Domestic factors, supply shortages and price hikes on the global market have all contributed to rising prices for grain in China, according to Xie Fuzhan, head of the National Bureau of Statistics.

In 2006, China produced more than 490 billion kilograms of grain, a slim 1 percent increase on the 484 billion kg figure for 2005, but nevertheless an increase in output for the third straight year.

But the successful harvest has failed to rein in prices on the domestic market. Grain prices went up 4.7 percent on average last November, and are expected to rise 6 percent this year.

"The harvest is part of an ongoing recovery from low production levels in 2003 but the balance between demand and supply remains tense," Xie told a press conference held Thursday morning in Beijing.

Despite higher grain production, some kinds of cereals are still in short supply. And the price of a single product can affect others and drive up their prices, Xie explained.

Xie cited maize as an example. Maize, which is used as a raw material in the production of ethanol, is now sought after. China has increased its maize processing capacity from 50 to 70 billion kilograms per year, but in 2006 a shortage of supply meant that it could only process 35 billion kg. With supplies inadequate to meet demand, a price rise for maize is likely this year.

The global production of grain dropped 1.6 percent last year. Wheat was down 5.2 percent, cereal 2.1 percent and coarse food grain, such as maize, sorghum and millet, down 1.1 percent.

Pressure on supply has seen the prices of wheat and maize futures rise sharply on the Chicago Board Options Exchange (CBOE). In November, wheat futures were up 30 percent, maize 52 percent and rice 16 percent.

This drove up the cost of China's grain imports, and helped trigger a price rise on the Chinese grain market, Xie said.

Source: Xinhua