China's agricultural prices to remain stable amid inflation

China's farm prices will not spiral out of control this year and next despite rising inflation concerns, a leading agribusiness executive said Tuesday (Nov 23).

 

Instead, prices will possibly retreat a bit after Lunar New Year, said Wang Hang, vice president of New Hope Group, China's largest private agricultural conglomerate.

 

Prices typically rise in the run-up to the Lunar New Year, which starts in 2011 on February 3.

 

China's consumer inflation hit a 25-month high in October of 4.4%, driven mainly by food, prompting Beijing to take steps to increase supplies and reserve the right to impose price controls.

 

The central bank has also raised banks' required reserves twice this month, and worries about further policy tightening are weighing heavily on the domestic stock market.

 

"I do not foresee any factors leading to prices getting out of control. Pork prices will become a stabiliser, not a booster, of consumer inflation next year," Wang said.

 

Pork is one of the staples that have been rising in price, although not as fast as in 2007 and 2008.

 

Then, a spike in pork prices caused by blue-ear disease helped push annual consumer price inflation as high as 8.7% in the year to February 2008.

 

Today, by contrast, pig stocks are sufficient, Wang said; farmers have been keeping more animals because of dearer pork prices, which would cap further rises, he said.

 

However, easy money and rising inflationary expectations are now prompting farmers to hold onto their produce. Likewise, distributors are adding to their inventories, he warned.

 

Wang said New Hope, whose listed unit is Sichuan New Hope Agribusiness, would continue to import corn in 2011.

 

The company expects a quota of 200,000-300,000 tonnes from the Chinese government, similar to this year's, he said.

 

New Hope is China's biggest user of corn, consuming six to seven million tonnes every year.

 

China will increase soy imports next year, Wang said. Market estimates put China's imports in 2011 at 55-57 million tonnes, up from 54 million tonnes seen for this year.

 

Wang said his company had invested RMB400 million (US$60.13 million) this year out of its RMB1-billion (US$150 million) agricultural industry fund. New Hope planned to raise an extra RMB2 billion (US$300 million) next year once the initial sum is exhausted, he said.

 

The company is actively seeking investment opportunities in the feed mill sector in neighbouring South East Asian nations, including Vietnam and Thailand, where pork is also a staple, Wang added.

 

"We have some preliminary thoughts but have not yet finalised our plans," he said. New Hope is China's largest animal feed mill owner.