The increase in agricultural product prices occurs in the circulation环节
Jindae Agriculture excerpted from "News 1+1" on October 22, 2010 - The Battle to Stop Price Hikes
Host (Dong Qian):
Welcome to "News 1+1."
Host:
Yesterday, the National Bureau of Statistics released economic operation data for September and the third quarter. In the first three quarters, GDP grew by 10.6% year-on-year. Among the much-watched indicators, the consumer price index (CPI) rose by 3.6% year-on-year in September.
The People's Bank of China decided to raise the RMB deposit and loan benchmark interest rates for financial institutions starting from October 20, 2010. The one-year deposit and loan benchmark interest rates for financial institutions were both raised by 0.25 percentage points.
Narration:
On October 20, the central bank increased interest rates for the first time in three years, leading many to speculate that this might be aimed at addressing rising prices. And indeed, the next day's release of the economic operation data for the third quarter showed that the CPI might have hit a high point. The facts confirmed this, with 3.6% marking a new high for the year.
Sheng Laiyun (Spokesperson for the National Bureau of Statistics):
The impact of new price hikes mainly comes from the rise in food prices and housing prices, which together contribute 90%.
Narration:
At yesterday's press conference held by the State Council Information Office, Sheng Laiyun, spokesperson for the National Bureau of Statistics, stated that the rise in the September CPI was first influenced by carry-over factors. Due to last year's CPI being lower earlier and higher later, it created a carry-over effect of 1.3 percentage points, accounting for 36% of the year-on-year increase. Among the new price hike factors, food prices led the way.
Sheng Laiyun:
Because people frequently interact with necessities like clothing, food, shelter, and transportation, they feel that food prices are rising significantly, leading some to believe that the CPI is underestimated. This difference stems from perception.
Narration:
Despite the 3.6% mark setting a new high for the year, some members of the public still feel the effects more strongly than the numbers suggest. In response, Sheng Laiyun, spokesperson for the National Bureau of Statistics, provided an explanation.
Sheng Laiyun:
In China, food expenditure still accounts for a relatively large proportion of our current consumption expenditures. A well-known indicator is the Engel Coefficient. Our Engel Coefficient remains around 40%, while in the U.S., it has dropped below 20%. There is a gradual process involved in this change.
Narration:
The Engel Coefficient is an economic concept referring to the proportion of total personal consumption expenditure spent on food. The lower the number, the more developed the economy. A high Engel Coefficient indicates that our economy is not yet affluent and also shows that the rise in food prices has a significant impact on ordinary people, especially low-income groups. The common question among the public is whether prices will continue to rise and whether the increase in food prices will extend to other goods. How far away is inflation?
According to data from the National Bureau of Statistics, the year-on-year increase in the September CPI reached its highest level in 23 months. Numbers may be abstract, but if reflected in our daily lives, it means our living costs are continuously increasing. Clothes, food, housing, and transportation seem to be all experiencing price hikes. Let’s return to the previous numbers and analyze what the record-high year-on-year CPI increase signifies.
Narration:
This is an ordinary afternoon in Beijing. At supermarkets, markets, and street corners, one of the topics most discussed by the public is two words: price hikes.
Citizen 1:
Meat, eggs, and milk are all going up. I bought green beans here for 2.5 yuan per pound.
Reporter:
How much did it cost last year?
Citizen 1:
During the summer, it was only 1 yuan per pound.
Citizen 2:
Oil used to be 3 yuan plus, now it's over 6 yuan.
Citizen 3:
A small tomato costs over 2 yuan, making it feel more expensive than eating meat.
Subtitle Prompt:
Recently, Zhou Xiaochuan, Governor of the People's Bank of China, pointed out at the "Macroprudential Policy: Asian Perspective High-Level Seminar" that China's financial system faces formidable systemic risks, and risks such as asset bubbles and inflation will significantly increase.
Host:
Today in our studio, we have invited Deputy Director Zhou Wangjun of the Price Department of the National Development and Reform Commission to explain a series of issues.
First, Director Zhou, do you think the 3.6% year-on-year CPI increase falls within a normal range?
