China is grappling with drought just as food prices here and in many parts of the world are soaring, creating concerns that unrest could spread as poor countries find many items unaffordable. Broader inflation is also a rising worry in China and other fast-growing emerging markets, and a problem in some slow-growth countries such as the United Kingdom. Rising prices for an array of goods could destabilize global economic recovery as companies cope with higher costs and central banks around the world feel mounting pressure to raise interest rates and slow growth.

Wheat prices on the benchmark Chicago Mercantile Exchange hit their highest level since the 2008 financial crisis earlier this week before sliding back after assurances from Beijing that the country still had “abundant” grain reserves.

Wheat also hit a record high this week of 3,110 yuan ($466) per ton on the Zhengzhou Commodity Exchange – China’s main grain-trading floor – amid predictions from international experts that this year’s harvest could fall as much as four million tons shy of last year’s 114.5-million-ton crop.

In addition to concerns about China’s crop, wheat prices have been driven up by floods in Australia and a year-old ban on exports from Russia – normally one of the world’s biggest producers and sellers – caused by a prolonged drought there.

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Post tags: drought, drought 2010, food exports, food prices
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Premier Wen Jiabao led a State Council meeting Wednesday on increasing grain production in the country that’s both the world’s largest wheat grower and largely self-sufficient in supply.

The U.N.’s food agency has warned that the monthslong drought is driving up the country’s wheat prices, and now the focus is on whether China will buy more from the global market, where prices have already risen about 35 percent since mid-November.

The rising prices add to growing concerns in China about inflation, which the government sees as a potential source of social unrest. Average flour prices rose more than 8 percent in January from the previous two months.

Wheat futures were up Wednesday at both the Chicago Board of Trade and the Zhengzhou Commodity Exchange in China, where prices for September delivery hit a new high. They were at 3,051 yuan ($463) a ton Wednesday night.

Because Egypt is one of the world’s largest importers of wheat, and because the ongoing protests there have been partially sparked by rising food prices, a U.N. news dispatch suggests keeping an eye on how China’s drought impacts the situation in Egypt:

Across the region, we have seen civil protests driven by a complex array of different factors, but all sharing one thing in common – growing anxiety about rising food prices and concern about access to food.

In many of the protests, demonstrators have brandished loaves of bread or displayed banners expressing anger about the rising cost of food staples such as lentils. These are the nutritional building blocks of life, and if people feel that rising prices are pushing these food items out of reach, growing anxiety adds to the general feeling of exclusion, resentment and despair.

The protests and disturbances in the Middle East coincide with another period of rising global food prices. The UN Food and Agriculture Organization Food Price Index in January reached a new historic peak, rising for the seventh consecutive month and surpassing the peak of the 2007-2008 food price crisis….

And from the AP:

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Post tags: agriculture, drought, Egypt, food exports, food prices
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Wholesale garlic prices in Beijing are now 15 times as high as in March, and still rising.

Jerry Lou, a Morgan Stanley China strategist who has researched the opaque market here, said speculators — fueled by the abundant liquidity sloshing around China — have moved into the small market and strategically driven up prices.

“You need a warehouse, a lot of cash and a few trucks. That’s how it works,” Lou said, describing garlic speculators’ tools of the trade. “Basically, what you do is try to arrest as much supply as possible, then you bid up the price. Moving garlic from one warehouse to the other, you make millions of dollars.”

Lou said garlic wholesalers told him that gangs that had amassed cash and credit from dealing property and stocks in other parts of the country had chosen the garlic market as their latest ruse.

More, from Leo Lewis, at Times Online:

The astonishing surge in the price of garlic makes it the best-performing Chinese asset class of the year. Two factors are driving the gains. Garlic, Mr Lou writes, has become a barometer for China’s wider issues of bubble formation. The massive flood of liquidity — created by the huge government stimulus package and unprecedented bank lending — has made a diverse range of assets the target of speculation. Garlic has joined property and stocks as a favourite market for cashed-up punters.

