Rice Price Fluctuation And Its Effects

As the largest rice-producing country in the world, China is also the main consuming andexporting country. Any variation of the rice price will have a significant impact on China’sgrain security. Food is the foundation for social stability and national development. Rice asone of the vital staple food, its price fluctuations will have a direct influence on the socialwelfare level and economic development. Therefore, maintaining the rice price stability andpromoting rice production is a crucial way to ensure national food security. Recently, theincreased rice price volatility in China has adversely affected people’s normal living andproduction order, as well as affected the entire economy and stable operations. Withinmacroeconomics, China has entered a new stage of the agricultural strategic structureadjustment. Among the background of declining arable land, China’s rice acreage reduction isan indisputable fact. As the population continues to grow, the demand for rice is rigidlyirreversible and the production situation is extremely serious. Therefore, it has extremelyimportant strategic significance to guarantee the rice price stability to meet the demandincrease due to the population growth, to ensure the rice supply，national food security, andthe harmonious socio-economic developmentTherefore, this paper conducts a systematic analysis on literatures about price fluctuationsand its effects, then we analyze the status quo of China rice production, domestic andinternational rice market price fluctuations’characteristics from different aspects, amulti-market partial equilibrium model is applied to demonstrate the inner relationship amongrice prodcution, consumption, trade, stocks, and the other sub-elements to clarify the differentelements of the market mechanism.On this basis, in order to identify the supply and demandimpulse from rice price fluctuation, to investigate the impact of supply and demand impulseto rice price fluctuation, it is found that supply impulse is leading factor for rice pricefluctuation.So we focus on supply and external impulse to specify the factors that influencetransmission path. Error correction model is recruited to empirically analyse the supplyimpulse from supply elasticity perspective, the aim is to examine the mechanism that supplychange exacerbate the rice price fluctuation.Through the analysis of the transmissionmechanism on the international rice market price fluctuations to domestic market, we try toinspect the mutual influence and integration level between two markets. Based on the analysis of the transfer effect of international rice market price fluctuations on the domestic market,farmers’ welfare effects of rice price fluctuations are explored to establish our country’sagricultural product price regulation system; the objective is to coordinate different interestsand social welfare equilibrium to provide reference for government decision-making process.The main conclusions of this study are as follows:First, China rice price fluctuations have significant cyclical characteristics. The rice pricein long-term shows upward trend with greater volatility；In the short-term, it presentsclustering and asymmetric feature. Price fluctuation is mainly affected by the impact of theprevious period fluctuations with the memory effect; the impact of fluctuations in the pricedecrease is significantly lower than the price increase. The reason lies in the rice market pricevolatility is a result of interaction and mutual influence of the different elements in the market.Rice production, consumption, trade, stocks, and other price and non-price factors acting onthe total supply and demand, at the end, it forms the rice price balancing mechanism.Second, supply impulse is the dominant factor in the domestic rice price fluctuations. Ricesupply impulse is mainly conducted by the supply elasticity change to the rice output, andproduces a new round of volatility. Rice supply response to price changes have short-termlags with little influence; However, in the long run, through the research and development offarming techniques, improved varieties, the yield of rice will increase, so rice supply willmake greater reaction to the price change.Third, international and domestic rice price fluctuation exist a long-term stableequilibrium relationship. Foreign trade and futures channels are main ways that internationalrice price fluctuations influence the domestic market, while futures channel has moresignificant impact on price transmission. Rice domestic price is mainly driven by inflation andprice transmission which has a significant adjustment and time lag effects.Fourth, the empirical analysis of rice price fluctuation on farmers’ welfare shows that, riceproduction price fluctuation has a positive impact on the farmer welfare changes, while riceconsumping price fluctuation has negative one; the relative value of farmers’ income to riceconsuming expenditure caused by rice price fluctuation decide farmers’ total welfare effect.When the price fluctuation leads to farmers income change is greater than the riceconsumption expenditure change, farmers’ welfare improves; farmers’ long-term andshort-term welfare effects exhibit the same tendency. However, the long-term welfare effectsare better than short-term ones. Moreover, rice supply and demand elasticity is inelastic, theelasticity of supply is less than the elasticity of demand, farmers rice production adjustmentand decision-making process is relatively slow and lag to rice price change, so relying solelyon the price control and farmers production guidance may be limited, thus the government price support policies and measures to improve the price policy regulation effectiveness toprotect the farmers interests, increase the effective rice supply is necessary.