Source: Xinhua

02-11-2009 15:48

Special Report:   Global Financial Crisis

XIPING COUNTY, Central China, Feb. 11 (Xinhua) -- Pan Fuzhong scoops up a handful of dirt from his wheat field and lets the gray dust sift between his fingers.

"I've never seen such a severe drought. Some seedlings are yellow and some are dead," says the 37-year-old farmer, who lives with his family in a populous village in China's central Henan Province.

In normal years, the wheat would be green and higher than his ankles at this time.

DROUGHT CUTTING INTO WHEAT YIELDS

Though the authorities used cloud-seeding technology to create rain on Saturday, Pan's 6 mu (0.4 hectare) harvest will still be well down.

He reckons he will lose 600 kg, or 1,080 yuan in income, as a result of one of China's worst droughts on record.

Pan and other farmers also have the extra costs of electricity and water fees to irrigate their crops or the price of irrigation machinery.

According to the State Flood Control and Drought Relief Headquarters, extremely low rainfall since late October has created an unusual drought in north China, traditionally the country's breadbasket.

As of Monday, about 136 million mu (9.1 million hectares) of winter wheat in eight major producing provinces was affected, of which 36 percent, or 49 million mu, was seriously affected. In addition, 3.5 million people and 1.66 million livestock had no access to drinking water.

Henan, which produces a quarter of China's wheat, is worst hit. Since October, it has seen about 10 mm of rain, 80 percent less than average, making it the worst drought since 1951. The provincial government says about 43.5 million mu of wheat is affected, 8.7 million seriously. In neighboring Anhui Province, drought has hit 25.9 million mu of wheat crops.

Agriculture Minister Sun Zhengcai said Friday in Anhui that more than 2.3 million mu of seedlings in Anhui, Henan and Shandong had died.

He warned the dry spell was forecast to continue and cause more losses.

Rain and mild temperatures in spring are key to determining wheat yields. Most of China's wheat production is in the North China Plain in central and eastern areas, which has been susceptible to drought.

The Agriculture Ministry has no estimates of wheat yield losses this year, but a senior weather official said on Feb. 3 that production was likely to be down 2 to 2.5 percent from last year, when China produced around 110 million tons of winter wheat.

Xiao Ziniu, director of the National Climate Center of the China Meteorological Administration, has warned the "once-in-a-half-century" drought will continue until next month.

The Anhui provincial government says the drought has caused losses of 1.6 billion yuan (234 million U.S. dollars). Henan has published no estimated losses, but Party chief Xu Guangchun said the drought had affected people's livelihoods and could undermine social stability.

"The drought is adding difficulties to an already grim economic situation owing to the impact of the global financial crisis," he said.

The futures market and investors quickly reacted to the prospect of lower yields. On Feb. 9, the major wheat futures for March delivery closed at 2,056 yuan per ton at Zhengzhou Commodity Exchange in Henan. It rose 6.1 percent, or 118 yuan per ton, in the nine trading days since Jan. 21.

RISING UNEMPLOYMENT AND FALLING PRICES

Fortunately Pan's family also raises pigs, which brought in 300,000 yuan in 2007 when pork prices soared due to the blue-ear pig virus.

But the global financial crisis has led to plunging produce prices since the second half of 2008, significantly cutting revenues for pig breeders, including Pan, who is now surviving on his savings.

The financial crisis is a serious threat to income growth for Chinese farmers. The central government's first policy document of the year, issued on Feb. 1, said 2009 would be "the toughest year" so far this century for agriculture and the rural economy given the falling produce prices and grim employment situation of migrant workers.

The main sources of income for China's 700 million rural people are the sale of produce, remittances from migrant workers, government subsidies and property-related business.

Last year, the average per capita net rural income reached 4,761 yuan, a real annual growth of 8 percent, or 621 yuan. The rate was 1.5 percentage points down from 2007.

Chen Xiwen, director of the office of the central leading group on rural work, says migrant worker remittances contributed more than 60 percent of the increase. But the swelling ranks of jobless migrants could seriously jeopardize further rises.

Chen said on Feb. 2 that more than 20 million rural migrants, 15.3 percent of the 130 million migrants working outside their hometowns, had returned home without jobs. With this year's 7 million new entrants to the rural labor market, China will have 25million jobless rural people.

"We are facing great pressure in migrant workers' employment this year. This means bigger difficulties in increasing (farmers') incomes."

Plunging produce prices are another major concern for farmers. Live pig prices have dropped from a high of 20 yuan per kg in late2007 to about 12.6 yuan. Oranges fell from 1.6 yuan per kg to 0.6 yuan; peanuts from 9.6 yuan per kg to 4.2 yuan; and cotton from 6.4 per kg to 4.2 yuan.

The financial crisis and the drought also worry the government, which pinned its hopes for an economic revival on stronger rural demand as exports fell. The Feb. 1 policy document said explicitly: "The biggest potential for boosting domestic demand lies in rural areas."

The export-dependent Chinese economy has slowed markedly. In the last quarter of 2008, GDP growth slid to 6.8 percent year-on-year, sharply down from 9 percent in the previous quarter. The rate was also the slowest since the fourth quarter of 1999, when the economy grew only 6.1 percent as a result of the Asian financial crisis.

The ruling Communist Party of China and the government fear a major failure concerning agriculture, farmers or rural areas, where more than half of China's population lives, could have serious social repercussions.

They have acted aggressively to minimize the impact of the twin crises.

President Hu Jintao, Premier Wen Jiabao and Vice Premier Li Keqiang have all given direct instructions on drought relief. At the weekend, Wen toured Henan, urging officials to make drought relief their top priority.

Drought was as much about stimulating domestic demand as it was about grain supply, said Wen. "It is of vital significance to the overall economy to boost steady growth of grain production and farmers' incomes."

On Thursday, the government declared the highest level of emergency and poured billions of special funds into drought relief. Local governments have organized millions of farmers to water wheat and other crops.

In Henan, the authorities hung red banners in villages to urge farmers to act quickly, sent text messages to farmers on how to irrigate crops in a scientific way, and even dispatched firefighters to help. Henan alone had spent nearly 700 million yuan in helping farmers fight the drought.

The Feb. 1 policy document also demanded governments spare no effort to maintain stable prices of agricultural produce, increase subsidies and create more jobs for migrants.

The government also urged firms to avoid layoffs if possible and employ more migrants in public works projects. A wave of construction projects in sectors such as transportation and energy have been launched since the government unveiled a 4-trillion-yuanstimulus package in November.

Chen Xiwen said the policy of purchasing grain from farmers at a state-set minimum price would continue to maintain price levels.

The government was considering raising minimum prices by 0.22 yuan per kg on average this year, which could see farmers' revenues up by more than 100 billion yuan, based on last year's record output of 528.5 million tons.

Last month, the National Development and Reform Commission (NDRC), the top economic planner, said it will raise the minimum purchase price for rice by up to 16.9 percent this year. It had already hiked the minimum price for wheat by as much as 15.3 percent starting this year.

Chen said the government would increase subsidies to grain producers this year to more than 120 billion yuan, 17 percent or 17.1 billion yuan more than last year. In addition, the NDRC and five other government agencies on Jan. 21 issued the country's first action plan to maintain the prices of live pigs and protect the livelihoods of people like Pan.

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Editor:Qin Yongjing