The Research About Rice Vertical Market’s Transmission Mechanism In China

Since the beginning of 21th century, our grain reserves has been 200 million tons and the degree of self-efficiency keeps above 95%. We can see that food supply in the short term is on problem any more; however, there is hidden trouble in the long term. Because of historical reasons, the food price of our country has been at a relevantly low level. Under such circumstances, the economic impact generated by the rapid growth of economy and a reduction of the cost of interregional labor mobility will certainly lead to the increase of the opportunity cost of food production and changes of farmers’supply function which will further result in changes of food prices and influence the development of the whole food industry. Rice, as the most important grain variety of our country will definitely bear the brunt of it. This article takes the vertical market of rice as an example, researches into the change law of all kinds of prices in the market under economic impact, the transmission mechanism of prices.This article abstracts the vertical market of rice into four subjects, farmers, buyers, wholesalers and consumers which consist of three organic systems of the market, buying, wholesaling and retailing. Based in the reality of China, we put forward a rational hypothesis and based on the hypothesis we deduce the equalizing conditions of the vertical market which is free of economic impact and government’s intervention. Based on this, we introduce economic impact factors, conduct comparative static analysis of market equaling and deduce the transmission mechanism of economic impacts in the vertical market without government’s intervention; the result of this tells us that the mobility of the system balanced point will definitely lead to the total monopolization of the rice vertical market. Whether we take economic strength or national security into consideration, only the government can play the role of the final monopolist. We can deduce from this that the government’s nonintervention in a short term will definitely result in the toughest intervention, state intervention. This conclusion provides the theoretical basis for the government’s regulation of food market.Based on the research above, this article respectively introduce farmers’ subsidy policies, buyers’subsidy, inventory policies and protective price policies into the equaling mobility model, deduce the different features of price transmission mechanism under different policies and make comments about the policies:farmers’ subsidy policies are most suitable for the current conditions of China; buyers’subsidy policies, if without its systematic barriers, can forcefully promote the development of rice industry; inventory policies have amplification and are unsustainable which enables it to be the stop gap policy tool against emergencies, but using it in a long term will do harm to rice production and will lead to severe fluctuation of prices; protective price policies can protect farmers’economic benefit in a short term, but it will cause the rice market to evolve to total monopolization and do harm to the whole society including farmers; thus it can only serve as an expedient policy and can’t be used in a long term.Using current data of rice prices, this article builds a VAR model to conduct empirical test of the theoretical deduction; and based on this it put forward policy suggestions and make prospect of this research.