Voluntary Report - Public distribution

**Date:** 4/21/2008

**GAIN Report Number:** CH8025

CH8025

**China, Peoples Republic of**

**Agricultural Situation**

**Increasing Food Prices**

**2008**

**Approved by:**

![](media/image1.wmf)William Westman

AgBeijing

**Prepared by:**

AgBeijing Staff

**Report Highlights:** On April 16, China\'s National Bureau of
Statistics announced that the CPI for the first quarter of 2008 grew
eight percent. This increase was partially a result of a 21 percent
increase in food prices, which account for about one third of China's
CPI. These increases are mostly attributed to cost-push inflation,
increased consumption, and greater demand for food products throughout
China. Short global agricultural commodity supplies, devastating winter
storms, and animal diseases have also contributed to sharp increase in
food prices over the last year in China. The central government has
responded with various measures to decrease producer costs and maintain
domestic supplies, leading to a generally increased level of government
intervention in the market.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Beijing \[CH1\]

\[CH\]

Table of Contents

[**Rising Food Prices in China 3**](#rising-food-prices-in-china)

[Supply and Demand Factors 4](#supply-and-demand-factors)

[Corn and Grain Supplies Not Immediate Concern
4](#corn-and-grain-supplies-not-immediate-concern)

[China As Oilseed and Vegetable Oil Price Taker
4](#china-as-oilseed-and-vegetable-oil-price-taker)

[Animal Diseases Contribute to Higher Food Prices
4](#animal-diseases-contribute-to-higher-food-prices)

[Impact of Winter Snow Storms 5](#impact-of-winter-snow-storms)

[Increasing Cost of Farm Inputs 5](#increasing-cost-of-farm-inputs)

[Water Quality & Quantity 5](#water-quality-quantity)

[Labor Shortages Increasing 6](#labor-shortages-increasing)

[Government Policy Changes 6](#government-policy-changes)

[Government Intervention to Curb Inflation
6](#government-intervention-to-curb-inflation)

[Renminbi Appreciation 6](#renminbi-appreciation)

[Disincentives for Grain Exports and Grain-Based Biofuels
6](#disincentives-for-grain-exports-and-grain-based-biofuels)

[New Fertilizer Duties 7](#new-fertilizer-duties)

[Restrictions on Investment 7](#restrictions-on-investment)

[Subsidies and Other Support for Staple Products
8](#subsidies-and-other-support-for-staple-products)

[Farm Machinery for Grains 8](#farm-machinery-for-grains)

[Fuel and Fertilizer for Grains 8](#fuel-and-fertilizer-for-grains)

[Seed and Machinery for Oilseeds 8](#seed-and-machinery-for-oilseeds)

[Insurance for Pork Production 8](#insurance-for-pork-production)

[Elimination of Agricultural Tax 8](#elimination-of-agricultural-tax)

[Price Controls & Consumption Subsidies
9](#price-controls-consumption-subsidies)

[U.S. Government Response 9](#u.s.-government-response)

[Outlook for Production 9](#outlook-for-production)

[Monthly Wholesale Price Data 10](#monthly-wholesale-price-data)

# Rising Food Prices in China

On April 16, 2008 China\'s National Bureau of Statistics announced that
the Consumer Price Index (CPI) for the first quarter of 2008 grew eight
percent, compared with 2.7 percent in the first quarter of 2007, and
well above the government's target of 4.8 percent. Food prices, which
account for about one-third of China's CPI, rose 21 percent in the first
quarter of 2008 compared to a year ago. These increases can mostly be
attributed to inflationary pressures resulting from global commodity
(food, energy, and raw materials) price rises. However, this trend is
compounded by China's rising incomes and the pressure resulting from an
overall increase in consumption. Urbanization of prime arable land and
supply shortfalls in certain food categories because of animal diseases
and winter snowstorms have also contributed to rising inflation. In
February, China's inflation rose to 8.7 percent, its biggest jump in 12
years. Producer prices also continued rising, up six percent in January.
This cost-push inflation was driven by the increase in the cost of raw
materials, farm labor, and fuel and transportation costs. Premier Wen
Jiabao has said the primary task for China this year is to curb
inflation and maintain food prices.

