Bad weather threatens battle against inflation
Source: Xinhua |
February 2, 2011, Wednesday
|
Print Edition
Print Edition
A dry spell has continued for months in the northern grain production regions, raising concerns that it might threaten China's grain output and thus cause food price hikes.
The bad weather may aggravate China's battle against price hikes, including higher interest rates and higher bank reserve ratios.
Meteorological and agricultural experts said it is still too soon to predict a decline in grain output. However, they said that if the drought continues into the spring, grain output will fall and food prices will be pushed up.
Dry spell
Water shortages have been gripping nine provinces since last October, including the six major wheat-producing provinces - Anhui, Jiangsu, Hebei, Henan, Shandong and Shanxi - which contribute more than 80 percent of China's total wheat output.
Further, rainfall in the six provinces averaged only 40.2 millimeters since last October, down 53 percent compared with previous years, according to the National Climate Center.
"There have been no rains for four months. It has been too long," said Song Qingguo, a farmer in Qixian County in Henan, where winter wheat output accounts for almost one-fourth of the country's total.
Shandong Province is facing its worst drought in 60 years.
Around 2 million hectares of wheat, or 56 percent of the wheat-planting areas in the province, have been hit by drought, and the area is expanding, according to provincial officials. Scientists say drought is a result of the La Nina effect that is responsible for the harsh winter gripping large parts of China's south, affecting production and transport of food.
The Ministry of Commerce said last month that Chinese farm produce prices rose for four consecutive weeks through January 23, with the wholesale prices of 18 staple vegetables growing 12.6 percent week on week.
Freezing weather in the south is one reason for the hike.
"The current drought is the second worst since 1961," said Zhang Peiqun, director with the weather forecast department of the National Climate Center.
The bad weather will persist, meaning the drought in the north and the cold snap in the south will continue, Zhang said.
Having felt the effect of price rises on their dining tables, Chinese people are increasingly worried that the current bad weather will push prices up even further, continuing the months-long rise.
China's consumer price index (CPI), a main gauge of inflation, rose to a 28-month high of 5.1 percent in November. The growth was mainly driven by an 11.7 percent surge in food prices, which accounts for one-third of the basket of goods used to calculate CPI.
Price concerns
The December the CPI rate dropped to 4.6 percent, with food prices rising 9.6 percent, government data showed.
The continuous damaging weather has alarmed experts on prices, but they said it's too early to foresee a drop in grain output.
The drought will be eased if the plants are again irrigated after temperatures go up in the spring season, he added.
Yao Jingyuan, chief economist at the National Bureau of Statistics, said more time is needed to assess the current weather's impact on prices. China's grain output grew last year for the seventh consecutive year, which, along with adequate stockpiles, laid a strong foundation for price stability, he said.
Guo Tiancai, a wheat expert at the Ministry of Agriculture, agreed that earlier irrigation is providing enough moisture for now. But he warned of possible big losses to the final yield if no measures are put in place during the spring when temperatures rise and whet grows faster.
He urged authorities and farmers to ensure crops are watered at the appropriate time, adding that the coming four months would be crucial for wheat.
Premier Wen Jiabao pledged during his recent tour of drought-hit Henan that the government would build more water-conservation projects. He urged local governments to overhaul water resource facilities and use various technologies to reduce the impact of drought on agricultural production.
Speculation risk
Meanwhile, analysts warned against the dangers of speculation. They said the current bad weather might prompt expectations of higher prices and thus trigger speculation, which would drive prices even higher and add to the risks of inflation.
Wheat futures for September 2011 delivery at the Zhengzhou Commodity Exchange closed at 2,822 yuan (US$428.64 per ton) per tonne last Wednesday. The closing price on December 27 last year was 2,751 yuan per ton.
Shen Hongyuan, an analyst with the China Zhengzhou Grain Wholesale Market, said the price increase is mainly due to dry weather but speculation possibly plays a role as well.
Li Guoning, general manager of a grain and oil purchasing company in Hebei, said weather and government policies affect the market price of wheat. If drought lingers into March, it will be a factor used by speculators to push up prices, he said.
Hao Deyou, a researcher with the Hebei Provincial Academy of Agriculture and Forestry, said the government should monitor the weather changes and prevent price hikes due to speculation on drought.
Patrick Chovanec, associate professor at Tsinghua University, said the key reason for China's inflation is still excess liquidity, rather than lack of water.