Zhou Wangjun (Deputy Director, Price Department, National Development and Reform Commission):
The 3.6% increase can be considered relatively high from an economic perspective, particularly the highest since a few months after the financial crisis. The composition of the 3.6% increase is primarily due to the rise in food prices, accounting for 75%. This is reflected on consumers' tables through increases in the prices of rice, cooking oil, and meats. Another category contributing to the rise is housing-related expenses, including water, electricity, and gas, which account for about 15% of the price increase factors. Beyond that, clothing prices have risen somewhat, but overall, things remain relatively stable.
Host:
So the main factor is still food?
Zhou Wangjun:
Yes, food.
Host:
We observe that the prices of agricultural products have risen significantly, but if we compare them with industrial products over the long term, agricultural product prices have been undervalued. Now, if their prices rise, can we consider this a normal adjustment?
Zhou Wangjun:
That's correct. During the entire process of industrialization and urbanization, labor and capital in our country have accelerated their movement towards cities. The rural areas have seen relatively less investment in production resources. Therefore, the rise in agricultural product prices serves to compensate for the imbalance caused by uneven distribution of production factors.
Host:
Here arises the issue: If viewed from the long term, agricultural product prices must rise. However, from a short-term perspective, urban residents do not wish to bear such high price increases. How can this contradiction be resolved?
Zhou Wangjun:
Prices have indeed risen quite rapidly this year. From January to September, grain prices rose by 12.1%, and vegetable prices by over 20%. Since the upward trend in prices is a long-term, irreversible phenomenon, what the government or macroeconomic regulation can do is hope to control the rate of price increase within a certain range, ensuring that it stays within the capacity of urban residents, especially low-income groups, to bear.
Host:
Is it about subsidizing farmers?
Zhou Wangjun:
Compensating farmers. Urban workers, including migrant farmers, receive wages, which can be adjusted upwards. Farmers, who don't receive wages, mainly rely on the rise in agricultural product prices to compensate for their income.
Host:
To make up for this scissors gap and provide more compensation to farmers, will the rise in food prices, which follows agricultural products, become a long-term trend?
Zhou Wangjun:
Yes. Observing Western countries and Southeast Asian nations like Japan and South Korea during their processes of industrialization and urbanization, there has been a gradual rise in food prices. The rise continues until the benefits of working outside versus staying home to raise pigs or grow crops become comparable, at which point agricultural product prices stabilize.
Host:
Everyone is very concerned about this. We emphasized repeatedly that the rise in agricultural product prices is a long-term trend. Will these prices continue to rise in our daily lives?
Zhou Wangjun:
From a long-term perspective, agricultural product prices, including grains, oils, meats, eggs, and vegetables, will definitely see further increases. Reports indicate that a single cabbage in South Korea sells for over 70 RMB, whereas ours sell for around 8-9 RMB. Of course, we cannot directly compare with South Korea, as their prices may also be unreasonable. We need to control prices within the range that the public can afford, moderating both the magnitude and speed of price increases—this is something we can achieve.
Host:
Let us revisit a series of statistics from the National Bureau of Statistics. You mentioned that food price increases accounted for 75% of the weight in the overall increase. Looking at essential daily consumer goods like grains and vegetables, their actual increases have already far exceeded the normal figures of 7% to 8%. Can you say that this pace of increase is still normal?
Zhou Wangjun:
This year, the increase in grain and vegetable prices has exceeded past years. After statistical analysis, over the past 30 years since the reform and opening-up, the average annual increase in grain prices in our country has been around 7% to 8%, with vegetable prices following a similar pattern. This year, due to abnormal weather conditions and frequent natural disasters, vegetable prices have risen more than twice compared to previous years. Grain prices have increased due to the rapid rise in agricultural labor productivity costs. The state guides farmers to produce more grain through purchase price policies, ensuring their normal income. Under the dual influence of market expectations and government guidance, the increase in grain prices has indeed been higher than in previous years, by about three to four percentage points.
Host:
On the one hand, agricultural product prices will certainly rise in the long run, but on the other hand, we hope to limit the rise in urban resident prices within a certain range. What can the government do?
Zhou Wangjun:
The government can take several measures:
Firstly, utilize our reserves, including oil, meat, sugar, and cotton, to stabilize the market. When prices rise, we can release reserves to ensure market supply.
Secondly, looking at a deeper level, the rise in agricultural product prices generally has its rationality. The government should increase subsidies to residents, especially low-income residents, such as raising the minimum wage standard and providing temporary price subsidies. Back in the 1980s when I was in college, I remember receiving a price subsidy of 10 RMB per month, which constituted 50% of my living expenses. During the price increase process in the early 1980s, public dissatisfaction with society was not as strong.