![](media/image2.wmf){width="4.354166666666667in"
height="2.8270833333333334in"}Higher prices for staple goods like pork,
wheat, and soybeans have the most widespread impact throughout the
country. Pork prices increased 69 percent in February 2008, with beef
and lamb not far behind. Wholesale prices for corn and wheat flour have
increased an average of 18 and 9 percent, respectively, from 2006 to
2007. Similarly, the price of soybeans increased 35 percent. However,
price increases are not confined to staple foods in China. In Beijing\'s
Xinfadi Primary Product Market, the largest wholesale food market in the
city, the price of cabbage has increased 50 percent since February 2008.
The impact of higher food prices is more severe in China's rural areas
and for poor urban consumers, where families spend around half of their
income on food.

Food price increases are impacting China's restaurant sector as well.
Fast food chains McDonald's and KFC, the largest chain restaurants in
China, have raised prices for a number of products. In February 2008,
KFC raised the price of a sandwich to 13.5 Yuan (nearly \$2), citing
"the continuous increase of raw material, labor, water, and electricity
costs." (China Daily March 26, 2008)

**Variety of Contributing Factors Lead to Increasing Government
Intervention**

There have been a variety of external and internal factors that have led
to this inflationary situation, but the general Chinese response has
been to increase governmental involvement in the market in order to
protect the perceived public interest. This increased control and
intervention reverses moves over the past several years toward more
openness in domestic markets and trade. It is uncertain if this is a
short-term response to inflation and global prices or will be a longer
term trend.

The main market factors influencing prices have been: 1) tight grain
supplies (especially exportable supply); 2) higher commodity price
transmitted through rising vegetable protein and oil imports; 3) animal
disease outbreaks; 4) winter 2008 storms; and 5) increasing cost of
various farm inputs. China's response to the inflationary challenge has
included: 1) disincentives for food and grain exports; 2) fertilizer and
farm input export taxes; 3) investment restrictions; 4) increased farm
subsidy and insurance programs; 5) farm tax reductions; 6) Renminbi
appreciation; 7) food price caps; 8) consumption subsidies; and 9)
increased national stockholding.

Each of the following sections will briefly summarize these factors and
reference the previous GAIN report that contains the original or full
information. Table 1 at the end of the report details wholesale market
prices for the key agricultural commodities in China.

## 

# Supply and Demand Factors

## Corn and Grain Supplies Not Immediate Concern

Considering the high level of overall production in grains in China, the
country is fairly isolated from global markets and prices because China
neither exports nor imports a significant percentage of any grain
product. This situation is a result of high transportation costs and
poor logistics to export terminals, high and increasing domestic demand,
and government incentives for local use. Nonetheless, China retains a
fairly fine balance between supply and demand in many grains.

China's corn production was adversely impacted by persistent drought in
May-July 2007, resulting in a six percent decrease in MY07/08. Increases
in the livestock sector and expanded industrial use have also put
pressure on domestic corn supplies, resulting in higher prices. This
situation also prevented Chinese corn exporters from exporting
significantly more corn to nearby South Korean or Japanese markets at
the current high international prices. MY07/08 corn and wheat prices are
up 18 and 9 percent, respectively, over the previous year. The average
rice price has been slightly lower than the previous year. (See GAIN
Report CH8001).

Historically, China has been extremely apprehensive about reducing its
stocks or strategic reserves, out of fear it could lead to social
unrest. In its transition from a state planned economy to a market
economy, the central government has reacted in the past by implementing
price controls to curb inflation and prevent higher prices.

## China As Oilseed and Vegetable Oil Price Taker

China's increasing level of dependency on imports for oilseed and
vegetable oils means that its domestic markets are guided by
international prices. In soybeans in particular, the high level of
imports means that China has influence on the international market
although it remains a price taker. The influence of international prices
in oilseeds and vegetable oils on domestic markets clearly makes Chinese
leaders uncomfortable, resulting in many of the recent policy changes.

