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Corn+Soybean Digest

China Warns Of Tough 2009 For Farmers


China's government Sunday warned 2009 will be "possibly the toughest year" since the turn of the century in terms of economic development and consolidating the "sound development momentum" in agriculture and rural areas, vowing price support, land controls and curbs on imports to shore up flagging rural incomes and ward off unrest.

The first policy document of the year issued by the State Council, or cabinet, and the Communist Party Central Committee, contained a warning about the pressures from the global financial crisis, falling commodity prices and rising migrant worker unemployment.

"At present, the international financial crisis continues to spread its negative impact on our country's economy has been deepening by the day, and the shocks to agricultural and rural development are constantly emerging," said the document issued through the Xinhua news agency.

China's economic growth slumped to 6.8% last quarter, dragging down the pace of expansion for all of 2008 to a seven-year low of 9% as the full force of the global financial crisis struck home. The slowdown in 2008 snapped a five-year streak of double-digit growth that turned China into the third-largest economy in the world after the U.S. and Japan.

China is pinning its hopes on boosting domestic demand to achieve an 8% GDP growth target this year. But income growth slowed in 2008 as the economy weakened, with average incomes in cities outpacing those in the countryside for the 11th year in a row.

A wave of factory shutdowns in the wake of falling exports has also left up to 26 million migrant workers unemployed and put downward pressure on the wages of those who have hung on to their jobs, adding to worries among officials about a rise in social unrest.

China wants to tap rural spending potential to jolt economic growth out of the slowdown. "The development of agriculture and rural areas in 2009 is of special significance," the State Council said. "The biggest potential for boosting domestic demand lies in rural areas. The foundation for securing steady and relative fast economic growth is based upon agriculture. The toughest work of securing and improving people's livelihoods stays with farmers."

In the document, the sixth of its kind to address rural problems since 2004, the government urged authorities to avoid declining grain production and stagnancy in farmers' incomes and to ensure the steady expansion of agriculture and rural stability.

The government statement set out broad policies – but no specifics – to address these worries.

More money will go to agricultural subsidies, including expanded support for soy and rapeseed varieties. Budget outlays and bond revenues will be "skewed" more to villages. More government earnings from farmland taken for commercial development will go to rural needs.

Minimum purchase prices for cereals will be raised and the government will increase reserve holdings of cereals, cotton, edible oils and pork.

In a step that could stir friction with other major agricultural nations, the document also suggested the government may strengthen controls on some imports. "The timing and rhythm of imports and exports of major agricultural commodities must be properly mastered, supporting exports of competitive agricultural exports and preventing excessive imports of some commodities shaking the domestic market."

China's government has already made some moves to shore up domestic farm prices. In late 2008, it announced plans to add to its reserves by buying a total of 22.5 million metric tons of rice, 6 million tons of soybeans and 30 million tons of corn, supporting the domestic market after a record grain harvest and weak demand caused prices to slip.

And the National Development and Reform Commission, the top economic planner, announced last month it would lift minimum purchase prices for rice by more than 10% to shore up farmers' incomes.

Chen Xiwen, director of the Office of the Central Rural Work Leading Group, said in a news conference on Monday that China's government will keep stocking grain for its state reserves and will encourage companies to build up commercial storage in a move to prevent sharp price declines.

Chen said the government planned to offer farmers up to 120 billion yuan ($17.53 billion) of subsidies this year, up from 102.9 billion yuan in 2008, to increase their incomes and protect them from suffering a heavy blow from the economic slowdown.

On top of that, Beijing would increase the minimum grain price for state purchases by an average of 0.22 yuan per kg, which would add more than 110 billion yuan of extra income for farmers based on 2008 production of 530 million tons, Chen said.

Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.

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