By Fu Jing (China Daily)
Updated: 2008-03-22 10:08

When it comes to agriculture and inflation, top minds at home and abroad think somewhat alike.

This can be seen in the opening line of International Food Policy Research Institute Director Joachim von Braun's paper to the China Development High-Level Forum, which begins Saturday in Beijing. It reads: "World agriculture is in a crisis".

In the paper, exclusively obtained by China Daily, Braun said the surge in food prices has become "a major political concern" because of its role in inflation, its impact on the entire economy and its adverse effects on the wage-earning poor and middle class.

He urged developing countries such as China to rapidly increase investment in rural infrastructure and market institutions to reduce agricultural-input access constraints.

It's a political concern for China, too. Premier Wen Jiabao said the government has recently faced mounting pressure to tackle inflation, which has been caused mainly by rising agricultural product prices.

Han Jun, director of the department of rural economics research of the Development Research Center of the State Council, agreed with Braun's suggestions to improve the populous country's sufficiency amid rising global grain prices.

Han said recent population growth, the increase of residential income levels and the acceleration of urbanization have put stress on the supply and demand of agricultural commodities in China. The supply-demand relationship for some agricultural commodities has been imbalanced.

He also said China's agriculture has become increasingly dependent on international markets. However, he concluded the general "supply in excess of demand in China's consumable market" scheme has not changed.

But he said he believed China's agricultural commodity supply has major impacts on its economy. Historically, the relationships among supply and demand of agricultural commodities, food price increases and inflation has become a concern for Chinese decision-makers and academic circles.

"Each of the past periods of inflation in China since 1978 occurred concurrently with food price increases," Han said.

Since 2007, the relationship between increasing food prices and inflation has again captivated the attention of academics and decision-makers. The sharp increase of agricultural commodity prices starting from the end of 2006 brought the issue back to the foreground and created concerns China could face a new round of extensive inflation.

"Food price increases will not trigger extensive inflation" as long as China can flexibly tighten its credit supply and maintain better control over its macroeconomic conditions, Han said.

China's grain status

Because of the widening rural-urban income gap and a sluggish harvest in 2003, the government has stepped up efforts to improve farmers' lives and ensure grain security for the population. Since then, China has scrapped its agriculture tax, which had been in place for more than 2,600 years. It has also offered nine-year free compulsory education for rural children and spent billions of yuan building roads, hospitals and schools in the countryside, where about 55 percent of Chinese still live.

Last year alone, the cabinet allocated 420 billion yuan ($59.55 billion) from the government treasury for rural development. The sum nearly equals the total amount spent in rural areas from 1998 to 2003.

The government's efforts on this front have gotten results, with the total grain yield remaining above the 2004 level and reaching a record high of 500 million tons last year. Farmers' average incomes have also increased, with the year-on-year growth rate reaching 9.5 percent in 2007, when per capita income hit 4,100 yuan.

Braun said the need for more investment in agricultural science and technology is increasing because of climate change and continuing population growth. It must embrace the entire value chain with enhanced food quality and safety, he added.

He also said growth in global public agricultural research and development (R&D) expenditures, especially in developed countries, has slowed.

"Developing countries as a whole are currently undertaking more of the world's public agricultural R&D largely due to China, Brazil, and India," Braun said.

In addition to inflation, there are also concerns about the heavy snow in the central, eastern and southern parts of the country and the severe drought in the north. Together, these have damaged more than one-sixth of the country's total arable land - a figure of 121.8 million hectares as of mid-2006. Heavy snow and sleet before and during Spring Festival damaged 11.8 million hectares in South and East China alone, according to the Ministry of Agriculture.

Worse still, according to China Meteorological Administration, the harshest winter in 50 years could be followed by a drought in the east and floods elsewhere. In the north, drought has affected about 11.1 million hectares of arable land since last winter, according to the State Flood Control and Drought Relief Headquarters. The severity of the drought can be gauged from the fact that about 120,000 wells in Hebei and Shanxi provinces have run, or have almost run, dry.

All of these factors have prompted the central government to allocate more than 500 billion yuan this year to the farming sector and rural regions - about 30 percent more than last year's allocation.

Grain security

Many agricultural experts have said the money needs the support of advanced science and technology to streamline agricultural production and boost yields to ensure sizeable domestic grain reserves.

"That is the essence what China's self self-sufficiency strategy means," Han said.

However, Han added that China must consider the domestic and international resources and markets in the context of economic globalization to ensure the balance between supply and demand for agricultural commodities.

He explained that China must accomplish three things to secure the grain market: It must protect and enhance grain production capacity and ensure the country's self-sufficiency in grain; assure balance between supply and demand in the grain market by adjusting import and export volumes, and making warehousing arrangements; and ensure grain security for specific groups, such as low-income families.

He also said making use of international resources and the world market is conducive to capitalizing on China's competitive edges in agriculture and enhancing the efficiency of allocating domestic resources.

"At all times, China has remained vigilant of its food security because of our large population of 1.3 billion," Han said.

China consumes one-fifth of the world's total grain annually, and its trading volume is about twice the total of the rest of the world.

"The supply capacity of the world's grains market is limited," Han said. "So, generally speaking, China must rely on itself to handle its grain issue."