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 [Asia Times]China wants food first, not fuel

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PostSubject: [Asia Times]China wants food first, not fuel   Fri 15 Jun - 7:01

By Antoaneta Bezlova



BEIJING - A customary Chinese greeting from the years of rations and shortages
- "Have you eaten yet?" - is being jokingly resurrected as the public
watches the prices of key staples, particularly pork, soaring by the day.

Chinese economic minders, however, are not amused. Worried about social
instability fueled by inflation, they have been mulling over whether to steady
prices by using the state strategic reserve of hundreds of thousands of live
pigs kept at special farms for contingencies.

Disturbingly, this is the second time in seven months that the Chinese
leadership has had to resort to the country's strategic reserves to stave off
politically dangerous increases in food prices. In December, Beijing ordered
the auctioning of some of the state wheat reserves to halt the rise in crops
prices and prevent panic among the public.

"Almost every inflationary crisis in the past 20 years has begun with an
increase in food prices," noted Xia Yeliang, professor of economics at
Peking University. "Historically Chinese people have always regarded food
as their first necessity. For people of middle age and the elderly, the
memories of most recent times when food was lacking still endure."

The last big famine China experienced - arguably the greatest in human history
- during the disastrous Great Leap Forward experiment with communist
industrialization in the late 1950s, killed up to 30 million people. Since
then, ensuring food sufficiency for the country's population of 1.3 billion has
been regarded by Chinese leaders as a matter of national security.

Current hikes in both grain and pork prices are blamed on the same culprit -
the ethanol industry, whose explosive growth has been gobbling up a growing
share of China's corn (maize) harvest traditionally preserved for food and
animal feed.

Having promoted the production of the environmentally friendly gasoline
additive for years, Chinese economic planners now fear the sector has grown too
much and too quickly, presenting them with an uncomfortable dilemma of choosing
between the country's green agenda and its national food security.

Leadership fears were clearly manifested late last month when Premier Wen
Jiabao visited a meat market in Xian, central China, to check the prices of
pork. He called on local officials to pay pig breeders to increase production
and tried to reassure the public that the situation was under control. As of
mid-May, prices of pork were up by 43% compared with the same period last year,
said the Agriculture Ministry.

Soaring pork prices have been partly blamed on outbreaks of contagious pig
disease, which swept 22 Chinese provinces, killing 18,000 pigs in the first
five months of the year and disrupting the pig industry. About a million pigs
died from the disease last year.

Yet the root of the problem, according to officials, is not the disease.
"The main reason is the big price increases of animal feed that began last
June," Jia Youling, director of the Veterinary Bureau affiliated with the
ministry, said at a press briefing this week.

Pig feed, which is made mostly of corn, simply followed increases in corn
prices. Prices of the commodity have risen by up to 30% since the latter half
of last year, according to the ministry.

What is more, producers have ignored a government limit on converting about 3
million tonnes of corn into ethanol a year and used up to 16 million tonnes of
the crop in 2006, the ministry said in April.

China has been encouraging the production of biofuel such as ethanol and
bio-diesel from renewable resources to satisfy the country's voracious appetite
for energy and reduce its growing dependence on imported petroleum.

Biofuel is also touted as green panacea for environmental problems caused by
oil. Chinese planners have made the development of green energies a key
priority in the country's five-year economic plan. By 2020 they want renewable
energy to account for 15% of the country's total supply.

While a relative latecomer to the biofuel market, in the past two years China
has grown to be the world's third-largest producer after Brazil and the United
States.

The National Development and Reform Commission (NDRC), China's top planning
body, reported in December that the country's ethanol capacity had reached 10
million tonnes, or 10 times the amount approved for the four government
facilities in Jilin, Heilongjiang, Anhui and Henan provinces.

The excess amount has been coming from a cluster of small, unlicensed
producers, who sell their production to officially approved mills or oil
refineries. Industry insiders say that just Jilin, one of the nine designated
provinces where ethanol is sold, has more than 400 ethanol mills, all of them producing
the fuel from corn.

Fearing that the explosive growth of the ethanol industry was making a serious
dent in the country's grain reserves, the central government stopped approving
new corn-based ethanol plants in December. This month it took another step,
announcing that it would stop the production of ethanol from corn altogether.

Xiong Bilin, a senior official with the NDRC, said the State Council, China's
cabinet, has decided ethanol should be developed without occupying arable land,
large-scale consumption of grain, or damage to the environment.

Despite three straight years of bumper harvests, Chinese planners are still
worried that fast-shrinking farmland could affect grain supply in the near
future. Arable land is said to have shrunk by 8 million hectares between 1999
and 2005.

"The country will not approve new projects of food-based ethanol,"
Xiong told a development forum in Beijing last week. "The current four
[state] plants engaged in making ethanol from corn are urged to switch to new sources."

This, however, might not see the end of corn-based ethanol production in the
country. Chinese press reports say domestic corn processors are rapidly
expanding their capacities to resume ethanol production when the government
relaxes its stance.


Copyright 2007 Asia Times Online Ltd.
All rights reserved.

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