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CHINA: Food First, Not Fuel

Antoaneta Bezlova

BEIJING, Jun 14 2007 (IPS) - A customary Chinese greeting from the years of rations and shortages – "have you eaten yet" – is being jokingly resurrected here 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 fuelled 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 six months that the Chinese leadership has had to resort to the country&#39s 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 last 20 years has begun with an increase in food prices," notes Xia Yeliang, professor of economics at Beijing University. "Historically Chinese people have always regarded food as their first necessity. For people of middle age and 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 industrialisation in late 1950s, killed up to 30 million people. Since then, ensuring food sufficiency for the country&#39s population of 1.3 billion has been regarded by Chinese leaders as a matter of national security.

Current hikes in 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&#39s corn 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&#39s green agenda and its national food security.

Leadership fears were clearly manifested in late May when Premier Wen Jiabao visited a meat market in Xian in 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 is under control. As of mid-May prices of pork have gone up by 43 percent compared with the same period last year, said the agriculture ministry.

Soaring pork prices have been partially 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 percent 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 tons of corn into ethanol a year and used up to 16 million tons of the crop in 2006, the ministry said in April.

China has been encouraging the production of biofuel such as ethanol and biodiesel from renewable resources to satisfy the country&#39s voracious appetite for energy and reduce its growing dependence on imported oil.

Biofuel is also touted as green panacea for environmental problems caused by polluting oil. Chinese planners have made the development of green energies a key priority in the country&#39s five-year economic plan. By 2020 they want renewable energy to account for 15 percent of the country&#39s total supply.

While a relative latecomer to the biofuel market, in the last two years China has grown to be the world&#39s third largest producer after Brazil and the United States.

The National Development and Reform Commission (NDRC), China&#39s top planning body, reported in December that the country&#39s ethanol capacity has reached 10 million tons, or ten 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 the explosive growth of ethanol industry was making a serious dent in the country&#39s 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 ethanol production from corn altogether.

Xiong Bilin, senior official with NDRC said that the State Council, China&#39s cabinet, has decided ethanol should be developed without occupying arable land, large-scale consumption of grain or damages to the environment.

Despite three straight years of bumper harvests, Chinese planners are still worried that fast-shrinking farming land 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.