China's grain prices surged 30 percent in March from the same period last year, driving the country's inflation rate to 3 percent.

Overall food prices rose 7.9 percent last month, due to the surge in prices of rice, corn, wheat and other staple grains, the National Bureau of Statistics reported Monday. China's edible oil prices rose 26 percent during the period while meat prices rose 15 percent and eggs rose 19 percent. Vegetable prices fell 15 percent in the first quarter, moderating the rise in food prices.

Qu Hongbin, chief economist of HSBC in Hong Kong, said the rocketing food prices had been resulted from reduced production of farm products and farmland as well.

China's grain production has fallen four consecutive years to a 15-year low of about 431 million tons last year.

"The problem may be solved by the government's more efficient distribution system and its policy to encourage farming," Qu said.

To solve the shortage in grain supply, the government has taken measures such as cutting farm taxes and boosting subsidies to reverse the trend. China plans to pay 940 million yuan (US$114 million) in "urgent subsidies" to farmers in the country's main rice-producing provinces to boost production of the grain, according to China's Ministry of Finance.

The government will also release enough grain from its reserves to limit wheat and rice price increases to 20 percent this year and corn price increases to 10 percent, said the State Development and Reform Commission's price forecast center last month. However, the government's efforts to keep the economy from overheating and igniting inflation have been unfruitful so far.

Last month, the Shanghai Development and Reform Commission said the city's rice prices were keeping stable at 3.6 yuan per kilogram. But consumers found market prices have already surpassed that level.

"Prices of rice and oil increase almost every week. That has greatly raised our daily spending," Zhu Xiaofang, a local housewife, said.

(eastday.com April 20, 2004)