Rise in food prices? Chinese hoarding?

by Adam Minter

In recent months, food prices have reached 10-year highs, causing concern around the world. Supply chain bottlenecks, labor shortages, bad weather and an increase in consumer demand are among the factors responsible for the increase. There’s also a lesser-known phenomenon: China is grabbing key commodities.

According to the United States Department of Agriculture, by mid-2022 China will have 69% of the world’s corn reserves, 60% of rice and 51% of wheat. By China’s own estimate, these reserves are at a “historically high level” and contribute to increasing world food prices.

For ChinaThese reserves are necessary to ensure that it is not at the mercy of major food exporters such as the United States. But other countries, especially in the developing world, might wonder why less than 20% of the world’s population is hogging such a high proportion of their food.

China It has operated barns for thousands of years. In imperial times, they served as a source of tax revenue and as a means of dealing with poor harvests, natural disasters, and wars. Their importance grew as the Chinese population soared, but the state’s ability to manage them wavered. During the late 19th and early 20th centuries, natural and political disasters filled millions with hunger and starvation. Outsiders referred to China as the “hunger country”. Political instability and revolution soon followed.

Mao Zedong and the Communist Party of China bet much of their credibility on the famine “solution,” but the midcentury famines claimed the lives of tens of millions of people. President Xi Jinping, who never criticized his own country, once remarked that many members of his generation still remember hunger.

Those memories are at the basis of Xi’s policies since the beginning of his regime. In 2013, just weeks after taking office, Xi backed a national campaign to discourage people from wasting food. In 2020, the “clean plate campaign“He was resurrected when he asked the Chinese to”maintain a sense of crisis in the face of food security”.

That crisis isn’t just about having enough to eat. It is about producing enough food in the country to minimize dependence on others. Two weeks ago, Xi told a high-level meeting of the Communist Party that “the food of the Chinese people must be produced and must remain in the hands of the Chinese people. “

That will not be easy. China’s arable land inventory has been in decline for decades, affected by urban development and soil pollution, and its farms are far less productive than their counterparts in other countries. Efforts to boost productivity with political incentives and investments in technology are promising, but unlikely to pay off for years.

As it is, China is now accumulating stocks. The government is offering farmers a minimum price for their crops (which are then often stored). In March, the minimum price of wheat rose for the first time since 2014. Meanwhile, traders have taken advantage of a strengthening yuan to hoard grains at a feverish pace. China’s wheat imports increased 50% between January and July, compared to the same period in 2020.

The size and content of China’s commodity reserves is a closely guarded state secret. But officials have been unusually outspoken about the matter lately. In November, after a vaguely worded government letter about possible deficits this winter caused panic across the country, agriculture officials announced that China had enough wheat in storage for 18 months.

Other countries have been building food stocks too, of course, especially as COVID-related disruptions persist. In June, the UN food agency warned that some low-income countries are likely to see food import costs rise by as much as 20% during the year. Although the report did not point to any country as responsible, ChinaAs the world’s largest agricultural importer, it certainly plays a crucial role.

Right or wrong, China does not intend to dump its stock for the benefit of others. However, there are steps you can take to help mitigate inflation. And, more importantly, it should begin to reduce support for crops that drive domestic food prices beyond world prices. Meanwhile, a more open recognition of China’s inevitable role in driving food inflation could encourage its leaders to work with others on food assistance to low-income regions.

The evolution of China freed hundreds of millions of people from hunger. As your economy and influence grow, you should seek to ensure that others can enjoy this abundance.