Effectiveness and Sustainability of Grain Price Support Policies in China

Abstract

We evaluated the effectiveness and sustainability of the grain price support policies in China using the structural break regime switching model. Based on the rice, wheat, and corn monthly price data from 1987 to 2017, we provide strong evidence that the Chinese grain price support policies have been effective in stabilizing the domestic grain price. A structural change occurred in grain price patterns in 2004 when the price support policies were established. Since then, Chinese grain prices have followed a regime with significantly lower volatility. We documented several problems challenging the sustainability of the Chinese grain price support policies in the future, including high economic costs that can trigger high support prices, high public stock level, and high grain import pressure. Our findings shed new light on the functioning of the grain pricing policies and provide useful implications for the market-oriented reforms in the Chinese grain market.