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Beijing Review Exclusive
Special> NPC & CPPCC Sessions 2009> Beijing Review Exclusive
UPDATED: February 13, 2009 NO. 7 FEB. 19, 2009
The Grain Puzzle
Farmers reap a bumper harvest only to find that selling their grain has become more difficult

But the government solution seemed less appealing to farmers.

"The government reserve in our village is full, and it doesn't purchase any more," Yang said, adding that the protected price was lower than what farmers expected so that many were reluctant to sell grain to the government.

After the government's reserve was full, wholesale buyers stopped purchasing grain, because a large number of grain-processing enterprises stopped production. Now there are plenty of overstocks of corn, rice and soybeans. The price of soybeans in particular is nearly the same as that of the cost.

Not just a commodity

In China, grain is more than a simple commodity. It is closely related to social security. If the purchase price of grain and growers' interests cannot be protected, farmers' morale might be severely sabotaged. At present, the impact of the global financial crisis on the real economy is worsening, reducing the demand for grains and other crops that farmers produce. Falling grain prices act against the stable development of food security. How to tackle this problem is now a key issue that the government must resolve.

On January 24, the National Development and Reform Commission, the nation's top planner, announced it would raise the minimum protected purchase price in major rice-producing areas. It decided to increase the minimum protected purchase price of 50 kg of rice by 13 yuan ($1.9) this year compared with that of 2008. This was the largest price hike since the government adopted the protected price policy in 2004, and it sent a positive signal to grain producers.

Chen said the government attached great importance to maintaining a reasonable price for farm produce and had recently proposed and enacted special policies and measures after careful consideration. He noted that the government would increase direct subsidies to farmers to reduce their production costs.

"We will subsidize farmers in the following areas: growing grains, choosing improved seeds, buying agricultural machines, and with comprehensive subsidies to purchase agricultural means of production," Chen said. Last year, the government paid the farmers subsidies totaling 102.9 billion yuan ($15 billion). That amount would be increased to about 120 billion yuan ($17.5 billion) this year, he said.

The government will further raise the minimum protected purchase price of grain this year, Chen said. It was planning to raise the price by about 0.22 yuan ($0.03) per kg for each type of grain, meaning it would have to spend 110 billion yuan ($16 billion) more on purchasing grains, he added.

"The government intends to prevent sharp grain price fluctuations," Chen said. "At this time in particular, the minimum protected purchase price mechanism is meant to avoid a price plunge."

In addition, the government would increase its grain reserves, and if the amount of grain supplies surpassed demand, the grain price would drop, Chen said. The government would increase the grain reserves to reduce the grain supply in the market and strike a balance between market supply and demand to maintain the price at a reasonable level, he said. Apart from government reserves, enterprises and grain-processing companies have been encouraged to increase their grain reserves for business purposes.

Chen said the government would make reasonable efforts to monitor grain imports and exports.

"Judging by the current situation, our domestic grain supply is abundant thanks to the five consecutive years of harvest," Chen said. "If the international community needs more grains, China will moderately increase exports of certain grains at reasonable prices to guarantee global food security, and at the same time balance its domestic grain supply and demand."

At present, the country's per-capita grain production is about 400 kg annually, while each Chinese person consumes about 370 kg on average per year. Therefore, the grain output is more than what is needed.

Those measures might benefit grain growers in the future, but farmers who face the problems of selling their excess grain are not sure if they will help them now. Yang said he might have to abandon some of his farmland this year if grain prices continued to drop. Many farmlands in China are now suffering from a severe drought and might not be as productive as last year. In any case, it is impossible for the farmers to predict what will happen next with grain production and prices.

"Maybe this year's grain output is much less than last year, and the price will eventually go up. But who knows?" Yang shrugged.

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