Host:
We just talked about how everything we eat, drink, live, and use in our daily lives is rising in price, which is a fact. If we trace back to the root cause from the circulation domain to the fields, we will find some deeper reasons behind it.
Narration:
In recent days, affected by the rise in soybean prices, rumors of increases in edible oil prices have surfaced multiple times, creating a sense of impending storms. Many people still feel uneasy, stockpiling peanut oil and soybean oil in several barrels.
Host:
To stabilize the recent slight rise in edible oil prices, the national grain and oil center conducted online competitive sales of 300,000 tons of state temporary reserve edible oil on the 20th. This is the first large-scale release of reserve edible oil in the market this year.
Narration:
It's not just edible oil; by the end of this month, the national reserves have been active. On October 15, 40,016 tons of reserve cotton entered the market.
Today, the National Development and Reform Commission, Ministry of Commerce, and Ministry of Finance have released 210,000 tons of reserve sugar.
Narration:
Yesterday, the state made a large-scale sale of 300,000 tons of rapeseed oil from the national reserves, the first time this year. Some oil companies that acquired reserve oil through competitive bidding have started full production to package and produce these reserve oils, quickly releasing them into the market.
Shen Zhixiong (Workshop Supervisor of a Certain Oil Company):
To meet market demand, we are working overtime every day, usually adding 12 to 16 hours of work.
Subtitle Prompt:
October 21 News
Host:
In response to the recent rise in sugar prices in some areas, relevant national departments have decided to release 210,000 tons of central reserve sugar to the market through competitive sales.
Narration:
Cotton, oil, and sugar, all key commodities with rising prices, have been subject to intervention. However, opinions vary on the extent to which these interventions can smooth out price fluctuations. Compared to the national annual consumption of 4 million tons of rapeseed oil, the 300,000 tons of national reserve oil is not a significant amount.
Li Zhe (Director of the Galaxy Futures Research Center):
Looking ahead, the entire commodities market should maintain a high-level fluctuation pattern, but the rapid upward trends in some varieties observed recently may be curbed, such as the release of reserve oils, white sugar, and cotton. These actions will increase market supply and curb the rapid rise in commodity prices.
Narration:
Supply and demand balance leads to price stability—a simple economic truth. Yet, intriguingly, this round of price increases coincides with a bountiful autumn harvest in China's major grain-producing regions. By October 11, 827 million mu of autumn grain crops had been harvested nationwide, completing 71.3% of the expected harvest area. The harvest of medium rice and single-season rice has exceeded 70%, the corn harvest has reached over 80%, and soybean harvesting is nearly 90% complete. This year's autumn grain harvest is already 60% done, and a bumper crop is assured. Despite this certainty, prices continue to rise.
Sugar wholesaler:
Now (50 kg) of sugar costs 325 yuan, and since the National Day holiday, it has been rising by 2 to 3 yuan (per 50 kg) daily.
Mr. Yang (owner of a grain and oil retail store):
Basically, most bucket-packed oils have increased by between 8 to 10 yuan, for example, Golden Dragon Fish went straight from 47 yuan per bucket to 55 yuan per bucket, and other brands are similar to Golden Dragon Fish.
Futian Agricultural Bulk Vegetable Merchant:
Expensive purchase prices lead to higher selling prices, resulting in slightly reduced sales compared to when vegetable prices were cheaper.
Narration:
A bountiful grain harvest and rising agricultural product prices undoubtedly bring good news to farmers. However, market surveys have found that the acquisition prices at the farmers' level have not correspondingly increased. Profits are largely concentrated in the circulation stages of goods, leaving many deeply resentful of intermediaries speculating on agricultural products.
With the arrival of the autumn grain procurement season at the end of October, along with the state's increase in procurement prices, many major grain enterprises from other regions have quietly laid out strategies. An intense battle for autumn grain procurement is about to unfold, and its influence will undoubtedly spread from the fields to our dining tables. To address rising food prices, perhaps more than just controlling the prices themselves is needed.
Host:
In the previous short segment, we briefly mentioned the Engel Coefficient. Due to time constraints, we didn't elaborate on it then. With this discussion, what exactly does the Engel Coefficient represent? Given the series of CPI data now publicly available, can we conclude that our Engel Coefficient is gradually increasing?
