Saturday, January 09, 2010

Not just customers...

Too often we in agriculture tend to look at China as simply an enormous market for say, soybeans or pork waiting to be exploited.  This is short-sighted and simplistic to say the least.

They are also increasingly powerful players and strong competitors as well.  And with their rapid economic growth, they are market forces to be reckoned with.  One recent example having an impact of California farmers is the garlic bubble.
China, already beset by a worrying real estate bubble, is now grappling with surging prices for a dinner table staple closer to home – garlic.
China is the world’s largest producer of garlic. They are in the middle of a boom. Wholesale prices rocket as much as 15-fold since March in large cities such as Beijing, forced up in part by a combination of reduced acreage being planted by local farmers because of the recession – and, far more probably, a belief that garlic can keeping away swine flu.
Schools have been hoarding garlic for pupils to eat because of its reputed properties in warding off swine flu. The China Daily has reported that a high school in Hangzhou in eastern China, bought 200 kg of garlic and made students eat it at lunch to keep healthy.
Jerry Lou, Morgan Stanley China strategist, who has been gathering intelligence from the country’s biggest wholesalers, said speculators, financed by the abundant liquidity sloshing around the country, had moved into the relatively small market and manipulated prices.
He said, “You need a warehouse, a lot of cash, and a few trucks. That’s how it works. Basically, what you do is try to arrest as much supply as possible then you bid up the price. Moving garlic from one warehouse to the other, you make millions of dollars.” [More]
Adding nine zeroes to any market quirk causes big ripples. Moreover I think due to cultural differences and poor intelligence gathering, our business community - including farmers - will be scrambling from time to time to cope with the irrationalities of their underdeveloped internal and external commercial structure.
The next bubbles may not be in the "rich" world, but the "growing" world. Those of us who can react swiftly may be able to profit by paying as much attention over there as our own backyard.

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