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Grain Price Hikes Do not Indicate Grain Supply Shortage

Nationwide grain price hikes are not a result of a grain supply shortage in China, but a normal market response to an anticipated grain production decrease this year, senior Chinese agricultural experts and officials said.

A fledging market economy in China has contributed to the price increase of grains which was under government control over the past decades and became free to be traded in recent years, according to He Kaiyin, a field researcher and senior advisor to the Anhui provincial government.

The researcher said grain prices are returning to their actual value based on demand-supply fluctuations on a freer market, in contrast to undervalued prices resulting from over production under a planned economy.

Agricultural experts estimated that China's 2003 grain production will fall below 450 billion kilograms, a 10-year record low, and the nation's per capita grain reserve will fall below 350 kilograms, the lowest in 20 years.

The historic plunge was caused by natural disasters in major grain produce areas this year, a shrinking acreage of farmland in recent years and the ongoing agricultural restructuring, according to experts.

In addition, the rising grain prices in the global market this year also sparked fears about China's grain production. Last year grain yields in Australia, Canada and the United States dropped sharply. As a result, prices of wheat and corn rose 17.6 percent and 11.5 percent receptively on international markets. European countries reported a reduction too this year. The Food and Agriculture Organization of the United Nations lowered world grain reserves recently, declaring a historic low.

As a result of domestic and international negative reports, prices of grain and other staple agricultural products in China have been on remarkable rise for the first time in six years. In Anhui, a major rice produce province in east China, rice purchasing prices went up 10 percent. In the northeastern province of Heilongjiang, wheat prices have soared by 32 percent compared with last year.

In Hebei Province, which surrounds Beijing, corn prices rose by50 yuan (US$6) to 70 yuan (US$8.4) per ton. Vegetable oil, feed, poultry and livestock prices also increased by varying rates.

But China will not likely face a grain crisis, according to HanJun, director of the agricultural department of the Development and Research Center (DRC), a government-funded think-tank to the State Council, the Chinese cabinet.

He noted that since 1995, China had a bountiful harvest for four consecutive years and now the country has 500 billion kilograms of grain reserves, equal to a year's total output.

The director said China's food safety will not be in danger as food consumption is generally stable and will not jump sharply.

"Although grain cultivation areas have kept decreasing for years, production means have been improved and so China's overall grain production capacity was not affected," Han said.

Vice Agriculture Minister Zhang Baowen said China has maintained a "basic balance" between supply and demand for major agricultural products since the late 1990s. Early this week he told the China Agricultural High-Tech Forum 2003 in Xi'an, capital of northwest China's Shaanxi Province, that "China's grain reserve is abundant and the grain market remains stable."

No scare buying was reported in any cities across the country. Wu Meng, a local in Shijiazhuang, the capital of Hebei, said, "Grain prices going up won't have a severe impact on my life. You know, we have had a falling ratio of food expenditure in total expenses."

Zhang Yu is a housewife in Hefei, the capital of Anhui Province, and she visits food and vegetable markets every day. She said grain was no longer the staple food of Chinese who now eat far less grain than before and consume more eggs and meat.

According to the vice minister, Chinese people "have greatly improved their diet and receive better nutrition."

The statistics of the Ministry of Agriculture show the proportion of farm production in China's agriculture has kept falling since 1998, dropping from 58 percent to the current 55.2 percent while animal husbandry and fishery has risen to 30.4 percent and 10.8 percent respectively, from 28.6 percent and 9.9 percent in 1998.

Rising meat consumption has reduced people's direct consumption of grain, and consequently, its production. And through expanded cultivation of grass, China successfully changed the situation of a shortage of certain grain products used to make fodder, and assured a stable supply of meat.

Some hold that it will remain a continuing challenge for the Chinese government to provide enough food for its 1.3 billion population, especially its 900 million peasants. He Kaiyin, the DRC researcher, said even if the Chinese population reached 1.6 billion, the country has no question to feed its all people.

In the mid 1990s, China lifted its grain production through use of high-yield species, improving water conservancy facilities and intensive and meticulous farming. Its grain output hit historic high in 1998, or exceeding 500 billion kg.

Years of abundant grain supply led to declining prices and declining cultivation and, therefore, yields. Farmers lost initiatives and young farmers flocked into cities for jobs where they would be paid more than they earned for farming. A lot of farmland was abandoned and left to go out of cultivation.

The Chinese government initiated the reforms to reduce fees and taxes that farmers should pay. It also issued preferential policies, promising to buy farmers' grain produce at a higher price than the market price when it falls below a limit. All these measures, however, seemed ineffective.

He Kaiyin said current grain price hikes is good news for farmers and China's grain market as a whole. Farmers are regaining enthusiasm in grain production and state-run grain procurement stations see orders flood in.

Meanwhile, the government does not slack off on food security. In a latest work meeting on agriculture and grain production, Premier Wen Jiabao vowed to implement the most strict systems to protect farmland, give more support to major grain production bases and farmers and promote the development of agricultural technologies, to ensure the nation's food safety.

The Ministry of Agriculture said the country will hopefully resume grain production back to 460 billion kg next year, and raise yield by 75 kg per hectare.

According to Zhang Wenbao, the vice minister, China would promote production capacity in its major grain production belts over the next five years and set up more grain production bases in the central regions like Hubei, Hunan and Henan provinces.

Zhang acknowledged the shrink in area of cultivated land and rapid increase of population still pose a challenge to China's agricultural industry as the grain demand keeps soaring amid fast economic growth.

"China's agriculture is now undergoing strategic restructuring," he said. "It is the central government's top priority to increase peasants' income and restructure the agricultural industry."

Yu Jingzhong, an agricultural expert and vice director of the Standing Committee of the People's Congress of Jiangsu Province, suggested China should set up a food safety early-warning system and a response scheme in case any emergencies.

(Xinhua News Agency November 8, 2003)

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