Food versus fuel? Or fuel saving farmers?

China Digital Times points us to an article in China's Economic Observer Online that reports the somewhat startling news that the largest grain harvest in a decade is depressing grain prices -- to the point that the government is putting together a "grain market rescue package."

As most grain growers suffered losses from a harvest, some big ones were even at the edge of bankruptcy, said a local agricultural supervisor.

Without government intervention, prices would continue falling, dampening farmers' enthusiasm to grow crops, local officials warned at the meeting [of the State Administration of Grain (SAG) late last month.]

Seems like there could be an easy enough solution to the problem, however, given all the hoopla about biofuel production's supposed impact on global food prices. And sure enough:

A source from the Rural Development Institute under the Chinese Academy of Social Sciences also suggested to re-launch production of products that used grain as an input.

To guarantee food security, China banned certain such projects in late 2006, especially the production of ethanol fuel from corn.

A source in the futures industry told the EO that according to a recent meeting of the National Development and Reform Commission, current policies on such grain-input products may be changed.