Understanding China's grain procurement policy from a perspective of optimization

This paper develops an optimization model to analyze the policy formulation under China's dual-track grain procurement system. By capturing the redistribution objective and the urban food security objective in a political preference function, we provide some rigorous explanations of three important aspects of China's grain policies: the choice of the dual-track procurement system over the lump-sum tax scheme as a means of extracting economic surpluses from the grain sector; the suppression of the procurement price to its minimum until the mid-1990s; and the switch from taxing to subsidizing grain production at end-1996. Our findings underscore the paramount importance of the urban food security objective behind the evolution of China's grain procurement policy, including the liberalization of the system in the 2000s.

Research Highlights►This paper uses a political preference function to analyze the policy formulation under China's dual-track grain procurement system. ►The optimization model justifies the choice of the dual-track procurement system over the lump-sum tax scheme to extract economic surpluses from the grain sector. ►The model explains the suppression of the procurement price to its minimum until the mid-1990s. ►The model also explains the switch from taxing to subsidizing grain production at end-1996. ►Our findings underscore the paramount importance of the urban food security objective behind the evolution of China's grain procurement policy.