Policies Review on Food Price Rising (China)

Transcription

1 Policies Review on Food Price Rising (China) Team members Dr. LU Kaiyu Associate professor, Institute of Agricultural Economics and Development(IAED), Chinese Academy of Agricultural Sciences (CAAS) Dr. LUO Liangguo Associate professor, Institute of Agricultural Environment and Sustainable Development(IAESD), CAAS Dr. YANG Shiqi Associate professor, IAESD, CAAS Dr. XING Li Associate professor, International Center for Rural and Agricultural Development(ICARD), CAAS Mr. LIU Huaiju MA student, IAED, CAAS March 2,

2 Policies Review on Food Price Rising (China) Sustaining food security has always been one of the most important goals for governments at all levels in China. According to FAO (FAO, 1983), the ultimate target of food security is to ensuring that all people at all times have both physical and economic access to the basic food that they need. The specific aims contain: 1. to ensure adequate food production;2. to stabilize the food supply; and 3. to secure access by all the people to available supplies. During the past decades, the Chinese governments focused their main efforts on increasing domestic food production. This paid off, and by late 1990s, there actually appeared a surplus of supply over demand. However, more attention should be balanced between demand and supply side of food security. On one hand, overall output volume of food and the yearly growth rate as well as market supply of food were fluctuating due to climate and policy influences; on the other hand, those vulnerable people including farmers living in abominable rural areas and low-income urban dwellers who lost jobs or retired, were subject to food price rising and their capability of getting food from the market was accordingly weakened. Since the second half of 2006, prices of agricultural produces on the international and domestic markets kept soaring, which had negative effect on some of the families, especially the low-income households in China. Food prices registered relatively slow increase in the years of 2005 (by 2.9%) and 2006 (by 2.3%), before suddenly shooting up to an annual jump of 12.3% in Meanwhile, rural areas reported even bigger food price rise (11.7% in cities, but 13.6% in countryside). In the breakdowns, the price of pork & poultry and their products rose by 31.8% and that of eggs by 21.8%. In face of such a big rise of food prices, different functional departments of the government adopted varied policies, aiming at completely or at least partially solve the issue of food insecurity caused by price surge. Those polices can be categorized into 3 groups: (1) Price-oriented policies (to reduce food prices for consumers); (2) Supply-oriented policies (to increase food production); (3) Income-oriented policies (to increase food availability for or income of target groups). I. Price-oriented policies 1. Tariffs/taxes on food: As a nation with such a big population, China is always striving to high food self-sufficiency, and it seldom directly cuts food import tariffs in view of maintaining stable domestic food supply. On the contrary, it provides preferential tariffs to imported materials of food production as an effort to reduce producing cost and boost domestic food supply. For example, in recent years, the Chinese government seldom provided direct preferential taxes on imported food, but provided exemption of value added tax (VAT) on imported chemical fertilizers. The only exemption is that in 2002 the Ministry of Finance decreed that the wheat aided by UN World Food Programme be exempted from import tariffs and import VAT. In China, the governments provide preferential policies and reduce VAT on main production materials such as fertilizers, agricultural films and pesticide, cutting the cost of producers and spur food supply. In view of this, the Ministry of Finance and the State Administration of Taxation issued a Circular on Exempting Value-added Tax on Agricultural Production Materials. In order to balance food supply among different regions, the governments also try to reduce the food transportation cost, so that food can be delivered to those areas in need in time. In Sep. 2007, the 2

