The Chinese government on Tuesday unveiled plans to offer an extra of 12.5 billion yuan (US$1.56 billion) in direct subsidies to nearly 600 million grain growers to offset rising production costs this year.

The subsidies would bring total direct subsidies to grain growers to 26.7 billion yuan, up 102 percent year on year, the Ministry of Finance said in a statement.

The latest move was designed to offset the impact of higher prices of grain production materials, such as diesel oil, chemical fertilizer and pesticides.

The government announced in March its decision to raise the price of processed oil as of March 26 while setting up a mechanism to offer subsidies to disadvantaged communities and public service sectors.

The National Development and Reform Commission, which regulates energy prices, said the producer prices of gasoline would rise by 300 yuan (US$37.5) per ton while that of diesel oil would go up by 200 yuan per ton.

To offset the impact of the price hikes to communities sensitive to higher prices, the commission said China's State Council had decided to launch a mechanism to subsidize communities and public service sectors, including grain growers.

Analysts said the sum of subsidies was far less than the losses incurred from rising costs for the country's 600 million farmers.

The government began to offer direct subsidies to grain growers from 2004 in a bid to encourage production at a time when output was falling after four consecutive years of declining profits.

Grain growers were paid a total of 11.6 billion yuan in direct subsidies in 2004, with 138.92 million rural families in 13 major grain-producing provincial areas paid 10.28 billion yuan.

Meanwhile, 16 other provincial areas allocated 1.3 billion yuan in direct subsidies to grain growers.

That move translates into a net rise in income of 74 yuan (9 U.S. dollars) for an average Chinese family in the 13 provincial areas.

The sum might look insignificant, but it represents a milestone in China. It is the first time the Chinese central and local governments offered direct subsidies to grain growers.

The government used to offer billions of yuan in grain subsidies each year to state-owned grain trading firms so that they would purchase grain from farmers at state-set prices.

Wan Baorui, former deputy agricultural minister, said farmers benefited little from such indirect grain subsidies as the grain firms were inefficient and lost money.

Lifting farmers' incomes and improving national grain security have been listed as government priorities.