In 2007, China's soybean prices increased in response to the global
price surge for grain and oilseeds. At the end of 2007, the China
National Grains and Oils Information Center reported that wholesale
prices for soybeans, soybean meal, and oil soared by 62, 70 and 45
percent, respectively from January 2007. (See GAIN Report CH8010).

## Animal Diseases Contribute to Higher Food Prices

In May 2007, an outbreak of Porcine Reproductive and Respiratory
Syndrome (PRRS, or Blue Ear Disease) caused a loss of an estimated 40
million pigs and resulted in a pork price increase of 45 percent
compared to 2006. High prices also caused a shift in consumption as
Chinese cut consumption and altered their diet to include more poultry,
beef, and soy products. The high pork prices and strong demand fueled
U.S. pork exports to China, which increased 73 percent from January to
July 2007.

![](media/image3.wmf){width="3.6666666666666665in"
height="2.7284722222222224in"}Since 2003, Highly Pathogenic Avian
Influenza (HPAI) outbreaks in China have impacted poultry production.
However, the outlawing of live poultry wet markets, the implementation
of other regulations governing production

and reduced HPAI outbreaks in 2007 have kept broiler prices below pork
prices. China's average year-on-year wholesale broiler price in 2007
climbed 31 percent, to U.S. \$1.30 per kilogram, while the live chicken
price went up by 39 percent, to \$1.45 per kilogram (See GAIN Reports
CH8013 and CH8014).

## Impact of Winter Snow Storms

In January and February 2008, China experienced its worst winter storms
in 40 years. The severe weather affected roads and railways, disrupting
supply channels in cities, villages, and especially remote areas. The
weather also damaged or destroyed crops and transportation delays
resulted in food shortages on store shelves. Temporary price increases
of over 100 percent were experienced in some of China's 12 southern
provinces hit by the storm.

Power disruptions and coal shortages created problems for China's
southern animal and poultry farms. The storms killed 63.1 million
poultry birds, 4.09 million pigs, 393,000 cattle, and 1.38 million sheep
and goats. There were 2,028 breeding animal and poultry farms impacted
by the disaster.

The storm also caused damage to the spring 2008 rapeseed, fruit, and
vegetable crops. While the MY08/09 rapeseed planted area is forecast at
7.1 MHa, up eight percent over the previous year, harvested area is
forecast to be only 6.7 MHa because of storm damage. China's MY08/09
citrus production is expected to decrease by 10-15 percent as a result
of freezing temperatures during the storms. In Liaoning province, an
estimated 500,000 tons of vegetables rotted before reaching consumers.
The same was true in the southern provinces, where most of China's
vegetables are produced. In total, the storms resulted in economic
losses totaling RMB 151.7 billion (\$21.4 billion).

## 

## Increasing Cost of Farm Inputs

# 

### Water Quality & Quantity

There is no official regulation of water prices in China and the lack of
a price mechanism leads to overuse of water in some areas for
agriculture. Before 1985, most consumers were not charged for water use
and it was viewed as being a universally-owned commodity. Agriculture
and industry were not encouraged to invest in water treatment or water
conservation infrastructure. Recent reforms to water policy are slowing
beginning change, but experts suggest that water is still purchased at
close to 10 percent below cost for fear of slowing economic growth. The
larger concern is a chronic shortage of water in China's Northern
provinces. A decreasing water table and the encroaching of the Gobi
Desert present serious availability concerns for China's agriculture.
Water for agricultural use accounts for ¾ of China's total volume
consumed and is priced at 0.03 Yuan (40 cents) per cubic meter,
according to the World Bank. Water quality is also an issue due to the
high level of industrial pollution and lack of appropriate sanitation
facilities.

### Labor Shortages Increasing

The February 21, 2008 census published by the National Statistics Bureau
states that industrialization and urbanization have attracted more than
131.8 million rural laborers to cities, with male labor accounting for
64 percent of the total, causing a falling labor supply in the
countryside. According to the Green Book on Population and Labor
published by the China Academy of Social Sciences in 2007, three-fourths
of Chinese villages have no extra youth to emigrate to cities. Even for
those who stay on the farm, paid work in the village is often more
attractive than farming.

