Policy Effects And Welfare Effects Of Wheat Minimum Purchase Price Policy

The intervention of government using Macro tool as a supplementary measure of market self-regulation has been effective, which plays an important role in China’s grain market. In the 21 st century, in response to deal with food price volatility, to protect farmers’ enthusiasm for growing grain, the government has issued a series of management policy with respect to grain circulation, the most influential policies of which in 2004 and 2005, respectively, are the price-floor policy in primary nationalwide rice and wheat-growing areas. China has the highest wheat production and consumption in the world and the planting area accounts for about 22% of the total area and more than 20% of total grain output in the world respectively. Wheat is China’s one of the major crops as commodity and strategic reserve grain, with great influence on food production, circulation and consumption. There is no doubt that the minimum purchase price policy for wheat production and distribution of wheat had a profound impact. However, we need to know is the extent to which it improves the yield and raise the price of wheat. What is the impact of the policy on producers and consumers welfare effects? What is the existing defects of pricing policy? Clearly, a comprehensive interpretation of these issues will help us reasonably assess the existing policies, thus combining the theory and practice, to build a more rational institutional framework and policy system, in order to further promote the rapid development of China’s wheat industry and to achieve efficiency and incomes.In view of this, the present study to explore the implementation and challenges of minimum purchase price policy based on the current status of wheat and related food industry. Meanwhile we use empirical analysis to investigate the effect of minimum purchase price on wheat yield and welfare effect, then make suggestions and provide information and data in order to stabilize wheat production, increase farmers’ income to maintain the stability of the market and to ensure national food security. The organization of the thesis is as follows: it is mainly divided into "Reasoning of the topic and literature review "(Chapter 1), "the current industry development status and policy analysis(Chapter 2, Chapter 3)", "the impact of minimum purchase price policy of grain market effects and benefits on welfare valuation(Chapter 4 Chapter 5, Chapter 6)" and "system improvement and policy innovation(Chapter 7)". After systematic research, The paper mainly formed the following conclusions:1. The area in which the minimum purchase price of wheat are implemented has relatively effective price control policy than those without implementing regulation, whose price control policy is relatively limited.Based on the data from 2001 to 2014, a comparative analysis of the price and production of wheat, using panel data autoregressive model to analyze the factors affecting the price fluctuations of wheat between the areas in which the minimum purchase price of wheat are implemented and those who are not. The results showed that:(1) Compared to the provinces in which with the implementation of minimum purchase policies, the price fluctuation of the nine provinces in which there is no such policies is more complex, and those provinces show different volatility scenarios. In addition, the change in the CPI also did not fluctuate with the price of wheat.(2) for provinces where the minimum prices are implemented, the impulse of purchase price of wheat is negative with respect to production and vice versa, indicating that wheat price control policy implementation with minimum purchase price is effective. For provinces without the implementation of the lowest purchase price of wheat, the impact on wheat production is positive, indicating that the price regulation is limited.2. The minimum purchase policy significantly improve the market price of wheat, but reduce the social welfare, hence the policies need to further improve:In the 15 major wheat producing provinces from 2001 to 2014 as sample, by using difference-in-difference method and regression discontinuity design method, using the panel and the Pool-OLS model approach to examine the influence of minimum purchase policy on wheat prices. The results show that:(1) Promoting the minimum purchase policy significantly increases the wheat market prices in the range of about 3.5 Yuan per 50 kilograms(0.07 Yuan / kg); regression discontinuity design points out that the province with such policy, compared to those without such policy, the market price of wheat between 2003 and 2006 rose by 5 Yuan per 50 kilograms(0.1 Yuan / kg), and statistics is significant at the 5%, which implies that the minimum purchase price policy has significant effect.(2) In order to prevent the wheat price volatility and to protect farmers’ enthusiasm for growing grain, the policy will still proceed; but given that the policy requires a lot of financial subsidies, it is likely to cause unnecessary losses and reduce overall social welfare, the government can lead the planting of wheat into the right way using fiscal policy tools to increase social demand for wheat and its by-products.3. The wheat supply and demand are inelastic, the minimum purchase price policy has significantly improve the welfare of farmers:Based on the time series data from 2000 to 2014, the study found:(1) as one of the three staple food, wheat supply and demand are inelastic, the elasticity of supply of which is 0.4615, and elasticity of demand of which is 0.3872. income elasticity of demand is 0.1731, which indicates that it belongs to rigid demand, the small changes mainly due to substitution of other staple foods.(2) wheat minimum purchase price policy has a significant impact on the value of CR and PR for wheat farmers, where the CR value of wheat showing a declining trend and the PR value experienced a first decline before 2004 as a turning point and become upward trend.(3) Welfare estimates showed that the welfare of the farmers is affected by the minimum purchase price of wheat, the implementation of the policy has improved the farmers’ welfare. Welfare changes in by price fluctuations is primarily the producer-based welfare, and its long-term effects and short-term effects of welfare changes are basically the same.Research on possible innovation is mainly reflected in three aspects:(1) Clarifying the effect of the minimum wheat purchase price policy on wheat production. Wheat is one of the world’s most important food crops, the stationarity of yield and price is related to economic and social stability of the country, so different countries have various policies and considerations in food market, especially the market for wheat production and prices This study will focus on the wheat market, for example, analyzing how policies in China’s affect wheat market such as the minimum purchase price policy. This research uses PVAR panel data model to analyze the inter-provincial wheat minimum purchase price policy on wheat yield.(2) Emphasizing the impact of the minimum wheat purchase price policy on wheat prices. Food revenue is the main source of income of farmers, and therefore whether food prices are stable or not is related to the stability of farmers’ income, thereby affecting farmers’ enthusiasm for growing grain. Factors that have influences on the fluctuations in wheat prices varies, such as supply and demand factors, weather factors, import and export as well as national macroeconomic policies also have a significant role. However, due to the fact that the national macro policies often interact with other factors, it is difficult to take into account of the policy effect individually. In this study, we will introduce the creative difference-in-difference method and regression discontinuity design model, based on the national wheat province panel data, excluding other factors that has influence on the price of wheat, this paper measures how the minimum wheat purchase price policy issued in 2006 affect the price of wheat.(3) Exploring the effect of minimum purchase price of wheat policies on the welfare of producers and consumers. The minimum purchase price of wheat has been implemented for more than ten years, there is little analysis of the effects of the policy on welfare. The direct effect of the minimum purchase price of wheat is to raise the wheat market prices, and thus have a direct or indirect impact on producers to consumers. This study was based on data of the wheat market, supply elasticity and demand elasticity with respect to income, on this basis, this paper uses classical welfare effects model to estimate the impact of the introduction of the minimum wheat purchase price policy on wheat producers and consumers with respect to welfare effects, and then evaluate the welfare policy.Therefore, we should improve and perfect the study of minimum purchase price on wheat from the following aspects: firstly, expending and perfecting the goals of minimum purchase price on wheat; secondly, optimizing the mechanism design of minimum purchase price on wheat policy; third, rationalizing the lowest bid prices system; fourth, improving the effects of the implementation of the policy; finally, raising the supporting facilities of the minimum purchase price on wheat policy.