Chinais struggling to contain rising food prices amid twin natural disasters in theregion this month.
Thehuman toll is still being tallied from the earthquake that shook China’s Sichuanprovince on May 12 and the cyclone that struck Burma only nine days before.According to government estimates, at least 50,000 have died in China and over 43,000 in Burma. Theeconomic costs could take months to emerge.
Thetwo calamities have racked the region as it fights the effects of soaring foodprices. Even before the emergencies, world rice prices had nearly tripled thisyear due to high demand and energy costs, according to United Nations andmarket reports. In Burma,rice prices have jumped 50 percent since the cyclone despite internationalefforts to supply aid, the Food and Agricultural Organization (FAO) said.
Theearthquake’s effect on food prices in China is uncertain because thegovernment was already grappling with inflation and policy problems before theshock hit. On the day of the quake, the government announced that inflation inApril had climbed at an annualized 8.5 rate, driven by a 22 percent increase infood costs. Meat prices were up nearly 48 percent.
Price controls
Economistshave been trying to persuade China’sgovernment to drop the price controls it imposed in January, arguing that thecurbs have only encouraged hoarding, discouraged production and made mattersworse. So far, whether officials are getting the message that non-marketmeasures may aggravate shortages is unclear. Instead, the government has beenadding more controls.
OnMay 8, the National Development and Reform Commission (NDRC) slapped new priceceilings on fertilizer and agricultural chemicals in an attempt to keep costsdown for farmers, state media reported. In addition to limiting markups, theNDRC is trying to freeze fertilizer import prices, a move that may only drivemanufacturers to sell their products elsewhere.
“Yousolve the problem for farmers but now you create a new problem for fertilizermanufacturers because they now face a fixed output price and rising inputprices,” said Nicholas Minot, senior research fellow at the International FoodPolicy Research Institute in Washington,in an interview. “It doesn’t really solve the problem. It just pushes it backone level.”
Ohio State Universityagricultural economist Luther Tweeten agreed that more price restrictions willonly serve to reduce output.
“If they put controls on the price offertilizer, it means they’re going to get less supplies,” Tweeten told RFA. “Allthese things contribute to worsening the situation rather than making iteasier.”
Bid to end hoarding
OnMay 14, the NDRC ordered local officials to control food prices in Sichuan, Gansu, and Shaanxi provinces as well as Chongqing municipality in an effort to halthoarding and speculation, Xinhua reported. Such moves usually increase hoardingduring times of tight supply.
Economistshave joined the World Bank in arguing that countries should deal with theglobal price crisis by trusting open markets rather than blocking exports orimposing price curbs. Minot said that China’snon-market practices may lead to a spiral of problems.
“Inthe longer run, they’re creating a situation where people expect the governmentto take responsibility for prices, and consumers will be demanding thatprice-setting be extended to other commodities,” he said. “The government willessentially be responsible for changes in price and blamed for changes in priceover time.”
LutherTweeten said the supply and demand forces of the world food market are self-correcting,if they are given free rein.
“Wewould like Chinato help keep markets open rather than try to control markets. The secret tobeing able to deal with world food problems is to share through markets,” hesaid.
Impact of disasters
Tweetensaid that the world variation in food output is only about 1 percent from yearto year, but changes within any one country can be sudden and huge duringdisasters. By keeping markets open, countries allow international supplies torespond and adjust quickly.
“If we all share together through markets andthe variation in world output, it’s not much of a burden on anybody,” saidTweeten. “But when countries start to put on price controls, rationing orwhatever, that messes up the whole system and makes life more difficult.”
China’sgovernment has sent some reassuring signals that the earthquake will not createadded pressure on food prices.
No“marked impact” on commodities markets is expected, the state-owned NationalGrain and Oils Information Centersaid in a report this week. But Sichuanaccounts for 6.1 percent of China’sagricultural output, including 7.3 percent of its rice and 11.6 percent of hogproduction, according to state media.
Somefood vendors in the quake zone have been fined after doubling their prices,Xinhua reported. The government responded with a similar crackdown when vendorsraised prices during heavy snowstorms in January.
Original reporting by MichaelLelyveld in Boston.