"It is always easy to blame weather for price hikes," he said, arguing the government should move further on tightening to reduce money supplies in order to stabilize prices.
The bad weather may aggravate China's battle against price hikes, including higher interest rates and higher bank reserve ratios.
Meteorological and agricultural experts said it is still too soon to predict a decline in grain output. However, they said that if the drought continues into the spring, grain output will fall and food prices will be pushed up.
Dry spell
Water shortages have been gripping nine provinces since last October, including the six major wheat-producing provinces - Anhui, Jiangsu, Hebei, Henan, Shandong and Shanxi - which contribute more than 80 percent of China's total wheat output.
Further, rainfall in the six provinces averaged only 40.2 millimeters since last October, down 53 percent compared with previous years, according to the National Climate Center.
"There have been no rains for four months. It has been too long," said Song Qingguo, a farmer in Qixian County in Henan, where winter wheat output accounts for almost one-fourth of the country's total.
Shandong Province is facing its worst drought in 60 years.
Around 2 million hectares of wheat, or 56 percent of the wheat-planting areas in the province, have been hit by drought, and the area is expanding, according to provincial officials. Scientists say drought is a result of the La Nina effect that is responsible for the harsh winter gripping large parts of China's south, affecting production and transport of food.
The Ministry of Commerce said last month that Chinese farm produce prices rose for four consecutive weeks through January 23, with the wholesale prices of 18 staple vegetables growing 12.6 percent week on week.
Freezing weather in the south is one reason for the hike.
"The current drought is the second worst since 1961," said Zhang Peiqun, director with the weather forecast department of the National Climate Center.
The bad weather will persist, meaning the drought in the north and the cold snap in the south will continue, Zhang said.
Having felt the effect of price rises on their dining tables, Chinese people are increasingly worried that the current bad weather will push prices up even further, continuing the months-long rise.
China's consumer price index (CPI), a main gauge of inflation, rose to a 28-month high of 5.1 percent in November. The growth was mainly driven by an 11.7 percent surge in food prices, which accounts for one-third of the basket of goods used to calculate CPI.
Price concerns
The December the CPI rate dropped to 4.6 percent, with food prices rising 9.6 percent, government data showed.
The continuous damaging weather has alarmed experts on prices, but they said it's too early to foresee a drop in grain output.
The drought will be eased if the plants are again irrigated after temperatures go up in the spring season, he added.
Yao Jingyuan, chief economist at the National Bureau of Statistics, said more time is needed to assess the current weather's impact on prices. China's grain output grew last year for the seventh consecutive year, which, along with adequate stockpiles, laid a strong foundation for price stability, he said.
Guo Tiancai, a wheat expert at the Ministry of Agriculture, agreed that earlier irrigation is providing enough moisture for now. But he warned of possible big losses to the final yield if no measures are put in place during the spring when temperatures rise and whet grows faster.
He urged authorities and farmers to ensure crops are watered at the appropriate time, adding that the coming four months would be crucial for wheat.
Premier Wen Jiabao pledged during his recent tour of drought-hit Henan that the government would build more water-conservation projects. He urged local governments to overhaul water resource facilities and use various technologies to reduce the impact of drought on agricultural production.
Speculation risk
Meanwhile, analysts warned against the dangers of speculation. They said the current bad weather might prompt expectations of higher prices and thus trigger speculation, which would drive prices even higher and add to the risks of inflation.
Wheat futures for September 2011 delivery at the Zhengzhou Commodity Exchange closed at 2,822 yuan (US$428.64 per ton) per tonne last Wednesday. The closing price on December 27 last year was 2,751 yuan per ton.
Shen Hongyuan, an analyst with the China Zhengzhou Grain Wholesale Market, said the price increase is mainly due to dry weather but speculation possibly plays a role as well.
Li Guoning, general manager of a grain and oil purchasing company in Hebei, said weather and government policies affect the market price of wheat. If drought lingers into March, it will be a factor used by speculators to push up prices, he said.
Hao Deyou, a researcher with the Hebei Provincial Academy of Agriculture and Forestry, said the government should monitor the weather changes and prevent price hikes due to speculation on drought.
Patrick Chovanec, associate professor at Tsinghua University, said the key reason for China's inflation is still excess liquidity, rather than lack of water.
"It is always easy to blame weather for price hikes," he said, arguing the government should move further on tightening to reduce money supplies in order to stabilize prices.
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