Record Chinese Drought Leads To "Crazy" Food Prices

Tyler Durden's picture

The PBoC may be guilty of many things, but manipulating the weather is not one of them. Yet it is precisely this that is causing the latest surge in various food prices in the mainland, and which will likely force the Chinese central bank to accelerate its tightening regime even more than before. For once the weather can be blamed, only this time, due to an already redhot inflationary indicator, it will have a far broader impact on both domestic and global monetary policy. China Daily reports: "The impacts of China's worst drought in 50 years have been served up on the nation's dining tables as the price of rice and vegetables from drought-hit provinces have skyrocketed. The average price of staple foods in 50 cities has increased significantly, and the price of some leaf vegetables has jumped 16 percent in one month, according to data from the National Bureau of Statistics....I didn't buy many leaf vegetables in the last week because the price is getting crazy," said Zhang Weirong, a 67-year-old Shanghai resident." We wish the PBoC the best of luck as it now has to use its futile monetary instruments to neutralize the lack of rain. With the Dragon Boat Festival hoiday between June 4 and 6, we now expect another interest rate hike to be announced in less than a week, in keeping with the central bank's practice of intervening monetarily during major domestic and international holidays.

A dried-up riverbed at a national nature reserve in Shishou city in Central China’s Hubei
province, May 30, 2011. [Photo/Xinhua]

More from China Daily:

Decreased production because of the drought has been cited as the major reason for price increases, and the prices of rice and vegetables may not drop soon, according to a report by the Ministry of Agriculture.

Statistics from the Office of State Flood Control and Drought Relief Headquarters show that an area of nearly 7 million hectares of arable land has been affected by the drought, with Hubei, Hunan, Jiangxi, Anhui and Jiangsu provinces most seriously affected.

"Cabbage used to be as cheap as paper, and for 5 yuan (77 cents) you would get too many cabbages to carry home," she said.

She has had to switch to melons and pumpkins, which are getting cheaper this year.

She also changed from eating porridge for breakfast to noodles.

"My grandson said he doesn't like the dishes I cook these days, but what else can I do?" she said.

Shoppers at a supermarket in Shanghai's Huangpu district complained that the price of rice produced in Hubei increased 20 percent in one month to 2.6 yuan a kg. Lotus root produced in Hunan also climbed 20 percent during the same period to 4.2 yuan a kg.

In Wuhan, capital of drought-hit Hubei, the average price of 20 monitored vegetables climbed 7.3 percent in one month. The price of cabbage almost doubled in May to 2.22 yuan a kg, according to the Ministry of Agriculture.

The price of freshwater fish, crab and shrimp also witnessed a surge in the past week. Freshwater fish production in several provinces has reached bottom as lakes and rivers are drying up.

And the scariest thing for the PBoC's Zhou Xiaochuan:

If food prices continue to soar during the summer, the increase may exceed 20 percent, which will push up inflation in the short term, Liu Ligang, an economist for the Greater China area with the ANZ Bank, said in his column for Financial Times.

It's not all bad news: aphid lovers can rejoice:

On another note, Gao Wenqi, a researcher with the Shanghai Agricultural Technology Extension and Service Center, said the drought has provided better conditions for aphids to reproduce. Aphids can produce a new generation in days with no rain, said Gao.

Hopefully this will appease the population when they are starving and looking for scapegoats to blame for the complete supply collapse in already tight foodstocks.