Seaweed boom shows China’s inflation challenge

November 26, 2010

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

HONG KONG — It sounds like the ultimate proof of China’s runaway economy: a seaweed bubble. After garlic and green bean manias, food inflation is now asserting itself in a 20 percent rise in seaweed prices in the last year.

Dried seaweed is a soup staple in North Asia, and roasted seaweeds and sushi are gaining popularity. Non-financial factors such as typhoon and warm weather have hit farming and limited supply this year. But this probably does not fully explain the jump in seaweed prices.

China’s economic development means that farmers are growing less of the stuff. Many coastal areas, where seaweed farms are located, have been reclaimed to build ports, homes, and nuclear power plants. Property price inflation means wet markets and supermarkets, where seaweed is sold, have to pay higher rent.

Meanwhile, rapid wages increases have made labour-intensive vegetables more costly to produce. Minimum wages have risen 15 percent in major cities this year. As more people move off the land, farmers who have stayed put enjoy more pricing power. That is why costs for picking tomatoes rose 25 percent in August and September, according to brokerage CICC, fuelling a 50 percent surge in tomato prices during the same period.

Speculative money has also played a role, at least according to the government. Dried seaweed platters have a long shelf life, so are easy to hoard in the expectation of rising prices. Such aggressive tactics have played a role in domestic food price rises, China’s National Development and Reform Commission warned on Nov. 24.

Seaweed may be seen as a quintessentially Chinese example of food inflation. But it is no less of a worry for that. Chinese inflation is being exported into the global economy. Chinese cotton prices rose 18 percent in October, according to Zhengzhou Commodities Exchange, leading to a 25 percent rise of the benchmark March cotton contract in New York in the same month.

November has already witnessed a tightening of bank reserve requirements and the introduction of food price controls. When even the price of seaweed is rising so quickly, it’s clear that more determined attempts at cooling the Chinese economy are due.

Comments

The agricultural produce may see surge in global prices because of weather changes, lesser subsidy by developed countries, and rise in wages in developing countries. Present recession may force the world to liberalise the global and domestic agricultural trade.

Posted by rajayagarwal | Report as abusive
 

NYMEX Cotton futures now about 25% off of this month’s highs, so clearly a lot of speculative money.

Are seaweed futures traded in China’s commodity exchange?

Posted by SD-charger | Report as abusive
 

imagine the inflation if the chinese let go of the us$ link or even let the yuan start appreciating slowly. I think the authorities are already well behind the curve -a hard landing is a possibility.

Posted by shivers1 | Report as abusive
 

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