Thesis Abstract of AGS Students

Agricultural pricing and marketing system and its impact on agricultyral production in Hunan province, China

Shengting Fu (1993)

Unstable growth of agriculture production in Hunan province in recent years calls for appro- priate pricing and marketing policies. This study aims to improve the understanding of the agricul- tural marketing system, and to analyze farmers' responses to institutional and economic changes occurred in the marketing sector. Review of document, interview and discussion with government officials were employed for the former objective, and statistical data from 1974 to 1990 was used to analyze response functions of rice, cotton, ramie and tobacco.

The agricultural marketing system of Hunan province was descriptively analyzed in two aspects: market structure and its performance. The marketing system was government monopoly before the implementations of the Market Reform in 1985. With government procurement quota, farmers were required to sell their products to government marketing agencies. A heavily subsidized rationing system was installed to distribute agro-inputs to farmers and food to urban residents. Agricultural prices were fixed for most of the years.

In 1982, farmers were allowed to cultivated in dividual farms. After they met government procurement requirement, they could make their own crop decision. Since then free market was partially opened and farm prices were adjusted and raised. Government marketing and price controls of most agricultural products were released in 1985. The rationing system was also under reform. The market influence of the private sector and the free market expanded rapidly. As a result of impressive market structure changes, agricultural supply and farmers' incomes increased rapidly, agricultural structure improved. Never theless, agricultural price and supply fluctuated substantially after the Market Reform.

The utility maximization approach was employed to analyze the relationships of crop area responses to prices, Rural Reform (1982), Market Reform (1985), yield and price risks and lagged endo-genous variable for the four crops. The seemingly unrelated regression is found to be the appropriate technique. The Rural Reform had negative impact on the planted areas of rice and cotton. The Market Reform had negative impact on rice and possitive impact on tobacco. Both the two events of institutional changes did not affect ramie production. Even though all crops were rice inelastic, crop prices played important roles in farmers' crop decision except rice. The lagged area as the proxy for self-sufficiency and production trend had significant effect to farmers' crop decision. Cross-price effect and the role of price and yield risks were not significant in this analysis.

Farmers in Hunan were responsive to price changes. However, due to biophysical constraints and government procurement program, the response of rice planted area to price was minimal. To reduce rice overstocking, modification of the government procurement policy would be required. For other crops price policy could be employed to adjust their planted areas. Appropriate price stabilization measures might also be considered to alleviate price and income fluctuations.

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