Study On Small-scale Peasant Economy, Transaction Relationship And Agricultural Products Price Formation

Being a populous country, China is a big power in the production and consumption of agricultural products. The production and consumption of agricultural products are strategic issues of national security with food security as the core at the national level. It connects the farmers’ “money bag” with citizens’ “rice bag” and “vegetable basket” if viewed from the perspective of people-oriented. The coexistence of “low price hurts farmers” and “high price hurts citizens” in agricultural products market highlights the great significance of maintaining the stability of agricultural products market to safeguard the interests of producers and consumers and promote the steady and fast development of agriculture and rural economy.Due to overlapped various economic and natural risks, agricultural products market witnesses supernormal fluctuations and consequent chain effects in recent years, detrimental to the healthy development of national economy. It mainly manifested in two aspects: one is the price volatility of agricultural products, especially that of fresh agricultural products; the other one is the unevenly distribution of benefits and losses brought by the price fluctuation of agricultural products among market participators. The above problems reflect that there are still many problems in price formation, fluctuation and regulation of China’s agricultural products. There are two deep reasons behind these behind these phenomena: one is the inherent characteristics of local production and national consumption and seasonal production and consumption of agricultural products persist throughout the year, greatly increasing the difficulty of market regulation; the other one is that under the current state of small-scale peasant economy in China, compared with middlemen and retailers, farmers are in the obvious weak position in the transactions and are indirectly excluded from the circulation system of agricultural product, mainly shows in the form of lacking pricing power.Currently, to cope with the range of issues occurred in domestic agricultural products prices, both policy tendency and scholars concentrate on how to inhibit price fluctuations. However, the reason behind the severe price fluctuation of agricultural products is a series of factors including price formation. Each link in the process of agricultural products transaction affects the formation and fluctuation of agricultural products price such as field bargain, logistic cost in transit and mark-up for profit in retail market. Thus, the countermeasures of inhibiting agricultural price fluctuation based only on prices change data are palliatives and one-sided. Therefore, we must fully and profoundly understand the price formation of agricultural products. Then, under the background of China’s small-scale peasant economy mechanism, how do agricultural products price form? What are typical influence factors behind it? Dose current agricultural products price formation mechanism considers protecting farmers’ interests? What role should the government play in the complex agricultural products price formation mechanism? These questions in the same origin are core questions that must be answered.Based on the above questions, this paper set small-scale agriculture as the underlying assumptions and transaction relation as the basic starting point, using principles of economics to systematically study the agricultural products price formation and related problems. First, this paper classifies agricultural products price according to different standards and expound the inherent connections between different agricultural products prices. Then according to the theoretical logic of “price formation, market transaction characteristics, and price formation mechanism”, it analyzes the price formation mechanism of agricultural products purchasing, wholesale and retail prices. Second, under the conditional constraint of small-scale agriculture, this paper builds price decision models of agricultural products purchasing, wholesale and retail prices. It discusses decision of the equilibrium price of agricultural products form the points of bargaining power and the transaction cost and carries out empirical testing of the three models by using field survey data. Third, this paper uses multivariate regression model and dynamic search model respectively to study the relationship between factors affecting pricing power, information and agricultural products price formation. Then it emphatically discusses public policy choice problem under the principle of agricultural products market pricing. Finally, this paper puts forward research conclusions and policy implications.The main research conclusions are as follows:(1) The market price of agricultural products is determined by the supply and demand relationship in agricultural products market at the macro level. Equilibrium price of agricultural products is the price when the supply curve and the demand curve of agricultural products intersects, which is the price when the supply of agricultural products is equal to the demand of agricultural products. When the supply of agricultural products on the market is less than demand, the transaction price depends on the buyer’s actual willing-to-pay price of agricultural products, and higher than the equilibrium price; when the supply of agricultural products on the market is greater than the demand, the transaction price still depends on the buyer’s actual willing-to-pay price, but the price below the equilibrium price at the moment; when the supply of agricultural products is equal to the market demand, the seller’s asking price is equal to the buyer’s willing-to-pay price, and the price of agricultural products on the market at this time is the equilibrium price.(2) The characteristics of buyer and seller decide the realization degree of agricultural products at the micro level. Affected by influence factors such as trade scale, transaction costs, the degree of product differentiation and information, the seller and buyer in real agricultural market possess different bargain power. The party with strong bargaining ability has sufficient motivation and strength to “stress” the other party, so as to occupy the dominant position in the bargaining game. In addition, the price reduction degree that the seller can accept depends on properties of agricultural products in management. If the seller is confident in the quality and freshness of its agricultural products, it has a reason to refuse the buyer’s counter-offer. Otherwise, the seller must lower its price to attract the potential consumer.(3) The purchasing price of agricultural products is jointly decided by assemblers’ distribution cost, the production cost and wholesale price of agricultural products, farmers’ and assemblers’ bargaining abilities and trade surplus coefficient, and acquisition remaining of agricultural products. Bargaining ability is the key to decide whether the purchasing price of agricultural products is unbalance or not. Under the background of small-scale peasant economy, the assemblers of agricultural products are stronger than the family-run small farmers in trade scale, asset specificity, information search and financial strength, etc, which reflect in the price formation is stronger than the family-run small farmers are bound to the pursuit of a certain amount of profit and are not limited to break even. Considering the condition of transaction costs, if transaction subjects can not ensure the value of agricultural products by economically viable means, congenital bargaining disadvantage will force farmers can only to compensate the variable transaction costs for threshold value of trading behavior.