Farmers' incomes rose last year following the first spike in grain prices in years while Beijing cut farm taxes and introduced subsidies, all during a bumper crop year.

Nevertheless, industry analysts say China still faces an uphill battle keeping restive farmers on the land, not to mention keeping grain production on the rise, as anger mounts among the hundreds of millions of peasants left behind in the country's economic boom.

``I am rather pessimistic about whether leaders in China have the capacity to allocate much money to agriculture,'' said Frederick Crook, a consultant at the US-based China Group.

He said it will be difficult for China to introduce large farm subsidies as in the United States, the European Union or Japan.

``They have committed resources to fulfill ambitious programs to build infrastructure projects such as roads, ports and dams. They are building huge facilities for the 2008 Olympics,'' Crook said.

While lower cotton prices may lure some farmers temporarily back to wheat or corn production this spring, many would rather grow cash crops or work in cities, if they had a choice.

Rural income is still about one-third of what they can earn in the cities.

Analysts say Beijing needs to invest a lot more in agricultural research to help 800 million peasants adopt the latest technology.

``I don't think there are enough incentives for farmers to stay in grains production. There are options,'' said Shunli Yao, a researcher at Beijing University. ``If you are going to subsidize farmers, it would be a big budget outlay for the central government. There are too many farmers.''

Helped by ideal weather, China reversed a four-year decline in grain production in 2004 to harvest 469.5 million tonnes of grains, which was up 9 percent from 430.6 million in 2003 when it hit a 13-year low.

Beijing decided to promote grain production after looking in alarm at a jump in grain prices that was triggered by depleted stocks following poor crops, big exports and higher consumption. State media said China would expand cuts in farm taxes and direct subsidies this year, while stepping up protection of arable land and encouraging irrigation.

Chen Xiwen, Beijing's top policy adviser on agriculture, said farmer income rose 6.5 percent or US$36 (HK$281) last year but warned he did not expect further improvements this year, given uncertainties over weather and grain prices. State media has reported that average farmer income was 2,936 yuan (HK$2,768) last year.

``The main problem is that the Chinese government is not putting adequate funding into agricultural research and extension,'' said Ren Wang, deputy director general for research at International Rice Research Institute in Manila.

A recent US government report calculated that Beijing handed out US$1.4 billion to rice, wheat, corn and other grain farmers last spring while farmers' tax cuts totalled up to US$7 billion.

Farm support in the United States is expected to more than double to US$22 billion this year.

Wang said China faces major challenges in rice production, though it has the potential to grow more than the 187 million tonnes harvested last year, which was an increase from 162 million tonnes the year before.

Water shortages have led to a ban in production of certain rices and Wang said an increase of average night temperatures by one degree will pare yields about 10 percent.

``We need a new generation of rice farmers,'' he said. ``Rice production will be more and more technology-intensive.''

Many analysts said it is crucial for China to remain self-sufficient in rice as there is only about 20 million tonnes of rice traded in the world each year, against more than 100 million tonnes of wheat traded annually.

In a report made public recently, the State Council Development Research Center said: ``Although there is a sufficient supply of corn, there is not enough rice. Rice production will continue to fall short of supply this year and stocks will drop.''

REUTERS