The phenomenon of “stronger paddy but weaker rice”, namely that the trend of paddy price going more stronger than the rice price often appeared in China’s rice market since 2008. Based on the purchasing price and wholesale price of the early indica paddy and early indica rice during 2008-2014, this paper analyzed the cause and impact of the “Stronger Paddy but Weaker Rice” issue. Results show that: 1) grain support and procurement policies, rising production costs, excessive capacity of China’s rice processors and impact of the cheap imported rice are the primary reasons for the “Stronger Paddy but Weaker Rice” issue; 2) The “Stronger Paddy but Weaker Rice” issue has great impacts on the comprehensive productive capacity of rice, the sustainable development of the rice processors, and the ecological environment; 3) Policy implication is that we should launch a pilot program on rice target price subsidy, slow down rapid rising costs, promote the transforming and upgrading rice processing industry, and pay more attention to the issue of domestic rice industry safety.