December 4, 2008

 

China's largest soy producing province, Heilongjiang, has confirmed its participation in the government's plan to buy more grains and soy for reserves.

 

The scheme is an effort to shore up prices and protect farmers' incomes, thereby avoiding hardship and unrest among the rural population.

 

Beijing has given approval for the north-eastern province to double its purchases to an additional 1 million tonnes of soy, the Heilongjiang Grain Bureau said in a statement on its Web site.

 

The province will also double purchases of corn to 2.6 million tonnes and boost rice buying from 2.4 to 5 million tonnes. The increases are in line with trader talk that Beijing plans to double purchases of soy to 3 million tonnes and corn to 10 million tonnes.

 

Local soy crushers have blamed the government's soy stockpiling plan for making local prices unaffordable and driving some buyers towards imports.

 

The Grain Bureau said the extra purchases aim to "stabilise grain prices, protect farmers and to ensure farmers do not face difficulties in selling their grains".

 

The central government will also invest RMB1 billion (US$145.4 million) to build state facilities for drying grains and storing edible oils and oilseeds, the National Development and Reform Commission (NDRC) said in a separate statement.

 

The investment, which is part of a huge government stimulus package to revive the economy, will add new storage capacity for 964,000 tonnes of edible oils and 1.34 million tonnes of oilseeds.

 

China has initiated a state stockpiling plan for soy and soy oil this year, aiming to build 5 million tonnes of soy and 1.5 million tonnes of soy oil, traders said. The figures include imports of about 2 million tonnes of soy.

 

However, the government move has angered some crushers in Heilongjiang because farmers are now demanding the high prices they can get from selling to the government, forcing crushers to pay up or turn to imports for a cheaper supply.

 

The situation has prompted market rumours that the government could act to restrict imports to rebalance the situation, although such move could be counterproductive, since China is the world's largest importer, relying on the international market for the bulk of its consumption.

 

China's grain harvest is expected to hit a record 525 million tonnes, according to the NDRC. But weak demand from processors and feed mills have led corn prices in some areas to fall below planting costs, triggering worries that dwindling incentives for farmers may threaten next year's grain production.