No.4  November 2009  
   Crop Prospects and Food Situation

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Food emergencies update

Global cereal supply and demand brief

Special feature: Domestic food prices in developing countries
remain high

Special feature: El Niño-Southern Oscillation (ENSO)

Special feature: how China stabilized grain prices during the recent globalfood price crisis

Low-Income Food-Deficit Countries food situation overview

Regional reviews

Statistical Appendix


How China Stabilized Grain Prices during the recent
Globalfood Price crisis

The Government of China (GOC) considers self-sufficiency in food production and food security a top national priority. Major food policy objectives of the Chinese government in recent years include food self-sufficiency (especially in rice, wheat, and maize), ensuring urban food supply at stable prices and raising farmers' income.

Main Measures Implemented

Price stability has always been important to China's government. Faced with soaring international food and fuel prices and sharp rises in domestic food prices and inflationary pressures since mid-2007, the central government has responded with an increased level of government intervention in the market and with various measures, such as increasing grain production, maintaining domestic supplies, and stabilizing domestic grain prices. These measures include:

1) Grain production policies to support grain production and farmers' income, which included raising minimum procurement prices for rice and wheat and increased non-price subsidies to grain production.

The government initiated the minimum price scheme in 2004 as an incentive for increasing production of rice and wheat. The minimum prices in 2004 for early rice and japonica rice were announced at RMB 1 400 and RMB 1 500 per tonne respectively. The floor price levels remained unchanged in 2005, 2006, and 2007. However, in 2008 as a production incentive measure, the central government increased the floor price per tonne by RMB 100 for early indica rice, RMB 140 for Japonica rice, 100 for white wheat, and 160 for red/mixed wheat as compared to the previous year. The government announced in 2009 a further increase of rice and wheat floor prices, by 15 percent and 16 respectively.


Non-price government support programmes, 2005-2008
 Direct paymentSeed subsidyMachinery subsidyFuel/fertilizer subsidyTotal
Sources: MOA of China, USDA/FAS and FAO estimates.

Non-price Government Support Programmes include direct payments, seed subsidies, subsidies for farm machinery, and subsidies for farm use of fuel and fertilizers. The funds allocated to support these programmes are summarized in Table 1. The support levels have been increased substantially year by year to sustain grain production. Total aggregated subsidies in these programmes in 2008 reached RMB 102.9 billion (or USD 14.8 billion), double the previous year and over 3-1/2 times the amount granted in 2006. On a per hectare basis, total subsidies increased from USD 51 per hectare in 2006 to USD 166 in 2008 and on a per tonne basis, they increased from USD 10 in 2006 to about USD 33 in 2008.

2) Tightening grains and fertilizer export policies, including withdrawing rebates of value-added taxes (VAT) that encouraged maize and rice exports and bio-fuel products, introducing temporary export taxes on grains and fertilizers, introducing a grain export license.

Effective December 20, 2007, the Chinese government removed the export rebate (13 percent) on wheat, paddy rice, rice (milled), corn, other cereals, soybeans, and their derived flour by-products. Effective 13 June 2008, the Value Added Tax (VAT) rebate for exports of some vegetable oils was also eliminated. The export rebate (or VAT rebate) had been part of the tax incentive policy implemented to encourage exports of all categories of commodities since the 1980s.

3) Grain stock and marketing interventions, including an increase of the State controlled grain reserves through temporary procurement of rice and maize and transportation cost subsidies to move grains from the northeast provinces, the major grain surplus region, to grain deficit provinces of the country.

The above-mentioned three policy measures have effectively stabilized domestic grain prices and increased grain availability in China in recent years (see below for details).

Grain Output to Rise for Sixth Consecutive Year

The increased prices and government subsidies have encouraged farmers to plant more rice, wheat, and maize. The total grain (rice, wheat, and maize) area in 2008 reached 81.9 million hectares, 3.9 percent above the previous five-year average. The output of the three grains in 2008 reached a record of 406.7 million tonnes, 17.6 million tonnes or 4.5 percent above the previous year, marking the fifth consecutive year output increase. Higher grain production was achieved in spite of natural disasters and difficult domestic and international economic environments. Out of the total grain output in 2008, rice accounted for 132 million tonnes, with an increase of 4.8 million tonnes from the previous year, reflecting both large area and higher yields per hectare; the output of wheat was 112.5 million tonnes, some 2.6 million tonnes over that in the previous year, while maize output was 162 million tonnes, 10.2 million tonnes larger.

Overall cereal supply situation satisfactory and ratio of stocks to utilization increased significantly

The combination of grain export restriction measures and grain reserve accumulation measures brought domestic grain markets under control.

Ending stocks of rice, wheat and maize are now estimated to be much higher than in previous years. From 2004 to 2009, the ratio of ending stock to domestic utilization in China is estimated to have increased from 45 percent to 54.5 percent for rice and from 48 percent to 76 percent for wheat. These ratios are over three times as large as those for the rest of the world, highlighting the importance the Government of China places on national food security.

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Domestic Rice, Wheat, and Maize Prices Stabilized

The price of Thai 100% B second grade, f.o.b. Bangkok (the benchmark price for rice in international markets) in May 2008 recorded its peak level at USD 963/tonne (or RBM 6 713/tonne), 150 percent above that in January 2008 and about twice as high as a year earlier. By contrast, the domestic price of rice in China rose by only 10 percent (in nominal terms) for Japonica and 14 percent for Indica rice over the same period (See figure below). It is worth noting that while rice prices in China in May 2007 were almost the same as that for the Thai 100% B f.o.b. price, they were only about 40 percent the Thai prices in May 2008.

The average price for 2008 for the Thai 100% B rice was USD 697/tonne or RMB 4 700/tonne, 125 percent above that in 2006. In contrast to the world market price, rice prices in China in 2008 were RMB 2 701/tonne for Japonica variety and RMB 2 673/tonne for Indica variety, only 3 percent and 20 percent, respectively, over the average price in 2006.

Similar to the case for rice, China also avoided the price surges for wheat and maize which occurred in the world market. In the two years from 2006 to 2008, the domestic price in China increased by only 17 percent for wheat and 23 percent for maize, compared with the increase in the world market of 73 percent for wheat (US No.2, Hard Red Winter, US f.o.b. Gulf) and 34 percent increase for maize (US No.2, Yellow, U.S. Gulf) in terms of US dollars, and 51 percent and 61 percent in terms of the Chinese Yuan.

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