Helping things along has been a technical squeeze on the market. Chinese garlic is a big export commodity — 60 per cent of the garlic used in American restaurants, for example, is Chinese in origin. But last year China reduced its total garlic planting areas by 50 per cent, diminishing the overall supply and giving speculators a reason to assume future shortages.

The H1N1 virus, and the suggestion that garlic may offer some immunity from it, has also had an effect. Some believe that the suggestion may have been promoted by traders in Jinxiang.

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Post tags: economic stimulus plan, food exports, H1N1
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China is to publish a blacklist of food additives which make products taste better or appear nutritious but are damaging to health, state media said, as it struggles to restore faith in the “made in China” brand.

[...] The additives blacklist would be constantly updated, Health Ministry official Su Zhi told Chinese television.

The government would also aim to set specific rules for different sectors of the food industry, starting with dairy products, and unify current regulations which vary across the country, the official China Daily said.

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Post tags: EU trade, food exports, food safety, melamine
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U.S. Health and Human Services Secretary Mike Leavitt, speaking on the eve of opening of an FDA office in Beijing, said a new strategy was needed because the United States imported $2 trillion worth of goods a year, equal to four times the size of the Brazilian economy.

“When one sees the enormity of that, it becomes clear you cannot inspect everything … we have to change our strategy from one of simple inspections at the border. We have to build quality into every product in every step of the process,” he told a news conference.

The FDA office will be the first outside the United States and will be followed by two more in China this month and another one in India next month.

Read also Xinhua’s report on this news, which says that China is also planning on setting up its own counterpart office in the U.S., though no date or location has been set yet.

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The new alert from the US Food and Drug Administration (FDA) covers a range of Chinese products including drinks, sweets, baby and pet food.

It also allows US inspectors to seize any Chinese products suspected of being contaminated.

Any food items from China that contain milk will be stopped at the border and tested by U.S. authorities:

Companies in the United States have recalled several products, including nondairy creamer and a type of candy, which are primarily sold in Asian markets, because of melamine concerns but to date the contamination here was not thought to be widespread.

“We’re taking this action because it’s the right thing to do for the public health,” said Steven Solomon, an FDA deputy associate commissioner…

The FDA routinely blocks imports of individual food products, but it is rare for the agency to block an entire category of foods from a particular country. Last year, the FDA blocked five types of farm-raised seafood as well as vegetable protein from China because of repeated instances of contamination from unapproved animal drugs and food additives.

The Chinese government is still trying to repair domestic and international faith in Chinese food products.  Earlier this month, two milk inspectors for Mengniu, one of China’s largest dairy companies, were badly beaten during a safety check at one of their supplier’s:

“According to an initial analysis, this incident was triggered by (Li’s) [the inspector's] decision that this truck’s milk was not in compliance,” it quoted an unnamed Mengniu official as saying.

Li and another inspector, Zhang Liwei, were set on by a group of about five club-wielding men as they left work later that day.  Li was badly beaten, suffering numerous injuries over his body, including fractured vertebra, and was in a coma for “a long time”, [the China Youth Daily] said, without specifying Li’s current condition.  Neither victim could identify the milk supplier nor the attackers as both inspectors had only recently been rotated to Tangshan.

Police were investigating, the paper said.

An op-ed in the International Herald Tribune looks at China’s melamine crisis from the perspective of American agriculture:

For all the outrage about Chinese melamine, what American consumers and government agencies have studiously failed to scrutinize is the place of melamine in America’s own food system. In casting stones, we’ve forgotten that our house has its own exposed glass.

To be sure, in China some food manufacturers deliberately added melamine to products to increase profits. Makers of baby formula, for example, watered down their product, lowering the amount of protein and nutrients, then added melamine, which is cheap and fools tests measuring protein levels.

But melamine is also integral to the material life of any industrialized society. It’s a common ingredient in cleaning products, waterproof plywood, plastic compounds, cement, ink and fire-retardant paint. Chemical plants throughout the United States produce millions of pounds of melamine a year.

See past CDT posts for more information on the Sanlu milk scandal.

