DCE: Using Futures Market to Support Spot Agriculture
(A) To incorporate training of market knowledge including futures knowledge into modern farmer training programs and to provide market risk management education to farmers as well as small- and micro-size enterprises. We recommend to develop risk management training plans for farmers and agribusinesses and to be included in the rural training programs of the Ministry of Agriculture’s “12th Five-Year Plan”, to specify training missions for existing farmer training channels such as various levels of agricultural broadcast and television schools, farmers’ science and technology training centers and various levels of agricultural technology extension stations, to advance teaching and training of market knowledge for farmers with strategic and global perspectives, and to grow a new generation of farmers with “knowledge, skills and business acumen”.
(B) To launch pilot projects to support rural economic organizations and agricultural enterprises to use futures markets to hedge and to increase farmers’ income. At present, rural economic organizations and spot enterprises have to pay 25 percent income taxes on profits gained from futures hedges, and need to additionally pay 13 percent VAT upon physical delivery, and in addition, futures hedges are unable to obtain credit support. We propose to appropriately reduce income taxes on futures hedge gains by rural economic cooperative organizations and agricultural enterprises, and to provide credit support to rural economic cooperative organizations and agricultural enterprises in their legitimate hedging, under conditions of closed capital flows among the economic cooperative organizations or agricultural enterprises, futures companies and banks and guided by conventional practices of U.S. financial institutions to provide credit support for enterprises to hedge. Furthermore, we propose to explore novel modes and mechanism of subsidies, to study pilot projects of financial aids via “risk funds” to subsidize futures hedges for rural cooperative organizations, and so on.
(C) To intensify support for agricultural futures innovations and policy improvement, and to increase efficiency and service capabilities of the agricultural futures market. We need to accelerate the pace of innovations on futures products, to encourage and support listing more agricultural products, and to introduce agricultural products indexes and options etc in order to enhance market efficiency and to improve the price discovery and hedging mechanism of the futures market. At the same time, we should actively improve the market mechanism of listing agricultural products. On market regulations, we should also study and adopt differential regulatory policies and measures on the agricultural futures market, underscoring our fostering and support for the agricultural futures market.
(D) To optimize investor composition, to encourage relevant institutions to actively participate in servicing the agricultural industry, and to enhance the service capabilities of the futures market. We should provide policy guidance in training professional agricultural futures investors, such as exempting them from income taxes on investment gains in the agricultural futures market, in consistent with the securities investment funds temporarily exempted from income taxes on investment gains in the stock market. The agricultural futures market may be given priority in experimenting with futures investment funds, qualified foreign investors may be safely and steadily allowed to participate, and so on. Meanwhile, due to the high operating costs and low profit margin of agricultural futures, it is recommended that futures companies are condoned with corresponding tax relief when operating in the agricultural futures business to enhance futures intermediaries’ enthusiasm in expanding their operations in agricultural futures and services for the agricultural industry.