March 24, 2009

China is likely to face a glut of farm produce in 2008, which may pull down prices in the future, said experts, predicting that China's grain output is likely to decline 3-4 percent this year.

The country's grain output has increased for five consecutive years to 2008, which ensured sufficient supply on the market, but affected income of farmers.

But the excess farm products have not transferred to exports. Data from the Ministry of Agriculture (MOA) show that China's trade deficit in farm products deepened 3.4 times in 2007 to US$18.16 billion last year. The country's total import and export of farm produce reached US$99.16 billion last year, with exports of US$40.5 billion and imports of US$58.66 billion.

Figures also show that prices of wheat, rice and corn are also declining.

The central government has to purchase millions of tonnes of grain to maintain a stable price. The move has driven the futures price of grain higher to 0.20 renminbi than the international one per kilogram, said Cui Xiaoli with the Development Research Centre of the State Council.

The falling grain price to the weak consumption and the growing output, said Cui. In addition, the government's control over grain export in the first half of 2008 also resulted in falling grain prices.

Under such situation, the government's grain reserve is estimated to take up for 30 percent of the total grain output, higher than the international standard.

In view of the oversupply and the declining prices, Cui predicted that China's grain output is likely to drop 3 to 4 percent in 2009.