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

Statistics from the Ministry of Commerce, Ministry of Agriculture and the National Development and Reform Commission (NDRC) show that prices of grain, vegetables, meat and eggs have not only remained stable, but also dropped slightly, since last month.

"Although grain prices are rising across the world, domestic stock is ample," says China Merchants Securities analyst Wang Qiong. Hence, "grain prices would not contribute much to CPI growth in the short term".

Businessmen in Northeast China, for example, are transporting rice to the southern regions to help stabilize grain prices there, says Sun Zhongjun, a rice dealer in Panjin, Liaoning province.

The supply of meat, which was way below the demand last year, has improved and the rapid increase in vegetable prices in January and February because of distribution bottlenecks caused by inclement weather have been checked, thanks to normalization of transport, according to the NDRC.

The rise in edible oil prices around the globe, however, is still a major contributor to the increase in agricultural products' prices because China imports about two-thirds of its soybean, analysts say. "The impact of rising soybean prices across the world, however, will not become overt in China in the short term, and would therefore be limited," says State Information Center senior economist Zhu Baoliang. Plus "the overall demand and supply of agricultural products remain largely balanced."

The rise in grain prices around the world may not have an immediate effect on the domestic supply-demand balance, but it would ultimately harm the market, the analysts say. The US and some other developed countries are using more grains to produce bio-fuel, and this has especially pushed up corn prices. And because of the trade-off effect, farmers may tend to grow more corn instead of soybean, says Zhu. "Therefore, the rise in crude oil prices may lead to an increase both in corn and soybean prices." Also, domestic farmers could opt to grow more soybean if edible oil prices keep rising, and this could harm grain production.

Apart from rising production costs, the increase in people's income too will contribute to rising grain prices, says Li, of CASS. A rise in income levels will enable "people to consume more meat and milk, which means more grain input to produce them."

The rapid pace of urbanization is also a risk factor because it reduces the country's precious farmland area further, though the government has vowed to protect the lifeline of farming, the analysts say.

Last but not least, natural disasters such as drought and floods are a regular feature in China, making it hard to maintain a steady increase in grain production. Up to April 10 this year, 259 million mu of China's farmland (14 percent of the total) had been hit by drought, according to the State Flood Control and Drought Relief Headquarters.

And that may stop food prices to fall drastically, Li says. Instead, they could still increase by more than 12 percent this year against 12.3 percent last year.

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