Low grain harvest, rising food prices and China

I want to stitch together some pieces of information, a set of events unfolding, that that I describe as a double Achilles Heel in ethanol production here in China. It

In southern China flood waters have submerged about 9.7 million hectares (21.5 million acres) putting the total submerged and parched dry land at one-sixth of the country’s 120 million-hectares (288 million acres) of arable land. Add to this, the damage to half-a-million hectares (1.2 million acres) that have been devoured by rice-plant hoppers in Sichuan Province, and at this time it is not clear whether the drought, flood and insect pests would force Beijing to turn to imports. Drought-stricken areas are the country’s key bases of grain production; flood-hit areas are the key to rice production. The 2006-2007 grain forecast is razor-thin, consumption versus production, and remember that China leads the world in consumption of rice and wheat. If China indeed turns to imports, how much additional grain will be required, and how much will it drive up grain prices on the world market?

The consumer Price Index (CPI) grew 5.6% in July 2007, the highest in ten years, with meat (especially pork rising 43% in one year), poultry, eggs and grains leading the index. The following month, in August, China declared a moratorium on the construction of most ethanol plants. Chinese officials recognized that producing corn-based ethanol was linked to rapidly rising food prices. Xu Dingming, an official of the National Energy Leading Group, told a recent seminar: