September 12, 2008

 

China unlikely to up grain prices to support farmers

     

 

Despite the government expressing concern over falling farmers' income, which may damp their interest to grow grains in the coming year, analysts don't expect it will hike grain prices amid the harvest season.

 

Agricultural Minister Sun Zhengcai said recently although the average income growth of farmers in 2007 was the highest since 1985, the income gap between farmers and citizens has been the biggest in the past 30 years as well.

 

President Hu Jintao also said the government will consider the farmers' complaint of low grain prices and high input costs, during his trip to Henan province, a major grain producing area.

 

But analysts said the government is likely to increase subsidies rather than hike grain prices, as raising grain prices could accelerate inflation.

 

"Increasing government subsidies is more practical (than hiking grain prices)," said Yu Baoping, a researcher at the rural economy research centre under the Development Research Centre of the State Council, adding the government doesn't want high grain prices as well.

 

China's consumer price index rose 4.9 percent in August from a year ago, the first time below 6 percent this year, thanks to a slowing food price increase.

 

But the producer price index rose 10.1 percent in August, up from 10.0 percent in July.

 

The falling CPI inflation and rising PPI inflation "suggest that policy makers will continue to take a prudent and gradual approach in shifting its policy focus from inflation to growth," said Lehman Brothers in a note.

 

Economists said the slower CPI rise will provide the government with an opportunity to remove its price control measures on fuel, water and electricity, which could cause a light rebound in CPI inflation in the coming months.

 

China's corn prices have been weak ahead of the harvest season in September and October, which was usually the time of good demand amid limited supply.