ACIAR Collaborative Research Project:
Chinese Grain Market Policy with Special Emphasis on the Domestic Grain Trade

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Regional Comparative Advantage in China’s Main Grain Crops
Funing Zhong, Zhigang Xu and Longbo Fu

This paper explores the regional comparative advantage in grain production in China directly according to production and associated costs. Two groups of indicators are used in the study. The first group of indicators includes Net Social Profitability (NSP) and Domestic Resource Costs (DRC), both measuring the net social welfare gained from one production activity against its opportunity costs at border prices. The second group of indicators includes Efficiency Advantage Indices (EAI), Scale Advantage Indices (SAI) and Aggregated Advantage Indices (AAI), which measuring relative yield and scale advantages in a region. The study reveals that the comparative advantage in main grain crops varies significantly across China. It implies that there exists great potential to improve resource allocation and to increase grain production through restructuring of the grain sector. The study also indicates that China is able to compete in the world market even if it as a whole has comparative disadvantage in producing some crops, as some of its provinces may still have comparative advantage in those crops. This implies that detailed analyses at provincial level are needed in projecting China’s grain trade flow in the future.

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The Application and Extension of Jiangsu Agricultural Policy Analysis Model ( JAPA )
Shudong Zhou

A Jiangsu Agricultural Policy Analysis Model (JAPA model) is developed as a decision support tool for policy makers, and it can also be used for academic researchers to reveal the complex internal relationships among economic variables. The JAPA model combines an econometric model (LA/AIDS) with a programming model (Computable Partial Equilibrium Model). The objective of this model is to provide statistic indicators for the prediction of agricultural conditions, for agricultural policy evaluation and for agricultural policy simulation. This paper explains the methodological approach and demonstrates the application of the JAPA model.

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Implications of Grain Policy for Agricultural Restructuring in China
Jing Zhu and Funing Zhong

The paper aims to analyse the impact of grain policy on the structure and growth of grain sector in China. The study applied econometric analysis to test empirically the impact of grain policy on the structure and growth of grain sector in China. The study revealed that agricultural policy, especially grain policy, has had a great impact on agricultural production in China. In periods of government mandating increase in grain production, policy has diverted resources, especially land, into grain production, which could otherwise have been used to produce higher value crops. This inevitably results in lower growth in agriculture, as well as in farmers’ income. Such policy might be justified by the long history of grain shortage in China, as efficiency in resource allocation is overweighed by the goals in the national security in food supply and in social stability.

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Food Price Differences and Market Integration in China
Wu Laping

By applying the co-integration approach, this paper tests the market integration for the main agricultural products in China. Both long-run market integration and short-run market integration for the main agricultural products are tested and analysed. The study also calculates the Index of Market Connection (IMC) to measure the degree of market integration of the main agricultural products. The study reveals that the major agricultural product markets in China are integrated in long-run, but the degree of short-run market integration is very low. Therefore, in agricultural product markets, the transmission of price information is very slow and price changes across regions are not responsive. Based on the research results, the study also discusses some policy implications to improve the degree of market integration of agricultural products in China.

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China’s New Grain Marketing Policy
Huang Yanxin

This paper introduces and evaluates the new grain marketing policies issued by the Chinese government and implemented in 1998. The key elements of the new grain marketing policy consist of “three policies and one reform”. This paper presents a relatively detailed description and a brief evaluation of the implementation of the new grain marketing policies. (The original version of this paper is in Chinese. This is a reduced English version.)

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A Review of China’s Grain Marketing System Reform
Christopher Findlay and Chen Chunlai

This paper aims to review and evaluate the process of China’s grain marketing reform since the late 1970s. It reveals that through 20 years of reform, China’s grain marketing system has been greatly liberalised and marketised. Most of the grain is now sold at the market prices. The market structure has changed and private business companies and individuals play an active role in the grain business. These changes have promoted competition and efficiency in grain marketing sector. Despite the progress, China’s grain marketing system still retains many characteristics of the centrally planned economy, and government intervention and administrative methods are still the common practices in grain marketing. The paper argues that while the reforms to date have enabled greater decentralisation and marketisation of the grain marketing system, the pressure for further reforms remains.

