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China to Pay More for Rice, Wheat

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[March 28, 2008]  BEIJING (AP) -- China said Friday it will pay farmers more for rice and wheat, trying to raise output and cool surging inflation that threatens to fuel unrest ahead of the Beijing Olympics.

Beijing has frozen retail prices of rice, cooking oil and other goods in an effort to rein in food costs that jumped 23.3 percent in February over the same month last year. But analysts warn that holding down prices paid to farmers will discourage them from raising production and easing shortages blamed for the increases.

The latest move is meant to "raise farmers' enthusiasm for growing grain and make progress in the development in grain production," the Cabinet's National Development and Reform Commission said in a statement announcing the change. It said minimum grain prices paid to farmers would rise by up to 9 percent.

Prices started to rise sharply in mid-2007 as China ran short of grain and pork, the country's staple meat.

The jump in food costs has hit ordinary Chinese hard in a society where families spend up to half their incomes on food, prompting unease among communist leaders about unrest just as they are hoping the Olympics will showcase China as stable and prosperous. Bouts of inflation in the 1980s and '90s led to public protests.

Premier Wen Jiabao, China's top economic official, says cooling inflation is the government's top priority. He says Beijing hopes to hold this year's overall inflation to 4.8 percent -- equal to the 2007 rate -- but outside economists say that looks unrealistic. They are forecasting full-year price rises of up to 6.4 percent.

Beijing has been prodding farmers to raise production by promising free vaccinations for pigs and other aid. Authorities say China has adequate food supplies. But devastating snowstorms that hit the south in January and February wrecked crops and disrupted shipping, adding to inflation pressures.

"China should increase policy support" and give "stronger signals to mobilize and protect the initiative of farmers to plant crops," Wen said Thursday during a nationwide video conference with government officials, according to the state Xinhua News Agency.

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The snowstorms and a drought in the northeast will make it "harder to ensure grain supplies this year," Xinhua said, citing Chen Xiwen, a rural planning official.

Under the latest order, prices paid for rice will rise by 7 yuan, or $1.00, per 50 kilograms (110 pounds) to 77 to 82 yuan ($11-$11.70), depending on the type, according to the NDRC.

Wheat prices will rise by 3 to 5 yuan (43 cents to 71 cents) to 72 to 75 yuan ($10.24-$10.70) per 50 kilograms.

The Cabinet also decided to spend an additional 20.6 billion yuan ($2.9 billion) to subsidize farmers' purchases of seed, diesel, fertilizer and pesticide, Xinhua said. It said that would raise this year's total subsidies to 75.9 billion yuan ($10.8 billion).

The communist government regards being able to meet most of China's grain needs from domestic sources as a matter of national security. It operates a network of grain-buying offices and a grain stockpile. It has been releasing supplies to ease shortages.

The stockpile's size is a secret but Wen said this month that it is 150 to 200 million tons.

The government also has frozen prices for gasoline, electricity, public transit and school fees.

Chinese oil companies complain the controls are causing them huge losses by blocking them from passing on record-high crude prices to consumers.

That has prompted refiners to refrain from investing in expanding production, leading to diesel shortages that have disrupted trucking in key export areas of the fast-growing southeast.


On the Net:

National Development and Reform Commission (in Chinese): http://www.ndrc.gov.cn/

[Associated Press; By JOE McDONALD]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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