For the first time in China's history, grain prices are rising
not due to a poor harvest or increasing demand but because of
soaring international oil prices.
To feed the nation's increasing appetite for energy, a huge
amount of capital including from overseas is chasing corn, soy and
wheat for biofuel production; and pushing up prices to record
highs.
Wang Jinmin, a professor in agricultural products economics at
the Chinese Academy of Agricultural Sciences, said: "The rise in
corn prices is a strong factor driving up the prices of other food
products.
"And with its increasing role as a crude-oil substitute and
environmentally-friendly energy, prices are unlikely to drop in the
long run."
Analysts say that while industrial use only accounts for about a
sixth of overall corn consumption, it is expanding at up to 15
percent a year, fuelled by high crude oil prices.
Official estimates are that annual corn consumption by
processing industries would rise to 20 million tons from 16 million
tons last year; and reach 40 million tons by 2010. Total
consumption is expected to be 125 million tons this year.
Ethanol is the main biofuel produced in China with output
hitting 1.02 million tons in 2005 and corn accounted for 76 percent
of the raw material. The others are mainly wheat and sorghum.
The country plans to produce about 6 million tons of ethanol by
2010 and 15 million tons by 2020 in addition to 5 million tons of
biodiesel.
In comparison, the United States produced an estimated 15.1
million tons last year, while Brazil the world leader had an output
of 16.9 million tons.
Ethanol can account for up to 10 percent of refined products,
whose total production was 48 million tons last year. But the gap
between the potential demand of 4.8 million tons and actual output
of about 1 million tons last year, is huge.
The markets have been quick to take advantage.
The price of corn in Shenyang, capital of Liaoning Province,
stood at 1,400 yuan (US$175) per ton yesterday, a jump of 50 yuan
(US$7.5) or 3.7 percent, within a week.
In the futures market, wheat and corn prices have also seen big
boom.
Sources at the Dalian Commodity Exchange said corn prices have
jumped 19.5 percent in the two months ending November, a 10-year
high.
In east China's Shandong Province, wheat prices have risen from
below 1.4 yuan (US$17 cents) per kilogram in September to 1.6 yuan
(US$19 cents).
"We predict that agricultural products will be as hot as
petroleum in the future," a futures agent surnamed Wang from the
Dalian Commodity Exchange told China Daily.
The National Development and Reform Commission said in June that
biofuels would make up 10 percent of all fuels by 2010, the figure
rising to 16 percent by 2020.
The country's top economic planner also said in August that
ethanol-mixed gasoline was being sold in nine provinces.
(China Daily December 6, 2006)