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The Chinese government on Tuesday unveiled plans to offer an extra 12.5 billion yuan (US$1.56 billion) in direct subsidies to nearly 600 million grain growers to offset rising production costs.

The subsidies would bring total direct subsidies to grain growers to 26.7 billion yuan, up 102 percent year on year, the Ministry of Finance said in a statement.

The latest move was designed to offset the impact of hikes in the prices of production materials such as diesel oil, chemical fertilizer and pesticides.

The government announced a processed oil price hike on March 26, but at the same time set up a mechanism to offer subsidies to those who would be most affected by the decision including disadvantaged communities and public service organizations.

But analysts reckon that the subsidies being offered aren't adequate enough.

The NDRC, which regulates energy prices, said the cost price of gasoline would rise by 300 yuan (US$37.5) per ton while that of diesel oil would go up by 200 yuan per ton.

The government started offering subsidies to grain growers from 2004 in a bid to encourage production at a time when output was falling after four consecutive years of declining profits.

Farmers were paid a total of 11.6 billion yuan (US$1.45 billion) in direct subsidies in 2004. 138.92 million rural families in 13 major grain-producing areas were given 10.28 billion yuan (US$1.28 billion). Farmers in 16 other localities were allocated 1.3 billion yuan in direct subsidies.

The subsidies resulted in a net rise in income of 74 yuan (US$9) per average rural family.

The sum might look insignificant, but it represents a milestone for China because it was the first time that subsidies were given.

Subsidies were previously reserved for state-owned grain trading firms that purchased grain from farmers at prices set by the state, usually above market value.

Wan Baorui, former deputy agricultural minister, said farmers benefited little from such indirect grain subsidies because the trading firms were usually inefficient.

(Xinhua News Agency April 12, 2006)