From Chinese Press

Tragedy of rising food prices

(China Daily)
Updated: 2010-09-03 09:15

It's surprising that the recent rise in the consumer price index (CPI) has been caused largely by increasing prices of food, especially vegetables. Some officials say the fluctuation is caused by the occasional natural disasters and change in weather. A few officials even say the CPI peaked in July, but their logic is misplaced, says an article in 21st Century Business Herald. Excerpts:

The problem of rising CPI can be analyzed from the changes in the food supply chain.

On one hand, urbanization has been creating more new cities and expanding the existing ones, thereby increasing the demand for food. On the other, as more new cities spring up and existing ones expand, people will explore the peripheral farmlands for business. As the farmlands shrink, the supply of food products will decrease. An increase in demand and a subsequent decrease in supply can cause problems.

In large cities, the gap in demand and supply has to be bridged by long-distance transportation. Actually, in the past 30 years, only small-sized cities have been able rely on their countryside to meet their need for food. The green channels for transportation of food have already become an indispensable part of the food industry.

In the long run, two factors will keep driving up agricultural products' prices, and one of them is transportation cost. This cost is directly related to the price of gas. The other factor is the cost of production, with labor cost being its integral part.

As more people from rural areas migrate to cities in search of jobs, farms are losing their labor force, and the labor cost is getting higher. The rising cost of labor, in turn, is pushing up food prices. And if this trend continues, food prices will keep on rising.

Apart from the above two factors, unfair monopoly in the vegetable market is also an important reason for rising prices. Recently, some media outlets have reported that the rent in some markets is even higher than that in office buildings. And as long as the market is monopolized, food prices will keep increasing.

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