Hungry nation

Fixable for now; but longer term, rising food prices will be a major problem

Hungry nation

‘What’s the price of a pint of milk?’ is a standard question that journalists use to ambush politicians. Get the answer wrong, and you look out of touch with ordinary people. Which is something that China’s leaders are also fretting about at the moment, with food security as a pressing concern.

The key to the current situation, analysts are saying, is to manage expectations. Make people think food prices will drop, and then they will.

But it’s not hard to see why Chinese officials want to look determined in bringing prices down. Just last week, a thousand students in Guizhou ransacked their canteen in protest against price increases. Teenagers aren’t the only ones put out – food takes up as much as half the budget in poorer households.

Prices have been on the rise all year. The latest inflation numbers (for October) show food up 10% overall. Vegetables are up 31% on last year.

Officials have implemented a three-step process to try and cool things down. The release of ‘strategic’ food reserves is the first line of defence – grains, pork, sugar and edible oils have all come onto the market in serious quantities recently. And to soften the blow for the poorest families, the State Council is also mandating targeted food subsidies.

But with many prices still climbing, other options are now on the table. As we reported in last week’s Talking Point, efforts to control prices are also being implemented (on a provincial basis for now, although cooking oil prices look like being the first to be capped nationally). The last time nationwide controls were applied was two years ago during a period of global food price inflation. That was ultimately resolved by the 2008 recession.

Bad weather is partly to blame this time (with drought and then flood hitting some of the country’s most productive regions). But that doesn’t fully explain current trends – the summer grain haul was only slightly down on last year’s record high, and autumn looks set to bring in another bumper harvest.

So why are prices rising even as China produces more? An increasingly meat-rich diet means that the country is simply consuming more food than ever before. The average Chinese diet has doubled in pork intake in the last five years, for example. And more pigs require more animal feed, much of which comes from grains. China is still (just about) self-sufficient in most grains (except soya beans, 80% of which are imported). It also maintains emergency stockpiles for times of crisis. That’s helped keep it fairly insulated from volatile international commodity markets. But not always from domestic speculators – who have come in for blame recently in the local press (in cotton too, see WiC84). The State Council recently announced it was beefing up penalties for those convicted of ‘price manipulation’.

An increase in the food supply will also help curb the power of speculators, but as WiC has reported, that’s not likely to come about in the long run. China is coming up against constraints in the two things most necessary for farming: water and land. Its northern wheat fields are facing serious water shortages as underground aquifers start to run dry (see WiC59 ). And the country’s ambitious construction programme is threatening to leave it without sufficient farmland (see WiC40) – the total is already alarmingly close to the self-declared ‘red line’ of 120 million hectares that Beijing reckons guarantees food security.

That’s prompted officials to look for arable land elsewhere (particularly Africa), as well as a rush to secure stocks of key fertilisers (particularly potash). Sinochem was linked to a bid for the Canadian fertiliser powerhouse Potash Corp in the autumn, and smaller Chinese firms have also been busy buying up deposits of the mineral (see WiC79).

So although the sale of food exports once helped to pay for China’s industrial programme, things now look set to be reversed. Food is going to have to be imported on a greater scale.

For a government obsessed with the food price impact on social stability, greater reliance on outsiders is a worrying trend. At least at home it can administer short term fixes to try to curtail inflation (which typically spikes ahead of winter months). But over the longer term, rises in prices may pose a more serious dilemma.

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