By Zhu Qiwen

    BEIJING, Jan. 5 -- It seems inconceivable that in a year when inflation spiked because of food prices, Chinese farmers would become relatively poorer when compared to their urban cousins.

    The most recent forecast of the annual per capita growth in the net income of farmers placed it at 7 or 8 percent last year. Meanwhile, the disposable income of urbanites grew by 13 percent.

    Consequently, the already huge urban-rural income gap appears to have widened in 2007, to the dismay of policymakers.

    The disappointing results should spur a re-examination of the government's approach to combating inflation.

    Recent reports on the challenges farmers face in selling their produce have shed some light on this dilemma.

    While the prices of most goods seem to have climbed last year, a local newspaper reported that farmers in the county of Xiayiy, Henan Province, were having trouble selling some 15,000 mu (1,000 hectares) of Chinese cabbage. They had even cut the price of the vegetable to only 0.18 yuan per kilogram, but still could not find a buyer.

    Chinese cabbage, a staple vegetable in North China, sells for about 0.4 yuan per kilogram at the wholesale market in Zhengzhou, the provincial capital. But it is not unusual nowadays to hear urban consumers complain that the price has risen too much. At supermarkets in major cities, the cabbage can be found for 2 yuan per kilogram. So why are vegetable growers having such a hard time?

    Rising fuel costs are the main culprit. According to the local newspaper, the price of diesel climbed from 3.2 yuan per liter in 2005 to 5.2 yuan per liter last year. The increase in transportation costs has made it a profitless endeavor to sell Chinese cabbage for 0.18 yuan kilogram in Xiayi County as well as 0.40 yuan kilogram in Zhengzhou.     

    Cabbage growers in Xiayi are certainly not alone in suffering from soaring transportation costs.

    A report by Nanfengchuang, a bi-weekly magazine, described the hardship facing orange farmers in Hubei Province who were struggling to sell oranges at the end of last year because of a shortage in the diesel supply. Oranges were selling for 1.2 yuan per kilogram in 2006 there. The price fell to less than 1 yuan per kilogram last year, but there were still no buyers.

    These cases vividly illustrate how price increases have hit farmers hard, even in a year when they achieved a fourth consecutive year of increased yields and as food prices soared by about 18 percent.

    Policymakers should respond quickly to such problems if they are to rein in inflation while avoiding undermining their long-term efforts to narrow the wealth gap across the country.

    Government departments have come up with measures such as the "Green Passage" system for fresh farm produce to alleviate the burden of transportation costs.

    Several provinces have jointed the program to reduce road tolls and speed up transportation of fresh farm produce.

    However, such measures are still not enough to cushion farmers against rising fuel costs.

    In fact, pricing authorities have kept a lid on oil prices in the fear of higher inflation.

    As the global crude price skyrocketed from $70 a barrel in July to $100 a barrel this week, the government allowed the domestic retail oil price to rise by less than 10 percent.

    With inflation hovering above 6 percent for four months, it is certainly not a good time to reform the pricing system for energy and resources by bringing the domestic refined oil price in line with the prices on the international market.

    But policymakers should be aware that the existing regulations governing domestic oil prices constitute a blanket subsidy for all users, regardless of their different exposure to rising fuel costs.

    This practice obviously goes against the nation's development strategy of conserving energy. As it pursues sustainable growth, the country has been struggling to cut its energy intensity by 20 percent between 2006 and 2010. Controlled oil prices will only permit foot-dragging when it comes to energy efficiency.

    Moreover, the de facto universal fuel subsidy could make things worse for farmers and those in dire need of fiscal support.

    To ensure an oil supply at a price that is below the international level, the government has had to repeatedly offer subsidies worth billions of yuan to the country's oil companies to cover their losses from oil refining. This is a clear-cut depletion of government funds that could otherwise be used to help the most needy.

    As the above-mentioned cases show, if just a portion of the astronomical subsidies given to State oil giants were given to farmers, they would have a much better chance of withstanding inflation.

    But if they are left alone to shoulder all the price hikes, it is more than likely that farmers will fall further behind despite all the government efforts to narrow the urban-rural income gap.

    Inflation expectations remain high this year. It is necessary for the government to do what is necessary to prevent serious price increases.

    To help farmers withstand the impact of inflation, policymakers should come up with targeted subsidies.

    After all, the government already has the wherewithal to lift some of the extra burden farmers must bear because the national coffers have swelled rapidly in recent years.

    (Source: China Daily)