Reform of agricultural prices policy

There were two important policies that contributed to agriculture's success from 1978 to 1984. The HRS was only one, though it was the more important. The other was the increase in state purchase prices for agricultural products. McMillan, Whalley and Zhu's (1989) study, for instance, suggests that 22 per cent of agricultural productivity growth was attributable to price increases.

Looking back at changes in state purchase prices over the past forty years, both the magnitude and frequency of price adjustments increased significantly in the post-reform period (table 4.1). In the pre-reform period, state prices for agricultural products were unchanged for many years. Prices for cotton, for instance, remained almost constant in the periods 1955–62, 1963–70 and, again, 1972–76. Oil crop prices exhibited a similar pattern. Prices for meat, sugar crops, poultry, eggs and tobacco were stagnant for twelve years after 1965, until economic reform. The story for grain prices was largely the same in the pre-reform period (figure 4.1).

Changes in state prices became more frequent and pronounced during the reform period. The first increases in purchase prices for agricultural products in 1979 marked the starting point of China's agricultural reform. Quota prices were increased by 20.9 per cent for grain, 23.9 per cent for oil crops, 17 per cent for cotton, 21.9 per cent for sugar crops and 24.3 per cent for hog meat (Huang 1993a). The average increase for the quota prices was 17.1 per cent. Premiums paid on above-quota delivery of grain and oil crops were raised from 30 per cent to 50 per cent above quota prices, and a 30 per cent bonus was introduced for above-quota delivery of cotton.