3 National Development and Reform Commission (NDRC) reduced food transportation cost of Northeast China-grown food, by exempting the railway construction fund duty on grains, cotton, and farm fertilizer. To sustain efficient distribution of food on the domestic market, the government provides favorable cuts on VAT, business tax and corporate income tax in favor of some of the policy-oriented companies. 2. Food price controls: In recent years the Chinese government seldom issued regulations that directly interfered food prices. However, in 2007 and 2008 when the food prices shot up so extraordinarily and brought great impact on the overall consumer price index (CPI), the NDRC and Ministry of Finance exerted provisional interference on the prices of important merchandise and service including food, carried out an overall reshuffling of agriculture-related pricing and levies, and cracked down price raising cahoots, forestalling, rumor mongering and other illegal pricing activities. 3. Consumer subsidies: Surge of food price impact low-income consumers a lot. In face of the rising consumer price index in 2007 and 2008, the governments pushed forward a series of policies. In Sep. 2007, the governments strengthened subsidies to special target groups. Besides more than RMB 15 per capita monthly additional subsidy to the families receiving minimum Social Welfare Support in cities, governments also gave them provisional subsidy of RMB 10 per capita monthly from Oct Student dining facilities in colleges and universities also received government subsidies. From Jan. 1, 2008, families receiving minimum Social Welfare Support in cities and countryside are given per capita monthly additional subsidies of RMB 15 and RMB 10 respectively. 4. Food export bans or taxes: In order to counteract domestic food price surge, the government cancelled all the previous food export stimulus policies. The year of 2007 saw the government cancelled export tax rebates on exported wheat and its starch products. In 2008, the government abolished export tax rebates on some of the exported vegetable oils. Such polices helped to stabilize domestic supply and the food price to an extent. 5. Food reserve and release: In order to protect the interests of food producers and to stabilize domestic food market, Chinese governments in as earlier as 1990 started to establish a minimum price protection initiative, and a food reserve mechanism that sought to regulate food supply and price. Such efforts are aimed at stabilizing wide food price fluctuations by releasing immediate food reserve into the market. In 1994, a Grain Risk Fund was established jointly by the central government and provincial governments. Based on years-long practices and experiences, China promulgated the Regulation on Administration of Central Cereal Reserve on Aug. 28, 2003, which formally regulated practices in planning, storage, release, and supervision of Central Government Food Reserve. The government publicizes the minimum prices for purchasing early indica rice, rice of intermediate- late maturity, wheat and other cereals yearly, and trusts China Grain Reserves Corporation and Agricultural Development Bank of China with purchasing and preservation of grains simultaneously. During unusual fool price rebounds, the government shall order China Grain Reserves Corporation to release grain onto the market. In Sep. 2007, the government injected a part of central grain and edible vegetable oil reserve into the market, successfully smoothening price fluctuations. Besides, the government exempts grain production enterprises from VAT duty. 6. Investment in marketing infrastructure: The efficiency of grain distribution is critical to national food security. In order to enhance management on grain logistics projects, build up 3

