For Chen Baoquan, the recent price rise in agricultural products, although welcome, did not make him any happier as production and living costs were also up.

The 46-year-old farmer once thought, by taking advantage of rising crops prices, he could earn extra money to improve his family's living standard.

Other factors also contributed to his optimism: the government abolished the 2,600-year-old agricultural tax and started to offer direct subsidies to encourage crop growing and bridge the rural-urban income gap.

His dream, however, did not come true as the surging prices of agricultural production materials and the high overall price level erased the gains from crops sales.

Chen, from a village in Pingyuan in the eastern Shandong Province, said the 500 kilogram of wheat produced by one mu (0.067 hectares) of land, on average, could be sold for 800 yuan (US$112) as the current market price was 1.6 yuan per kg.

After deducting the production materials costs, including those for fertilizer and irrigation, the gross earnings, including labor, were only 500 yuan, he said.

"This (earnings) is almost flat from a couple of years ago. Though the wheat price rises by 0.2 yuan per kilogram, our production costs also surge."

He cited a 50-kg bag of compound fertilizer as an example. It had jumped to 200 yuan from 130 yuan a year ago.

The prices that started to rise since the beginning of last year had greatly eroded the purchasing power of hundreds of millions of low-income farmers like Chen.

"My family earns 5,000 yuan per year by growing crops. That could meet our living costs a year ago, but now that can no longer make ends meet," he said.

Chen Xiwen, director of the office of the central leading group on rural work, said on January 31 the price level of agricultural products should remain at reasonable and profitable levels to make farmers willing to engage in agricultural production.

Analysts believed farm produce prices were returning to normal levels as the country had long kept them artificially low to subsidize the development of the industry.

"People often see the benefits brought to farmers by the surging prices of agricultural products, but that is only one side of the coin," director Chen said. "Increasingly, more farmers are no longer self-sufficient. They also buy many consumer products, including food, at the markets."

Containing inflation

China's consumer price index (CPI), the main gauge of inflation, surged to an 11 year monthly high of 7.1 percent in January, mainly because of the huge increases in food prices and the worst snow in five decades.

Some analysts estimated the reading, scheduled to be released on Tuesday, may reach more than 8 percent in February. The CPI hit an 11-year high of 4.8 percent last year, well-above the government target of 3 percent.

The CPI target for 2008 was set at 4.8 percent, flat from last year, Premier Wen Jiabao said in the 2008 Government Work Report at the opening session of the country's legislature. He noted the major task of this year's macroeconomic control was to prevent the overall price level from rising rapidly.

To achieve the goal, Wen vowed to boost production, strengthen price monitoring and curb overly rapid price hikes in agricultural production materials.

To tame the surging inflation, China has since last year raised the deposit reserve requirement ratio 11 times and the benchmark interest rates six times. As of January 15, it launched temporary pricing interventions into basic life necessities, including grain, edible oils, meat, eggs, milk and natural gas.

Qin Qingwu, head of the agricultural economics institute under Shandong Provincial Social Science Academy, said a failure to curb the overall price levels and the huge hikes in agricultural production materials would hurt farmers' enthusiasm to grow crops.

"Many of them may leave the land to seek high-paying jobs in cities. That would result in a more severe shortage in agricultural products and thus higher inflationary pressures."

To boost farmers' incomes and bridge the widening rural-urban income gap, the government should steady the prices of production materials and strive to avoid steep price declines of farm produce, the researcher said.

"The government should also raise government subsidies and introduce more incentives to support agriculture and farmers," he added.

According to the Government Work Report, the budget earmarked for agriculture, farmers and rural areas this year was raised to 562.5 billion yuan, 130.7 billion yuan more than in 2007. The report also pledged to boost agricultural incentives and stick to a strict arable land protection policy.

All the pledges have helped to allay farmer Chen's concerns of higher inflation. "They have demonstrated the government's determination to rein in inflation," he said. "I believe the government can finally manage to ease inflation after taking timely and effective measures."

(Xinhua News Agency March 11, 2008)