For many of those following economic news from China, the suicide of Han Jin, a vegetable farmer from the Shandong province, was somewhat hard to wrap your head around. Han didn’t kill himself because his land was being taken by the government, a common reason for protest suicide. He didn’t kill himself because food prices were too high, or rains were too bad, and he couldn’t feed his family.
He killed himself because food prices were too low, and no one was willing to buy his produce.
Almost daily in China, and in fact in Asia, we hear stories about out of control food inflation. Food prices officially rose 11.7% the month before Mr. Han killed himself. Chinese cabbage, the crop that Mr. Han found himself unable to sell, is in high demand just across the Binhai bay in South Korea. Which leaves one to wonder, what on earth is going on?
The Chinese press has found three culprits: pro-cyclical trends in agriculture (high prices lead to over production of specific goods and a rapid price drop), strange weather patterns, and middle men.
The nose dive in the vegetable price has left many farmers no choice but to destroy or just leave them rot in the land. There are many reasons for this abnormal nose dive in the vegetable price. For one, farmer’s expanded production of certain vegetables. Last two year’s high price has caused many farmers to expand their production and thus result in an oversupply; And another reason was the prolonged winter and delayed spring has affected the ripening times of the vegetable. Consequently, vegetables from north China and south China enter the city at the same time and again oversupply is resulted.
While the farmers selling their vegetables dirt cheap, according to the ministry of commerce, vegetable price on the market rises by 32.9%. This is not hard to understand when one considers the complicated circulation links in the farm product trade process. For a head of cabbage that grows in the farmland to finally reach retailers, it has to go through a flow of 6 circulation links, which is “production (farmland) – buyers – regional markets – wholesale markets – secondary wholesale markets – retailer (supermarket)”. For each circulation link, there will be around 10%-20% of price mark up. During this flow, the vegetable that’s sold at 1 yuan/kg, will ends up being sold at around 3 yuan/ kg in the supermarket.
I’m going to go out on a limb here though, and say all three of those issues are in fact problems with trade.
Larger markets significantly ease the difficulty of dealing with pro-cyclical trends and strange weather patterns, for the simple reason that there are more trends to follow and more variation in weather in larger trading blocs. The article references this somewhat with seasonal variations in harvest time between the North and the South of China. The variations are likely to expand even further in Indonesia and Australia.
Dealing with middle men is significantly easier for farmers, the more middle men, from more markets, they have to deal with. Restrictions, meant to preserve “food security” i.e. prevent export, allows certain middle men to obtain near monopoly pricing power. If Mr. Han had been able to sell his cabbages to a South Korean firm, his situation might not have been so dire. Misguided attempts to maintain self-sufficiency, may be in fact accenting China’s food problems, and difficulties for Chinese farmers.
With a small and shrinking store of arable land, China was unlikely to maintain self-sufficiency in agriculture forever, and the rapid approach of a breaking point in grain will be a good thing if it encourages more interaction with global markets. It still leaves the question open as to how global markets will adapt to an increasingly hungry China. After all, April also saw the Doha trade round call for last rights.