December 6, 2006

China grain prices soar on high global oil prices

For the first time in China's history, grain prices have been rising not due to a poor harvest or increasing demand but because of soaring international oil prices.

To feed the nation's increasing appetite for energy, a huge amount of corn and other crops have been going into bio-fuel production rather than food. Since corn prices have also been reaching record high levels, they have been driving up the prices of other food products.

With the increasing role of corn as a crude-oil substitute and environmentally-friendly energy, prices are unlikely to drop in the long run, feel many.

According to analysts, while industrial use only accounts for about a sixth of overall corn consumption, the latter has been expanding at up to 15 percent a year, fuelled by high crude oil prices.

Annual corn consumption by processing industries would rise to 20 million tonnes from 16 million last year and reach 40 by 2010, according to official estimates.

The country plans to produce about 6 million tonnes of ethanol by 2010 and 15 million tonnes by 2020 in addition to 5 million tonnes of biodiesel.

The US on the other hand, produced an estimated 15.1 million tonnes last year, while Brazil, the world leader had an output of 16.9 million tonnes.

Sources at the Dalian Commodity Exchange said corn prices have jumped 19.5 per cent in the two months ending November, a 10-year high.

In East China's Shandong province, wheat prices have risen from below RMB1.4 (US$ 17 cents) per kilogram in September to RMB1.6 (US$ 19 cents) implying agricultural products would be as hot as petroleum in the future, noted a futures agent from the Dalian Commodity Exchange told China Daily.