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The Emergence of Agricultural Commodity Markets in China

Apr 2004
Stanford King Center on Global Development Working Paper
By  Jikun Huang, Scott Rozelle

In this paper, we have shown in a number of ways the steady improvement in agricultural commodity markets that have occurred in China during the past decade. Regardless of whether we employ descriptive statistics or more formal techniques, our results are consistent with the emergence of integrated markets for rice, maize and soybeans. Transaction costs also appear to have continued to fall. These advances have come despite recurring attempts to slow down or halt the operation of markets during this time. The erosion in the power of the state to control agricultural markets by traditional command and control methods has been largely due to the enfranchisement of millions of individuals to trade commodities. Our results suggest that if the nation's leaders want to control markets in the future they will have to devise new ways to intervene—probably by using indirect methods instead of trying to suppress traders. One of the real lessons of our work is that Chinese leaders, domestic and foreign traders, and other observers all should recognize that rural China now has one of the world's least distorted and most integrated agricultural markets. Of course, for poverty alleviation and other purposes this can be a two-edged sword. Nevertheless, if policy makers make productive investments and promulgate sound policies, well-functioning markets enable those involved in agricultural production and consumption activities to benefit and facilitate the implementation of policies with minimal distortion.