4 inter-provincial grain distribution channels, establish grain logistics information and quality check systems in grain companies, and to better organize grain logistics and to form a food emergency response system, the government in Sep started to build up and improve the agricultural products wholesale markets across the country by issuing national bonds. In Aug. 2007, the NDRC issued the Circular on Printing and Issuing the Development Plan of Modern Grain Logistics, and in Feb. 2008, the commission further promulgated the Circular on Printing and Issuing the Provisional Measures for Administration of Modern Grain Logistics Project. II. Supply-oriented policies 1. Agricultural inputs subsidies: In order to sustain grain production, Chinese governments thinks it very important to provide subsidies to productive materials involved in production of some agricultural products. In order to stabilize production and price of chemical fertilizers, the NDRC and other state departments jointly issued varied circulars in Jan., 2006, Apr. 2007, Feb and Jan. 2009, requiring related organizations to continue providing preferential electricity and natural gas prices for the fertilizer producers, to continue exempting VAT in the process of carbamide production, to continue to provide preferential price for railway transportation of fertilizer and exempt Railway Construction Fund duty. In dealing with the large-scale draught at the beginning of 2009, the central government ordered all the related departments to ensure availability of oil, electricity, and machinery transportation that were vital to draught relief. In the same time, in order to stimulate grain production, the central government launched a series of subsidy policies, including: subsidies for high-quality seeds from 2002 on; subsidies for agricultural machinery and tools from 2004 on; comprehensive direct subsidies for agricultural productive materials from 2006 on. In 2008, the total amount of three types of subsidies reached to RMB billion, 4 billion, 48.2 billion respectively. 2. Producer price supports and subsidies: China established a minimum government procurement price initiative very earlier, and at the end of the previous year or the beginning of the present year shall publicize the minimum prices for purchasing early indica rice, rice of intermediate- late maturity, wheat and other cereals. Practices of purchasing and subsidies are done by China Grain Reserves Corporation and Agricultural Development Bank of China. In addition, the central government reformed the Grain Risk Fund in 2002, and provides direct subsidies to agricultural production instead of agricultural products distribution system. As a stable stimulus, this policy has been adopted in all China. This policy provides direct subsidies to the farmers who grow rice, wheat and corn, as per their de facto planting area. From 2007 on, this policy is improved and subsidies are more in favor of production of hi-yield grains, commodity grains and quality rice. The total subsidies to grain production in 2008 registered RMB 15.1 billion. Moreover, the central government provides direct fiscal subsidies to counties that produce large quantity of grains in order to encourage more grain production. In 2008, such subsidy award amounted to RMB 16.5 billion. 3. Preferential rural finance policies: Aiming at the spring ploughing and irrigation and other farming activities, the central government provides substantial preferential credit policies. Since 2003, the state has already inked RMB 270 billion in spurring reform of rural credit cooperatives. By the end of 2005, about 70 million rural households benefited from the credit loans. In 2007, the central government launched experiment in 6 provinces and autonomous regions that provided subsidies in agricultural insurance. In 2008, micro-insurance has been promoted in 9 pilot provinces under guide of the China Insurance Regulatory Commission (CIRC) which will have an 4

5 indirectly impact on the agricultural production. 4. Strengthening agricultural technology extension: On as earlier as July 2, 1993, China promulgated the Law of the Peoples Republic of China on the Popularization of Agricultural Technology. This law was aimed at promoting and applying agricultural technology to the whole process of agricultural production, through the availability of experiment, demonstration, training, instruction and consultation services. In light of this, a comprehensive system for agricultural technology application has been established, from the top to the grass-root. Operation of this system is funded by local fiscal budget at varied governmental levels. From 2002 and by the end of 2007, subsidies by the central government to promote adoption of high-quality seeds amounted to RMB billion. As an important step to push forward agricultural mechanization, the central government injected RMB 70 million of subsidies in 2004 to promote agricultural machinery and tools, and the similar subsidies in 2009 shall jump to RMB 10 billion. In order to reinforce the agricultural technology application system, the State Council regulated the structure, scope of service and funding of grass-root agricultural technology promoting organizations in In addition, general technical service and business service operations shall be segmented, to be operated as a profitable body. 5. Pursuing agricultural R&D: Not only constructing a complete agricultural R&D system, China also invests a lot in agricultural R&D. In 2000, investment of agricultural R&D registered RMB billion, accounting for 0.296% of agricultural GDP, in 2005, reaching to RMB billion, and 0.5% of agricultural GDP.. At present, the Ministry of Science and Technology is now preparing a development plan of agricultural science and technology, while certain policies and guidelines shall be made, laws and statutes shall be formed, and implementation shall be launched and supervised. The day of July 1, 2008 saw China promulgated its newly-amended Law of the Peoples Republic of China on Science and Technology Progress, which is a legal foundation and protective guide for R&D activities, hi-tech enterprises, research institutions and their employees. 6. Investment in agricultural productive infrastructure and assets: As a big country relied on agriculture, the Chinese governments attached great importance to investment in agricultural infrastructure. During , the central government allocated respectively RMB35.7 billion, 41.4 billion, 48 billion and 42.3 billion to construction of rural infrastructure, to improve the rural production and living conditions, including water-saving irrigation, drinking water supply, country roads, countryside methane engineering, water and power supply, and grassland enclosure (normally called six minor projects in countryside). Since 2004, the central government has been continually allocating budget to satisfy the need of agriculture, countryside and farmers. In 2006 and 2007, the capitals were RMB billion and billion respectively. 7. Improving natural resource management: In order to improve the eco-system, China has since 1999 been performing the policy of grain for green (or Conversion of Farmland to Forest). Therefore, the government has issued and improved related policies and regulations for 4 times. The policy of improving natural resource management was to provide in-kind compensation (food) and cash subsidy to those farmers who convert their farmland to forest, and to assist farmers in the West China areas, Beijing-Tianjing sandstorm source areas, and some Central China areas enjoying equal preferential policies in building basic farmland, rural energy project, ecological relocation and complementary planting and construction. In 2007, the State Council staged a new policy, prolonging the existing subsidy of grain for green policy for another duration, and in the meantime emphasis be shifted from expanding forest area and restoring eco-system to reinforcing 5

