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A Review of Price Fluctuations of China's Agricultural Products since Reform and Opening Up
2008-12-09
By Cheng Guoqiang, Institute of Market Economy of DRC
Research Report No. 106, 2008
Agriculture is an industry interweaving natural reproduction with economic reproduction. As the spatial layout for agricultural production is extensive, the time distribution is concentrated and the influence of market signals lags behind, the cyclical fluctuation of the prices of agricultural products is an inevitable phenomenon. Agriculture is a basic industry of the national economy. It is closely connected with people's daily lives and tied up with upstream and downstream industries as well. As the basis of all other prices, the prices of agricultural products, such as foodstuff prices, will affect the overall price level if they fluctuate a little, and obstruct the national economy from growing continually, soundly and steadily. This paper reviews the basic features of the cyclical fluctuation of the prices of agricultural products since China implemented the policy of reform and opening up in 1978 as well as those major factors for the fluctuation, in an attempt to provide a foundation for the study of the new round of fluctuations of the prices of agricultural products.
I. Division of the Cyclical Fluctuations of the Prices of Agricultural Products
This paper has adopted HP (see appendix) used by Hodrick and Prescott (1997) to study the postwar commercial cycles of the United States to make a rough judgment of the fluctuations of the prices of China's agricultural products since 1978.
At present, scholars have different views on how to number the parameter λ when using HP to make analysis. If quarterly data are used in the analysis, scholars usually agree that λ=1600; however, if yearly data are used in the analysis, Backus and Kehoe (1992) think that λ should be 100, while 25 is what OECD thinks the appropriate. This paper has adopted 100 and 25 to divide the cyclical fluctuations of the prices of agricultural products since reform was carried out in China's rural areas in 1978. In the fluctuation division, the variables of the prices of agricultural products are presented in the form of the yearly producer's price indexes of agricultural products with the year 1978 as the basic period. The data come from China's Statistical Yearbook and China's Rural Statistical Yearbook of the National Bureau of Statistics. See Figure 1 for the estimated results.
Since October 2006, the prices of the staple agricultural products have gone up continually. By September 2007, the purchase prices of paddy, wheat and corn had increased by 8.5%, 10.5% and 15.6% respectively as compared to the same period of 2006. The pork prices, in particular, have seen a continual and recovery rise after a downturn in the first half of 2006 and, by May 2007, the pork prices in some cities in southern China had risen apparently and affected northern China, thus forming an overall price rise across China within a short period of time. In the first half of 2007, the average price of live pigs ready was 5.68 yuan per jin, rising 1.77 yuan over the same period of 2006, up 45.2% and being even 1.25 yuan higher than the all-time high in 2004. Obviously, the prices of China's agricultural products have entered into a new round of cyclical fluctuations.
II. Features of the Cyclical Fluctuations of the Prices of Agricultural Products
Researches have shown that by theoretical analysis the cyclical fluctuations of the prices of China's agricultural products (To facilitate the analysis, this paper uses the estimated results of λ=100 to make the analysis.) are manifested by a typical non-repetition and an asymmetry. Cyclical fluctuations can be divided into symmetrical and asymmetrical fluctuations. The expansion and shrinkage of symmetrical fluctuations are coincident as a whole, while the asymmetrical fluctuations are not coincident. Asymmetrical fluctuations are mainly divided into two types of fluctuations, namely, biased asymmetry and thoroughgoing asymmetry, and these two types of fluctuations can also bring about other forms of asymmetry (Liu Jinquan and Fan Jianqing, 2001). See Table 2 for the features.
Firstly, the time and degree of cyclical fluctuations (As cyclical fluctuations are not symmetrical in terms of cross axle, therefore, the degrees of fluctuations at wave crest and trough are inconsistent. As a result, this paper uses wave distance as a unit to indicate the distance between wave crest and trough.) There is a world of difference and the cyclical repetition is poor. In terms of fluctuation time, during 1978～1986 and 1993～2000 the prices of agricultural products fluctuated for 8 years, and for 6 years during 1987～1992, all being medium- and long-term periods; the prices fluctuated for 4 years during 2003～2006 and only for 2 years during 2001～2002, all being the short-term periods. In terms of the degree of fluctuations, during 1993～2000 the difference between the ups and downs of the prices reached 179.6%, and the degree of fluctuations during 1987～1992 reached 81.64%, being extremely fierce; while degrees of the price fluctuations in other years were all less than 10%, with the prices functioning steadily.
Secondly, the cyclical fluctuations are poorly symmetrical. Although the years for the appearance of the wave crests during some periods were in the middle of the wave length, such as 1987～1992, 1993～2000 and 2001～2002, the different fluctuation degrees in various years have resulted in a poor symmetry.
Thirdly, the types of cyclical fluctuations of the prices of agricultural products vary. For instance, during 1978～1986, 1987～1992 and 2001～2002, the prices rose steeply and dropped slowly and, during 1993～2000 and 2003～2006 the prices increased slowly but declined swiftly ( Table 2).
Fourthly, the fluctuations of the prices of agricultural products are imbued with structural features. On one hand, the degrees of the fluctuations of the prices of different agricultural products differ a lot. For example, during 2003～2006, the soybean price rose as high as 116%, the corn price surged 75%, the wheat price soared 46%, while the paddy price only inched up 4%.
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