Food price inflation formidable challenge for China: analysts

So as the government in Beijing seeks to rein in inflation, it is grappling with a formidable challenge that will affect the lives of a huge proportion of its population. Failure seems not to be an option.

Even so, it is a task that the policy makers seem to have been only partly successful at, according to official data published Wednesday showing a 21-percent rise in food prices in the first quarter from a year earlier.

“Since last year, food has been the main factor behind inflation, and it very much remains the case this year,” Li Xiaochao, spokesman of the National Bureau of Statistics, told a briefing in Beijing.

“We need to pay special attention to enhancing agricultural production, especially grain and pork production.”

Inflation as a whole is near 12-year highs at the moment in China, and it is almost exclusively the result of more expensive food items.

In the first three months of 2008, the consumer price index rose 8.0 percent from a year earlier, but if food inflation was deducted, it was only 1.2 percent higher, according to the statistics bureau.

“If it was the prices of computers that were rising, it would only affect people who use computers,” said Hu Lubin, a Shenzhen-based economist with China Merchants Securities.

“But everyone needs food, so this has an impact on every person in China,” he said.

According to Robert Subbaraman, a Hong Kong-based economist with Lehman Brothers, inflation led by food prices is a particularly big issue for low to middle-income countries such as China.

“Developing countries typically don’t like that because if you look at the average consumption in countries like China, a very large share of the monthly spending is on food,” he said.

“In China, it’s made to be about a third in the cities. In the countryside, the poorer part of society, it can be over a half. So it can really create social problems, which in turn can spread well beyond economic problems.”

But although China’s problems are huge, they reflect larger global issues that are now suddenly leaping to the top of the world agenda.

“We estimate that a doubling of food prices over the last three years could potentially push 100 million people in low-income countries deeper into poverty,” World Bank President Robert Zoellick said Sunday.

“This is not just a question about short-term needs, as important as those are. This is about ensuring that future generations don’t pay a price too.”

International Monetary Fund head Dominique Strauss-Kahn warned: “As we know, learning from the past, those kind of questions sometimes end in war.”

A number of unrelated factors have come together to bring about higher food inflation in China, Virendra Singh with Moody’s Economy.com said in a research note.

Unusual global weather conditions have cut yields for crops such as corn and soybeans, while developed countries’ emphasis on ethanol and other biofuels is also pushing up prices for corn and other high-fructose crops, he argued.

“Weather conditions have also contributed to rising food prices, but this new western energy policy has engendered disruptive and volatile price adjustments across the world,” he said.

Chinese farmers, along with farmers across the world, are contributing to the problem, as globalisation has helped make pricing information readily available around the world, he said.

“With a cell phone in almost every village in grain-producing areas, farmers across the globe are aware of pricing trends,” he said.

“Farmers have been planting more corn to meet surging global demand, contributing to shortages of wheat and rice — diet staples — while also contributing to global social and political stress.”

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