On January 1, China's new Labor Contract Law (LCL) went into effect. The
LCL compliments China's 1994 Labor Law and the Trade Union Law, amended
in 2001. Its purpose is to promote the use of labor contracts to better
protect the legal rights of workers. To that end, the LCL breaks new
ground in non-competition clauses, collective consultation and
contracts, tightening rules on part-time and temporary workers, and
regulates labor contracting agencies. This law may attract even more
rural labor to urban areas because it mandates a package of benefits and
salaries that farms have difficulty matching. The law also requires
employers to provide proper benefits and salaries, which may increase
costs further.

# Government Policy Changes

## Government Intervention to Curb Inflation 

Premier Wen Jiabao has said the primary task for China this year is to
curb inflation and maintain food prices. At the National Party Congress
meeting in March 2008, Ministry of Agriculture Vice Minister Wei
reiterated the Central Government's commitment to guarantee food
security and keep food prices down. In January, the Central Government
announced a series of measures to "reduce inflation expectations of the
public." These measures included a freeze on the price of gasoline,
natural gas, and electricity, as well as price controls for a number of
staple products including cooking oil, pork, eggs, instant noodles,
milk, and grains. China is also expected to put more imported meat from
strategic reserves on the market to curb meat prices and support
consumption. The government insists this intervention is only a means to
stop "unreasonable price hikes," and has promised to subsidize companies
to offset any loss they suffer as a result of government intervention.

## Renminbi Appreciation

As part of its effort to curb imported inflation, China has allowed the
Yuan to rise 4.18 percent against the dollar in the first quarter of
2008, compared to a rise of seven percent during 2007. To help control
lending that contributes to China's overheating economy, the Central
Bank announced on April 16 it will raise commercial banks\' reserve
requirement ratio by 50 basis points to 16 percent, up from 10 percent a
year ago. The central government has increased interest rates six times
since January 2007, and although the CPI\'s rate of increase has slowed
slightly since February 2008, economists believe the overall inflation
rate remains very high.

## Disincentives for Grain Exports and Grain-Based Biofuels

Effective December 20, 2007, the Chinese Ministry of Finance and State
Taxation Administration jointly published a notice removing the export
rebate on wheat, paddy rice, rice (milled), corn, other cereals,
soybeans, and their derived flour byproducts. The removal covers 84
products with HS codes ranging from 100110 to 120810. Prior to December
20, 2007, most of these agricultural products were entitled to a 13
percent rebate of their declared value at exporting ports. This export
subsidy constituted the bulk of the profit for grain traders. In early
January 2008, the central government announced it would also levy
provisional export taxes on grains and their flour products to further
discourage exports. These policies are designed to address concerns over
rising domestic food prices and criticism that food exports might be
contributing to inflationary pressures (See GAIN Report CH7093 and
CH8001).

In addition to the removal of the export rebate and the new taxation
measure, the Chinese government also announced that exports of wheat,
corn, and rice flour products would be subject to export license
management beginning January 2008. The license regime is intended to cap
the export volume of such products in case flour product exports were
still viable despite the high export tax rate. Post estimates that the
combination of recent policy shifts will greatly reduce China's exports
of grains and flour products in MY07/08 and for as long as the policy
remains in place.

Rising international fuel prices in 2006 propelled a leap in China's
ethanol exports, which rose over 500 percent from 2005. Chinese
government concerns that the development of export oriented ethanol
plants might lead to domestic grain shortages led to the elimination of
the 13-percent VAT rebate on ethanol exports, in January 2007, which
resulted in an 87 percent drop in ethanol exports in 2007. The
government also stopped approving new corn biofuels processing plants in
2007 and 2008 and continues to limit ethanol exports. Essentially,
ethanol production plants were the government's scapegoat to tighter
domestic supplies and higher world prices for corn. Protecting against a
major grains shortage seems to be the central government's chief
imperative in the agricultural sector.

