Improve Minimum Purchase Price Policy for Grain Farmers' Income Protection

The minimum purchase price for grain serves as a safeguard mechanism to ensure the income of grain farmers, representing the most direct and effective policy measure to protect their enthusiasm for gr...

The minimum purchase price for grain serves as a safeguard mechanism to ensure the income of grain farmers, representing the most direct and effective policy measure to protect their enthusiasm for growing grain. The "Decision of the Central Committee of the Communist Party of China on Further Comprehensively Deepening Reform and Promoting Chinese-style Modernization," passed at the Third Plenary Session of the 20th Central Committee (hereinafter referred to as the "Decision"), calls for the "improvement of strong agriculture, beneficial agriculture, and wealthy farmer support systems" and "accelerating the establishment of a comprehensive mechanism to safeguard the income of grain farmers." The recently announced plan to improve the minimum purchase price policy for wheat for the years 2025-2026 is an important measure to thoroughly implement the reform arrangements of the "Decision," an innovative practice to solidify the foundation of food security in all aspects, and is of great significance for maintaining the initiative in food security and stabilizing the overall situation of the country.

The implementation of the minimum purchase price policy is of great significance. Since 2004, the state has implemented a minimum purchase price policy for rice and wheat in major grain-producing areas, aiming to ensure that farmers do not incur losses from growing grain and do not face difficulties in selling it, thereby stabilizing the expectations for grain production and protecting the enthusiasm for growing grain. The implementation mechanism involves the state annually determining the minimum purchase price levels for wheat and rice by comprehensively considering factors such as grain production costs and benefits, market supply and demand, and prices, as well as World Trade Organization rules and macroeconomic regulation. Corresponding implementation plans are formulated and announced before the sowing of crops. After the new grain is marketed, within the specified policy execution period, if the market price is higher than the minimum purchase price, the state does not activate the execution plan, and the grain purchase price is formed by market supply and demand, with various purchasing entities purchasing according to market grain prices; when the market price is lower than the minimum purchase price, the state activates the minimum purchase price execution plan, and the state-designated policy execution entities purchase the newly produced grain sold by farmers at the minimum purchase price in the specified main grain-producing areas, while other grain enterprises purchase according to market conditions, promoting a reasonable recovery of grain prices.

Twenty years of policy practice have shown that the minimum purchase price policy has played an important role in protecting the enthusiasm of farmers for production, ensuring national food security, stabilizing the overall price level, guiding structural adjustments, and promoting scale operations. With the joint effect of the minimum purchase price for grain and other strong agriculture, beneficial agriculture, and wealthy farmer policy measures such as subsidies and insurance, China's grain production has increased from 861.3 billion jin in 2003 to 1,390.8 billion jin in 2023, a 61.5% increase, with a continuous improvement in comprehensive grain production capacity and grain output stabilizing at over 1.3 trillion jin for nine consecutive years. This not only ensures the basic consumption needs of grain for economic and social development but also provides important support for dealing with various risks and challenges at home and abroad, playing a "ballast stone" and "stabilizer" role in stabilizing the overall situation of the country.

At present, global grain prices have entered a downward channel, and the supply and demand of the domestic and international grain markets continue to remain relaxed, with prices running weakly. The task of ensuring the income of farmers from growing grain and protecting their enthusiasm for growing grain is more complex and arduous. The state's announcement of the improved plan for the minimum purchase price policy for wheat further clarifies the policy positioning of the minimum purchase price to ensure the cost and stabilize expectations, and also sends a reform signal to accelerate the establishment of a comprehensive mechanism to safeguard the income of grain farmers and more effectively protect the enthusiasm of farmers for growing grain.

Adhere to the policy positioning of ensuring cost and bottom line. The policy positioning of the minimum purchase price is to ensure the cost and bottom line, which is to orient towards ensuring the basic income of farmers from growing grain, anchor the pricing level to the cost of grain production, ensure that farmers do not incur losses from growing grain and do not face difficulties in selling it, promote the formation of grain prices by the market, effectively reflect market supply and demand, and enable grain farmers to achieve high quality and high price, improve the benefits and income from growing grain while ensuring the cost and bottom line of the policy. The state's release of the improved plan for the minimum purchase price policy for wheat this time adheres to the policy positioning of ensuring cost and bottom line, which is of great significance for improving the mechanism to safeguard the income of grain farmers.

