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Agricultural stimulus

(China Daily)
Updated: 2008-10-22 07:48

The central government's decision to considerably hike minimum grain purchasing prices is highly commendable as it will boost agricultural production as well as raise farmers' income.

Just as latest growth statistics showed a sharper-than-expected slowdown of the Chinese economy in the past quarter, the National Development and Reform Commission announced yesterday a series of measures to encourage agricultural production.

The top economic planning agency pledged to not only raise the government's minimum purchasing price for white wheat by 13 percent next year but also further increase subsidies for agricultural production materials, machinery and crop seeds.

Clearly, a stimulus package will be urgently needed if China's economic growth further slows in coming quarters. Though there is a big difference of opinion over how to prioritize those stimulative measures, more government support for agricultural production is among the few options that will be unanimously accepted.

As the country is poised to register a bumper harvest for the fifth consecutive year, it is more than reassuring to see policymakers have acted promptly to raise the minimum purchasing price.

This move, in the short term, will persuade farmers to continue to increase grain production in spite of the recent decline of commodities prices.

Rapid rise of food prices had once significantly fuelled inflation at home and abroad early this year. However, as a global slowdown loomed in the wake of a global financial crisis, commodities prices declined sharply in recent months. To cushion Chinese farmers against such price fluctuations and the rise of input cost, the government needs to substantially raise minimum grain purchasing prices to ensure farmers' stable income growth. Only by doing so can the country maintain adequate domestic grain production capacity to basically feed the world's largest population of 1.3 billion.

In the long run, higher prices of agricultural products will be crucial to fulfilling the country's goal to double farmers' income by 2020 and thus expand domestic consumption.

China's economic slowdown, largely a result of weakening external demand, explicitly underscored the necessity for the country to boost domestic demand, domestic consumption in particular.

Both the huge number of farmers who still account for 55 percent of the population and the wide income gap between them and urban residents will make any effort to raise farmers' income an effective way to boost domestic consumption.

While hiking minimum grain purchasing prices will benefit farmers, nevertheless, policymakers should also not lose sight of its effect on other groups. That means the government should raise subsidy for the urban poor accordingly too.

(China Daily 10/22/2008 page8)