The Ministry of Commerce has issued a notice ensuring that grain and grain product supplies may be provided to Hong Kong, but it also warned of penalties for those who diverted such food shipments to other markets.

Wheat, corn, rice and flour made from these grains could only be sold to Hong Kong and violators would have their export licenses suspended. The licenses would only be available to suppliers who had signed agreements with designated Hong Kong counter-parties.

"The relevant authority should issue a license strictly according to the quota allocated by the government and note on the license that the export is only to Hong Kong with no transshipment is allowed," said the notice.

Hong Kong importers had to keep clear inventory and sales records that tracked food imported from the mainland, said the notice.

Controls on food exports started early this year, when the government imposed a temporary quota on the export of wheat, corn and rice products to guarantee domestic supplies.

Panic buying was reported in Hong Kong after the price of rice from Thailand, a major source for Hong Kong, shot up by about 30 percent in the past month. Rice hoarding has also been reported in the southern province of Guangdong, which borders Hong Kong.

Premier Wen Jiabao promised mainland supplies of rice and agricultural products to Hong Kong and Macao on March 31, adding that China, with 40 to 50 million tons of rice stocks, would not be greatly affected by global price hikes.

But as connections between the domestic and world grain markets increased, it had become more difficult to maintain stable domestic prices, said State Administration of Grain Director Nie Zhenbang.

Wheat and rice stocks had increased in recent years, but uneven stock distribution in producing areas and selling regions should be balanced, said Nie.

Seven major grain-selling areas are reporting substantial demand-supply imbalances, while 11 regions that both produce and sell grain have reported an increasing gap, Nie wrote in a signed article in the People's Daily, on Monday.

China harvested 501.5 million tons of grain in 2007, but prospects might be less favorable this year because the severe winter weather in southern regions damaged crops.

Meanwhile, northern China is experiencing its worst spring drought in years.

Since early this year, the average rainfall has been 5.5 mm in Heilongjiang, Jilin and Liaoning, Inner Mongolia, Hebei province, Beijing and Tianjin. That is less than half the average and the least since 1951, according to the China Meteorology Center.

"We should always keep alert in guaranteeing grain security," said Nie.

(Xinhua News Agency April 15, 2008)