The Study On Mechanism Of Chinese Wheat Price Formation

Grain is always the most significant agricultural product, which is paid highattention by the government. Especially under the circumstances of China’s reform andopening up and the soybean market serious influenced by the global market, it is veryimportant to guarantee the food safety when we have to face the shock of global grainmarket. The price mechanism is the core of the market mechanism and an importanteconomic instrument of state macro-control. Price volatility influences the healthy andstable development of the whole national economy system and affects the vital interestsof various economic entities. To control the grain price is the key to the overall macroeconomy. Since China has reformed and opened-up, the grain circulation system reformhas gradually changed in the function between the market and the government, and thegrain price is continually dominated by the market not by the government. However, thegrain production is affected by the nature and the market, which is also facing these tworisks. Moreover, there are still some problems excising in the China’s grain priceformation mechanism, which influences the benefits of farmers and customers especiallythe living standards of low-income groups. So it is vital to know and improve themechanism of China’s grain price formation for the overall operation of macro economy.To begin with, the paper explains the basic economics principles on the mechanismof grain’s price formation, which includes equilibrium price theory and market failuretheory. Equilibrium price theory indicates that the grain price is decided by the market.However, market failure theory indicates that the particular attribute of the grain decidesthe government plays an important role in the grain price. This part mainly usesnormative research and is laying a foundation of the following. Then I analyze thegrain’s price formation mechanism. First, I introduce the related concepts of pricemechanism and some characteristics of grain market. Second, I analyze the importantfactors affecting the grain’s price formation from two aspects. Endogenous factorincludes supply factors (grain inventory and the quantity of grain sales), demand factors(population, income level and price level) and cost (material cost, labor costs and landcost). Third, on this basis, this paper discusses the current grain price formationmechanism. Besides, I use the quantitative analysis and establish econometric model to explain the rules of grain’s price formation, from which I find some basic factors andintroduce each of them. At last, I point out the problems of the China’s grain’s priceformation mechanism and make some suggestions to improve our country’s grain’s priceformation mechanism.