August 24, 2011


Food reserve sales show China's resolve to combat inflation


In the face of rising inflation pressure, China has been releasing reserves of agricultural products including pork, soy and sugar onto the market, a sign that the government is determined to tame racing food prices. 


The government made a timely release of frozen pork reserves when prices soared, which has had a positive effect in stabilising prices, analysts said.


Since late June, many provinces have sold reserve pork into the market at lower-than-market prices to check sharp price rises.


Pork prices began to show a trend of stabilising from the middle of July. Chen Yanli, a researcher for the Ministry of Agriculture, pointed out that the government's sales have had a limited impact on prices, but as more live hogs were entering the market, the supply and demand relationship would improve.


Market hearsay also had it that China sold 2.12 million tonnes of reserve soy to five large grain and oil companies in May and would soon sell a further four million tonnes at RMB3,500 (US$547)/tonne, lower than purchase price of around RMB3,900 (US$610)/tonne in major producing areas.


Some analysts say that this is part of the government's effort to stabilise edible oil prices and relieve inflation pressure in the coming peak consumption season of the Mid-Autumn Festival and the National Day holiday.


Stabilising consumer prices is the top priority for macroeconomic regulation this year. The specific measures include reserve sales, implementation of a prudent monetary policy, and intensification of supervision of market pricing, as well as granting subsidies to people with low incomes.


The State Council, or China's cabinet, on August 19 issued new guidelines to promote the healthy development of the country's logistics industry. Farm produce logistics will be given priority, and government departments will work to improve coordination to raise efficiency of the distribution of agricultural commodities.


China's inflation accelerated to a 37-month high in July on surging food costs, putting the government in a tough position, with worsening global liquidity in sight. The country's Consumer Price Index (CPI), a main gauge of inflation, surged 6.5% on-year in July, up from a three-year high of 6.4% in June.


Analysts predicted that CPI growth in August may fall below 6% as the rise in pork prices has slowed down and cooling economic growth has curbed rises of the Producer Price Index and non-food items.

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