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Grain Marketing System Reform: A Case Study of A Major Paddy Production County in Southern China
Zhang Hongyu and Liu Jianwen

This paper examines the grain marketing system reform by focusing on a case study of Nanfeng County of Jiangxi Province. The paper evaluates the current grain marketing system and analyses the impact of the new grain marketing policy on farmers, consumers and government grain agencies. The study reveals many problems existing in the current grain marketing system and arrangements, and argues for further reform in the grain marketing system and for opening the grain purchasing market. (The original version of the paper is in Chinese. This is a reduced English version.)

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An Investigation of Grain Production and Marketing in Jilin and Heilongjiang Provinces
Wang Zhonghai

This paper investigated the current grain marketing system and the implementation of the new grain marketing policy in Jilin and Heilongjiang Provinces. The study revealed serious problems of excessive grain storage by the state-owned grain enterprises in the two provinces. The paper argues that the current situation of mainly relying on state-owned grain enterprises in grain marketing must be changed. Grain marketing channels should be expanded to allow various types of enterprises to participate in grain marketing in order to increase competition in grain marketing, and to improve the grain marketing system. (The original version of the paper is in Chinese. This is a reduced English version.)

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Patterns of Domestic Grain Flows and Regional Comparative Advantage in Grain Production in China
Chen Chunlai and Christopher Findlay

Regional grain flows in China have been expanding with the growth of grain production and the development of grain markets. However, is the current pattern of regional grain flows consistent with regional comparative advantage in grain production in China? This paper examines this question by using a binomial logit model with a discrete dependent variable of provincial net grain flows, and the independent variables of regional comparative advantage indicators and other factors affecting the supply and demand in grain markets. The study reveals that the current pattern of China’s regional grain flows is consistent with the regional comparative advantage in grain production, measured by the comparative advantage indicators of Domestic Resource Costs Coefficient (DRCC) and Net Social Profitability (NSP). However, the Efficiency Advantage Indices (EAI), measured by relative grain yield, and the Scale Advantage Indices (SAI), measured by relative grain sown area, are not statistically significant determinants of the observed pattern of regional grain flows in China. This implies that government intervention in grain production is still an obstacle for the Chinese farmers to optimise their grain production mix.

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An Alternative Approach to Measure Regional Comparative Advantage in China’s Grain Sector
Zhong Funing, Xu Zhigang and Fu Longbo

This study uses Domestic Resource Costs (DRC) as the bases in measuring regional comparative advantage in grain production in China. It reveals that China as a whole is likely to have strong comparative advantage in Japonica rice, sorghum, middle Indica rice, millet, and late Indica rice production. However, at the regional and provincial level the comparative advantage in production of major grain crops varies significantly across China. This result implies that there exists great potential to improve resource allocation and to increase grain production through restructuring of the grain sector.

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Impact of Market Integration on China’s Food Security
Funing Zhong and Jing Zhu

This study explores the potential gain in improving food security at lower costs resulted from an integrated grain market. It reveals that there is potentially a big difference in policy costs between an integrated grain market and segmented grain markets. The segmented grain markets will require much higher extra policy costs to ensure food security. On the contrary, an integrated grain market could reduce policy costs substantially, and therefore, could enhance food security through policy formation and implementation and may even help to raise the level of food security. The study infers that the integration of China’s domestic grain market into the world grain markets would further reduce the policy costs and increase China’s food security.

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China’s Agricultural Restructuring and System Reform under Its Accession to the WTO
Du Ying

This paper first introduces the economic reforms and structural adjustment in China’s agriculture, and then examines the possible impact of China’s accession to the WTO on China’s agriculture. By reviewing the studies on the impact of WTO accession on China’s agriculture, the paper summarises that both challenge and opportunity exist for China’s agriculture after WTO accession. However, it argues that in the short term challenge is greater than opportunity, and the challenge is real and imminent, while opportunity can only be grasped through strenuous efforts. Therefore, the challenges facing China’s agriculture after WTO accession are examined and relevant policy choices are proposed. (The original version of the paper is in Chinese. This is a translated English version).

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