A Study On The Formation Mechanism Of Target Price Of China Grain

Issues concerning agriculture countryside and farmers have always been important to national economy and people’s livelihood. What’s more, the grain price is the core of these issues. At present, China is implementing the grain price support policy which takes the minimum purchase price policy and temporary purchase and storage policy as core. However, this grain policy has been strongly interfered by government and forms the expectations of price growth. It distorts the grain market prices, making the prices presents the characteristics of divergent cobweb and unable to achieve Pareto Optimality. This policy can neither increase farmer’s incomes continuously, nor ensure national food security. In addition, it causes hidden losses to China’s economic development, social stability, and national security. Therefore, in 2014, the government reformed target price subsidy system of Xinjiang cotton and Northeast soybean, aiming to establish the decisive role of the market in the formation of the agricultural prices.This paper takes this as a breakthrough point to study the formation mechanism of grain target price. The key idea of this thesis is that the target price subsidy system is a new type of grain price support policy. Compared with other grain policies, this type of grain policy ensures not only that the prices of agricultural products are regulated by the market completely, but also the subsidy of the target price will not interfere with formation of market price.Grain target price as the price cap of grain price vibration combined with the minimum purchase price to set up warning signals in market price and the range in which grain price runs smoothly. The specific target price is determined by the four objectives together, such as protecting the interests of farmers, ensuring national food security, maintaining price stability, linking orbit of international grain market. Rather than making target prices based on traditional method of “cost plus income”. The implement of variable subsidies which subsidize grain producers and low-income consumers in cities and towns can ensure profitability for farmers and equilibrium of social basic welfare. All in all, subsidy system of grain target price is a new attempt of grain support policy in China and the basic direction of Market-oriented reform of grain price in new situation.