6 the achievements and better taking care of the long-term and immediate livelihood of the farmers converting farmland to forest. 8. Improving land property rights: In Dec. 1981, as the No. 1 document of the Party Central Committee, Minutes of National Conference on Rural Work confirmed the correctness of agricultural contracting system. In 1982, the central government formally established the Rural Household Contract Responsibility System, safeguarding farmers land contract rights. In 2004, the State Council promulgated the Decision on Deepening Reform and Strictly Managing Land, in order to enhance and improve land management and prohibit improper use or abuse of land. As rural demographical changes, Chinese government readjusted the policies concerning the rural land contract right, and on March 1, 2005 validated the Measures for the Administration of Circulation of Rural Land Contracted Management Right, while publicizing the Measures for the Administration of the Certificates of the Right to Contracted Management of Rural Land. These measures helped in better stabilizing and optimizing the rural land contract relations, safeguarding the contractor s legal rights to contracted land, and strengthening management of certificates of the right to contracted land. III. Income-oriented policies 1. Increasing support to existing social protection programs: In face of domestic food price surge, the Chinese government launched emergent measures in July Those measures provide contingency aid and dynamic subsidy to counteract price jumps of staple goods in cities, and raise the subsidies of families receiving minimum Social Welfare Support to sustain the urban poor s life. The government points out that a provisional aid system shall be established and improved in order to address the unexpected temporary living difficulties of those urban and rural poor dwellers. In addition, the Rural Minimum Social Welfare System shall be in place across China. 2. Increasing public sector wages: Despite upsurge of food price, the government did not resort to immediate increase of public wages. However, increase of farmers income remains one of the top issues in the policies regarding Agriculture, Rural areas and Farmers ( san nong issues). Judging from 10 years of experience, it is said that the cancellation of agricultural tax and agricultural specialties tax has greatly contributed to increase of farmers income and grain output. In 2000, the central government started the experiment of rural taxation reform, and on Jan. 1, 2006, the Agriculture Ordinance was abolished and agricultural tax abrogated. 3. Increasing food aid programs: In fact, the government has in the abovementioned social security polices, adopted specific measures, such as providing cash or food coupon to those low-income poor groups including the aged, handicapped, ill, feeble, and school students. The NDRC in its Sep Circular prescribes, From this August on, besides more than RMB 15 per capita monthly additional subsidy to the families receiving minimum Social Welfare Support in cities, governments shall also provide them with provisional subsidy of RMB 10 per capita monthly from Oct on. In the same Circular, Student dining facilities in colleges and universities shall also be subsidized. 4. Establishing new social protection programs: Before 2007, the social security system in China only covered urban dwellers and the rural households enjoying the five guarantees (childless and infirm old persons who are guaranteed food, clothing, medical care, housing and burial expenses by the local government), excluding other rural inhabitants. However, In July 2007, the government proclaimed that that a system for rural families to receive minimum social welfare support shall be in place across China. 6

