China's minimum grain purchase price policy: impacts and implications.

Abstract

In 2004, China introduced the Minimum Grain Purchase Price Policy to promote Chinese grain production and increase farmer's income. Since its implementation, the impacts and implications of the policy have been widely debated. Through comprehensive analysis of the working mechanism and based on ample statistical evidences, this paper argues the following. Firstly, the Minimum Grain Purchase Price Policy has seriously distorted the marketization progress of Chinese grain sector despite its benign intentions. Secondly, that while there is evidence that the Minimum Grain Purchase Price Policy has contributed positively to farmers' income growth, this growth is not as dramatic as it is appears to be. At the same time, the gains in farmer's income are, to a certain extent, being eroded by rising living expense associated with the Minimum Grain Purchase Price Policy. Furthermore the Minimum Grain Purchase Price Policy has not been able to narrow the income gap between urban and rural residents and regional income disparity seems to have been exacerbated, for which the Minimum Grain Purchase Price Policy could be partially responsible. Thirdly, the Minimum Grain Purchase Price Policy has proven to be fairly effective in boosting China's "Liangshi Anquan", but the effectiveness of the policy in safeguarding China's food security has been much weaker, if the concept of "Food Security" is interpreted from a broader perspective, such as that as defined by Food and Agriculture Organization (FAO).