January 28, 2011

 

China's wheat may avert drought risks

 

A drought affecting Chinese wheat-growing areas may not damage the crop because most areas have had enough rain and more is forecast next month, experts said.

 

Global fears of food inflation and tight supply have helped push up wheat prices, with US futures reaching a 29-month high on Thursday (Jan 27).

 

But China, the world's largest consumer and producer, could still see a bumper harvest of winter wheat, which makes up 90% of its total wheat crop, if there is enough rain or irrigation from late February, according to China's Ministry of Agriculture.

 

China's winter wheat areas in the north are frequently hit by drought and this year's situation is less serious than in 2008/2009 when China declared an emergency over the drought in parts of the same areas, including Henan, the top wheat area.

 

About 20% of wheat areas still have no access to irrigation or were not watered before winter, which could reduce the harvest if the drought runs beyond late February or March, when wheat emerges from dormancy, experts said.

 

Rainfall was expected for mid- and late February, but it may not be enough and farmers would still need to water their crops.

 

If the situation is still serious from late February, top government leaders are likely to order an all-out anti-drought effort which may avert a sharp production fall, according to analysts. More financial aid and subsidies are also likely as incentives to encourage local governments and farmers to water crops.

 

Last weekend Premier Wen Jiabao promised farmers could expect higher wheat prices this year. However, it was not clear if he was referring to market prices or the government's own minimum purchase price, which is normally far below the market.

 

The State Council or the cabinet agreed Thursday that an additional RMB2.2 billion (US$334.3 million) will be allocated to fight drought and farmers in the six drought-hit wheat areas would be subsidised with RMB10 (US$1.52) per mu (equivalent to 0.06 hactare) to help offset the costs of watering their crop.

 

Areas hit by drought so far in the year totalled about four million hectares, lower than nine million hectares during the same period in 2009.

 

Wheat seedlings were in a better condition this year than in 2008/2009, but not all areas have water supply and not all farmers are willing to water the crop, as wheat price rises have lagged far behind industry products," analysts said.

 

If the drought continues until March or April, 10-15% of production losses may be possible, equivalent to about 8-9 million tonnes, they estimated.

 

However, ample government and commercial stocks - totalling about 80 million tonnes - are enough to meet domestic needs.

 

"Wheat imports only account a small part of domestic consumption. China's production would still be self-sufficient," experts added.

 

China, the world's largest wheat grower and consumer, imported 36% more wheat in 2010 or at 1.2 million tonnes, accounting for only 1% of its domestic production.

 

Its largest imports since 2000 were in 2004/2005 at about 10 million tonnes due to falling acreage in 2003.