## New Fertilizer Duties

In an April 17 posting on its website, the Ministry of Finance (MOF)
announced the State Council Tariff Committee will impose a 100 percent
special export duty on fertilizer and related material exports between
April 20 and September 30, 2008. This will affect 32 tariff lines
including phosphoric acid, ammonia, nitrogen, phosphate, potash, and
compound fertilizer. This is the second such action in 2008. On February
15, the government imposed export duties on four kinds of fertilizers.
MOF stated that runaway exports resulted in domestic supply strain and
price increases as demand began to soar in tandem with the spring
planting. The tariff increase is intended to help restrain rising prices
and guarantee an abundant grain harvest for the year. Over the last 10
years China has transitioned from being a net importer of phosphate
fertilizer to being a net exporter. The United States has been the
hardest hit by this shift, since it previously supplied 95 percent of
China's phosphate imports.

## Restrictions on Investment 

On December 1, 2007 the State Council's \"Industrial Catalog for Foreign
Investment (2007 Amendment)\" became effective. It is designed to
provide information for Chinese and foreign companies regarding
governmental investment and industrial policy. Specifically, it provides
guidance for investments that the Chinese Government favors,
discourages, or bans.

The new investment catalogue shows China's continued concern about
foreign participation in the food sector and its perceived impact on
food security. Three particular areas are a concern for U.S. companies:
seed production and development, soybean processing, and distribution
services. China has incrementally increased the threshold for
development and production of conventional seeds and continues to
completely ban investment in the genetically enhanced seed business.
Restrictions on the seed industry seem contradictory to China's aim of
increasing agricultural productivity, but China's agriculture
establishment sees this as a way to protect the many small domestic
firms and technology from competition from multinational companies. The
addition of soybean processing to the catalogue shows the government's
concern over consolidation in the crushing industry and the
multinationals strong position with efficient, modern crushers located
in the more logistically advantageous coastal provinces. Lastly,
distribution services restrictions may limit the ability of retailers to
develop their own solutions to delivery or storage problems,
particularly as they move farther into second and third-tier city
markets.

## Subsidies and Other Support for Staple Products

### Farm Machinery for Grains

In 2007, the central government provided \$267 million (RMB 2 billion)
for the purchase of farm machinery, up 230 percent from 2006. This
program covered two thirds of agricultural counties nationwide, though
some of the criteria for distribution and usage remains unclear.
Complementing central government funds, the provincial governments
provided \$173 million (RMB 1.3 billion) in 2007, up 14 percent from the
previous year. The subsidy offsets the cost of purchases by reimbursing
the farmer or compensating the seller for 20 to 30 percent of the
purchase price. The subsidy mainly supported the mechanization of wheat
harvesting and rice planting. In 2007, the government also started
trials on mechanized corn harvesting.

### Fuel and Fertilizer for Grains

In 2007, a comprehensive subsidy on fuel and fertilizer for grain
farmers totaled \$3.6 billion (RMB 27.6 billion), up 120 percent from
the previous year. The program, started in 2006, intends to partially
compensate farmers for price increases in fuel, fertilizer, and other
agricultural inputs. According to the Ministry of Finance, the
comprehensive subsidy averaged about \$14.50 per farm household in 2007.

### Seed and Machinery for Oilseeds

In 2007, the government initiated a new plan to boost domestic oilseeds
production, including soybeans, rapeseed, and peanuts. According to the
Ministry of Agriculture, the soybean area receiving seed and machinery
subsidies (\$20-30/Ha) expanded to 2.7 MHa in MY08/09 from the 670,000
Ha in MY07/08.

### Insurance for Pork Production

From July 1, 2006 -- June 30, 2007, the government provided RMB 50 (\$7)
cash for swine farmers for each producing sow, which benefited
approximately 46.89 million head. The project was expanded to RMB 100
(\$14.10) from July 1, 2007 -- June 30, 2009. The government also
provided subsidies for producing sow insurance, with the premium for
each head costing RMB60 (\$8.5) and the government paying 80 percent of
that cost. In 2007, China invested RMB 2.5 billion (\$352 million) to
support standardized animal production. The same amount will be spent in
2008. To ease farmers' cash flow and encourage stable pork production,
the bank loan pay-back period was extended from one to three years for
swine farmers with difficulties.

