CHINA has raised its minimum purchase prices for rice and wheat for a second time this year to encourage grain production and curb inflation, the National Development and Reform Commission said yesterday.

The increases were announced a day after the government pledged an increase of 25.25 billion yuan (US$3.59 billion) to this year's rural budget, a step aimed at boosting farm production and quelling an inflationary surge blamed on rising food prices and tight supplies.

The NDRC said in a statement that the minimum purchase prices for rice would range from 77 to 82 yuan per 50 kilograms, while those for wheat would be 72-77 yuan.

China began setting minimum purchase prices in 2004 to encourage production.

The Consumer Price Index, in which food prices play a large part, hit a near-12-year high of 8.7 percent in February. The government earlier froze the prices of cooking oil, grain, oil products and other basic goods in an effort to tame inflation.

Costs of agricultural products, including fertilizers and seeds, have risen, with a flow-on effect for produce prices.

The latest moves would help curb rising prices and ensure sufficient grain supplies to combat inflation, said Song Hongyuan, deputy director of the Research Center for Rural Economy under the Ministry of Agriculture.

This winter's severe weather and the drought that hit northern China this spring, during the ploughing season, will make it harder to ensure grain supplies this year, Chen Xiwen, the director of the Office of the Central Leading Group on Rural Work, has said.

The Cabinet agreed that 15.6 billion yuan of the extra funding would be used to subsidize purchases of production materials, including diesel oil and fertilizer. The new sum lifts such subsidies to 63.8 billion yuan this year.

Five billion yuan was added to seed-purchase subsidies, bringing the total to 12.07 billion yuan, which would cover 29.5 million hectares of rice, 13.4 million hectares of wheat and 13.4 million hectares of corn.