As far as we can determine, mainland China is hard-pressed with a food shortage. The government has imposed many different procurement policies to encourage grain production so as to meet the demand for food and to stabilize domestic food prices. This study firstly focuses on the demand-supply relationship of in mainland China and then presents the background of food procurement policies in the different stages of politico-economic conditions in the mainland. Finally, food policies in order to control grain supply and stabilize food prices in China are evaluated.
The procurement policy of food plays an important role in the national economy because it is closely related to food production, food prices and financial pressure on the government. Farmers have had different responses to these government food procurement policies when the government is the only buyer, the procurement price of the last harvest becomes a reference price so as to affect the output of the next harvest. When there exists a private market with many buyers, both market price and procurement price become the reference prices for farming activity. Nevertheless, market price is not changed in accordance with procurement price. In addition, the change in the retail price of grain has paralleled consumer prices and money wages of workers. Therefore, public subsidies for food expenditures tend to be a heavy burden for government finances.
There are many puzzles to the procurement policy for grain. The most important problem in that the grain prices is under government control through a national contract system even for self-supportive private farming units. According to the national contract system, most of the grain output has to be sold to the government sector with a price lower than one half of the market price. Since public interest conflicts with farmers’ interests, government grain policy does not provide optimal incentives for agricultural production. Secondly, the food price reform of China has been locked in a subsidy policy so as to distort resource allocation and economic efficiency. Subsequently, there exists unfair phenomena between urbanites and rural people; the agricultural sector subsidzes the industrial sector and overloads government finances. Thus, we assert that grain-price reform is not sufficient to solve the convoluted problems of food-pricing in mainland China.
