Sept. 6 (Bloomberg) -- Diversion of food crops to biofuels has finally caught the attention of policy makers in China.

Even as the country seeks to use 10 million tons of bio- ethanol and 2 million tons of bio-diesel annually by 2020 to cut its reliance on petroleum, planners are also aware that they have 1.3 billion mouths to feed.

So the new strategy, unveiled in a July plan issued by the Ministry of Agriculture and re-iterated this week by Chen Deming, a vice chairman of the National Development and Reform Commission in Beijing, is for most of the biofuel to come from non-grain sources, such as sweet sorghum, sugarcane and cassava.

Officially, China has four factories making 1 million tons of ethanol a year, mostly from corn. In reality, there are hundreds of small, unregulated units converting grain into fuel, in the process making it costlier for farmers to feed pigs.

Pork prices have soared this year, causing Chinese inflation to accelerate to its quickest pace in a decade in July. Consumer prices probably rose at a faster pace in August than the 5.6 percent rate recorded in July, says Bi Jingquan, Chen's colleague at the top planning agency.

It makes sense for China to limit competition between food and fuel for the same scarce resources: arable land and water.

However, this alone won't be enough in meeting China's longer-term challenge of ensuring food security.

Rising incomes are spurring higher protein consumption.

More than two-fifths of the 55 percent increase in the world's meat consumption between 1997 and 2020 is expected to occur in China, according to the International Food Policy Research Institute in Washington.

China will have to find ways to boost utilization of its farm resources, and technology will play a crucial role.

GM Food

Out of the 102 million hectares (252 million acres) of land that is planted with genetically modified seeds worldwide, China's share is 3.5 million hectares. The nation's entire effort is concentrated in cotton, though late last year a virus- resistant papaya was also recommended by the government for commercial use.

GM rice, which accounts for a 10th of the money the Chinese government spends on biotechnology research, was widely expected to go commercial in 2005. That schedule went haywire after Greenpeace International investigators claimed to have found unapproved transgenic rice in Hubei province.

Still, it's only a matter of time before Chinese food goes transgenic in a big way.

China has invested heavily in biotechnology: As far back as 1999, China allocated 9 percent of its national crop research budget to plant biotechnology, compared with the 2 percent to 5 percent that was being invested by other developing countries, according to Jikun Huang, director of the Center for Agricultural Policy at the Chinese Academy of Sciences in Beijing, and other researchers.

Tissue Culture

Biotech involves more than gene modification.

The other area that holds a lot of promise is plant-tissue culture, which doesn't involve changes in the genetic composition of plants but can nonetheless be used to develop varieties that help meet specific public-policy goals.

By altering the structure of poplar tree cells, scientists at Guangzhao Industrial Forest Biotechnology Group have developed a salt-tolerant variant, which can breathe life into half -- or about 74 million acres -- of China's saline wastelands, says Song Xuemeng, the chief executive of the company.

The modified cells of the poplar allow the tree to soak in salt from the ground and deposit it in the leaves, with no damage to the timber. Keep burning the leaves, and after 10 years the land will become arable, Song says.

The Environment Link

As China faces up to the onerous task of feeding a fifth of the world's population with less than a 10th of global farmland, food production and environmental protection are going to be its two key challenges.

The two may be linked, Song says.

He started the poplar business after witnessing the floods of 1998 when the Yangtze River breached its banks, submerging 30 million acres of farmland and forcing the government to crack down on logging in the upper catchments.

``I thought then, why don't we plant trees here that would grow fast?'' he says.

Collaborating with the Chinese Academy of Sciences, Song's company designed a tissue-culture process to grow a 16-meter (52 feet) poplar in half the usual time. A fir tree, developed by the company with support from the Shanghai municipality, has begun to be used in coastal-protection programs. China will need more than 100 million such trees in the next 10 years to protect 10,000 kilometers (6,200 miles) of its coastline from typhoons, Song says.

Technology that helps China expand its limited farm resources -- and protects them from environmental degradation -- will be in great demand in the years to come.

In an interview with the Financial Times, Robert Fraley, the chief technology officer of Monsanto & Co., the world's largest seed producer, said he expects keen competition from local companies in China and India.

It's easy to see why.

To contact the writer of this column: Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

Last Updated: September 5, 2007 17:49 EDT