Saturday, June 09, 2007

A reader, Dave Schuler, sent in this interesting article in today's NYT. Yes, we are back in an inflationary era in China--and by extension the world--, I am afraid. They still have the means to control the prices of key commodities to a certain extent, but inflation today will hit urban residents much harder than say ten years ago, the last time there was high inflation, because urban residents are much more responsible for their own food and housing today than ten years ago. Also, those exorbitant mortgage payments......

Rise in China’s Pork Prices Signals End to Cheap Output
Chang W. Lee/The New York Times

Article Tools Sponsored By
Published: June 8, 2007

GAOYAO, China, June 1 — Few things are as essential to the Chinese as their pigs.
Skip to next paragraph
China's Pork CrisisSlide Show
China's Pork Crisis

From pork spare ribs and mu shu pork to char siu bao — barbecued pork buns — pork is a staple of the Chinese diet. So in this Year of the Pig, an acute shortage of pork has been national news, as butchers raise prices almost daily and politicians scramble to respond.

Steep increases for pork loins and bacon are the most tangible sign that after a decade in which prices have fluctuated but not moved significantly upward, inflation is creeping back into China. In response to this pressure at home, Chinese companies are starting to raise prices for exports, removing what has been a brake on inflation in the West.

With the global economy expanding at a robust pace, and prices rising in fast-developing countries like India and Mexico, central bankers and investors are becoming concerned. Interest rates are inching up in the United States and Europe as lenders demand that borrowers pay more to offset the erosion of buying power over time.

Business executives say that with wages rising 10 percent or more a year in many Chinese cities, the country’s days are numbered as the world’s lowest-cost producer of many cheap labor-intensive products, like toys and shoes.

“People tend to underestimate the deflationary impact over the last 10 years” from Chinese exports, said Michael R. P. Smith, the chief executive of HSBC’s Asian operations. “It has got to the limit: you’ve had wage inflation, you’ve got rising natural resource prices. There’s just no more give.”

The crisis over pork prices in China, like the jolt many Americans feel when gasoline prices jump, offers one example of how prices can suddenly soar. The Chinese government is struggling to cope — including deliberating whether to sell a snuffling, smelly strategic reserve of hundreds of thousands of live pigs kept at special subsidized farms for precisely the shortage the country is now facing.

Chinese officials offer several reasons for the high pig prices. The cost of animal feed has risen by one-quarter in the last year, partly because more corn is being made into ethanol and partly because more prosperous workers are eating more meat, which requires more animal feed.

The cost of pig veterinary medicine has soared. Some pig farms, shut down because of low prices last year, were unprepared for strong demand this spring. And outbreaks of disease have killed many pigs, though no reliable estimates of how many are available.

The most recent statistics from the agriculture ministry show that prices for live pigs rose 71.3 percent in April from March, while pork prices climbed 29.3 percent. The price of pork followed pig prices higher in May as well, to the dismay of shoppers.

Some consumers showed irritation with pork prices on two recent afternoons at a busy street market in metropolitan Guangzhou, an area of perhaps 12 million in southeast China. A woman walked up to Zhang Hanbiao, a butcher standing behind an unrefrigerated counter of raw pork under the glare of two large light bulbs, and asked him the price of the dark red slab of pig liver.

Told the answer — 7.5 yuan a catty, or 89 U.S. cents a pound, up from 6 yuan a catty — she stalked off in silence without buying.

Her response angered Mr. Zhang, a butcher with a faint mustache who has followed a Chinese tradition of letting his nails grow long on the little finger of each hand.

“No business!” he exclaimed. “I’ve lost 1,000 yuan in three days because the meat goes bad before I can sell it.”

Another woman came to the counter, sniffed some pork suspiciously, then kept walking. “After it turns color, people won’t buy it,” Mr. Zhang said, adding that roadside snack vendors buy unsold meat at a discount each evening.

Wu Lijuan, a Guangzhou resident who bought a small plastic bag of lean pork from Mr. Zhang, said that she was eating less pork and more fish as pork prices rose. But prices for chicken, beef, fish and eggs are also increasing sharply this spring, along with the higher cost of animal and fish feed, although rising not quite as fast as pork prices.

In a move to head off any protests among sometimes volatile student populations, the education ministry has ordered colleges and universities to subsidize pork instead of raising prices on campus. The civil affairs ministry has instructed municipal governments to subsidize pork purchases by low-income families, while the railway ministry has given priority to pig shipments.

Prime Minister Wen Jiabao visited the pork counter at a supermarket in Xian in central China on May 26 and called for local governments to pay pig farmers to increase production. The commerce ministry has raised the possibility of distributing pork from China’s strategic pork reserves.

State-controlled television in Shandong Province in northeastern China carried a detailed report late last month on the reserves. The commerce ministry keeps a national reserve of frozen pork and live pigs, and local governments keep their own reserves as well, constantly selling older supplies and procuring fresh stock. Government agencies pay a pig subsidy to farmers to keep their animals in the program.

“The sties are very roomy, there is heat in the winter and fans in the summer,” the television program said, describing conditions very different from those endured by many other pigs in China, including those here in Gaoyao, 50 miles west of Guangzhou.

Yang Yuanji stood in sweltering heat next to his fetid, crudely built pigpens on a recent afternoon and contended that he needed high prices to pay for costly animal feed and medicine.

“Everyone says pork prices are high — I don’t think so,” he said.

One of his neighbors, Yang Ming, said he did not believe that farmers were withholding pigs from the market — as the state media occasionally hint — in hope that prices will keep rising. “I don’t wait, I sell a pig as soon as it reaches 180 catties,” or 200 pounds, he said.

Pork has been a cornerstone of the Chinese diet for centuries. Rows of 2,100-year-old terra cotta pigs were recently discovered near Xian, a city better known for terra cotta warriors. China’s 1.3 billion people eat more than 92 billion pounds of pork a year — a fifth of a pound a day for every man, woman and child.

And just as higher gasoline prices can lead to a political reaction in the United States, the Chinese government is particularly worried about soaring pork prices because of their impact on household budgets and the way they can exacerbate income inequality.

Pork is a critical source of protein for Chinese of all incomes, but particularly for low-income workers like those who keep American and European families well supplied with $49 DVD players and other popular consumer products.

Broader measures of consumer prices showed just 3 percent inflation in April, but Goldman Sachs now predicts that higher meat prices will help push this above 4 percent “very soon.”

Heavy investments in new factories, roads, rail lines and ports have helped limit inflation until now in manufactured goods, as productivity improvements mostly offset rising wages and higher prices for food, oil and metals. Economists and business executives say that manufacturers face growing pressure to raise prices as well, particularly with the torrent of money pouring into China, which has helped push up the prices of Chinese stocks and real estate.

But the price that many Chinese care about most these days is the price of pork. Not far from Mr. Zhang’s butcher counter is a small shop selling unrefrigerated barbecue. Cherry Zhou, a shop worker, said it had raised prices 25 percent in the last few days.

Blaming pork distributors, she added, “It’s more expensive by the week.”

Comments: Post a Comment

This page is powered by Blogger. Isn't yours?