July 3, 2008

Inflation to keep China's grain prices high, despite bumper harvest

A bumper summer harvest would not help to ease the growth of the consumer price index (CPI) in China, which the government aims to set at 4.8 percent this year.

Domestic grain prices are expected to decline slightly in the short term due to the bumper summer harvest supply, but would rebound shortly after as grain demand from the livestock industry exerts itself, market analysts said.

Meanwhile, prices of other agricultural products such as edible oil, which China largely depends on imports from overseas, will remain high, as the world's energy price continues to soar.

The performance of this year's summer crop would be closely watched as it would be crucial in determining farmers' enthusiasm in continuing grain production, said Li Ninghui, a researcher with the Chinese Academy of Agricultural Sciences.

In China, about 10 per cent profit growth in grain planting will drive the country's total grain production up by 3 percent, according to Li Changping, an expert of rural issues at Hebei University.

So far, the billions that China has doled out have sustained farmers' enthusiasm in grain production but soon even that may not be enough as costs continue to rise: Farmers are already calling for more in the face of costs rising as much as 50 percent.

Li of the Chinese Academy of Agricultural Sciences said that subsidies benefit more for farmers growing crops such as fruits and vegetables and grain farmers are increasingly shifting to plant these cash crops.

Although, China has abundant grain reserves, agricultural products, especially oil crops, should be given more policy preference and investments, Li said.

China's agricultural authority has expressed their confidence in the summer harvest this year, as more than 80 per cent of the harvesting work across the country has been completed.

China's summer grain yield per unit will hit a record high, continue a trend of rising production that is already in its fifth year.