Sale of 1.6m tonnes should also stabilise prices, say analysts
The State Grain Administration has held two large auctions within a week to ease the mainland's grain shortage and stabilise market prices pushed up by previous central reserve purchases.
The administration worked with the National Development and Reform Commission to organise auctions in the Hefei and Zhengzhou wholesale markets to help control rising grain prices in Beijing, Guangdong and Shandong .
It offered a combined 1.2 million tonnes of wheat reserves for auction on November 25, of which 1.08 million tonnes was sold.
Four days later, 400,000 tonnes was sold to bidders in Hefei.
More auctions are planned in Hefei and Hebei tomorrow to sell 500,000 tonnes of wheat in the lead-up to the wheat-based food industry's peak New Year and Spring Festival seasons.
Analysts said the auctions would alleviate supply shortages and the auction prices would act as benchmarks.
In June, the central government centralised grain purchases for six main grain production bases and bought more than 40 million tonnes of wheat for state-run reserves.
Yang Jing , from the Zhengzhou grain exchange, said the move was an attempt to raise farmers' incomes but it also had the effect of tightening grain supplies.
'The government went to a lot of effort to buy grain from the farmers at a certain price to ensure farmers' incomes, but this measure has reduced the grain supply on the open market, leading to a grain shortage,' Mr Yang said.
Chinese leaders have repeatedly said officials must do all they can to boost farmers' incomes and ensure stability in the countryside.
In the early 1990s, rural officials in charge of grain procurement reportedly issued 'white slips' or IOUs to farmers on many occasions and used the money allocated to bet on the stock market or finance pet projects.
Another Zhengzhou exchange analyst said warmer-than-usual weather was expected to send grain prices up next year.
'This winter has been warmer so the futures market expects a production drop and a higher grain price next year, which prompted oil and food manufacturers to buy more raw materials,' the analyst said.
He also said the sales would deter black market speculation and help stabilise market prices, dampening fluctuations that could cause consumer panic.
Food oil prices had been on the rise in Beijing since August and the price of rice and wheat had climbed by about 10 per cent this month, Xinhua reported.
Officials in Beijing, Shandong and Guangdong have all said the rises are normal.