Can China Tackle The Great Grain Challenge?

From Reuters:

China has shown that it can act by raising domestic fuel prices, but will Beijing be able to tackle an even thornier issue: cheap subsidized grain?

After oil, grain could be the next big price risk for China. The government shifted the focus of its agricultural subsidies from protecting farmers’ incomes to shielding its 1.3 billion consumers from inflation when food prices surged last year.

In response, Beijing tried to restrict exports and promote imports. Good harvests and restrictions in the last four years had prevented Chinese grains prices from rising as fast as international prices.

But as so often with subsidies, where one worry subsides, another one rises in its place. Chinese farmers are facing the same inflation in farm input costs as their global counterparts. International fertilizer prices are surging along with oil, and although the government shields the farmers to some extent, it cannot keep up, especially on labor costs.


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