CHINA DROUGHT: NOT A CRISIS YET

UNCLAS BEIJING 000331 SENSITIVE SIPDIS STATE PASS USDA/ERS STATE PASS USDA/FAS/OSTA CHINA DESK STATE PASS USTR FOR STRATFORD TREASURY FOR OASIA E.O. 12958: N/A TAGS: ECON SENV EAGR CH SUBJECT: CHINA DROUGHT: NOT A CRISIS YET (U) This cable is Sensitive But Unclassified. Please protect accordingly. ¶1. (SBU) Summary and Comment: China declared a drought emergency on February 5 in seven major agricultural provinces in central China. Although the drought is serious, it should have limited impact on overall Chinese agricultural production and food supply. A short-term drought of this nature is not unprecedented and could end quickly with a couple of good rain showers. Light rainfall over the weekend in a number of areas has already reduced the official estimates of affected land. End Summary and Comment. ¶2. (SBU) Following the February 5 announcement of a drought emergency in Henan, Anhui, Shandong, Hebei, Shanxi, Shaanxi, and Gansu, official Chinese media has focused on the drought's impact on the winter wheat crop, the primary winter crop in the affected area. Foreign Agricultural Service (FAS) analysis suggests that the drought will have little impact on China's total wheat production. At this stage, FAS estimates losses of between 2.5 to 3.5 percent of total production. The winter wheat crop is still in its dormancy stage and less impacted by dry soil conditions. When the wheat begins to emerge in the end of March or early April, agronomists will have a better understanding of the actual impact. Nonetheless, futures markets in China have already reacted to press statements by sending prices higher on wheat. Misguided media reports are playing a role by suggesting that last year's catastrophic winter freeze and Sichuan earthquake depleted wheat reserves. In truth, China has very high stocks, estimated to be about half of the annual production. ¶3. (SBU) Premier Wen Jiabao has made inspection tours to drought-affected areas and official media reports that provincial authorities have already seeded clouds and are taking other drought-relief measures. The Central Government is reportedly allocating drought relief funds, although it is unclear how much is additional to recently-announced funding increases for agriculture and rural development. ¶4. (SBU) On February 10 Tsinghua University hydrologist Yang Dawen told Emboffs he agrees with the government's assessment that the drought is serious. But Yang also said the drought's impact is limited to agriculture because water for industrial use and human consumption comes mostly from reservoirs and groundwater. Government measures to improve irrigation and dig wells, according to Yang, will have very limited immediate impact. Yang also said one or two good rain showers would make the situation much better. ¶5. (SBU) Post will continue monitoring the drought and report on its impact on agriculture and the overall economy. PICCUTA