## Elimination of Agricultural Tax

Since 2004, the government has begun reducing agricultural taxes on
farmland to help encourage production, while simultaneously introducing
direct payments. Prior to 2004, there was a seven percent tax on all
agricultural production. In 2006, the government announced that all
provinces had eliminated the agricultural tax.

**National Stocks**

While stock levels are considered a national secret by the Chinese
government and this issue remains a very difficult problem in
forecasting supply and demand. However, in 2007 and 2008 Chinese
government sources have repeatedly announced additional purchases of
agricultural commodities for public stockholding. These announcements
suggest that public stocks of soybeans, soybean and other vegetable
oils, sugar, and meat are increasing.

Post forecasts ending stocks for MY08/09 to be 35.4 MMT, down 1.4 MMT,
from the previous year as domestic consumption outpaces production.
Although the National Statistical Bureau (NSB) surveyed stock levels of
government entities, the survey data was not made public and is, at
best, incomplete. Prior to 2007, the central government provided export
supports to provinces holding national corn stocks, but to help control
China's domestic grain supply these export incentives have been
abolished. (see GAIN report CH7015). Post forecasts that ending stocks
for wheat in MY08/09 will be 42.6 MMT, up by 2.5 MMT, from the previous
year as a result of four straight years of bumper harvests. Ending
stocks are forecast to reach 38.6 in MY08/09.

## Price Controls & Consumption Subsidies

Finally, the Chinese government has tried to impose price controls and
subsidize consumption. For some commodities, merchants must ask
permission from the central government before raising prices. At the
same time, there are many different consumption subsidies across the
country that variously target students, orphans, the elderly or others.

# U.S. Government Response

USAID\'s activities in China are limited to assisting certain
disadvantaged communities, a regional HIV/AIDS program in Guangxi and
Yunnan provinces, and support for American Schools and Hospitals abroad.
While inflation and increasing food prices are regularly addressed
during Country Team and Econ Cluster meetings, no specific group has
been established to work on these issues.

## 

Agricultural Crop Sown Area in Million Hectares

<table>
<colgroup>
<col style="width: 9%" />
<col style="width: 7%" />
<col style="width: 8%" />
<col style="width: 7%" />
<col style="width: 11%" />
<col style="width: 8%" />
<col style="width: 11%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 8%" />
<col style="width: 7%" />
</colgroup>
<tbody>
<tr class="odd">
<td>Year/Crop</td>
<td>Rice</td>
<td>Wheat</td>
<td>Corn</td>
<td>Soybeans</td>
<td>Cotton</td>
<td>Rapeseed</td>
<td>Tubers</td>
<td>Peanut</td>
<td>Vege-tables</td>
<td><p>Sun-</p>
<p>flower</p></td>
</tr>
<tr class="even">
<td>2002</td>
<td>28.2</td>
<td>23.9</td>
<td>24.6</td>
<td>9.6</td>
<td>4.2</td>
<td>8.5</td>
<td>9.9</td>
<td>5</td>
<td>17.4</td>
<td>NA</td>
</tr>
<tr class="odd">
<td>2003</td>
<td>26.5</td>
<td>22</td>
<td>24</td>
<td>9.5</td>
<td>5.1</td>
<td>8</td>
<td>9.7</td>
<td>5.4</td>
<td>18</td>
<td>1.2</td>
</tr>
<tr class="even">
<td>2004</td>
<td>28.4</td>
<td>21.6</td>
<td>25.4</td>
<td>9.6</td>
<td>5.7</td>
<td>7.3</td>
<td>9.5</td>
<td>4.7</td>
<td>18.5</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td>2005</td>
<td>28.8</td>
<td>22.8</td>
<td>26.4</td>
<td>9.6</td>
<td>5.1</td>
<td>7.3</td>
<td>9.5</td>
<td>4.7</td>
<td>17.7</td>
<td>1</td>
</tr>
<tr class="even">
<td>2006</td>
<td>29.3</td>
<td>23</td>
<td>27</td>
<td>9.3</td>
<td>5.4</td>
<td>6.9</td>
<td>9.5</td>
<td>4.6</td>
<td>18.2</td>
<td>1</td>
</tr>
<tr class="odd">
<td>*2007</td>
<td>29.3</td>
<td>23</td>
<td>27.5</td>
<td>8.6</td>
<td>5.5</td>
<td>6.5</td>
<td>9.5</td>
<td>4.6</td>
<td>18.2</td>
<td>1</td>
</tr>
<tr class="even">
<td colspan="11">Source: State Statistics Bureau.  *Estimates by USDA
and FAS/China.</td>
</tr>
</tbody>
</table>

