November 26, 2007

 

China reinforces farm support as grains shortage looms

 

 

High soyoil prices in China has sounded the alarm over a possible grains deficit, prompting Beijing to double agriculture subsidies to curb the number of farmers flocking to cities for jobs.

 

China's central planners hope that giving more money to farmers will stem the impact on rising soy imports and stave off the need to buy foreign wheat or corn for its 1.3 billion people, helping keep global prices from soaring further.

 

Robust economic growth has lured farmers to work in some Chinese cities, luring after grappling with a recent outbreak of blue-ear disease among pigs that devastated the pork industry.

 

And low global grains stocks and record high prices have further undermined the country's food security, while shortage of farmers meant a slow recovery in the country's pork supplies.

 

With the economy expanding at more than 11 percent a year, people are consuming more oil, meat and dairy products per capita, fuelling demand for grains and more than offsetting a pick-up in China's grains output to over 500 million tonnes.

 

Chinese cooking oil prices have climbed more than 50 percent since March, hitting fresh highs almost every day since October. This follows a rally in pork prices. Corn prices have also jacked up despite a bumper harvest.

 

According to Fang Yan, vice director general of the Rural Economics Development of Chinese thinktank National Development and Reform Commission (NDRC), China will try to increase the output of wheat and rice per unit and expand corn acreage.

 

In a conference held in Guangzhou, the country will promote rapeseed planting along the Yangtze River to maintain the supply of edible oils, the country will promote rapeseed planting along the Yangtze River and stabilise soy production in the northeast.

 

She said Beijing would aim to raise farm subsidies to 33.5 billion yuan (US$4.52 billion) from 15 billion. It would also invest 13 billion yuan in the pork, dairy and oilseed sectors.

 

The moves come after Beijing last year scrapped a farm tax to ease the burden on rural poor.

 

Chen Guoqiang from the Market Economy Research Institute of Development Research Centre of the State Council said 44 percent of the country's population lived in urban areas, with 20 million moving to cities each year.

 

He said the government can do little for farmers looking for jobs in the cities except offer some incentives.

 

Worried over inflation, already running at 11-year highs, and possible grains shortages, Beijing stopped corn exports in the second half. It has also halted wheat exports, despite ample stocks at home and sky-high international prices.

 

The country also bought some soyoil and soy from the US and South America to build up reserves to cool the market in the run-up to the Lunar New Year in February.

 

Analysts said although China was short of oilseeds, farmers were holding back the 2007 crop to await better prices, tightening supply more than fundamentals would justify.

 

A trader in Beijing said there's no real shortage in the grains sector and the country has plenty of wheat and corn. China, he said, definitely don't need to export and import and the country can generally survive.

 

But the analysts agreed there was a deficit in the oilseed market, which Beijing has liberalised since 1996. It is free to import soy or oils, while it is still necessary to acquire quotas for import or export of grains, such as corn, wheat and rice.

 

China's soy imports nearly tripled between 2000 and 2006, reaching 28 million tonnes -- double the country's 2007 harvest of about 14 million tonnes. Imports of vegetable oils, including palm oil, are expected to reach 10 million tonnes this year.

 

Cheng said China's self sufficiency rate for soy might shrink further to 20 percent by 2020 from 46 percent in 2000.

 

Beijing hoped to remain self-sufficient in rice, while limiting the decline in the rate for wheat to 85 percent from 94 percent in 2000 and for corn at 74 percent from 97 percent.

 

A trader in Shanghai said labour shortages are a problem for every crop, but the problem for rapeseed for several years has been going already. The situation is a sort of struggle between cities' demand for labour and the government's need for higher crops.

 

Asked about the prospects for Beijing's efforts to raise the output, the Beijing trader said: "It's a challenge ... the land is limited and we have water problems. But I think they can introduce more high technologies, such as GMO corn."