Comparison of world and domestic grain market prices

Abstract

Until the economic reform that began in China in the 1980s, the central government held a monopoly on foreign trade, with the Minister of Foreign Economic Relations and Trade (MOFERT) exercising control on its behalf and drawing up national import and export plans. The specialised foreign trade corporations supervised by MOFERT handled import and export business. Of these corporations, the Chinese National Cereals, Oils and Foodstuffs Export and Import Corporation (COFCO) was in charge of grain trade. After the economic reform of the mid 1990s, however, this procedure was modified in several respects. In order to break COFCO’s monopoly over grain trade, the government introduced a quota allocation system under which other state-owned companies were allowed to participate in grain trade. Meanwhile, aiming at better coordination between domestic grain marketing and foreign grain trade, the State Council created Liang Fen, a new company owned jointly by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the MIT. Furthermore, in 1994, China’s agent system of foreign trade was adapted to the trade system. The state grain-trading companies began to act as trading agents for MIT and other companies, which were required to pay export and import quota and charge fees accordingly. In this paper, we use domestic wholesale prices to represent domestic prices and choose two wholesale markets for each commodity, one located in the north and the other in the south. The data comes from the China Grain and Oil Food Information Net. For world market prices, c.i.f. and f.o.b. prices are chosen for imports and exports respectively. Our analysis shows that, in the 1990s, China made great progress in its reform of the trade system. The state monopoly was gradually broken, a trade agent system was introduced and more companies were allowed to take part in the grain trade. There was a shift from ‘production decides trade’ – that is, ‘production-oriented trade’ – to ‘trade decides production’, that is, market-oriented production. Show more