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1. Hubei Rural Development Research Center of Yangtze University, Jingzhou 434023, China; 2. Hubei Collaborative Innovation Center for Grain Industry of Yangtze University, Jingzhou, 434025, China

AbstractIn recent years, the constant increase in the purchase price of maize has caused maize to squeeze wheat planting area, affecting the wheat supply and price in the market, and posing a threat to the safety of wheat rations. In order to further study the price fluctuations between maize and wheat, based on the quarterly data of the 2007-2017 maize and wheat production price index, this paper established a VAR model and found that there is a long-term equilibrium relationship between the price of maize and wheat, and maize price fluctuation was the Granger cause of wheat price fluctuation, wheat price fluctuation was not the Granger cause of maize price fluctuation. Based on the above conclusions, it came up with recommendations for the optimization of grain planting structure, and protection of food security is of great significance.

Key wordsMaize price fluctuations, Wheat price fluctuations, Empirical study

1 Introduction

Under the protection of the state temporary maize storage policy for up to nine years, the proportion of maize planting in China continued to rise, domestic maize stocks were in excess, which caused a certain subsidy burden on the state finance and squeezed the planting area of other crops. It will exert a substitution effect on the price of wheat, thus affecting the safety of wheat and other crops, and it is not conducive to the structural adjustment of the supply side of agricultural products. Maize and wheat, as the major grain varieties in China, have similarities in the uses and distribution areas, and there are certain substitution effects and complementary effects. Under the background of increasing marketization of food prices, the relationship between the price of maize and wheat will be closer and more complex, the analysis of the relationship between fluctuations of maize price and wheat price has important guiding significance for grasping the acquisition and subsidy policies in the maize market, stabilizing wheat prices, and optimizing the planting structure of maize and wheat. Existing studies mainly focused on the impact of grain planting and consumption structure on food security, but there are relatively few studies about the relationship between grain prices and about explanations of the causes of price fluctuations. Therefore, studying the relationship between maize price and wheat price fluctuations will have great significance. It is expected to provide a certain theoretical basis and reference for farmers to adjust planting structure and for government to formulate practical policies.

2 Analysis of the relationship between the fluctuations of maize price and wheat price

2.1 Basic situation of the relationship between maize price and wheat price in recent years

"Food is foremost important thing for the people", and the fluctuation of food price is closely related to the people’s life happiness index. In 2007, China started implementing grain purchasing and storage policies. We selected the wheat and maize production price index from the first quarter of 2007 to the fourth quarter of 2017 to analyze the price fluctuations of the maize and wheat (Fig. 1).

Fig. 1 Price fluctuations of wheat and maize in China in 2007-2017

As can be seen from Fig. 1, from the first quarter of 2007 to the first quarter of 2014, the wheat price index declined first and then rose. It declined below 100 for the first time in the third quarter of 2015 and declined to a minimum of 91.4 in the second quarter of 2016, and continued to rise thereafter. The maize price index began to decline rapidly from the first quarter of 2007. It began to rise rapidly in the first quarter of 2009, reaching a maximum of 119.4 in the second quarter of 2010, after which it showed an overall slow decline. In general, the volatility of China’s maize production price index is significantly greater than the price fluctuation of wheat.

2.2 Basic information of the relationship between maize price and wheat cultivation

Since the data for 2017 has not yet been issued, we selected data on the proportion of wheat and maize in the crop sown area in 2007-2016, and analyzed the changes in the planting structure of the two since the implementation of the grain temporary storage policy (Fig. 2).

Fig. 2 The sown area of wheat and maize in China in 2007-2017

It can be seen from Fig. 2 that since 2007, the proportion of wheat in China’s crop sown area remained at about 15%, and this period has maintained a sustained and stable downward trend, with a small decline of less than 1%. Compared with wheat, maize accounted for a relatively large proportion of the sown area of crops. Since 2007, the proportion of maize planting area has continued to rise, reaching a maximum of 22.9% in 2015, increasing by 3.7 percentage points, and subsequent performance. A downward trend is correlated with the cancellation of the temporary maize storage policy in 2016. It can be seen that the maize planting area is greatly affected by the national policy guidance.

3 Empirical analysis of the relationship between maize price and wheat price fluctuations

3.1 Selection and processing of data

In order to safeguard the interests of farmers, China has implemented a temporary grain purchasing and storage policy in the main grain producing areas in 2007. Therefore, we selected the quarterly data of maize and wheat production price index from 2007 to 2017 to conduct empirical analysis, and quantitatively tested the price fluctuation relationship between the maize and wheat. The data in this paper were collected from the EPS data platform China Macroeconomic Database.

3.2 Empirical analysis

3.2.1Correlation analysis. Generally, before conducting empirical analysis, a correlation test should be conducted. Only if there is a high correlation between variables, will the further empirical analysis make sense. Through the correlation test between the maize production price index (Y) and the wheat production price index (X), we obtained the following results (Table 1).

Table 1 Correlation analysis of wheat and maize

It can be seen from Table 1 that the correlation coefficient between maize and wheat is 0.625 732, which is between 0.5 and 0.8, indicating that the maize production price index is significantly correlate with the wheat production price index. Then the following tests can be carried out.

3.2.2Unit root test. Since the wheat and maize price index are all time-series data and the time series of economic variables are mostly unstable, it is necessary to determine the order of the two variables before further analysis. Therefore, the ADF unit root test is used to verify the stability of the two variables and the test results are listed in Table 2.

