A whiff of garlic

Speculating on food prices

A whiff of garlic

Garlic may well keep the vampires at bay but it seems to have attracted more than its fair share of speculators in China this year. Certainly enough for Jinxiang county in Shandong province to deserve its reputation as the country’s “Garlic Wall Street”, says the Economic Observer, even though there are now signs of a slowdown in garlic prices. But the locals are not wholly downhearted: they are switching their attention to cabbages instead.

The newspaper mentions the travails of one speculator, Chen Fulin, who clubbed together earlier this year with friends to buy 120 tonnes of garlic at prices ranging from Rmb4 to Rmb5.5 per 500 grams. But given selling prices have weakened since October, now dropping to just over Rmb5. Subtract the storage costs, as well as the interest payments on the Rmb350,000 loan taken out to finance the purchase, and Chen and his friends will have incurred a loss.

At least half of the city’s garlic vendors face a similar situation, worsened by an increase in supply (two years of price-highs have encouraged farmers to plant more garlic acreage).

Of course, in its struggle to contain food price inflation, the State Council has promised to clamp down on food hoarders. The battle is ongoing: November’s data suggested that food prices are still increasing at a faster rate than officials want. The policy statement delivered at the conclusion of this month’s Central Economic Work Conference also included reference to the need to secure “adequate supplies” of agricultural products as a priority. So it would be interesting to hear what Conference attendees might think of Jinxiang’s raison d’etre. With at least 1400 cold storage warehouses in the town, or about 17% of the country’s capacity, Jinxiang is set up for speculation in agricultural goods, says the Qilu Evening News.

At the moment, that seems to mean selling down on garlic stocks, and looking for other opportunities. Vendors are now scouring the surrounding countryside to buy up other items, and then store them in Jinxiang. Cabbage is one preferred play, with prices at Rmb760 a tonne, and a third of Jinxiang’s storage capacity is now devoted to it. Stocks are also being built up in apples and carrots. With almost all of the locals tasting success on their garlic holdings earlier in the year, most are now hopeful of capitalising on volatile vegetable prices elsewhere.

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