7 5. Investment in other development and antipoverty programs: In the past three decades, China made marvelous achievements in poverty alleviation. The population of rural poor was reduced from 250 million in 1978 to just million in The poverty incidence was brought down from the previous 30% to nowadays 2.3%. During the 30 years, China implemented a variety of policies that greatly helped in poverty relief. In 2001, the government promulgated the Development Orientated Poverty Alleviation Program in Rural China ( ), which is still a substantial guidance to contemporary work of poverty alleviation in China. 7

8 Type of Intervention Reduce prices consumers food for (price-oriented policies) Table 1: Potential Policy Responses to Food Crises Time Frame Short-term (< 1 yr) Medium-term (1-3 yrs) Long-term (> 3 yrs) Reduce tariffs/taxes on food: Circular on Taxation on the Imported Wheat Aided by UN World Food Program [Aug. 2002]; Circular on Exempting VAT on Agricultural Production Materials [Jan. 2001]; Circular on Taxation Policies for China Grains and Logistics Corporation [Aug. 2006]; Circular on Collecting Railway Construction Fund Duty from Trains Transporting Grains Across Shanhaiguang Pass [Apr. 2007] Adopt food price controls/take action against profiteers: Measures on Provisional Interference on Prices of Some Important Merchandise and Service[Jan. 2008]; Circular on Enhancing Price Adjustment and Guaranteeing Market Supply[Sep. 2007]; Circular on Reshuffling of Agriculture-Related Pricing and Levies[Jun. 2008] Adopt consumer subsidies: Immediate Circular on Better Taking Care of The Life of Urban Families Receiving Minimum Social Welfare Support[Jun. 2007]; Circular on Enhancing Price Adjustment and Guaranteeing Market Supply[Sep. 2007]; Circular on Raising Subsidies to Urban and Rural Families Receiving Minimum Social Welfare Support and Better Arranging Basic Allowance of Poor Families[Feb. 2008]; Circular on Better Taking Care of the Life of Urban Families Receiving Minimum Social Welfare Support[Aug. 2007] Adopt food export bans or taxes: Circular on Canceling Export Tax Rebates on Exported Wheat and Its Starch Products [Dec. 2007] Pursue government food imports: Release food reserve stocks: Circular on Enhancing Price Adjustment and Guaranteeing Market Supply[Sep. 2007] Same options as short-term plus: Establish food reserves and release policy: Regulation on Administration of Central Cereal Reserve[May 2004]; Circular on Printing and Issuing the Provisional Measures for Selling National Temporarily-Reserved Grain[Dec. 2006]; Circular on Exemption of VAT of Grain Enterprises[Jan. 2000] Establish variable tariffs or variable export subsidies/taxes: Circular on Exempting Railway Construction Fund Duty of Exported Grain Transportation[Aug. 2006]; Circular on Raising the Tax-Refund Rate on Agricultural In-put Tax[Jan. 2002] Pursue options to increase domestic food production (see below) Same options as medium-term plus: Invest in marketing infrastructure, institutions, and information: Circular on Printing and Issuing the Development Plan of Modern Grain Logistics[Aug. 2007] ; Circular on Printing and Issuing the Provisional Measures for Administration of Modern Grain Logistics Project[Feb. 2008]; Circular on Recruiting Projects of Agricultural Products Wholesale Markets Across the Country by Issuing National Bonds[Sep. 2006] Invest in increased food production capacity (see below) 8

