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    China Business
     Feb 21, 2008
China tightens grip on grain
By Olivia Chung

HONG KONG - China has rung the alarm bell over potential threats to its grain security, scrapping export rebates and imposing tariffs and quotas on sales of its farm products overseas, after the fourth successive year that increased harvests have failed to meet demand.

The country's output of grain, including rice, wheat, corn and soybean, rose 3.5 million tons, or 0.7%, last year to more than 500 million tons, continuing a trend of improved harvests that has run since 2004, according to Ministry of Agriculture figures.

Still, a Politburo meeting presided over by President Hu Jintao in December rang the alarm bell about threats to the country’s grain security, saying the agricultural and rural sectors face new

challenges and problems, said a report by Xinhua News Agency without elaboration. Much work was required to improve productivity and guarantee the supply of farm produce, the meeting agreed, according to the report.

The 2007 grain output of 501.5 million tons, though an improvement on the year before, still fell short of demand, the Shanghai Daily reported a few days after the meeting, citing Minister of Agriculture Sun Zhengcai. Grain supply per capita dropped to 378 kilograms last year from 412 kg in 1996, Sun was reported as saying.

The country consumed 517 million tons of grain last year, amid an output shortage of corn and soybeans, the State Grain Administration figures show.

The grain harvest is still short of the 512 million tons milestone reached in 1998 as a food surplus and stored output making farmers reluctant to grow more. The result was a rapid decrease in the planted area and a downward trend in grain output to about 430 million tons in 2003. Output then picked up by 38.8 million tons to 469.5 million tons in 2004 as the government offered direct subsidies for grain production and cut and made exemptions to agricultural tax.

The alarm about possible grain shortages comes as the government is increasingly concerned about the country's soaring inflation rate. The consumer price index (CPI), the main gauge of inflation, jumped 4.8% last year, more than triple the 1.5% rate in 2006, touching an 11-year high of 6.9% in November before slowing to 6.5% in December.

Behind the November increase was an 18.2% jump in food prices, led by a 56% surge in the cost of pork and a 38.8% jump in overall meat and poultry prices. The grain price was up 6.6% year on year, the National Bureau of Statistics (NBS) said.

Higher global grain prices, fed by a severe drought in major wheat producer Australia, are helping to drive up prices in China, economists say. Wheat prices increased 127% in the past year, according to the futures price at the Chicago Board of Trade. The industrial use of processed corn, a poultry feed, is also having an impact, the economists say.

China, which has to feed a fifth of the world’s population with less than one-tenth of global farmland, according to Shanghai Daily, nevertheless has been increasing its exports of agricultural products. The country's exports of corn jumped 85.3% to 4.87 million tons in the first 11 months of 2007 compared with the year-earlier period, while its overseas sales of soybeans rose 23.8% to 400,000 tons from the previous year. Exports of rice rose 5.8% to 1.13 million tons and wheat exports surged 206.51% to 1.85 million tons.

In a move to encourage producers to sell at home and ensure domestic supplies of farm produce, the government in December scrapped a 13% export tax rebate on 84 categories of grain and grain products. China also imposed export tariffs ranging from 5% to 25% on 57 categories of major grains and powder products from January 1. Export quotas were also set on rice, corn and wheat powders to regulate overseas sales of milled grain flour.

"These measures show the government’s determination to ensure domestic supply and stabilize grain prices through taxation," An Tifu, an economist with the Beijing-based Renmin University of China, said.

Even so, these policies alone are unlikely to check increases in grain prices because of global factors such as surging energy prices, he said, calling for more incentives for farmers to increase their production.

As the country's recent severe snowstorms - the worst in the country for more than 50 years according to some reports - natural disasters are a constant threat to China's agriculture output, on top of other challenges such as shrinking cropland and a drift of increasing numbers of farmers to towns and cities frequently in the search for better paying jobs.

Natural disasters in the first nine months of 2007 resulted in a loss of 44.5 million tons of grain, according to the Ministry of Agriculture. Since then, a month of snow and ice storms beginning January 10, killed 69 million head of livestock and destroyed nearly 62 million acres of farmland, state media reported.

Jiang Yong, a researcher with China Institute of Contemporary International Relations, said planting acreage has dwindled. The amount of arable land declined 4.6 million mu (about 700,000 acres) last year to 1.827 billion mu, according to Ministry of Land and Resources data.

Jiang also attributed part of the increasing threat to grain security to the government’s failure to impose import quotas on soya. He said international companies control more than 40% of China’s soya processing industry and 90% of the country's soya imports, citing agribusiness giants such as Illinois-based Archer Daniels Midland Company (ADM), one of the world's largest agricultural processors of soybeans, corn, wheat and cocoa, New York-headquartered Bunge Ltd, Minnesota-based Cargill and French agriculture and energy giant Louis Dreyfus.

Jiang said the increasing food prices and worsening inflation would make the lives of poor people much more difficult. "The impact of higher consumer prices must be bigger upon the poor than the high-income or rich people in China," he said.

The average annual income of a farmer is expected to increase 7% this year to 4,000 yuan (US$558), helped by higher food prices, increasing numbers of rural migrant workers and more government subsidies, according to Xinhua News Agency. That still falls short of the more than 10,000 yuan per person for urban residents.

Proposals that China solve the insufficient domestic grain supply by using its increasing foreign exchange reserves, which rose 43.3% last year to US$1.53 trillion, to buy on the international market were not the answer, Jiang said. This would make the country increasingly reliant on imports and put upward pressure on grain prices and lower price expectations in the domestic market.

"If increasing imports could solve the insufficient domestic supply of grain, the stampede caused by Carrefour's sale of discounted oil would not have happened," he said, referring to a tragedy last November in which three people died and 31 others were injured, after an outlet of hypermarket chain Carrefour in Chongqing offered cut prices on cooking oil by 11.5 yuan from the usual price of 51.4 yuan.

Olivia Chung is a senior Asia Times Online reporter based in Hong Kong.

(Copyright 2008 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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