By Zhu Qiwen (China Daily)
Updated: 2008-01-05 10:09

These cases vividly illustrate how price increases have hit farmers hard, even in a year when they achieved a fourth consecutive year of increased yields and as food prices soared by about 18 percent.

Policymakers should respond quickly to such problems if they are to rein in inflation while avoiding undermining their long-term efforts to narrow the wealth gap across the country.

Government departments have come up with measures such as the "Green Passage" system for fresh farm produce to alleviate the burden of transportation costs.

Several provinces have jointed the program to reduce road tolls and speed up transportation of fresh farm produce.

However, such measures are still not enough to cushion farmers against rising fuel costs.

In fact, pricing authorities have kept a lid on oil prices in the fear of higher inflation.

As the global crude price skyrocketed from $70 a barrel in July to $100 a barrel this week, the government allowed the domestic retail oil price to rise by less than 10 percent.

With inflation hovering above 6 percent for four months, it is certainly not a good time to reform the pricing system for energy and resources by bringing the domestic refined oil price in line with the prices on the international market.

But policymakers should be aware that the existing regulations governing domestic oil prices constitute a blanket subsidy for all users, regardless of their different exposure to rising fuel costs.

This practice obviously goes against the nation's development strategy of conserving energy. As it pursues sustainable growth, the country has been struggling to cut its energy intensity by 20 percent between 2006 and 2010. Controlled oil prices will only permit foot-dragging when it comes to energy efficiency.

Moreover, the de facto universal fuel subsidy could make things worse for farmers and those in dire need of fiscal support.

To ensure an oil supply at a price that is below the international level, the government has had to repeatedly offer subsidies worth billions of yuan to the country's oil companies to cover their losses from oil refining. This is a clear-cut depletion of government funds that could otherwise be used to help the most needy.

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