Liu Shinan

No procrastination in administrative moves

By Liu Shinan (China Daily)
Updated: 2011-05-09 07:58
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When analyzing the recent phenomenon whereby farmers suffered abnormally low purchase prices for their vegetables but urban residents did not see any significant drop in the market prices, experts and government officials all attributed the problem to "the high cost of logistics".

In a forum hosted by the National Development and Reform Commission (NDRC) last week on commodity prices, Wang Tongsan, a research professor of the Chinese Academy of Social Sciences, revealed that: "The cost of logistics make up a whopping 50 to 70 percent (of the final price)." Wu Xiaoqiu, a senior economist and official of the NDRC, said that the price of a farm product "is raised again and again by profit-seeking intermediate traders at different layers before reaching a high at the dinner table".

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At a press conference held the following day, Fu Ziying, vice minister of commerce, also mentioned the problem with the "logistics channels" and promised that his ministry will join the Ministry of Agriculture to take moves to "reduce the number of links in the flow of farm products and let farmers get the profits from the end price of farm produce".

Their remarks reminded me of a column I wrote almost two years ago on the same topic, in which I denounced the intermediate traders between the farmers and consumers for grabbing the largest part of the profits generated during the course of commodity flow.

Don't get me wrong. I am not implying how prognostic I was. The point I am trying to make is why the same question has remained unresolved for so long.

In fact, I was not the first to direct the blame at the intermediate traders. Before writing that column in 2009, I looked up official data to back up my assumption about the part the traders played in escalating the prices. I found that in as early as May 2008, the NDRC, the Ministry of Commerce and the Ministry of Agriculture had conducted an investigation into the profit distribution of agricultural products traveling from farm plots to market shelves. The investigation found that "in general, the profits made by the wholesale and retail links are excessively high" and "while farmers suffer from fluctuation in the prices of farm produce, the middle links enjoy relatively stable profit-earning".

In other words, the competent government departments had recognized the crux of the problem at least three years ago. Why did the problem remain unresolved during these years? What have the relevant authorities done to settle the problem? Or did they ever do anything to address it?

Of course, the problem is not as simple as a bug that you dislike and can get rid of right away. First, market rules should be respected. In a mature market economy, the logistics and commercial industries will improve or correct themselves through market selection, or competition.

Theoretically, the number of "intermediate links" between the producer and the customer will be reduced to an optimum level during the market selection. In reality, however, non-market factors usually interfere, especially in current China, where economic restructuring is constantly changing, where various conflicts of interest keep occurring and where so many unnatural, unexplainable or even inexplicable factors have or try to have their ways.

If the government cannot, or should not, intervene in market affairs, it can, and should, supervise and regulate different market players and crack down on all irregularities.

In the case of farm products flow, there are a slew of questions the government needs to find answers to. For example, does there exist some form of monopoly by established interests in the wholesale sector? Are these companies protected by some local officials in deals involving corruption, which adds to the cost of logistics? Is collection of highway tolls exercised on a reasonable basis? When the international oil price rises, have the relevant sectors taken the opportunity to raise the prices of their own products?

It is certainly not an easy job to work out solutions to all these questions. Given the difficulties, we may find it understandable for Minister of Commerce Chen Deming to say in March 2008 that "reducing the cost of logistics is something the Ministry of Commerce needs to do over a fairly long period of time".

But I do hope that "a fairly long period of time" won't carry on too long, after all, three years is not a short period of time.

The author is assistant editor-in-chief of China Daily. He can be reached at

(China Daily 05/09/2011 page8)