China said yesterday it would pay farmers more for rice and wheat, trying to raise output and cool surging inflation that threatens to fuel unrest ahead of the Beijing Olympics.
Beijing has frozen retail prices of rice, cooking oil and other goods in an effort to rein in food costs that jumped 23.3 percent last month over the same month last year. But analysts warn that holding down prices paid to farmers will discourage them from raising production and easing shortages blamed for the increases.
The latest move is meant to "raise farmers' enthusiasm for growing grain and make progress in the development in grain production," the Cabinet's National Development and Reform Commission said in a statement announcing the change. It said minimum grain prices paid to farmers would rise by up to 9 percent.
Chinese Premier Wen Jiabao (溫家寶) has said that cooling inflation is the government's top priority.
He says Beijing hopes to hold this year's overall inflation to 4.8 percent -- equal to last year's rate -- but economists say that looks unrealistic. They are forecasting full-year price rises of up to 6.4 percent.
"China should increase policy support" and give "stronger signals to mobilize and protect the initiative of farmers to plant crops," Wen said on Thursday during a nationwide video conference with government officials, according to the state Xinhua news agency.
Under the latest order, prices paid for rice will rise by 7 yuan (US$1) per 50kg to between 77 yuan and 82 yuan, depending on the type, the commission said.
Wheat prices will rise by between 3 yuan and 5 yuan to between 72 yuan and 75 yuan per 50kg.
The Cabinet also decided to spend an additional 20.6 billion yuan to subsidize farmers' purchases of seed, diesel, fertilizer and pesticide, Xinhua said. It said that would raise this year's total subsidies to 75.9 billion yuan.
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