On the one hand, it is conducive to protecting the enthusiasm of farmers for growing grain and maintaining the stable development of grain production. The current minimum purchase price for wheat is basically equivalent to the average production cost nationwide, which can generally play a role in ensuring cost and bottom line, eliminating farmers' concerns about incurring losses from falling grain prices and not being able to sell what they have grown, and giving farmers a "reassuring pill" for growing grain. The state's announcement of a 0.01 yuan increase in the minimum purchase price for wheat for the next two years sends a positive signal of focusing on agriculture, grain, and stable production and supply.

On the other hand, it highlights the policy orientation that grain prices are mainly formed by the market and fully plays the role of the market mechanism. In recent years, the state has gradually improved the minimum purchase price policy, basically achieving that the policy is not activated or less activated under normal circumstances, allowing the market mechanism to play fully, and significantly enhancing the vitality of the grain market. At the beginning of the new wheat market this year, the purchase price in some areas has approached the minimum purchase price level. It is expected that the supply and demand of wheat will continue to remain relaxed in the next two years, and prices will still face downward pressure. If the minimum purchase price is increased by a large margin, it may trigger widespread activation of the policy, leading to high inventory and weakened market vitality. A small increase in the minimum purchase price, in conjunction with measures such as adjusting reserves, can not only ensure the basic income of farmers from growing grain but also play the leading role of market-oriented purchases, leaving room for market price adjustments.

Enhance the policy effectiveness of stabilizing expectations.The refined minimum purchase price policy for this occasion, which adjusts the minimum purchase price level for wheat from an annual basis to a fixed two-year period, is not only an intrinsic requirement for further improving the policy mechanism but also an important measure to address new situations and changes in the domestic and international grain markets and to strengthen the policy's ability to stabilize expectations.

Extending the pricing cycle appropriately is a fundamental requirement for stabilizing market expectations. Maintaining agricultural support policies relatively stable and unchanged for a certain number of years is a common practice among major economies such as the United States, the European Union, and Japan to stabilize farmers' policy expectations. China's cotton target price reform has also accumulated successful experiences; for example, the cotton target price has been changed from an initial one-year fixation to the current three-year fixation, which has effectively promoted the enthusiasm of cotton farmers for planting and achieved continuous and stable development in cotton production. As the "reassurance pill" for farmers to grow grain, extending the pricing cycle appropriately helps to stabilize the production and operation expectations of farmers, especially those engaged in large-scale operations, guiding the stability of grain planting plans and promoting the stable development of grain production. At the same time, it is beneficial for guiding the market expectations of grain traders and processing enterprises. For some areas where land transfer prices are directly linked to the minimum purchase price, it is conducive to guiding the rational formation of land transfer prices, promoting the basic stability of land transfer rents, and preventing significant fluctuations in land transfer prices that would significantly increase the cost of growing grain.

Currently, there is a good opportunity and conditions to extend the pricing cycle. In the past, due to the large interannual fluctuations in land transfer rents and fertilizers, the minimum purchase price level was set annually and adjusted year by year. According to the cost and benefit survey data of agricultural products by the National Development and Reform Commission, the cost of grain cultivation in the main producing areas has shown a stabilizing trend in recent years, with the average planting cost per mu of wheat and rice remaining basically the same in recent years. Moreover, according to the deployment of the "Decision," the mechanism for forming the transfer price of contracted land management rights and the mechanism for ensuring the supply and stable prices of fertilizers and other agricultural materials will be gradually improved. In the future, the cost of grain cultivation will remain basically stable, and the opportunity and conditions for adjusting the pricing cycle of the minimum purchase price have become basically mature. Within the pricing cycle, if there are significant changes in production costs, the minimum purchase price level can be adjusted separately according to the procedures, firmly safeguarding the bottom line of ensuring the basic income of farmers from growing grain.