Rising food prices test Chinese consumers
China's more open market, economists say, makes food vulnerable to global prices.
from the November 16, 2007 edition
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Open economy, vulnerable food prices
Economists say that food prices are unlikely to come down any time soon.
"Given the cycles of agricultural production, prices will be quite high for some time, but I do not expect any great increase over the long term," Zhu Zhixin, vice director of the National Development and Reform Commission, said recently.
China can do little about one of the major drivers of prices at home – prices on the international markets. Though the country produces most of the food it consumes, "its agricultural markets have become more open since it joined the World Trade Organization, so the prices of many food items are influenced by international prices," explains Louis Kuijs, a World Bank economist.
At bottom, government policymakers say, they discern no fundamental problems and no serious imbalance between supply and demand in key economic sectors. They point out that though prices over the first nine months of 2007 are up 4.1 percent on the same period a year ago, 3.5 percent of this was accounted for by food items.
When foodstuffs and oil are stripped out of the October monthly inflation figures, "core inflation" was just 1.1 percent.
But officials say they are concerned about the speed of China's economic growth, expected to top 11 percent this year.
"We have to understand … the danger and possibility of a fast-growing economy becoming overheated and inflationary," said Mr. Zhu. "We need to adopt timely measures to address new problems."
China's central bank has raised interest rates five times this year, and is expected to do so again in the next few days, but the moves have so far had little impact.
In September, the government slapped a price-freeze on cooking oil and other staples, on airline tickets, and on electricity prices among other items.
Two weeks ago, however, it raised state-set fuel prices by 10 percent, responding to the increase in world oil prices. That move is likely to be reflected in November's inflation figures.
What's at issue:
• The Food and Agriculture Organization reports that food and feed commodity prices rose 37 percent in the past year.
Why it's happening:
• Higher petroleum prices have increased costs of production, processing, and transportation.
• Freight rates for bulk commodities are up 80 percent in the past year.
• Volatile exchange rates. The historically-low US dollar has increased demand for imports from the US, driving up prices both domestically and abroad. Also, as most commodities are traded in US dollars, the weaker dollar has pushed US export prices higher, especially for wheat.
• Drought in Australia and supply problems in other parts of the world.
• Higher feed prices have also driven up the price for livestock, particularly poultry, which is up at least 10 percent higher than the previous year.
Source: UN Food and Agriculture Organization www.fao.org
Global hikes in food prices
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