# Outlook for Production 

Total sown area for all crops is expected to remain generally stable at
more than 150 million hectares. Grains and oilseeds account for the
largest share, though the planted area for vegetables and other
horticultural products is increasing.  Many of China's farmers use
multiple cropping, which demands enormous year-round agricultural
resources - water, seeds, fertilizer, and labor.  China's central
government estimates that the 2008 sown area for grain crops will
increase by three MHa over 2007, mainly because of the government's
efforts to increase the national grain supply and contribute to the
national reserve.  Additionally, a decline in soybeans and rapeseed
production because of lower farmer profits the previous season will also
contribute to an increase in grain plantings in China.  Total sown area
for all crops is unlikely to fluctuate dramatically because of the
limited availability of arable land.  However, the planted area
designated for individual crops may vary slightly from year to year in
response to the market situation.

 

**Agricultural Crop Yields in Metric Ton per Hectare**

  ------------- ------- ------- --------- ---------- --------- ---------- ---------
  Year/Crop     Rice    Wheat   Corn      Soybeans   Cotton    Rapeseed   Peanut

  2002          6.2     3.8     4.9       1.7        1.2       1.5        3

  2003          6.1     3.9     4.8       1.6        1         1.6        2.9

  2004          6.3     4.3     5.1       1.8        1.1       1.8        3

  2005          6.3     4.3     5.3       1.7        1.1       1.6        3

  2006          6.2     4.55    5.4       1.7        1.25      1.8        3.2

  \*2007        6.2     4.6     5.4       1.6        1.25      1.7        3.2

  Source: State                                                           
  Statistics                                                              
  Bureau.                                                                 
  \*Estimates                                                             
  by USDA and                                                             
  FAS/China.                                                              
  ------------- ------- ------- --------- ---------- --------- ---------- ---------

# 

# Monthly Wholesale Price Data

  ----------- ----------- ---------- ---------- ----------- -------------- ---------- ---------- -------------
  **Monthly                                                                                      
  Wholesale                                                                                      
  Ag Product                                                                                     
  Average                                                                                        
  Prices**                                                                                       

