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　　The rising cost of grain in the international market has forced China to take action to stabilize prices.
　　On August 13, the Department of Pricing of the National Development and Reform Commission (NDRC) ordered top grain and edible oil producers to establish a reporting mechanism to provide updates on postproduction prices, wholesale prices and retail prices of edible oil.
　　Since July 24, the NDRC has been encouraging Yihan Kerry Group and COFCO Ltd., the two biggest edible oil producers, to stabilize prices for their lines of products.
　　The NDRC made two attempts in one month to regulate edible oil prices. Reporting mechanism on edible oil prices is the first step adopted by the Chinese Government to cope with soaring international grain prices.
　　
　　Reduced output
　　Due to serious droughts in the United States and Russia, world grain output fell markedly. According to figures from the U.S. Department of Agriculture, during the week ending on August 5, U.S. soybeans rated 39 percent very poor to poor, surpassing the lowest conditions observed during the drought of 1988; 50 percent of the U.S. corn crop was rated very poor to poor.
　　In June, the Ministry of Agriculture of the Russian Federation announced reductions in its expected grain output from 94 million tons to 85 million tons.
　　Reduced grain production has caused global grain prices to surge. According to figures released by the Food and Agriculture Organization (FAO) of the United Nations on August 9, the FAO Food Price Index climbed 6.1 percent in July to 213.1 points. The index, which measures the monthly change in the international prices of a basket of food commodities, averaged at 200.8 points in June.
　　According to figures from the Beijing Orient Agribusiness Consultant Ltd. (CnAgri), corn prices grew the fastest. In July, corn pric- es soared more than 100 percent over 2010.
　　Financial institutions such as Goldman Sachs, Credit Suisse and Macquarie also said the price hike of farm produce may continue in the short term.
　　The United States produces half of the world’s corn exports. Price hikes of U.S. corn crops may pass off inflation on the rest of the world, therefore U.S. supplies will affect prices of staple agricultural products. If food prices continue rising, the price hike will likely have a negative effect on other sectors, increase purchasing cost of grain importing nations and strengthen the pressure of imported inflation to developing countries.
　　The CnAgri report says grain price hike will worsen the impact suffered by poor countries, influence their food security and may even cause rises of market speculation and trade protectionism. For the poor global harvest, the first grain crisis for the past 30 years occurred in 2008.
　　Cheng Guoqiang, a researcher at the Development Research Center of the State Council, said in the short run a grain price hike will not lead to a grain crisis. At present, rice prices are stable, different from conditions in 2008. From 2005 to mid 2008, rapid expansion of biofuels increased global demand of cereal, sugar and vegetable oil, pushing up grain prices.
　　Although the present grain prices will not lead to a grain crisis, the situation should not be treated lightly. Many countries are closely watching the influence of the grain price hike. The French Ministry of Agriculture recently said as the global food security problem is exacerbated, the country will convene according to the framework of the Group of 20 to discuss food security issues and to seek common responses.
　　Soybean and corn
　　In China, 85 percent of soybean supplies and 40 percent of corn supplies are imported. Both crops are mainly used to produce edible oil. Chinese are highly dependent on vegetable oil. Soybean and corn are important raw materials to produce edible oil, and bean dregs, a by-product of edible oil production, are important materials to make feedstuff.
　　Among the corn imports by China, 90 percent come from the United States, and 50 percent of soybean imports are also from the United States. According to the Dalian Commodity Exchange and Zhengzhou Commodity Exchange, China’s two major grain futures markets, by August 27, the prices of imported soybean by China had risen from 3,750 yuan ($591.47) per ton at the beginning of this year to 4,972 yuan ($784.23), up 32.5 percent. Price increases of soybeans and corn have directly affected production costs and prices of edible oil in China. Prices of bean dregs are also affected, enhancing the pressure of feedstuff price hike. Under such circumstances, China may face a new round of price hikes of meat, eggs, oil and flour.
