforming the business operation of the state-owned grain companies, the procurement for specific policy objectives that are purely for commercial objectives will be identified. The reform of ownership will be accelerated, and the business operation mechanism will be innovated. State owned grain companies will operate based on more and stronger considerations of the market principles, and compete with other market players on equal footing. At the same time, the reform also aims at adequately exerting the inherent advantages of the private enterprises, by allowing more qualified private enterprises to participate in the procurement and the sale of grain in the domestic market.
ii. It should be highlighted that the procurement of grains in the domestic market and the import of grain from the international market are two distinct policy areas. The reform to promote the diversification of the market players aims at improving the procurement and sale of grain within domestic market, and has nothing to do with the import administration of grain products. Since the import of certain grain products are subject to tariff rate quota system, the enterprises concerned will be continuously administered in accordance with rules and practices that have been in place since China’s accession to the WTO.
c. Target price insurance for agricultural products is one of the policy instruments that China will continue to explore in the near future. Starting from 2014, pilot programmes were carried out in various regions, covering products including wheat, corn, paddy rice, pork, vegetables and specialty agricultural products. The target price insurance is different from the target price subsidy for soybean and cotton. The pilot programme of target price insurance for wheat was carried out in Henan Province, with the price based on the price index or average market price as the variant. The indemnity is based on the fixed production level, and covers the loss cause by price decrease. The pilot programme for paddy rice was carried out in Heilongjiang Province, with the production as the variant, and the indemnity is based on fixed price and production loss. Experiences and lessons will be drawn from these pilot programmes, which may help to decide the future of the target price insurance.