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Bumper harvest may not bring down prices

By Yu Tianyu (China Daily)
Updated: 2008-07-02 09:23

A bumper summer harvest would not help to ease the growth of the consumer price index (CPI) in China. Domestic grain prices are expected to decline slightly in the short term due to the bumper summer harvest supply, but it is likely to rebound shortly after, said Jiang Xingchun, an analyst of Guoyuan Securities.

China's grain industry can only satisfy its domestic demands, as the country's grain reserves have been stable without any noticeable increases in the past years, Jiang said.

Although an improvement in people's living conditions has caused changes in food consumption patterns, the amount of grain used for feed has been gradually increasing, he said.

An increase in consumption of other agricultural products, such as pork, has intensified the demand of grain for feed, he added.

Grain prices are greatly linked to the price of many other agricultural products. For instance when pork prices go up again, it will drive the price of grain, Jiang said.

Meanwhile, prices of some products, such as edible oil and white sugar, which China largely depends on imports from overseas, will remain high, as the world's energy price continues to soar, Jiang added. "Inflationary pressures are still on China's policy makers as the government has set the target of 4.8 percent for this year's CPI," he said.

Summer crops, mainly cereals of rice and wheat, constitute 23 percent of the country's annual grain harvest. It is crucial to the next step of grain production as farmers' enthusiasm depends on their incomes during the summer harvest, said Li Ninghui, a researcher with the Chinese Academy of Agricultural Sciences.

In China, about 10 percent profit growth in grain planting will drive the country's total grain production up by 3 percent, according to Li Changping, an expert of rural issues at Hebei University.

The protective grain purchase price and grain subsidy have been the two effective measures for the Chinese government to encourage farmers to grow grain, said Zeng Liying, deputy chief of State Administration of Grain.

In the beginning of 2008, the State Council approved 95.063 billion yuan ($13.8 billion) in subsidies for farmers. Those who grew wheat and oilseeds each received 1 billion yuan.

But for Liu Tieqiang, a farmer living at Babao county of Liaoning province, who is growing 2.7 hectares of paddies and 0.7 hectares of corn, a 20,000 annual net income would not be satisfactory as he is concerned over the climbing cost of agricultural facilities, fertilizer and seeds.

He said the subsidy for individuals is limited, as the agricultural costs have increased by nearly 50 percent.

Li of the Chinese Academy of Agricultural Sciences said that the grain subsidy has very few effects on improving farmers' income and farmers growing grain gain less than those who grow economic crops.

"Sometimes, they abandon planting grain then turn to growing vegetables, fruit or cotton," he said.

Soaring oil prices have caused the price of agricultural equipment to rise, which has diminished incomes for farmers and grain processors, he added.

Due to the rising price of fertilizer, the agricultural department at all levels has made great efforts to promote the Soil Test for Recommendation Fertilization Project, which refers to fertilize crops after tests on shortage of the soil's components.

The project has been adopted in 8 million hectares of crops across China, reducing use of fertilizers by 300,000 tons, and increasing yield per hectare by 8 percent.

Also, the technology can save 645 yuan per hectare, and over 5 billion yuan in total.

In a bid to ensure the country's food safety and grain reserves, the government has worked out compulsory requirements on a planting area and varieties of grain.

Since the price of wheat on the international market skyrocketed by 112 percent last year, while that of corn rose by 47 percent, China's food safety still needs much attention, said Jiang.

Although, China has abundant grain reserves standing at 150 to 200 million tons, some agricultural products, especially oil crops, should be given more policy preference and investments, Li said.

China's agricultural authority has expressed their confidence in the summer harvest this year, as more than 80 percent of the harvesting work across the country has been completed.

China's summer grain yield per unit will hit a record high and the total amount will increase in the fifth year if no serious disastrous weather occurs, according to Sun Zhengcai, minister of Agriculture.