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Cui Xiaoli

Research Report No 95, 2000

China’s policy for grain security is designed as one set of operation mechanism with dual objectives: on the one hand, the government tries to stabilize grain security of the state while on the other to secure the income of grain growers. To achieve the two objectives simultaneously, the government has to intervene comprehensively in the purchase, marketing, allocation and storage of the commodity grain. This “two-in-one” way in dealing with the grain problem can directly guarantee the income of the grain growers and the government can remain calm as it has sufficient food grain in hand. But in practice, we have found evident maladies in this mechanism. The purchase, marketing, allocation and storage of grain represent highly dispersed business activities in space, time, organization and human power and call for massive support in fund, storage and transportation facilities. The effectiveness of such business efforts relied on the centralized planned system, which was totally closed, in the period of planned purchase and marketing, which meant that nobody enjoyed independence in grain production, supply and marketing. After the reform and opening up, the core issue of the reform in the area of grain was how to ensure the effectiveness of grain purchase, marketing, allocation and storage while causing no harm to the grain security of the state and the income of the farmers. The past practice of the reform has proven that on this matter, the government can only adopt the manner of advance-and-retreat and gain-and-abandonment. Otherwise, it will encounter the problems of heavy financial burdens, expensive management cost and operation quality and highs risk for bank funds. In addition, it may not be a permanent solution for a long time to protect agriculture and the interests of farmers through price support in view of the huge agricultural population in China. At present, China is at the primary stage of socialism and in the process of industrialization. In particular, we missed during the planned economy period the best time for developing labor-intensive industries, so China must take into full consideration the problem of cost in its industrialization process at the present high-tech time when capital-intensive technology pounds at the labor-intensive technology on a large scale.

Now, the issue is whether the policy of dual objectives with one set of mechanism can be separated into one of dual objectives with two sets of mechanism. At the time of traditional agriculture and the early stage of industrialization, intrinsic rationality should exist in the effort of binding the policy of grain security with that of protecting agriculture and the interests of farmers. The core of the rationality found expression in the low operation cost of the policy and the quite distinct effectiveness. There is another point in this connection which is similar to the Japanese mode: the “two-in-one” manner can operate when the government politically overprices the objective of the farmers’ income and can financially afford it. But the current situation in China indicates that the times and operation conditions of the former have changed, therefore, the policy in this regard cannot be patterned. The latter costs too much and China cannot afford to copy it. It now seems that the future reform in the area of grain can explore the way to turn “combining two into one” into “dividing one into two”.

Grain security has remained a problem since ancient times just as the saying that “food is the first necessity of the people”. Records in ancient documents such as “call for participation in agriculture”, “cherish grain”, “pay attention to peasants”, “storage of grain”, “fair standard”, “neglect of politics”, “permanent balance of price” and “contain storage of grain”, all represented the major problems facing the grain policies of the then governments. The main features of the grain security in the traditional agricultural society were. 1. The nucleus of the security depended on the grain storage, hence the expression “store grain everywhere”. 2. The storage proportion of grain was a little too high, reaching about 33 percent, thus the saying “one third of the yield is surplus grain for reserve”. Of course, it denoted the storage level of the whole society. In fact, the “fair standard” system of the then governments more likely represented a quasi disaster relief activity. 3. The variation in grain prices between a good harvest and a poor harvest, between seasons and between regions was quite big. The government could take in and sell out grain with ease to level grain prices. The price gap could also allow the government to make up for expenditure and even yielded some gains to add to the tax revenue. 4. The aggregate land rent tended to be too high, standing at around one seventh of the total grain output in modern times. This left the supply security of urban commodity grain at a quite high level and the prices for commodity grain at a low level. It explained the basic reason why the urbanization level in China’s traditional agricultural society was two times higher than that of the west during the same period. 5. The fluctuation in grain prices in general would not bring about structural changes in the overall national economy. In other words, its impact on the economic structure in the urban-rural relationship would not be very great, but its impact on some localities could be destructive. 6. Grain security at that time mainly concentrated on the political security of the state. 7. The standard of grain security at that time was set with the human physiological security as the bottom line. 8. The total grain output chiefly depended on the self-supporting activity of the producers instead of commercial activities. Such a situation helped to stabilize the total output to a certain extent. In China’s history and even to the modern times, the growth of the total grain output has always been associated with the level of the population growth.

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