An expected tight supply in the Chinese grain market will continue to push up grain prices moderately over the next few years, agricultural officials and researchers warn; but they discount any large price fluctuations as the government, they believe, is capable of warding off a severe grain shortage in the country.

Ding Li, deputy director of the Agriculture Industrialization Office under the Ministry of Agriculture, said grain prices will maintain an upsurge due to a change in China's grain supply-demand relationship.

"In a market economy, it is reasonable for a price change to follow the change in the relations between supply and demand," he said.

"Based on the analysis of the future grain market and the trend of grain prices over the past few years, we expect domestic grain prices to continuously climb up by a small margin in the coming years."

The prediction was prompted by a recent hike in grain prices in some provinces and municipalities, the first since 1997.

Driven up by the grain price increase, the prices for flour, edible oil, meat, eggs and fodder have all seen a rise since October 1 in key grain-consuming areas, according to market data.

Prices for main cereals such as wheat, paddy rice and maize recorded sharp jumps over a short time in major grain-producing provinces.

Between October 16 and 19, wheat prices saw an average increase of 40 to 80 yuan (US$4.8 to US$9.6) per ton while maize prices went up by 80 to 120 yuan (US$9.6 to US$14.5) per ton in North China, one of the country's main crop-producers.

Li Jingmou, general manager of China Zhengzhou Grain Wholesale Market, blamed the grain price hike mainly on consecutive drops in the country's grain output.

From 1998, when the grain output reached a record high of 512 million tons, China's grain yield dived to 457 million tons in 2002.

Due to serious drought in spring and floods in autumn as well as decreasing crop-growing acreage, the total grain output of this year is estimated to see a drop for the fifth consecutive year.

"The shortfall in China has been gradually widening in some provinces, which may finally lead to a general tight supply nationwide," Li said.

Official statistics suggest that there has been an annual shortfall of about 25-35 million tons since 2000.

The shortfall has been made up for by the huge State inventory, which was estimated to stand at 250 million tons following successive bumper harvests between 1995 and 1998.

But Li warned that the existing supply may be depleted in the next two years if the current situation fails to improve.

"A shortage may come soon, with a turning point in the supply-demand relationship expected to appear around 2005," he said.

"But if some emergencies pop up, the shortage is likely to emerge ahead of our expectation."

Li Siheng, an adviser to the State Grain Reserve Administration, went as far as to caution that the price fluctuations in the international market would pressure prices on the Chinese market.

During 2002/2003, global output of wheat, coarse food grain and paddy rice is projected to stand at 2.031 billion tons, down by 63.3 million tons over the previous year.

This will be the sixth fall in global output since 1996/1997, which sent prices soaring on the international market.

China imports about 20 million tons of grain every year and the figure is predicted to top 30 million tons in the next few decades.

The country's total demand averages between 480 million and 490 million tons annually and will grow to approximately 640 million tons in 2030.

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