December 17, 2010

China's grain prices to climb 4%-5% yearly

China's grain prices are likely to increase 4% to 5% annually in the next few years, with soaring labour costs as the major reason, experts said.

Grain demand will also rise more quickly than supply, helping push prices higher, said Chen Xikang of the Chinese Academy of Sciences.

Chinese are consuming more and more meat and fish as living standards improve, resulting in a huge demand for animal feed, but China's grain output growth is limited by shrinking arable land, he said.

"China can increase planted areas of some crops, but the (scope for) farmland expansion is very limited," he said.

China had 121.7 million hectares of farmland at the end of 2008, down from 127.1 million in 2001, amid fast urbanisation, according to official data.

Yields can be increased with technology such as new crop varieties and chemical fertilisers, but large enough increases to counteract rising demand and shrinking farmland will take time, he said.

Development of biofuels globally may add to upward pressure on global grain prices, as evidenced by a surge in corn prices on the international market due to the fast development of corn-based ethanol sector in recent years, experts said.

China's grain output next year is expected to reach 550 million tonnes, up from this year's 546.4 million tonnes. Next year's grain demand will be about 540 million tonnes, Chen added.

China should expand soy planting areas and improve the quality of domestic soy by introducing genetically-modified technology, in an effort to reverse a heavy dependence on imports, he said.

China's soy output is estimated at only 15.2 million tonnes for crop year that ended on September 30, the state-backed China National Grain and Oil Information Centre said Thursday. In the January-November period, China imported 49.37 million tonnes of soy, up 31%.