9 Type of Interventi Short-ter on m (< 1 yr) Increase food production (supply-ori ented policies) Limited short-term options Medium-term (1-3 yrs) Table 1: Potential Policy Responses to Food Crises Time Frame Adopt input subsidies: Circular on Enhancing the Work of Ensuring Fertilizer Supply and Stabilizing the Price in 2007[Apr. 2007]; Circular on Ensuring Fertilizer Supply During This Year s Spring Ploughing Season[Feb. 2008]; Circular on Reforming the Pricing Mechanism of Chemical Fertilizer[Jan. 2009]; Circular on Enhancing the Work of Fertilizer Supply and Price Adjustment in 2006[Jan. 2006]; Emergent Circular on Substantially Further Ensuring Oil, Electricity and Transport Supply for Agriculture against Draught[Feb. 2009]; Circular on Enhancing the Work of Ensuring Fertilizer and Diesel Oil Supply for Agricultural Use at the Present Time[Mar. 2007] Adopt producer price supports and subsidies: Circular on Raising the Minimum Government Procurement Price of Wheat in 2009[Oct. 2008]; Circular on Printing and Issuing the Implementing Methods of Raising the Minimum Government Procurement Price of Early Indica Rice in 2009[Jul. 2008]; Circular on Raising the Minimum Government Procurement Price of Rice in 2009[Jan. 2009] Expand agricultural credit: Circular on Enhancing the Work of Ensuring Fertilizer Production and Supply and Stabilizing the Price in 2006 [Jan. 2006]; Circular on Enhancing the Work of Credit Service for Construction of Basic Farming Irrigation Works[Dec. 2008]; Circular on Improving Rural Credit Service and Increasing Lending to Agriculture, countryside and Farmers[Jan. 2008]. Strengthen agricultural extension: Law of the Peoples Republic of China on the Popularization of Agricultural Technology[Jul. 1993]; Opinions on Further Reforming and Enhancing the Grass-root Rural Agricultural Technology Promoting System[Aug. 2006] Long-term (> 3 yrs) Same options as medium-term plus: Pursue agricultural R&D: Law of the People s Republic of China on Science and Technology Progress [Dec. 2007]. Invest in productive infrastructure and assets (e.g., irrigation, mechanization): Circular on Enhancing the Work of Reserving the Investment Projects in 2009[Jan. 2009]; Circular on Printing and Issuing the Measures for the Administration of Agricultural Capital Construction Projects of Ministry of Agriculture[Jun. 2002] Improve natural resource management: Opinions on Further Enhancing the Work of Conversion of Farmland to Forest or Grassland[Sep. 2000]; Opinions on Further Optimizing the Policies and Measures of Conversion of Farmland to Forest[Apr. 2002]; Regulations on Conversion of Farmland to Forests[Dec. 2002]; Circular on Optimizing the Policies Concerning Conversion of Farmland to Forests[Aug. 2007] Improve property rights and resource tenure systems: Minutes of National Conference on Rural Work, Dec. 1981, as the No. 1 document[jan. 1982]; Law of the Peoples Republic of China on Land Contract in Rural Areas[Aug. 2002]; the Measures for the Administration of the Certificates of the Right to Contracted Management of Rural Land[Jan. 2004] 9

10 Table 1: Potential Policy Responses to Food Crises Type of Intervention Increase food availability for or income of target groups (income-oriented policies) Time Frame Short-term (< 1 yr) Medium-term (1-3 yrs) Long-term (> 3 yrs) Increase support through existing social protection programs: Regulations on Minimum Subsistence Allowance for Urban Residents[Oct. 1999]; Immediate Circular on Better Taking Care of The Life of Urban Families Receiving Minimum Social Welfare Support[Jun. 2007]; Circular on Further Establishing and Improving the Provisional Aid System[Jun. 2007]; Circular on Establishing a System for Rural Families to Receive Minimum Social Welfare Support In China[Jul. 2007]; Circular on Solving the Difficulties of Those Urban Poor Dwellers Living on Minimum Social Welfare Support[Aug. 2007] Increase public sector wages: Agriculture Ordinance was abolished [Dec. 2005] Increase food aid programs: Circular on Enhancing Price Adjustment and Guaranteeing Market Supply[Sep. 2007] Same options as short-term plus: Establish new social protection programs or expand/improve existing ones: Circular on Establishing a System for Rural Families to Receive Minimum Social Welfare Support In China[Jul. 2007] Same options as medium-term and those for increasing food production plus: : Circular on Printing and Issuing the Development Orientated Poverty Alleviation Program in Rural China ( )[Jun. 2001] 10