Skyrocketing garlic prices in China due to speculative bubble

Over the past year, prices have almost doubled and reached record levels because of the impact of bad weather and the rising interest from speculators.

Given that China accounts for over 80% of the world's garlic exports, importers are facing problems.

"I just got back from China and it is impossible to buy garlic," assured Joey Dean, of Denimpex, a fruit and vegetable trader in Amsterdam. "Big speculators with large sums of money have bought very large volumes."

The price in yuan of garlic started increasing in late 2015, after a period of heavy rains, followed by snow, caused damage to the Chinese crops for the 2016 harvest. The price increase, to record levels, attracted speculative buying, fueling the upward trend, explain the analysts.

Garlic is predominantly grown in Shandong, an eastern province of China. On previous occasions, forecasts pointing to bad harvests had led to strong local purchases, but money from Beijing and other big cities is now flowing to that market, according to Cui Xiaona, an analyst at the Sublime China Information Group, an information service specialised in commodities.

"This year, many people knew that the garlic harvest was bad, so they thought: 'I will make some money with the price difference.' Consequently, many rushed to buy garlic," she explained.

The efforts of Chinese authorities to stabilise the country's stock market, by imposing limits on equities trading last year, has resulted in money flowing into a wide range of raw materials.

Garlic growers and traders are no strangers to such price increases. In 2009 and 2010, prices soared, due to huge purchases by speculators, who took advantage of the reduced acreage and the belief that garlic could prevent the swine flu. Currently, prices are higher than between 2009 and 2010, according to the data firm Mintec.

Garlic has not been the only target of speculators in China. Bean sprouts, pickled nuts and fermented black tea have all been a source of "easy money" at some point.

The lack of supply and the high prices have led to a reduction of Chinese exports, which have been at their lowest level in four years. In the first seven months of this year, exports of raw garlic fell by 12% down to 895,000 tonnes.

The situation is even worse with dry garlic, which is easier to store than fresh garlic bulbs. Stricter environmental regulations have also caused the closure of many processing factories, further reducing the supply of dried garlic, according to Vinayak Narain, head of spices and vegetable ingredients of the agricultural trader Olam.

China accounts for nearly 90% of the world's exports of dried garlic, which is mainly used in food processing. The Chinese shortage has coincided with a decline in the production of the United States, which is another major supplier.

Traders expect prices to remain stable in the short term. "If the next harvest is normal, prices will fall at the end of the second quarter of next year," points out Narain.

Source: Expansion

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