Table 2 ADF test for wheat and maize

The test results in Table 2 show that thePvalues of maize and wheat are all greater than 0.5, indicating that the time series of wheat and maize are unstable under the 5% confidence level, but the first-order difference between the two is stable,i.e, both obey integrated of order one, namely I (1).

3.2.3Granger causality test. According to the correlation test, we can get the relationship between the two variables, and whether the relationship is one-way or two-way, so we used the Granger causality test to test the relationship between the two variables of wheat and maize, the results obtained are shown in Table 3.

Table 3 Granger causality test of wheat and maize

From the test results in Table 3, it can be seen that the Granger cause of maize not being wheat rejects the original hypothesis at a confidence level of 1%, indicating that the price of maize has a Granger causal relationship with wheat prices. The probability of the Granger’s reason in the lag phase 2 is far greater than 5%, indicating that the price of wheat on Granger’s price is not significant.

3.2.4Johansen cointegration test. The unit root test results show that the first-order difference sequence of wheat and maize is a stationary sequence. Therefore, these two variables are first-order single integer sequences and conform to the cointegration test precondition. Therefore, the Johansen cointegration test can be used to check whether there is a long-term and stable equilibrium relationship between the two, and the test results are shown in Table 4.

Table 4 Johansen cointegration test for wheat and maize

TheP-values corresponding to the maximum statistics and trace statistics given in Table 4 are less than 0.05, indicating that the original hypothesis was rejected at the 5% level of significance, and that there was a long-term equilibrium-stability relationship between the two groups of variables.

The least squares method was used to calculate the relationship between the two groups of variables, and the estimated equation for the cointegration relationship was:

LNX= 0.287 368LNY+ 3.316 765

(1)

t= (5.198 730)

From Formula (1), we can see that there is a significant positive correlation between maize price and wheat price. In the long run, for every 1% fluctuation of the maize production price, the wheat price will fluctuate by 0.29% in the same direction.

3.3 Conclusions and implications

We used the Granger causality test and Johansen cointegration test to empirically analyze the relationship between China’s maize price and wheat price fluctuations, and arrived at the following conclusions:

(i) There is a long-term equilibrium relationship between the price of maize and wheat. If the price of maize fluctuates by 1%, the price of wheat will fluctuate by 0.29% in the same direction. Therefore, for maize stocks and adjusting the purchase price of maize, we must pay attention to fluctuations in the price of maize, and the impact of wheat and other agricultural products.

(ii) There is a one-way Granger causality between maize price and wheat price, that is, the price fluctuation of maize is the Granger cause of wheat price fluctuation, but the price fluctuation of wheat is not the Granger cause of the price fluctuation of maize. Reducing the maize planting area and the price of maize by a certain margin is an important measure to increase the proportion of wheat planting area and ensure the absolute safety of rations.

4 Countermeasures and recommendations

4.1 Optimizing the maize planting structure

It is recommended to take maize as the breakthrough to deepen the reform of the food price formation mechanism, continue to promote the reform of the agricultural supply front, coordinate the development of the planting structure of grain and feed, and use the market-oriented demand in the process of destocking and maize planting. Besides, it is necessary to grasp the timing and rhythm of the temporary maize storage, adjust the planting structure of maize, stabilize the planting yield of high-quality maize in high-quality main producing areas, develop silage maize, reduce the planting scale of non-dominant producing areas, reduce the proportion of grain and maize, and increase the cultivation of high-quality rice and strong gluten wheat, to ensure absolutely safe rations.

4.2 Deepening the reform of maize price formation mechanism

It is recommended to continue to deepen the reform of the maize price formation mechanism, improve and popularize the policy of supplementing the segregation of maize prices, improve the producer subsidy system, expand the maize processing and sales channels, increase market demands, and strengthen the "invisible hand" on the role of price formation. Besides, it is recommended to improve the structure of maize futures market, establish relevant market sentiment indexes, and monitor the fluctuations in maize price in the international market. Also, it is recommended to continue to promote the pilot of food price insurance and use market insurance mechanisms to diversify the impact of maize price fluctuations, improve the maize price formation mechanism, and ensure food security.

4.3 Actively promoting the fallow rotation of maize

While we want prosperity and wealth, we also want clear waters and green mountains. In fact, clear waters and green mountains can bring us prosperity and wealth. Thus, it is required to stress the importance of the coordinated development. Specifically, it is recommended to combine the concept of food security with the concept of green and coordinated development, continue to popularize the "one main and four auxiliary" rotation model, implement the crop rotation of maize and other grains and beans and forage oil crops to raise the species and improve soil fertility, optimize the supply structure of agricultural products to meet the diversified needs of the market, and improve the quality of agricultural products.

4.4 Reducing the cost of maize production

The increase in the cost of agricultural production in recent years has caused China’s maize and other grain purchase prices to continue to rise, which has adversely affected the prices of wheat and other food products and planting structure. Therefore, the use of biotechnology is an important way to promote the research and development of high-quality, high-yield, low-cost maize varieties and strengthen the construction of rural public services, accordingly reduce the cost of maize production and lower the purchase price of maize. In addition, we must also make innovation in the production technology and production patterns of wheat and other crops, guide farmers to adjust their planting structure, and increase the proportion of wheat and rice cultivation.