November 18, 2003

 

 

Soaring Grain Prices Coupled With Increased Demand in China May Lead To Import Alternative

 

For the first time in six years, Chinese grain prices are soaring as harvests fall short of demand and the broader question emerges once again: Can China feed itself without looking abroad?

 

Since late summer, wheat prices in the northeast have shot up by 32%; maize prices have doubled and rice prices are up by as much as 13%, according to official reports. Prices of edible oil, cotton, vegetables, meat and other food products have also edged higher.

 

Grain harvests this year were hit by a double whammy of bad weather and cutbacks in acreage sown to grain, making it likely China will have to import more wheat and soybeans, says Rich Herzfelder, executive vice president of the China Food and Agricultural Services, a Shanghai-based consultancy.

 

"They've got a problem with their stocks and the crunch is hitting now, partly because of the weather," Herzfelder said.

 

For farmers worldwide, China is seen as a potential market of 1.3 billion potential customers hungry for more grain and other agricultural products.

 

Given its history of famine, China has made self-sufficiency in staple grains a strategic priority, viewing a stable food supply as key to national security and stability.

 

But the government has been loosening controls on pricing and distribution of grain, allowing prices to fall. They were expected to drop further as Beijing lowers tariffs and raises import quotas to meet market-opening conditions for joining the World Trade Organization.

 

Traditionally, farmers are forced to pay taxes in grain, but now they have greater freedom to grow other crops. Many are abandoning grain growing to plant fruit and vegetables.

 

National grain reserves began falling in the late 1990s, as production dropped below steadily increasing consumption. At current rates of output, China's per capita grain reserve will fall below 350 kilograms, the lowest in 20 years.

 

Chinese Premier Wen Jiabao is expected to sign agreements on importing U.S. grain during his visit to Washington next month - part of a buying spree to ease trade friction that has also included luxury cars and Boeing aircraft.

 

"China has to import more wheat and soy anyway, but doing it during Wen's visit will make it look more important," Herzfelder said.

 

Imports May Be The Answer

 

Rising prices merely reflect market trends and have nothing to do with shortfalls in production, said Agriculture Minister Du Qinglin, quoted by the Web site of the official Xinhua News Agency.

 

At the same time, Wen promised the government would act to ensure food security: enforcing better protection of farmland, building more rural roads and providing more support to farmers.

 

But Chinese consumers, who for most of the past decade have been able to pay a nearly steady price for their daily helpings of rice and steamed buns, have received bigger grocery bills grudgingly.

 

"In my opinion, the (price) hikes only dramatize the government's failure, over the years, to protect fast-dwindling farmland resources," Wan Lixin, an editor at the newspaper Shanghai Star, grumbled in a recent commentary.

 

Though grain growers might profit, many farmers have migrated to the cities. They, too, will end up paying more for their rice, Wan noted.

 

Some economists argue that given its huge population and relative lack of arable land, China should stop trying to supply its own grain. With US$400 billion in foreign reserves, it can afford to import.

 

But others worry that Chinese reliance on imports would drive world grain prices to unaffordable levels.

 

Water shortages, rising temperatures and permanent declines in acreage planted to grain limit the ability of farmers elsewhere to meet rising demand from China, says Lester R. Brown, president of the Earth Policy Institute, a Washington-based group that monitors the effect of public policy on the environment.

 

Brown's forecasts have long provoked controversy. But statistics do show a sharp recent decline in worldwide grain stocks to just 17% of total global consumption, their lowest level in two decades.

 

This year's worldwide shortfall in grain output stands at 96 million tons, according to the U.S. Department of Agriculture.

 

"What happens to the low-income grain importers?" Brown says. "These are the tremors before the quake. The warning signals."