China 2017 – Agricultural Deregulation and its Global Impact
Oct 28 2016
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China 2017 looks at Chinese government agricultural policies, changes to them, and the consequences of this for the rest of the world.
We look at the Chinese economic miracle of the last thirty years and at the social and economic tensions this has generated. We examine China’s agricultural successes but also cover the growing challenges it faces in feeding its population. We outline the motive for China’s regime of floor prices for agricultural commodities, how these have been enacted, how they operate, and how they have grown.
We look at what economic theory predicts will be the consequences of such a regime. Now that the Beijing government is dismantling this system, we close by analysing the medium to long term impacts on the markets for rice, wheat, corn/maize, soybeans, rapeseed, and cotton.
*As China brings its accumulated stocks to the market, these will depress prices. With this foreknowledge, markets could be expected to price this in, but there is great uncertainty over the actual size of Chinese stocks.
*China’s system of price floors has led – as economic theory would predict – to excessive stocks, an increasing financial burden on the government, suppressed demand, and unsustainable farming practices
*The Chinese government is now dismantling the price floor system, and it remains in place only for wheat and rice. It is likely that price floors for these products will be scrapped soon
*The ending of this comprehensive system in such a major player in agricultural markets will have serious, worldwide effects
*As China brings its accumulated stocks to the market, these will depress prices. With this foreknowledge, markets could be expected to price this in, but there is great uncertainty over the actual size of Chinese stocks
*In the longer run production will be affected
*At lower prices, farms in China will produce less rice, wheat, corn, soybeans, rapeseed, and cotton. Some land will move into non-agricultural uses; other land currently being used to produce these products will be switched to producing others
*Worldwide prices for these commodities will fall as the Chinese government ceases to be a buyer
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