By Li Ping, Wei Liming, Zhang Jingsheng, Rui Bingyou
Published: 2008-02-27

From Cover, issue no. 356, February 25th, 2008
Translated by Zuo Maohong
Original article:

China's snowstorms destroyed crops and prevented farmers from planting on schedule, adding yet more uncertainty to agricultural product markets already stressed by global price surges.

But rising prices predated the snowstorm and were likely to long outlast any of its short-term effects, experts said. Most of those the EO interviewed said that global food prices have pushed up those in China, with soya bean price increases being a key driving force, affecting planting choices.

China and the World: Who's to Blame?

"This is a globalized issue," said Paul Ehrlich, a professor of population studies at Standford University and author of "The Population Bomb". He added that the increasing demand for meat in China is, however, "doubtless a significant factor in the rising prices of grains and the increasing demand for feed grains on the world food market."

Many have stressed the importance of soya bean in the Chinese food price equation. Soya beans played a special role in China's food price surges, said Fei Zhonghai, general manager of CGOG Futures. As expensive soya beans from the international market were imported to China, he explained, demand for alternative, cheaper, food like wheat and corn in the domestic market increased and prices were pushed up.

The high soya bean price further stimulated soya bean farming and increased acreage devoted to the crop, which in turn decreased land for other crops. Consequently their supply dropped, he added. According to Fei, among the 45 million tons of soya beans needed in China yearly, 30 million tons were imported--half of the entire global trade volume.

Farming costs have also been climbing. In Hunan, they have gone up 40% to 50% over last year, according to statistics from the food and oil department of the Hunan Agriculture Office.

Li Yong, a farmer in Weifang of Shandong province, replaced crops with fast-growing timber on his farmland this year. "Everybody does so. Growing crops is unprofitable," adding that planting costs were growing faster than food prices.

In 1994, American scientist Lester Brown cautioned in his book, Who Will Feed China: Wake-up Call for a Small Planet, that China might soon have to import so much grain that this action could cause unprecedented rises in world food prices, which later triggered heated debate over China's food security.

Fourteen years have passed since then, during which supply and demand generally remained balanced. "From the early 1980s to 2004, China was a net food exporter," said Wen Simei, vice-president of the South China Agricultural University. According to statistics from the Ministry of Agriculture, in 2006 and 2007, China had a yearly net grain export of 2.85 million tons and 9.912 million tons respectively.

Huang Ji, director of research center of agricultural policies under China Academy of Sciences, calculated that China will be able to produce 96% of its wheat demand and 105%-106% of its rice demand by 2020, but one third of the corn it needs wold have to be imported from abroad.

Yet to concern only the above three crops would not be enough, stressed Song Tingming, deputy director of China National Association of the Grain Sector. "Mr. Brown's caution is still applicable today, though ... 
Only when all the four main crops are sufficient can we say China's food security is guaranteed," said Song, referring to soya beans.

By calculation, the 30 million tons of soya beans China imports yearly has saved 200 million mu (13.3 million hectares) of high-yielding farmland, 13% of the country's total. And it's this land that has ensured the production of the other three main crops.

Food Prices: How Far Could they Go?

With a continued upward trend of food prices in 2008 virtually guaranteed, the only controversy lied in how far they could still go. The past two years have not been reassuring: they rose by 9% in 2006 and 40% in 2007.

According to statistics released by the National Bureau of Statistics on February 19th, China's CPI jumped to an 11-year high of 7.1% in January, to which food prices have been a main contributor.

Futures markets have underlined the potential for more rises in food prices. Current world food reserves only stood at 20% of the total food demand, the lowest level for the past three decades.

According to He Yongtao, an analyst at Zhongqi Jiahe Futures Company, strong gluten wheat futures transactions kept steady before the Spring Festival—under 200, 000 lots, but increased to nearly 300,000 lots shortly after the festival.

By the EO's count, during the seven trading days following the festival, the total contracts of strong gluten wheat commodities rose by 30% to over 65,000 lots, while corn and soya bean commodities contracts rose respectively by 280,000 lots and 90,000 lots.

Soya bean commodities were bound to experience another hike, Fei said. Presently, soya bean demand still outran supplies, and the price ratio between soya beans and corn were still not too high enough to attract any more soya bean acreage—even if it's up 10%, there would still not be enough soya beans.

Corn prices would  increase by at least 10%--about 150 yuan per ton--this year, said Wu Bangyang, an analyst at Dongfang Agricultural Consulting Company.

Wen said that food price hikes and inflation were not as closely linked as had been speculated. "It's true that the two are related, but what's most important is expectation, and it's this expectation that is pushing up prices of other products that have nothing to do with food," he said.