China spending too little to stem farm drain

By Niu Shuping and Nao Nakanishi - Analysis

BEIJING/HONG KONG (Reuters) - The fear of failing to grow enough corn, wheat or rice to feed its people has spurred China into action this year, but Beijing may be doing too little, too late to overcome the powerful forces of urbanization.

Just as global grain markets grapple with ultra-low stocks and record-high prices, China is battling to stem the destruction of its arable land due to urban sprawl, the growing scarcity of water and the exodus of labor to its booming cities by directing tens of billions of dollars to rural areas.

But it needs to do much more to counter the impact of the greatest urbanization in history, say analysts.

"The subsidies are still very low," said Li Guoxiang, a researcher with the Rural Development Institute at the Chinese Academy of Social Sciences, the top government think-tank on rural policies.

He said direct subsidies accounted only for about 5 percent of farmers' income in China --- well below 60 percent in some developed countries, such as the United States or Japan.

With 20 percent of the world's population but only 7 percent of the earth's farmland, China has done well to grow enough rice, corn and wheat to feed its people thus far.

But with diets improving, and meat and dairy consumption rising, those days are ending, possibly faster than many expect, adding to growing global unease over future food supplies.

Beijing has pledged to keep at least 120 million hectares of arable land. But it says it is coming close to the redline, and in fact may have crossed it due to illegal land use.

China has already lost about one percent of its agricultural land -- the equivalent of Holland and Belgium combined -- every year for the past eight years, says Frederic Hervouet, BNP Paribas' head of commodity investor derivatives.

"The grain supply is secured in the short term. But there is big pressure in the long term," said Li.

"The most important thing ... is to protect farmland. Now everywhere in the country, they are taking the land away for industrialization or to build industrial parks."

COOKING OIL, SUBSIDIES

This year's cooking oil crisis -- where domestic prices surged behind global rates, causing supplies to dry up in some areas -- highlighted Beijing's unease about relying on foreign supply for the world's most populous country, whose government places social stability uppermost among its national priorities.

While it's too late to reverse its reliance on imported vegetable oils, Beijing is doling out money like never before to its vast but shrinking army of rural toilers, exhorting them to begin planting corn, rice or soy to help secure national supply.

"We should go back to basics, take measures to further increase agricultural yield and supply, to offset grain price hikes globally," Ma Kai, one of China's five state councilors and secretary-general of the cabinet, said last month.