Monday, June 20, 2011

Chinese Food Prices Rise on Flooding

Floods Drive Up Food Prices In China

Flooding across eastern, southern and southwestern China has killed at least 175 people and is causing significant damage to vegetable crops, helping to drive up food prices at a time when the government is already fighting to contain inflation.

The flooding, triggered by heavy rains that started early this month, has caused widespread suffering in more than a dozen provinces and regions, with state media calling it the worst in decades in some areas.

In addition to the 175 known deaths, 86 people are missing and some 1.6 million people have been displaced by the flooding, which has caused more than $5 billion in damage, the Ministry of Civil Affairs said. Official forecasts have predicted further rain in a number of the most-battered provinces.

China goes through regular cycles of drought and flooding, and both have been relatively severe over the past year. The recent drought was called the worst in 50 years in some parts of China, and continues to affect almost five million hectares of farmland nationwide -- including in different areas of some of the same provinces now afflicted by floods.

The flood-related effect on prices for now may be fairly local, but the rising cost of vegetables has already been a leading factor in pushing inflation to near-three-year highs. Food prices in May were up 11.7% from a year earlier, compared with a 5.5% increase in the overall consumer-price index.

The flooding has reduced vegetable output by about 20% from levels a year earlier in the worst-hit places, particularly in the eastern province of Zhejiang, according to state media.

Xinhua news agency cited Jin Changlin, a Zhejiang agricultural official, as saying that vegetable prices are likely to continue to increase or remain high for about two weeks.

More than 432,000 hectares of crops have been destroyed in flood-affected provinces around the country, including 241,600 hectares in Zhejiang -- about an eighth of the province's total.

At one big market in Hangzhou, Zhejiang's capital, prices of fruits, vegetables and grains have risen about 40% on average, according to Xinhua. It didn't provide its basis of comparison. Higher food prices were also reported in Anhui and Jiangxi provinces, although the sizes of the increases were unclear.

In last year's fourth quarter, vegetables and other agricultural products including cotton, wheat and edible oils fueled a sharp surge in inflation, with prices of common produce like garlic and ginger doubling from a year earlier.

Source: CME News for Tomorrow

The Bottom Line: While summer is typically a cyclical low for agricultural futures unforseen events such as calamitous weather can have a disproportionate impact on prices. Global warming is contributing to unpredictable and savage weather as humanity continues to ignore the long term effects of the environment in favor of short term gains.
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