  **In                                                                                           
  RMB/KG**                                                                                       

  **Year**    **Month**   **Rice**   **Corn**   **Wheat**   **Soybeans**   **Beef**   **Pork**   **Poultry**

  **2006**    **Jan**     2.37       2.33       2.27        3.34           16.63      11.09      7.85

              **Feb**     2.28       2.31       2.22        3.27           17.21      10.80      7.85

              **Mar**     2.43       1.96       2.23        3.23           16.46      9.96       7.61

              **Apr**     2.33       1.88       2.16        3.28           16.76      9.57       7.62

              **May**     2.38       2.12       2.20        3.38           16.42      9.42       7.73

              **Jun**     2.42       1.88       2.14        3.26           16.14      9.30       7.46

              **Jul**     2.22       1.87       2.02        3.13           16.38      10.41      8.25

              **Aug**     2.28       1.97       2.13        3.48           16.56      10.93      8.39

              **Sep**     2.38       2.01       2.23        3.30           16.84      11.66      9.06

              **Oct**     2.36       1.72       2.12        3.01           16.31      11.75      9.33

              **Nov**     2.42       1.94       2.28        3.21           16.21      12.49      9.49

              **Dec**     2.45       2.08       2.29        3.23           16.63      13.18      9.24

  **2007**    **Jan**     2.52       2.21       2.40        3.58           17.43      13.71      9.10

              **Feb**     2.52       1.94       2.28        3.44           17.83      13.61      9.75

              **Mar**     2.61       2.02       2.27        3.48           17.17      13.01      9.95

              **Apr**     2.61       2.01       2.28        3.43           17.52      14.80      10.31

              **May**     2.60       1.89       2.29        3.44           17.60      15.61      10.60

              **Jun**     2.67       1.73       2.26        3.49           18.61      16.48      11.83

              **Jul**     2.76       1.75       2.29        3.45           19.50      20.07      11.72

              **Aug**     2.74       1.88       2.36        3.78           20.75      20.02      12.28

              **Sep**     2.79       1.93       2.39        3.80           21.46      18.60      11.80

              **Oct**     2.76       1.94       2.36        4.12           22.28      18.43      11.46

              **Nov**     2.76       2.19       2.42        4.72           23.53      20.02      11.02

              **Dec**     2.76       2.21       2.55        5.00           24.83      21.75      11.11

  **2008**    **Jan**     2.81       2.12       2.54        5.18           27.59      23.24      11.70

              **Feb**     2.79       2.23       2.59        5.63           28.83      23.24      11.94

              **Mar**     2.73       2.65       2.56        6.23           27.84      23.04      12.08
  ----------- ----------- ---------- ---------- ----------- -------------- ---------- ---------- -------------

  ------------ ---------- ---------------- ------------ ------------- --------- --------------
  **Monthly                                                                     
  Wholesale Ag                                                                  
  Product                                                                       
  Average                                                                       
  Prices                                                                        
  (cont.)**                                                                     

  **Prices in                                                                   
  RMB/KG**                                                                      

  **Year**     **Eggs**   **Vegetables**   **Fruits**   **Soybean     **Palm    **Vegetable
                                                        Oil**         Oil**     Oil**

  **2006**     4.69       2.42             5.41         5.95          4.56      6.32

               4.57       2.01             4.41         5.87          4.55      6.14

               4.37       2.18             4.27         5.83          4.69      6.34

               4.34       2.00             4.10         5.79          4.73      6.38

               4.40       1.60             4.01         5.80          4.78      6.47

               4.51       1.08             3.82         5.83          4.88      6.23

               5.14       0.85             4.21         5.78          4.80      6.38

               5.63       0.97             3.58         5.81          4.48      6.61

               6.08       1.29             4.55         6.00          4.68      6.69

               5.94       1.14             3.97         5.83          4.61      7.16

               6.02       1.41             6.35         6.59          5.16      7.62

               6.26       1.73             4.95         6.92          5.82      7.88

  **2007**     5.85       1.67             4.60         7.49          5.88      8.76

               6.24       1.96             4.81         7.51          6.30      8.43

               5.92       1.93             3.96         7.32          7.23      8.05

               6.51       1.57             3.47         7.43          7.43      8.30

               6.79       1.50             3.29         7.70          7.79      8.47

               6.50       1.22             3.00         8.19          7.72      9.00

               6.39       1.44             2.54         8.18          7.82      9.19

               6.99       1.57             2.53         8.73          8.17      9.49

               7.01       1.53             3.43         8.89          8.45      9.80

               6.77       1.81             3.30         9.05          8.50      9.98

               6.44       1.72             4.80         9.79          9.03      10.67

               6.22       1.87             7.02         10.28         9.33      11.31

  **2008**     6.40       2.36             5.80         11.64         10.63     12.22

               6.16       2.38             5.00         13.24         12.03     13.11

               6.10       2.34             4.65         15.14         11.85     14.80

                                                                                

  Note:                                                                         
  Vegetables                                                                    
  price is the                                                                  
  average                                                                       
  prices of                                                                     
  potato and                                                                    
  tomato                                                                        

  Fruits price                                                                  
  is the                                                                        
  average                                                                       
  price of                                                                      
  apple,                                                                        
  banana, ya                                                                    
  pear and                                                                      
  strawberry                                                                    
  ------------ ---------- ---------------- ------------ ------------- --------- --------------

Source: Ministry of Agriculture

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