China to give market a bigger role in pricing

BEIJING, China (Reuters) — China wants to give the market a bigger role in setting farm prices, says a top agricultural official.

The initiative moves away from a controversial state stockpiling policy that has led to bulging grain inventories and a surge of cheap imports.

That policy, in which grains are bought at artificially high prices to boost rural incomes, has encouraged farmers to produce too much, and China should rely on market signals to enable output to match demand, said Chen Xiwen, who heads the Communist Party’s rural policy group.

“We will draw on our experience from the introduction of target prices for soy and cotton … let the market play a leading role in the formation of prices and give correct market information to farmers so they can produce based on the needs of the market,” Chen told a news briefing.

Beijing scrapped its cotton and soybean stockpile schemes last year, switching to direct subsidies to farmers to cover the gap between a target price and the market price. However, it kept the stockpile policy for grain, sugar and rapeseed.

The system has driven domestic prices to artificially high levels, with corn about 40 percent higher than on the global market. Downstream industries have been shifting to cheap imports, leaving the expensive domestic crop to the state reserve.

Sinograin, the state stockpiler, bought a record 125 million tonnes of grain last year, the official Xinhua news agency said.

Analysts estimated the country’s corn stocks could reach more than 120 million tonnes in 2014-15 after three years of bumper purchases.

“It’s a big problem where we should store new purchases this year because the silos in some areas are already full,” Chen said.

He said Beijing would continue to impose strict controls on imports of grain, cotton and sugar to ease the oversupply.

Vice-premier Wang Yang said last October that the country would seek to control imports and crack down on smuggling in a bid to cut oversupply, with record stockpiles leading to rising storage problems.

The country will also slash cotton import quotas for this year to boost demand for domestic fibre, a government official said last year.

As well, China will try to control sugar imports by requiring buyers to register shipments in excess of quotas, which would allow the government to monitor the flow of cheap imports more closely.

Shipments delivered in excess of quotas that were agreed to under the World Trade Organization should attract higher tariffs, but local authorities have not been implementing the rules strictly enough, Chen said.

China’s grain imports are expected to plummet this year, with the government determined to sell off as much of its bulging reserves as possible before it grants mills permission to buy overseas.

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