Zhou Wangjun:
The Engel Coefficient has been gradually decreasing with our reform and opening-up and the improvement in residents' income levels. Currently, it stands at approximately 36.5% in urban areas and is slightly higher in rural areas, around 45%, with a decrease of one or two percentage points each year.
To understand this, we need to recognize that the process of price increases is accompanied by an increase in residents' incomes. According to the statistics bureau, from January to September, the per capita income of urban residents increased by 7.5%, while farmers' incomes increased by 9.2%, faster than in urban areas. However, after income increases, individual perceptions differ; some may not have experienced increases, while others may have seen greater increases. For those who have benefited, such as those who received wage increases, they may not vocalize it, but those who haven't benefited may feel pressure on their livelihoods. This issue should be understood from different perspectives. Generally speaking, the overall income of residents, including both rural and urban populations, is still a process of gradual improvement.
Host:
Director Zhou, last week, the state took some measures, such as selling off national reserves of oil and sugar. Do these measures help alleviate inflationary pressures?
Zhou Wangjun:
Of course, they are beneficial. Government regulation is akin to using a small force to move a big object. What determines market prices is not the total quantity but the marginal quantity. If there is an excess in the market, supply exceeds demand, and prices will fall. Therefore, by adjusting the marginal quantity and utilizing our reserves, we can effectively stabilize the market.
Host:
Changes in monetary policy imply a long-term issue. Let's return to the topic of prices. Besides short-term adjustments, what longer-term plans are necessary?
Zhou Wangjun:
Fundamentally, the issuance of currency must align with economic growth—liquidity should not be overly abundant. Inflation is always a monetary phenomenon, so there is much room for maneuver within monetary policy. Besides monetary policy, maintaining the balance between total supply and total demand in the market is another tool.
Another important measure is to increase residents' incomes, striving to raise the minimum living allowances, pensions for retirees, and incomes for low-income groups in society. Enhancing their psychological and economic resilience is fundamental.
Additionally, developing production and ensuring supply, particularly consolidating the foundational status of agriculture and ensuring food safety, are crucial. Since our country's Engel Coefficient is still relatively high, guaranteeing food safety and ensuring basic needs such as clothing, food, shelter, and transportation will enable us to resolve inflation issues effectively.
Host:
We mentioned the state's sale of national reserves of oil and sugar, and we noticed that on Wednesday, the central bank raised interest rates for the first time in nearly three years. What signals does this financial tool send? What impact will it have on easing inflationary pressures? Let's listen to what Jia Kang, director of the Institute of Fiscal Sciences under the Ministry of Finance, has to say.
Reporter:
What is your opinion on the central bank's sudden interest rate hike this week?
Jia Kang (Director of the Institute of Fiscal Sciences, Ministry of Finance):
This interest rate hike seems unexpected at first glance, but upon closer examination, it makes sense. It is part of managing inflation expectations, comprehensively weighing various related dynamics, and determining that such a more representative monetary policy measure is necessary. It still focuses on managing inflation expectations but has stronger signaling and guiding roles.
Reporter:
Under the influence of factors such as the continuous rise in CPI, what role can interest rate hikes play, and do you think China will enter a sustained interest rate hike channel?
Jia Kang:
Its role requires further observation. Of course, this role may encounter some offsetting factors. Ultimately, this policy intention needs to be implemented through policy tools, and interest rate hikes are a necessary or most representative principal regulatory tool for controlling inflation trends. After this action, the probability of entering an interest rate hike channel is relatively high unless there are significant changes in the global economy or a clear second dip occurs. Likely, we will enter an interest rate hike channel.
Host:
Director Zhou, I interviewed you during the snowstorm and freezing disaster years ago because the Price Department of the NDRC intervened in the prices in some places at that time. Now, with the rapid rise in food prices, will the NDRC intervene again?
Zhou Wangjun:
It depends on the situation. Currently, we are using the method of selling government reserves to stabilize the market. If later the prices rise too high and exceed expectations, such as the CPI rising to 8.7% in a month, we will assess whether the conditions for initiating temporary intervention measures are met based on the actual situation. We do not tend to easily initiate administrative measures to intervene in the market. We hope to deal with rising prices through economic means, including interest rate hikes and reserve releases, causing less harm to the basic economic situation.
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