　　It is hard to judge the effect of the NDRC’s attempt to regulate edible oil prices. Li Guoxiang, a researcher at Rural Development Institute of the Chinese Academy of Social Sciences, said regulating edible oil prices in advance can counteract influence of the international market and prevent further sharp price hike.
　　Li said grain price in the international market transmits to the domestic market in two ways. First, it changes the expectations of market traders, which can be detected from the sharp rise of farm produce futures price in domestic commodity exchanges. Second, through imported farm produce it influences the prices of agricultural and sideline products, including prices of both upstream and downstream products. Such transmission has not yet been seen at present.
　　Staple food not affected
　　According to a report by the Department of Strategic Planning of Agricultural Bank of China, grain price hikes in the international market may push up grain prices in China. However, since 95 percent of China’s staple food consumption such as wheat and rice is satisfied with domestic supplies, and inventories of these grains are ample, general supplies will not drop dramatically and prices of wheat and rice are unlikely to soar.
　　According to figures from the National Bureau of Statistics (NBS), in July, grain prices rose by 0.2 percent over the previous month and by 3 percent over a year ago. The monthly growth was 0.1 percentage point higher than in June, but the yearly growth dropped by 0.2 percentage points.
　　In the first two weeks of August, in the edible agricultural products price index published by the Ministry of Commerce, food prices grew by 0.1 percent and 0.2 percent on the weekly basis respectively, which was on a normal level.
　　Li said China’s grain supplies have a high degree of self-sufficiency, less affected by the international market. Moreover, domestic grain production has seen a bumper harvest for nine consecutive years, therefore domestic grain supplies keep stable and big price hike is unlikely in the future.
　　NBS figures showed that in 2012, China’s total output of summer grain reached 129.95 million tons, up 3.56 million tons or 2.8 percent year on year, surpassing a record high in 1997. Supplies of summer grain are ample. Based on present information, a bumper harvest is expected for autumn grain production.
　　Li said judging from China’s macroeconomy, the country won’t face heavy pressure from price hikes. Grain prices account for a major proportion of the consumer price index (CPI). In July, the CPI rose by 1.8 percent, the lowest since February 2010, and lower than 2 percent for the first time in the past 30 months. The central bank didn’t relax the monetary policy in August, therefore even though the CPI may rebound in August, the growth won’t be high. This indicates that China’s pressure of a grain price hike is not serious.
　　According to Li, China hasn’t adopted market-oriented pricing measures for domestic farm produce, and the government often issues policies to regulate grain prices. China has already set up a grain reserve system and minimum purchasing price system. Once grain prices soar, the government can curb prices and stabilize domestic grain market through auctioning grain reserves.
　　Countermoves
　　“China’s self-efficiency of rice, wheat and even corn is very high, but now the international and domestic grain markets are closely connected. As the world’s most important grain exporter, the United States was hit by serious drought disaster, causing the grain prices to soar. It will be fruitless for China to attempt to isolate the domestic market from the international market so as to prevent any impact from the international market,” said Li.
　　Although the domestic grain market is stable now, the government should prevent international grain price fluctuations from being transmitted to the domestic market, he said.
　　According to figures from the General Administration of Customs, during the JanuaryJuly period, China imported 8.68 million tons of cereals and cereal flour, up by 261.3 percent year on year. Related government departments should be vigilant for such rapid growth.
　　As a big grain consumer and importer, China should not be too scared, said Li. With reserve grain in hand, there is no need for panic purchasing of grain. The high grain prices in the international market are expected to drop in some time. If China, the largest soybean buyer, does not purchase, the high international soybean prices would not last, he added.
　　Moreover, China should make appropriate readjustment to the import and export policies of farm produce. Particularly, when international grain prices remain high, China should be prudent in importing grains. With nine consecutive bumper harvests, China has amassed a big inventory. At this time, it should increase grain exports.