China wants food first, not
fuel By Antoaneta Bezlova
BEIJING - A customary Chinese greeting
from the years of rations and shortages - "Have
you eaten yet?" - is being jokingly resurrected as
the public watches the prices of key staples,
particularly pork, soaring by the day.
Chinese economic minders, however, are not
amused. Worried about social instability fueled by
inflation, they have been mulling over whether to
steady prices by using the state strategic reserve
of
hundreds of thousands of live pigs kept at special
farms for contingencies.
Disturbingly,
this is the second time in seven months that the
Chinese leadership has had to resort to the
country's strategic reserves to stave off
politically dangerous increases in food prices. In
December, Beijing ordered the auctioning of some
of the state wheat reserves to halt the rise in
crops prices and prevent panic among the public.
"Almost every inflationary crisis in the
past 20 years has begun with an increase in food
prices," noted Xia Yeliang, professor of economics
at Peking University. "Historically Chinese people
have always regarded food as their first
necessity. For people of middle age and the
elderly, the memories of most recent times when
food was lacking still endure."
The last
big famine China experienced - arguably the
greatest in human history - during the disastrous
Great Leap Forward experiment with communist
industrialization in the late 1950s, killed up to
30 million people. Since then, ensuring food
sufficiency for the country's population of 1.3
billion has been regarded by Chinese leaders as a
matter of national security.
Current hikes
in both grain and pork prices are blamed on the
same culprit - the ethanol industry, whose
explosive growth has been gobbling up a growing
share of China's corn (maize) harvest
traditionally preserved for food and animal feed.
Having promoted the production of the
environmentally friendly gasoline additive for
years, Chinese economic planners now fear the
sector has grown too much and too quickly,
presenting them with an uncomfortable dilemma of
choosing between the country's green agenda and
its national food security.
Leadership
fears were clearly manifested late last month when
Premier Wen Jiabao visited a meat market in Xian,
central China, to check the prices of pork. He
called on local officials to pay pig breeders to
increase production and tried to reassure the
public that the situation was under control. As of
mid-May, prices of pork were up by 43% compared
with the same period last year, said the
Agriculture Ministry.
Soaring pork prices
have been partly blamed on outbreaks of contagious
pig disease, which swept 22 Chinese provinces,
killing 18,000 pigs in the first five months of
the year and disrupting the pig industry. About a
million pigs died from the disease last year.
Yet the root of the problem, according to
officials, is not the disease. "The main reason is
the big price increases of animal feed that began
last June," Jia Youling, director of the
Veterinary Bureau affiliated with the ministry,
said at a press briefing this week.
Pig
feed, which is made mostly of corn, simply
followed increases in corn prices. Prices of the
commodity have risen by up to 30% since the latter
half of last year, according to the ministry.
What is more, producers have ignored a
government limit on converting about 3 million
tonnes of corn into ethanol a year and used up to
16 million tonnes of the crop in 2006, the
ministry said in April.
China has been
encouraging the production of biofuel such as
ethanol and bio-diesel from renewable resources to
satisfy the country's voracious appetite for
energy and reduce its growing dependence on
imported petroleum.
Biofuel is also touted
as green panacea for environmental problems caused
by oil. Chinese planners have made the development
of green energies a key priority in the country's
five-year economic plan. By 2020 they want
renewable energy to account for 15% of the
country's total supply.
While a relative
latecomer to the biofuel market, in the past two
years China has grown to be the world's
third-largest producer after Brazil and the United
States.
The National Development and
Reform Commission (NDRC), China's top planning
body, reported in December that the country's
ethanol capacity had reached 10 million tonnes, or
10 times the amount approved for the four
government facilities in Jilin, Heilongjiang,
Anhui and Henan provinces.
The excess
amount has been coming from a cluster of small,
unlicensed producers, who sell their production to
officially approved mills or oil refineries.
Industry insiders say that just Jilin, one of the
nine designated provinces where ethanol is sold,
has more than 400 ethanol mills, all of them
producing the fuel from corn.
Fearing that
the explosive growth of the ethanol industry was
making a serious dent in the country's grain
reserves, the central government stopped approving
new corn-based ethanol plants in December. This
month it took another step, announcing that it
would stop the production of ethanol from corn
altogether.
Xiong Bilin, a senior official
with the NDRC, said the State Council, China's
cabinet, has decided ethanol should be developed
without occupying arable land, large-scale
consumption of grain, or damage to the
environment.
Despite three straight years
of bumper harvests, Chinese planners are still
worried that fast-shrinking farmland could affect
grain supply in the near future. Arable land is
said to have shrunk by 8 million hectares between
1999 and 2005.
"The country will not
approve new projects of food-based ethanol," Xiong
told a development forum in Beijing last week.
"The current four [state] plants engaged in making
ethanol from corn are urged to switch to new
sources."
This, however, might not see the
end of corn-based ethanol production in the
country. Chinese press reports say domestic corn
processors are rapidly expanding their capacities
to resume ethanol production when the government
relaxes its stance.
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