By Xin Zhiming (China Daily)
Updated: 2008-04-16 07:32

The 3,000-odd villagers of Cifeng in the Inner Mongolia autonomous region are finding it tough to raise grain production because their earnings have been on the decline.

In fact, "about 1,200 of our villagers have shifted to non-farming jobs," says Cifeng village head Li Hongjiang. "All farming-related costs are rising and people don't like to farm."

Customers select vegetables in a supermarket in Lanzhou, capital of Gansu Province. Rising food prices have contributed to a CPI growth of 8.7 percent in February, the record high in decade. [China Daily]

Li's village also mirrors the situation in some other farming communities, facing the challenge of rising costs despite the repeated increase in government subsidies and supportive measures.

The Cifeng village head says costs of fertilizers, seeds and chemicals have risen sharply in recent years. The cost of a particular type of fertilizer, for example, has risen about 70 percent in just one year. All this has eaten into farmers' meager earnings and increased inflation.

The National Bureau of Statistics says prices of farming materials in Hebei province rose 13.6 percent year-on-year in January on the back of a 6.9 percent growth in 2007. "Costs are rising at a faster pace (now)," says Li Guoxiang, a researcher with the Rural Development Institute in the Chinese Academy of Social Sciences (CASS).

On the other side of the world, grain prices, especially the recent increase in rice prices, have caused a flutter in the international community. International Monetary Fund Managing-Director Dominique Strauss-Kahn has warned that the crisis created by rising grain prices would have a "horrific" impact on the poor. "Tens of thousands of people will starve."

And on Monday, UN Secretary-General Ban Ki-moon cautioned that increasing prices of food products across the world had reached emergency proportions, threatening to wipe out seven years of progress in the fight against global poverty.

Though grain supply is still not a problem for China, rising prices of agricultural products have pushed up inflation and made life difficult for the urban poor at a time when the government has made curbing the price rise its top priority. As Premier Wen Jiabao has assured the world, the country has ample grain stocks, both at the State and private levels.

China has about 150 million tons of grain, about 30 percent of its annual production and 12 percent more than the safe margin set by the international community.

And on Monday came State Administration of Grain deputy head Zeng Liying's assurance that the country's grain production would be about 500 million tons this year (the same as last year's).

But it is the driving effect of rising prices of agricultural products' on the country's inflation that is raising leaders' and planners' concern. Prices of agricultural products were a key element in pushing up inflation to a 12-year high of 8.7 percent in February this year. Experts estimate they contributed three-fourths of the exceptional 4.8 percent rise in the consumer price index (CPI), the key gauge of inflation, last year, even though last month's CPI rise might have dropped to 8.3 percent, according to the People's Bank of China's Vice-Governor Liu Shiyu.

The official figure is to be released today, but a Reuters report citing an insider, too, points to an 8.3 percent CPI growth in March. This means a growth of 8 percent in the first quarter against the benchmark bank deposit interest rate of 4.14 percent.

More than a mere economic issue, rising prices become a major concern in people's daily life. There is hope, though, because the food price rise seems to be easing of late. In the longer term, however, restraints on the country's agricultural production, such as diminishing farmland area, increasing farming costs and potential increase in demand still pose a big challenge, analysts say.

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