May 13, 2008

 

Grain pressures brewing in China

 

 

China's sufficient grain output, supported by government subsidies and price controls, may be short-lived as total yield will be stagnant in the coming years due to fast urbanization which reduces farmland areas, economists said.

 

Currently, China escapes from steep increases in grain prices that have hit countries in the Asia-Pacific due to bumper harvests.

 

Yet Chinese economists said that the trend will not last. Grain output was expected to slow down as the farmland area becomes heavily urbanized and government policies to restrict grain exports discourage farmers to plant more.

 

Economists forecast that grain prices in China will go up significantly, perhaps within a year.

 

This, according industry analysts, will reflect China's limited success to ease the impact of rising global oil prices.

 

At the start of 2008, Beijing has already issued measures to restrict grain exports, including an export tax on 57 grain products, with tariff rates ranging from 5 percent to 25 percent.

 

The government has also increased its direct subsidies to grain-growing farmers. Central government payments will reach US$9 billion this year, according to the Ministry of Finance.

 

However, analysts pointed out, that the government's subsidies to grain farmers seem to amount to very little compared with international prices.

 

Current restrictions on exports also prevent Chinese farmers from benefiting from the big price difference between domestic and overseas markets, observers said.

 

Many Chinese economists and grain traders believe that domestic prices will go up due to pricier production and transportation costs.

 

Lu Feng, a research professor with Peking University's China Center for Economic Research, said it is better for the government to drop export controls to encourage farmers to grow more to cash on rising prices.

 

Furthermore, economists believe that since the Chinese government is unlikely to sharply increase subsidies to farmers, it has to let grain prices go up in some controlled manner, like oil products.