Curbing inflation should not hurt farmers' livelihoods
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In the midst of food price hikes, curbing inflation has become the top priority on the government's agenda. According to an official source, hot money, speculation, collusion and market manipulation have contributed greatly to this round of inflation.
On Thursday, the National Development and Reform Commission confirmed that the average price of major agriculture output had fallen by 10 percent since November 11. Apparently, stringent regulations aimed at reigning in food prices are having an effect.
However, it is worthwhile to understand the policy's ramifications for farmers, whose income must be synchronized with market prices.
So far, it is unclear whether farmers are really better off while food prices rise. The increasing cost of fertilizer and seeds may erode their margins.
In fact, farmers' profits as a result of rising prices might be trivial. Individual farmers lack bargaining power when facing wholesalers and have an information deficit in macro market data such as total supply, demand, spot prices and future prices.
In contrast, wholesalers who dominate the pivotal juncture along the distribution chain may reap enormous profits. People expect a surgical policy that will bring down prices and shrink the profits of unscrupulous speculators without harming the interests of farmers.
Gaining the desired results could be difficult. It is hard for farmers to change their business models effortlessly at a time of quickly changing policies, while speculators may adjust their capital allocation and minimize the impact, and wholesalers can take the lesson and return to prudence.
Farmers are the most vulnerable to price volatility. When agricultural prices soar, it releases a delusion that the fervor will continue, and farmers may have incentive to plant more. Sometimes it is the government's policy that pushes farmers to plant more to mitigate the supply shortage. After time many farmers are left with cheap or worthless crops and market gloom.
Apart from a more prudent policy to provide guidance and market predictions for farmers, there have to be mechanisms to help farmers cushion the risks brought on by price adjustments.
A mature futures exchange will help farmers hedge against price fluctuations.
Right now most farmers are not financially qualified to get into this market, which is also plagued by excessive speculation. It is urgent to curtail this speculation and lower the threshold.
Ultimately, price adjustments indicate redistribution. Battling inflation is justified for the sake of consumers, while it is equally important to bear in mind the welfare of farmers.
