Tight supply may hit grain stability

By Wu Jiao (China Daily)
Updated: 2008-01-04 07:13

Tight supplies in key categories and rising global prices are making it difficult to stabilize the domestic grain market, the governing authority said Thursday.

Nie Zhenbang, head of the State Grain Administration (SGA), said the country's food supply is secure and grain reserves are abundant following four successful harvests.

"But it is still a challenge to keep the market balanced over the long term," Nie said at a conference Thursday in Beijing.

He said supplies of some key grain categories, including corn and soybeans, have tightened and that there are even shortages in some major grain markets.

The country consumed 517 million tons of grain last year, amid a shortage of about 16 million tons of certain grains, including corn and soybeans, SGA figures show.

The country produced only 9.62 million tons of cooking oil last year, about 42 percent of the regular annual demand of 23 million tons.

"As consumption grows and shortages spread, grain imports have been increasing. There is huge pressure to secure the supply of cooking oil and keep prices stable," Nie said.

In addition, with China becoming more integrated into the global economy, changes in the world market are increasingly affecting the domestic one, Nie said.

The United Nations' Food and Agriculture Organization (FAO) has estimated that the global grain market will continue to face supply pressures, and that grain prices will remain high due to surging energy prices and increasing demand for corn and soybeans to make bio-fuel.

The global food reserve dropped to its lowest level in 30 years last year, FAO figures show.

Driven by the high global prices, China's wheat exports increased by 200 percent year-on-year in the first 11 months of last year. Corn exports grew by 85 percent during the period, while those of soybeans expanded by 24 percent, according to customs figures.

In response, the authorities slapped export tariffs ranging from 5 percent to 25 percent on 57 categories of major grains and powder products starting this month. They will remain in place for a year.

The authorities also imposed export quotas on rice, corn and wheat powders.

The moves came 10 days after the government scrapped tax rebates for grain exports in 84 categories of grains and powder products.

"These measures show the government's determination to ensure the domestic supply and stabilize grain prices through taxation," An Tifu, an economist with the Beijing-based Renmin University of China, said.

However, policies alone are unlikely to check increases in grain prices because global factors such as demand for bio-fuel, surging energy prices - oil futures touched $100 per barrel Thursday - and tightened global grain supplies will remain in place over the long term, he said. An also called for more incentives for farmers to increase their production.

The authorities have been ordered to come up with incentives for farmers who plant grains for cooking oil.

To ease the regional grain shortage, the SGA will release more corn from its reserves in major corn-consuming provinces and set aside more reserves of corn, soybeans and cooking oil.

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