[Image courtesy of the BBC.]

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Post tags: cyanuric acid, FDA, food exports, food safety, melamine, milk contamination
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The problem emerged over the weekend when Hong Kong authorities said eggs from Hanwei were tainted with melamine, the same chemical that was mixed into China’s milk products and led to the deaths of four babies.

Officials and China’s state-controlled press reported on Wednesday that eggs from other suppliers had also been found to be contaminated with melamine, which can give food the appearance of higher protein levels.

Against this backdrop, some supermarkets in Beijing, Shanghai and other cities announced they were recalling various brands of eggs, although others appeared unsure what to do with the central government yet to give directives.

The Hong Kong media has published a great deal of criticism of the tainted eggs issue. Below is one such example on Wen Wei Po, by commentator, Ji Xiaohua (??? ), who wrote a piece that has been reposted on many blogs in mainland China, excerpts translated by CDT:

The Da Lian Han Wei Co., Ltd deliberately kept secret the melamine contamination in the eggs exported to Hong Kong and Japan. It is ironic that Mr Han Wei, the Chairman, reiterated his concerns about the food safety issue in CPPCC proposals at least ten times.

Mr Han was crowned the “King of Chinese Chicken” and many other glorious titles. He won three successive reelections to the CPPCC National Committee and served as the Chairman of the National Alliance of Agriculture, Industry and Commerce Departments. At the annual CPPCC meetings and National People’s Congress meetings, he passionately criticized the food safety problems and once expressed to the media his deep worries over the Sudan Red issue.

“People are the priority for the government. Food is the priority for people and food safety is the priority for everyone. Food safety is the fundamental issue our people care about, so we should all pay close attention to it.” “Food safety is no minor issue and we should treat it very carefully.” These are quotes from Mr. Han Wei at the CPPCC meetings, yet they sound so ironic after seeing his actions.

UPDATE: David Bandurski wrote Shanghai, Guangzhou media spearhead “bad egg” coverage in the China Media Project.

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Post tags: food exports, food safety, melamine
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China — the world’s biggest grain and rice producer and the biggest exporter of certain types of fertilizer — could see its moves having ripple effects on vulnerable countries.

[...] China’s new taxes on fertilizer exports, which went into effect Sept. 1, range from 150 to 185 percent. Chinese authorities said they need to ensure that prices are low at home to protect their own farmers and ensure an adequate supply of food for their residents.
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Although the measure has been good for China, it has been devastating to other countries. A dozen Chinese fertilizer companies said they had stopped exporting this month.

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Post tags: financial crisis 2008-2009, food exports, food prices, food security
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According to the Organisation for Economic Co-operation and Development, China has 40% of the world’s farmers — yet just 10% of the world’s arable land. Taken together, that means its agricultural operations are generally small-scale, hard to manage, and woefully inefficient. Carter also pointed out that although farmers are 40% of China’s labor force, they produce less than 12% of the GDP. Finally, China has produced just 1% yield growth over the past 10 years, while the U.S. has increased its own yields by approximately 2.5% annually.

For a country seeing a rapidly increasing demand for food, these are damning statistics. It means that without substantial improvements to efficiency, the world will see rapidly rising food prices and the possibility for food shortages as the Chinese government — flush with cash — buys up more and more of global supply. This could ultimately lead to countries, fearing scarcity, shutting down their agricultural export markets, which would have an enormous slowing effect on the global economy.

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China registered a 7.57 billion dollar trade deficit in agricultural products during the first five months of 2008, up by more than 14-fold over the same period last year, state press said Sunday.

China imported 23.75 billion dollars of agricultural products in that period, up 59 percent over last year, the official Xinhua news agency said, citing the agriculture ministry.

The nation exported 16.18 billion dollars of agricultural products during the period, up 12 percent over the first five months of 2007, it said.

China has reacted to soaring global food prices by raising taxes on food exports this year by up to 25 percent.

Read also China’s farm produce trade deficit up 14.3 times in first five months by Xinhua.

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