The Chinese government will allow prices of several agricultural goods to float freely in the market in an "historic adjustment," state media reported Tuesday, as high domestic prices struggle to cope with a downtrend in the global agricultural complex.
The government has decided to adopt "a differential support policy" for various products as part of its reforms for the agricultural sector, the Economic Information Daily reported, citing sources in the agricultural ministry.
The new policy will "emphasize the importance of market forces" in setting prices of several crops including corn, soybeans, cotton and oilseeds.
Market prices will act as a signal to regulate supply and demand given greater volatility, more sophisticated production chains and closer integration with the global market for such crops, the report said.
Staple crops, including wheat and rice, will continue to be supported by a price floor guaranteed by the government.
The minimum price has been in place since 2004 to safeguard farmers' incomes and ensure food security.
The move comes as domestic prices for several cash crops have remained high, despite a recent worldwide fall across various commodities over the past several months.
Beginning in 2008, China purchased and stockpiled various crops to support domestic prices.
However, this has resulted in burgeoning inventories that have proven difficult to clear.
The situation has been exacerbated by falling international prices, resulting in imported grains being cheaper even after taking in account freight and excise duties.
Apart from distorting domestic markets, the subsidies required to support the agricultural market are also likely to exceed limits allowed by World Trade Organization rules, experts were quoted as saying in the report.
