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Chinese grapple with soaring cost of food, the biggest driver of inflation

Beijing announces that it will move to stabilize prices by cracking down on speculators and boosting supplies of some staples from government stockpiles.

November 18, 2010|By David Pierson, Los Angeles Times

Reporting from Beijing — Already worried about runaway real estate prices that have shut millions out of the housing market, China's leaders are grappling with yet another threat to social stability: the soaring price of food.

The nation's State Council on Wednesday announced that it would move to stabilize prices by cracking down on speculators and boosting supplies of some staples from government stockpiles. Beijing also urged local authorities to provide food subsidies to the neediest families.

Rising food prices are the biggest driver of inflation in China, whose leaders have been struggling to downshift the nation's surging economy. China's consumer price index, a broad measure of inflation, increased 4.4% in October, the biggest jump in more than two years. The food component of that measure is up 10.1% from a year earlier.

Across the nation, higher food bills are cutting deeply into the budgets of China's working poor. In large cities such as Beijing, some residents have seen prices for some basics such as rice, cooking oil and vegetables jump as much as 100% over the last few months.

Retiree Li Ming doesn't need government data to tell her prices are skyrocketing. Perusing vegetables at a Beijing Wal-Mart recently, the 52-year-old said she and her friends were increasingly frustrated every time they hit the checkout counter.

"I stopped buying simple things like eggplant and cauliflower because they're too expensive now," she said."I'm just going to eat cheap vegetables like cabbage and potatoes."

China's leaders are particularly attuned to the price of food because it represents such a large portion of a typical household's budget. Rural families in China typically devote about 41% of their earnings to food; urban households spend about 36%. By comparison, Americans on average spend a little more than 12% of their paychecks on food.

"People relate food prices with social stability because it affects the poor," said Hu Xingdou, a professor of economics at the Beijing Institute of Technology. "They're the ones who will struggle the most to keep up with the rising cost of living."

China's announcement comes on a day when the United Nations warned that the price of food imports for some low-income countries could soar as much as 20% this year, raising fears of a repeat of the shortages and hoarding that rocked parts of the developing world two years ago.

Globally, rising demand and poor harvests in some major producing regions have pushed up prices for a variety of commodities, including wheat, corn, sugar and soybeans.

In China, wealthy households are consuming more meat, eggs and other protein, stoking demand. Meanwhile, the country is losing farmland to urbanization. In just the last 10 years, China went from being a net exporter of food to a major importer of some staples. For example, China imports about 70% of its soybeans, mostly from the United States, to feed livestock and to crush for cooking oil.

China's central government has assured the public that it has stockpiled enough food to stabilize prices. But those stores are limited to grains, oilseeds and frozen pork. Hogs were introduced to the national reserves only three years ago after disease wiped out thousands of the animals and sent prices soaring. China is the world's No. 1 consumer of pork.

Supplies of fresh vegetables have been adversely affected by droughts and floods this year. China's Ministry of Commerce said Tuesday that a price index of 18 staple vegetables had risen 62% from a year earlier.

Despite the government's efforts, experts say feeding China will become an increasingly challenging proposition that will reverberate through the global food chain.

"Food security is one of the central government's main goals," said Li Guoxiang, a researcher in rural development at the Chinese Academy of Social Sciences, a state think tank. "They have issued lots of strict rules to protect the land and support the agricultural industry, but right now the situation is that food supply can't catch up with demand."

Like real estate, food supplies have also caught the attention of speculators. China has seen abnormal increases in the prices of ordinary items such as garlic, ginger and the lowly mung bean. Traders are bidding up prices for apples, sugar and other foods.

Some Chinese consumers are going to extraordinary lengths to save money.

Some are making shopping expeditions to Hong Kong, a special administrative region of China that is better known for its luxury boutiques than its supermarket bargains.

In the tropical island of Hainan, residents have taken to growing Chinese spinach, green beans and sweet potatoes in traffic medians. In Fujian province, on China's southeast coast, some urbanites are filling old bathtubs with soil and growing their own vegetables.

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