November 12, 2003

 

 

China Economist Denies Grain Shortage; Puts Stocks At 260 Million MT

 

China isn't short of grain and the overall market situation is still characterized by oversupply, the official Xinhua News Agency said Wednesday, quoting a senior economist from a government think-tank.

 

"The current grain stock in China is pegged at 260 million metric tons, and there is no problem of grain shortage," said Chen Huai, a senior economist and well-known scholar with the Development and Research Center of State Council, the top government-run think-tank for the cabinet.

 

His remarks follow a sharp and unexpected rally in grain and edible oil prices since early October, amid speculation that China may face a shortage of grain after lower production in the past few years reduced government stocks.

 

China's grain production fell to 457 million tons in 2002 from the normal 470 million to 480 million tons a year before that, after the government changed its procurement policy, said Chen.

 

Such a change in policy was aimed at avoiding over-production and low prices, he said.

 

In the five years ending 2000, the annual increase in farmers' income has been on the decline, falling to 2% in 2000 from 9% in 1995, largely because of lower agricultural prices during that period.

 

At that time, China adopted a policy of buying as much grain from farmers as they wanted to sell, at pre-set procurement prices. This policy led to higher grain output in the following years as the guarantee of a high procurement price prompted farmers to produce grain in excess of demand, even when market prices were lower.

 

In 2001, however, China changed the procurement policy to reverse the trend of higher production amid low grain prices.

 

Despite that, "China still sits on 260 million tons of grain stock currently, and there is no problem of grain shortage," Chen said.

 

The other important factor behind the grain markets rally is the sharp increase in exports, added Chen.

 

Global grain production has been below consumption for four years and China saw a sharp increase in its grain exports. This reduced supply in the domestic market, partly leading to firmer prices.

 

"As China's government might moderate the amount of grain trade, grain export is unlikely to cause (any) shortage in the local markets," said Chen.