May 20, 2004

 

 

China To Continue Reform In Grain Market To Encourage More Output

 

In an effort to push for ongoing reforms in the grains market, China's State Council has agreed to fully liberalize the grain purchasing market this year, reported Xinhua News Agency Thursday, citing a cabinet meeting held in Beijing Wednesday.

 

The ongoing reform efforts in the grains market are aimed at boosting production and making prices more market-driven, analysts have said.

 

Chinese Premier Wen Jiaobao, who chaired the meeting, was quoted as saying "conditions for further reform on grain circulation systems are mature"

 

His words are seen as a call for a more market-driven grains sector, which first needs to continue opening grains purchasing to private and state-owned entities alike, market participants said.

 

The Chinese government announced earlier this year that any licensed grains trading company may purchase new crops at market prices that are no lower than government-set floor prices.

 

But the proposed market reform is said to have encountered resistance from the entrenched interests of state-owned warehouses and grains stores which have monopolized the grains market for over 50 years and employ more than 1 million people.

 

Moreover, a sharp rise in grains prices due to years of declining production and growing consumption have lifted prices of various grains, further stoking worries of inflation. Last month, the price of rice and other grains rose 33.9% from a year earlier.

 

Critics of grains market reform have reportedly asked the government to step back and reconsider sensitive issues ranging from food security to stability.

 

To alleviate such concerns, Wen stressed in the meeting that China needs to continue to protect farmers' interests while ensuring the country has enough grains to feed its population.

 

The meeting concluded that the liberalization of grain purchasing "should be carried out stably and actively, and a unified, open, competitive and orderly grain market system should be established", according to Xinhua.

 

The meeting also passed a draft regulation on grain circulation management. Details of the draft regulation are not yet available.

 

Earlier this year, in a bid to encourage farmers to grow more grains, China started reforming its grains production and circulation by introducing competition from licensed private companies in purchasing new crops. It also vowed to phase out agricultural taxes levied on farmers eventually without setting a timetable.

 

"In many ways, this latest meeting is to reiterate everything (the government) said early on, just to carry out more details in an otherwise skeleton framework," said a Shanghai-based grains analyst at a commodities trading house.

 

The meeting called for direct subsidies to farmers to protect the interests of those who grow grains, as well as further reform on state-owned grain enterprises which enjoyed monopolies in the past, said the Xinhua report.

 

To protect the farmers, the meeting underscored the importance of canceling agricultural taxes within five years, said Xinhua.

 

China's production of rice, corn and wheat dropped to about 401 million tons in 2003, down 18% from the record 486 million tons produced in 1998, according to U.S. Agriculture Department statistics.