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China Orders More Food Production to Counter Inflation

  • Peter Simpson

Rising food prices have led China's government to order an increase in vegetable production to ward off inflation and the threat of a public backlash. Rising food prices around the world have prompted the United Nations food agency to call a special meeting to discuss supplies.

China's government is acutely aware nothing angers its people more than the soaring price of food.

With food prices rising 6.8 percent in July, it has been quick to act to secure price stability.

The State Council this week ordered provincial officials to increase vegetable production to maintain supplies and keep prices low.

It has also told state banks to lend to producers so they can increase output.

Shortages have been reported in several areas, in part because of heavy flooding in many parts of the country and drought in other areas over the past few months. Those shortages are helping drive up prices.

Economist Vincent Chen with the investment bank Credit Suisse in Hong Kong says the government has a firm grip on the price of utilities such as power and transportation. But, he says, the price of food remains vulnerable to inflationary pressure.

"The concern is definitely about inflation," said Vincent Chen. "China's inflationary swings over the last few years have always come from food price rate and this is the biggest non-variable to the CPI equation."

With food prices rising in many parts of the world, the United Nations Food and Agriculture Organization on Friday called a special international meeting to find ways to ensure supplies. The FAO meeting will be later this month.

Jumps in food prices triggered deadly riots in Mozambique this week. And Russia, usually a wheat exporter, on Friday extended its ban on overseas sales because drought and wild fires have sharply reduced this year's crop. Massive floods over much of Pakistan's farmland have driven up food prices there in the past month.

In China, people on average spend half their incomes on what they eat, and the price of food is a political hot potato.

Inflation contributed to political pressures in the late 1980s, which eventually ended in a massive pro-democracy demonstration in Beijing's Tiananmen Square, which China's army crushed.

Beijing has, however, said it expects to meet its 2010 inflation target of 3 percent.