(4) The retail price of agricultural products is jointly decided by wholesalers’ and retailers’ distribution cost, the retail price of agricultural products, wholesalers’ and retailers’ bargaining abilities and trade surplus coefficient, and wholesale trade surplus of agricultural products. Bargaining ability is the key to decide whether the wholesale price of agricultural products is unbalance or not. The competition in the wholesale market of agricultural products is more fully and the difference of transaction subjects in bargaining ability is smaller than that in the purchasing market of agricultural products. The wholesale price of agricultural products reflects more truly the laws of supply and demand of agricultural products. Relative to retailers, greater price risks forcing wholesalers only to recover the variable transaction costs to participate in the critical conditions of agricultural products wholesale market transaction. For retailers, the price risks mainly occur after the transaction. In agricultural wholesale link, flexible retailers tend to have opportunities to pursue a certain amount of profit.(5) In an almost perfect competition retail market of agricultural products, both the buyer and seller are price takers. The equilibrium retail price of agricultural products is decided by actual supply of agricultural products, consumer’s consumption of other commodities, other commodity’s retail price and substitution parameters between commodities and is also limited by consumer’s consumption expenditure. The empirical analysis of vegetable and fruit shows that there is significant correlation between retail prices of agricultural products. Meanwhile, the wholesale price at a certain time and in a certain market influences the retail price to a certain extent, not the other way around. The exception of apple indicates that the relationship between agricultural prices is very complex; instead of generalizing the relationship, it must be carried out concrete analysis by combining with the attributes and markets characteristics of agricultural products.(6) The empirical analysis based on navel orange planting farmers indicates that farmers’ feature, market forces and commodity characteristics has a certain influence on farmers’ bargaining power. The older the householder is, the lower the purchasing price of agricultural products; the higher the farmers’ education level is, the higher the purchasing price of agricultural products; the more the people engaged in the production and sale of agricultural products in a famer’s family, the higher the purchasing price of agricultural products; famers’ bargaining abilities increase with the expansion of plant scale; farmers owning storage facilities are in the obviously advantageous position on the price negotiation of agricultural products purchasing; famers participating in cooperatives offer higher purchasing price of agricultural products than farmers not; having a knowledge of market information is helpful to increase famers’ bargaining abilities. Viewed from absolute value of regression coefficient, whether owning storage facility, whether being cooperative members, whether adopting new technology and understand the market information are the four biggest factors influencing famers’ purchasing prices of navel orange.(7) Information directly or indirectly affects market price formation of the agricultural products. This impact is realized by influencing the trading subjects’ behavior; change of trading subjects’ information structure is likely to cause the change of the agricultural products market price. The introduction of the farmer cooperatives actually depresses the reservation price of producers, also save the middlemen’ transaction costs to finish transactions to a certain extent, which can reduce the middlemen’ offer. After the introduction of farmer cooperatives, equilibrium sale price of agricultural products must be less than or equal to that when there is no farmers cooperative. From the point of information, some producers choose to join the farmer cooperative behavior is essentially to save information cost.(8) With regard to the problem of market failure, the feature of agriculture and agricultural products as well as the low prices of the agricultural products, the price should be firstly decided by the market while the government should also play its roles in it. For China, the aimed system of the public policy of the price of agricultural products should include the insurance of the quantity and the quality, the decrease of finance, the increase of the efficiency of the macro market, the maintain of the security of agriculture, the increase of the income of the farmer, the insurance of the basic living of the urban residents, and so on. At present, this policy has a lot of problems, for example, the arbitrariness of part of the policy, lack of science, law, subsidy and target. Besides, some of the policies are only against the increase of the price but not the decrease. As for this, the market and law should have a hand in the form of the agricultural products.There are three innovative points for this article:(1) With the assumption of the current system of smallholder farming and from the perspective of trade relations, framework with internal logical consistency should be formed. The design of the study based on the agricultural trade framework with the “real world” based on the bounded rationality, opportunism, incomplete information hypothesis, the agricultural price formation should be changed from the traditional balance of supply and demand to the bargain in the transaction process, taking the efficiency and fairness in the circulation of agricultural products, and exploring its regularity of the agricultural products from the fields to consumers table. To a certain extent, it has broken the tradition of valuing efficiency while ignoring the fairness when researching the price in the mainstream economics, which leads to the new attempt of analyzing the framework. From the view of existing literatures, such research is still extraordinary.(2) This article will combine the equilibrium price of transaction cost economics, bargaining theory and neoclassical theory, and put the factors of trading relations the bargaining power, transaction object properties into the form of agricultural prices, besides, it will also take advantage of the field research to check the data. Comparing to the past model of only considering the macro variables which affect the price of agricultural supply and demand, in this paper, the design model is closer to the true state of agricultural markets transactions, and therefore is more realistic. This article will divide the agricultural prices into the purchase price of agricultural products, wholesale price and retail price category, and price determination models were constructed separately. In conclusion, the whole result is more rational than before which ignored the practice of agricultural products in the process of circulation.(3) Drawing on previous research methods at the same time, the model methods were improved adeptly combined with the object and purpose. Decided to set up conditions for the model that depends on the price of agricultural products, combined with its perishable characteristics than the common products, the effect to agricultural trade and price formation were discussed from the perspective of bargaining power and transaction costs. Using dynamic model researching relationship between the information and the prices of agricultural products, the "non-profit intermediary organizations" was introduced to make the model more conformed to the characteristics of agricultural trade, which expanded the scope of the model. It reflects the originalities of the research methods to some extent.