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August 11, 2016

China Food Inflation Looms As Grain Output Set To Plunge Most In 50 Years

The 2016 La Nina is set to be bigger than 1998 and that was one of the strongest ever. It was a bad hurricane season in the Southeast United States, and the effects of La Nina lasted for more than 2 years, eventually draining natural gas inventories due to colder than normal winters, sending prices to $10 / MMBtu.
China is also concerned due to flooding and the effect on food prices.
At the beginning of this summer, Anhui, Guangxi, Guizhou, Hubei and other areas have suffered large floods, local residents and property caused substantial losses. China's major cities weather data from the World Agricultural Outlook Board released data show that average precipitation of various cities in recent signs of deviation from normal is obvious central elevation. 
Logically speaking, choose to take the data itself is a deviation from the normal value, if the normal value is an average value within a sufficiently long period of time, then the data in the long run should be at a zero value fluctuate. Location but in fact, the average annual precipitation of various cities has deviated from the normal 20 mm / month or more shock for nearly a year, sometimes even reaching 55 mm / month as much.

Large amount of precipitation and frequent storms across the board so that the Yangtze River above the warning level, superimposed on the arrival of the main flood season influence the formation of summer flooding a large area. Up to now, the country has 26 provinces suffered floods, which affected counties have more than a thousand. Why this year the weather is so abnormal it? This is the El Niño phenomenon has a direct correlation. El Nino from the tropical Pacific SST anomalies warming, thereby causing global climate (especially in the Pacific Rim region) exception, in accordance with its laws of history, El emergence period is probably about seven years, but not appear every time El Niño will huge disasters, because even if this phenomenon leads to abnormal weather, there is stress.

Measure an important indicator of the El Nino phenomenon is the SST anomalies (published in the National Oceanic and Atmospheric Administration), the data show that in 2015 - 2016 SST anomalies have reached a high of 2.82, higher than the 1982--1983 years 2.79 and 1997-- 2.69 in 1998. The data show that this year's El Nino phenomenon is worse than in 1998, even NASA (National Aeronautics and Space Administration) expectations: the strongest El Niño may debut in 2016.

...Once the abnormal weather caused crop failures, then the prices of agricultural products there will move up the role, which led to changes in the domestic CPI.
The last two strong La Ninas caused drops in agricultural output:
First, once the abnormal weather led to rising prices of agricultural products, it will cut production of agricultural products through this link.

In the past 50 years of food production, the lowest growth rate appeared in those two years. Once in 1985 and once in 2000, grain output fell 7% in the former, while the latter's food production fell 9%. These two serious cuts to food occurred in the third year after the El Nino phenomenon, and therefore, a conclusion can basically get is: are these two food production caused by the El Nino weather anomaly caused.
Chinese grain output went negative in 1999 and didn't recover until 2004:  

Second, 1997--1998 years that floods seem bigger impact on the agricultural harvest. Since 1998, China's grain harvest plunged from 510 million tons to 430 million tons in 2003, a decline of more than 15%, and since 1999, China began to grain from average annual growth rate of around 3% fall into negative growth, until 2004, only to return to positive growth in food production. For 1982--1983 Nian that weather impact, its effect on agricultural crops is relatively eased off a little. When El Nino event starts on agricultural products affected by the formation of agricultural products is still increasing production status, affect only agricultural production growth. After 1985, agricultural harvest brief negative growth in agricultural production in 1986 and will soon return to normal.
Food inflation went from negative during the Asian Crisis up to 33 percent:
Third, no doubt are: food production will bring upward pressure on food prices, if we are focusing in 1997 - 1998 and that the impact of the El Niño phenomenon on agricultural products of the case (that of 1982 due to a lack of market-oriented price mechanism the lack of reference value), you can see the 1999 CPI began to appear a rising cycle, when it rose to 2004 round ended. The terms of the CPI was rising phase of the sample can be easily found in many varieties in the CPI, food prices rose the most fierce breed when food prices year on year growth from 33.9% -13.8%, climbed all the way, you can guess, in the case of high probability, when food prices because of supply problems pushed faster.

From these three events we can infer the following: First, food production caused by the El Nino phenomenon, is expected to last for two years, until 2018, food production will have to repair; the second is the labor shortage even at the current trend of urbanization, we must be alert to the magnitude of agricultural production may be more severe than that of 2000; the third is food price inflation is likely to become the focus of attention late.

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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