Rice subsidy raised as official warns of drop in farmland

PUBLISHED : Tuesday, 15 April, 2008, 12:00am
UPDATED : Tuesday, 15 April, 2008, 12:00am

Rice farmers are to be given more subsidies to encourage farming as the mainland's top grain official warns of the increasing difficulty in balancing grain supply and demand amid the global food shortage crisis.

State television quoted Wang Shoucong, a deputy department head in the Ministry of Agriculture, last night as saying that subsidies of paddy rice would be raised from 255 yuan (HK$283) to 375 yuan per hectare to ensure rice acreage would not shrink further this year.

Mr Wang said the government hoped that by giving rice farmers more incentives, the country's total acreage for paddy rice would stay above 29.33 million hectares this year.

The subsidies - part of Beijing's pledge to increase spending on agriculture by 150 billion yuan this year - came amid growing concern of a food shortage problem worldwide.

Yesterday Nie Zhenbang , head of the State Grain Administration, wrote in the People's Daily that it was increasingly difficult to balance supply and demand.

'We now have less room to increase acreage planted with grain, and it's becoming more and more difficult to steadily raise yields,' he said. In the long run, he saw the problems of less arable land and water shortages becoming more serious.

'It is increasingly difficult now to keep the domestic grain market and prices stable,' Mr Nie said.

The country needed to import more soybeans to close the wide gap between supply and demand, and the corn market, which used to see a small surplus, would reach a balanced stage of supply equalling demand, he said.

Mr Nie warned that the mainland was becoming increasingly dependent on imports of vegetable oil, and the impact of international market changes on the domestic market was growing. To ensure domestic supply, the mainland would continue to subsidise the agricultural sector and encourage farmers to increase crop areas, he added.

In a major speech last week, World Bank president Robert Zoellick called for a 'new deal' to address the world food crisis while on Sunday International Monetary Fund managing director Dominique Strauss-Kahn warned that rising food prices could have terrible consequences for the world, including a risk of war.

Premier Wen Jiabao recently said the mainland had abundant grain reserves to ensure supply and meet the rising demand of its 1.3 billion people. However, experts warned that quickly rising domestic food prices had pushed the consumer price index to an 11-year high of 4.8 per cent last year.

Frank Gong, chief economist with JPMorgan's Asia-Pacific Equity Research, said he believed that food price inflation was the most important factor for the mainland's inflation outlook. 'The consensus expects the bottom-line CPI to stay at 8 to 10 per cent year-on-year for the rest of the decade, or even higher, due to the recent spike in food inflation ... globally,' he said. CPI reached 8.7 per cent in February.

The latest monthly report issued by the China National Grain and Oils Information Centre yesterday indicated that corn, wheat, rice acreage were all estimated to fall this year, though output would probably rise because of higher yields.

International grain prices have risen to record highs, boosted by drought, higher production costs and expectations of some futures investors that the mainland will have to import a lot more grain at some point in the future.