A total of 200,000 tons of edible oil reserves will be auctioned to curb price hikes during the week-long National Day holidays, officials have announced.

The move is the latest effort by food and price watchdogs to rein in inflation, which is largely driven by soaring grain, pork and edible oil prices.

The consumer price index, a key gauge of inflation, hit 6.5 percent last month, the highest in a decade. Edible oil prices rose about 30 percent.

"The auction will ease inflation and the market shortage," said Chen Lina, an analyst with Beijing Orient Agribusiness Consultant Ltd.

The auction - of 178,000 tons of soybean oil and 22,000 tons of rapeseed soil stored in reserve in 11 provinces - will take place simultaneously in Anhui, Tianjin and Guangdong, with online transactions permitted.

No company can buy more than 5,000 tons, the State Grain Administration said in a notice posted on its website on Tuesday.

But given the annual per capita edible oil consumption of 18 kg, experts said long-term incentives are needed to improve the bleak situation of soybean and rapeseed production, which has suffered constant declines due to low profit margins and competition from the global market.

The State Council issued guidelines on Monday to ease the situation.

According to the guidelines:

Oilseed production will be revived by offering subsidies and tightening controls over edible oil exports.

Soybean production acreage that enjoys subsidies will be expanded to 2.67 million hectares from 700,000 hectares.

Rapeseed farmers are entitled to 150 yuan (US$19) subsidy per hectare.

By the end of 2010, oilseed production area will increase by 6 percent, and total production by 14 percent.

However, given the higher profit in wheat production, farmers might be reluctant to switch to rapeseeds, according to Chen.

Due to shrinking area and bad weather, rapeseed production is expected to drop by 5 percent from last year to hit 12 million tons; and soybean production to hit the lowest level in a decade at 14.4 million tons this year.

The State Council announced last week that the import duty on soybeans would be slashed from 3 percent to 1 percent to encourage oil production.

Last month, the government released pork reserves in the market to "ensure that the major food prices will remain stable during the rest of the year".

(China Daily September 27, 2007)