China was hit by drought every year and history proved regional drought would only result in an imbalance between supply and demand and the temporary price fluctuation in that particular region, said Huang Dejun, chief analyst for Beijing Orient Agribusiness Consultant Ltd, a consulting firm specializing in agribusiness.

A local farmer looks at dying crop in the field in Shihuitang village of Shiping County, southwest China's Yunnan Province, March 24, 2010. The sustaining severe drought ravaged this region since last October and made no harvest of crops. [Xinhua]

"I don't expect the drought to have much impact on rice prices," he added.

The National Development and Reform Commission said Tuesday that the consumer price index (CPI), the main gauge of inflation would see a "moderate increase" in the first quarter, which was expected to be between 2 to 2.5 percent from a year earlier.

In February, China's CPI rose 2.7 percent from a year earlier, the highest in 16 months, and also neared the three percent full year target limit set by the government.

Premier Wen Jiabao told reporters on March 14 that managing inflation expectations was a crucial task apart from maintaining economic growth and promoting economic restructuring in 2010, the year Wen described as "the most complicated year" for the country's economy.

Wen noted agriculture was the life-line of the national economy, and its role in ensuring economic growth and managing inflation.

"But if the drought spreads into the major grain producing areas including the provinces of Hubei, Hunan and Jiangxi, it will create upward pressures on prices and push up inflation expectations," Huang remarked.

It might complicate the macro economic control for Chinese policy makers this year, he said.

Huang said harvests of sugarcane, rapeseed, tea would be affected as they were grown in the southwest regions, but their CPI weight was too small to have any meaningful impact.

It was estimated the national sugarcane output would drop 13 percent year on year because of the drought. But given the big decrease in international sugarcane prices, domestic output reduction would likely have limited impact on the prices, according to Thursday's Economic Information Daily.

Zheng Fengtian said the southwestern region had plentiful rainfall of about 1300 mm every year. The government should increase investment on irrigation infrastructure for water conservancy to safeguard against drought, he said.

(Xinhua News Agency March 26, 2010)