Price hikes should bring benefit to our farmers
By Liu Shinan (China Daily)Updated: 2006-12-13 06:34
The price of food has risen again.
I did not know until I saw the media coverage over the
past few days. My mother told me that the price hike started a few weeks ago.
But she did not complain as much this time as she did previously.
Apparently she is getting used
to the changes. My neighbours reacted in a similar way. It is not that we are so
well-off that we do not care about incremental rises in the cost of living, but
that we know we can not do anything about it and must put up with it. We have
learned that prices are no longer solely controlled by the government but rather
influenced by a number of market variables.
Economists told us that the current round of price hikes was triggered by a supply shortage in the world markets, the Chinese Government's purchases of grain at prices "favourable to farmers," and the rising demand for corn to develop bio-fuel. They also said that the price hike was a "normal market fluctuation" and "doesn't deserve fussing about."
Surely most urban citizens no longer fuss about such price rises as much as they did in the past. Many even think, as evidenced by comments posted on Internet bulletin board systems, that raising the prices of farm products is a way to narrow the unreasonable gap between urban and rural incomes, or, in economic jargon, the price scissors between industrial and agricultural products.
As urban wage earners, we may feel it is acceptable to see the price hike as a way to funnel part of our wealth to our cousins in the countryside. But wait, will the extra cost we pay really go to farmers? Or, using economists' words, will farmers become the "beneficiaries of the grain prices returning to normal?" I suspect that grain traders grabbed the larger share of the profits. And I believe most urban citizens share this doubt.
To find an answer to this question, I went online. To my disappointment, there are few reports on this issue except for some comments that share this suspicion. I only found one report of an investigation conducted by a team of researchers in Luoyang, Henan Province, in May 2004. The study was conducted after the grain prices rose dramatically at the end of 2003 the last major food price increase before the current one.
The team investigated 104 farmers and some grain traders in the city's main grain-producing areas. They found that the gap between the production cost and the final market price was 0.811 yuan (10 US cents) per kilogram for wheat and 0.612 yuan (8 US cents) for corn. Of the gap, or profit, the farmer got 0.121 yuan (2 US cents), or 14.9 per cent of the profit, from each kilogram of wheat, and 0.192 yuan (2 US cents), or 31.4 per cent from each kilogram of corn. The grain trader's share of the profit was 85.1 per cent (wheat) and 68.6 per cent (corn).
The study found that the huge difference between the profits gained by farmers and traders was caused by the fact that farmers generally sold the grain soon after the harvest, but when grain prices rose, they had no extra grain to sell. Thus grain traders enjoyed the benefit of the price hikes.
Of course, farmers would enjoy a higher price the following year. But that profit was usually offset by the rise in the price of the means of production, such as pesticides and chemical fertilizers, which generally closely follow the grain price rises.
Yesterday I called a few of my relatives and acquaintances back in my home province, Hubei. They told me the same story as reported by the Luoyang investigative team. "How can I benefit from the latest rise in grain prices?" said one of them. "I sold the grain at low prices long ago. I had to sell it because I needed the money then."
Of course, the above-mentioned investigation and phone calls are not representative enough to illustrate the whole picture in the country's rural areas. But they at least suggest that farmers are in a disadvantaged position when dealing with farm products traders.
Lacking proper access to market information and being unorganized individuals put farmers in this passive position. If they could organize into some sort of farmers' association, they may have a stronger say in the pricing of farm products. This would see them become the real beneficiaries of the price hikes.
The government is the best helper in this regard.
(China Daily 12/13/2006 page4)
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