Impact of Agricultural Subsidy Policies on Grain Prices in China

Abstract

On the background of extensive government interventions in grain markets and the direct payment schemes of subsidy policies, the subsidy policies may hardly show negative impacts on grain prices through increasing grain supply. In this study, we investigate the relationship between China's agricultural subsidy policies and market prices for grain and construct autoregressive distributed lag (ARDL) models to evaluate the impacts of agricultural subsidies on grain prices. The estimated results indicate that the subsidy variable is highly significant in the grain price model for each grain type, while the general impacts of subsidies are positive. This suggests that agricultural subsidy policies contribute to increases in market prices for grain. Statistically, the overall elasticities of subsidies to the prices of rice, wheat, and corn are 0.077, 0.094, and 0.180, respectively. Both the theoretical and empirical analyses suggest that these subsidies show positive rather than negative impacts on grain market prices under the current situations in China.