November 10,2003

 

 

China Grain Price Hike Due To Anticipated Grain Production Decrease; Grain Production At 10-Year Record Low
 

China's nationwide grain price hike is not due to a shortage in grain supply, 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, this year's international rising grain prices 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% and 11.5% 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%. In the northeastern province of Heilongjiang, wheat prices have soared by 32% compared to 2002.
 

In Hebei Province, which surrounds Beijing, corn prices rose by 50 yuan (6 US dollars) to 70 yuan (8.4 US dollars) per ton. Other products such as vegetable oil, feed, poultry and livestock prices also increased by varying rates.

But China is unlikely to 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, "China's grain reserve is abundant and the grain market remains stable."
 

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% to the current 55.2% while animal husbandry and fishery has risen to 30.4% and 10.8% respectively, from 28.6% and 9.9% in 1998.

Rising meat consumption has reduced people's direct grain consumption, 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 believed that it would 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 in case of any pop up of emergencies, China should set up a food safety early-warning system and a response scheme to deal with the situation.