Study On Formation Mechanism And Regulatory Policies Of Beijing Vegetable Prices

Agricultural market price volatility are the most important economic sectors of agriculture research agenda. From the microscopic point of view, price fluctuations will seriously affect the farmers income and consumer welfare; from a macro perspective, the market price distortions often used as a reason to intervene in the administration, so the market price volatility is also very important macro-management issues. The thesis focuses on the transmission mechanism and regulation methods of Beijing vegetable prices and analyzes the status of vegetable industry, vegetable price volatility characteristics and the factors affecting vegetable price fluctuations. Based on these studies and economic theories, the price formation mechanism is revealed and some empirical analyses are demonstrated on cost-plus mechanism, price led mechanism, demand decision mechanism and mutual substitution mechanism. Further, the regulatory polies of vegetable prices in Beijing are analyzed, and based on the vegetable price formation mechanism raised above, systematic regulation methods and policies are suggested. The contents and conclusions are as follows.1. Researches on Beijing vegetable industry. 1) About 21,148 tons of vegetables are consumed every day, and the annual consumption is about 7,719,020 tons; 2) In the past five years, monthly vegetable consumption in Beijing reaches its minimum in February, and increases from March till August. It decreases in September but starts to increase slowly from October. But from December it gets back to decreasing trace and reaches its bottom in next February; 3) The top 10 vegetable consumptions in Beijing are potatoes, cabbage, onion, cabbage, onion, melon, carrots, tomatoes, cucumber and radish; 4) Urban residents spend more on vegetable consumption, but larger increase is found in vegetable consumption of rural residents. Vegetable consumption in the proportion of food expenditure rises; 5) Self-sufficiency rate of Beijing anniversary vegetable consumption is less than 34%; 6) Shandong, Hebei, Northeast, Hainan, Yunnan, Guangdong, Guangxi, Gansu, Hubei, Inner Mongolia, Tianjin and other Provinces play an important role in the vegetable supply of Beijing.2. Researches on vegetable price volatility characteristics of Beijing. Based on the monthly vegetable prices from 2006 to 2015, with time-series decomposition and HP filter methods, vegetable price fluctuations are decomposed into 4 aspects, which are seasonal fluctuations, random fluctuations, cyclical fluctuations and long-term trends. Empirical analyses of vegetable price fluctuations are done based on the general circumstances and special events from 2006 to 2015 in Beijing markets, which show as the following. 1) The seasonal characteristics of vegetable prices are very obvious, and the seasonal fluctuations are gradually increasing. 2) The cyclic fluctuations of vegetable prices can be roughly divided into four cycles, which are:(2006-2007),(2007-2009),(2010-2013),(2013-2015). The lengths of the cycles are not exactly the same. 3) Regarding random fluctuations of vegetable prices, it moves more frequently and intense from 2010 to 2012, which is consistent with the actual market. 4) The inflection point of the long-term trend of vegetable prices is observed in 2013. Before that the average wholesale vegetable price increases very fast, but after that it decreases significantly.3. Theory of Beijing vegetable price formation mechanism. Economic analysis is applied to the formation mechanism of Beijing vegetable prices from both price equilibrium mechanism and price adjustment mechanism. On the basis of that, the formation mechanism is divided into supply-side price formation mechanism and demand-side price formation mechanism. The supply-side price formation mechanism can be further divided into cost-plus mechanism and price lead mechanism, and the demand-side price formation mechanism can be divided into demand decision mechanism and mutual substitution mechanism. Eventually it is observed that: 1) Undersupply is the main cause of vegetable price rising; 2) The charges and losses in deals lead to the price increase from production to retail; 3) The price leading and mutual substitution in the conduction from wholesale market to farmers market and supermarkets exacerbate the volatility of vegetable prices.4. For cost plus mechanism, multiple regression analysis and Error Correction Model(ECM) are adopted, which leads to the following conclusions: 1) the cost-plus mechanism of cabbage farm price formation is mainly caused by the rising labor cost; 2) There is equilibrium relationship between supermarket price and wholesale price of cabbage in Beijing, and the supermarket price also implicitly includes the fixed operation cost and labor cost; 3) There is also equilibrium relationship between farm market price and wholesale price of cabbage in Beijing, and the farm market price implicitly includes booth fees and revenues of the farm market managers.5. For price leading mechanism, coupling model is used and it’s observed that the vegetable prices with smaller variances are significantly led by those with larger variances, which means price leading indeed exists among different varieties of vegetables. The larger the variance of vegetable price is, the more it contributes those with smaller variances, which implies that vegetable price with larger variance is affected more by market information, and will contribute more to the formation of overall vegetable prices. Besides, the larger the variance of vegetable price is, the longer it can affect those with smaller variances. In the same cause, the smaller the variance of vegetable price is, the faster it can react to the price volatility of those with larger variances.6. For demand decision mechanism, comparative analysis method is adopted on the vegetable demands in Beijing from 1978 to 2013. It is found out that: Although from 1978 to 2002 both Beijing’s permanent population and vegetable plant area increase slowly, the overall demand and supply are matched, so the overall price increase is basically consistent with the growth of resident population, which is under control. But from 2003 to 2013, the vegetable plant area is declined sharply, while the city’s resident population increases significantly, which means the demand is rising while the supply is going down, so vegetable prices go directly to a higher stage. Demand plays a vital role in vegetable price formation.7. For mutual substitution mechanism, non-parametric statistics and LA-AIDS model are adopted to obtain the substitution relationships between any 2 of the vegetables and among different varieties. Expenditure elasticity descending vegetable categories are leafy(1.442), onion and garlic(1.140), root vegetables(1.140), Yaro class(1.009), Eggplant(0.974), melons(0.915), sprout class(0.880), legumes(0.718), cabbage(0.641), Chinese cabbage(0.473), fungi(0.310), which are all consistent with real observations.8. Analysis and evaluations of existing regulatory policies in Beijing.Based on the analysis of existing regulatory policies, it is concluded that the fee design of vegetable circulation tends to lower taxes and higher cost. In the current policies, only those which are meant to produce more vegetables outside Beijing to ensure the supply of Beijing vegetables are positive initiatives to the demand decision mechanism during vegetable price formation. Other policies are not effective to the overabundant circulations and monopoly dealers. Besides, it is also concluded that the biggest problem of Beijing vegetable industry is the conflicts between increasing demand and problematic supply, which is caused mainly by overabundant circulations and inefficiencies.9. Regulatory policy framework is raised and specific suggestions are made. By analyzing current economic situations and policy trends, the objective of Beijing’s vegetable price regulation is to distinguish the reasonable and unreasonable factors, take into account both the interests of farmers and residents, and ensure the city’s livelihood by promoting vegetable supply. Based on the foregoing findings of price formation mechanism, considering the basic regulatory ideas and the characteristics of vegetable demands, the thesis builds policy framework from aspects including vegetable production, circulation and storage. Finally, specific suggestions are made regarding the urgent needs for sound regulatory policies, including promotion of cultivation organization, reasonable guide for farmers to grow vegetables, comprehensive planning of vegetable market, development of new circulation methodologies, improvement on vegetable information service, subsidies for vegetable price volatility, agricultural insurances, and so on.