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China’s Drought Could Affect Global Grain Prices

February 12, 2011

Last week the Rome-based Food and Agricultural Organisation of the United Nations issued an early warning Special Alert on the status of the drought and grain production in China.  The current drought threatens to signficantly negatively impact the winter grain harvest of the regions which provide 67% of total Chinese wheat production.

Source: FAO


China is a swing grain producer and consumer, being the largest producer in the world to cater for its enormous domestic market.  Grain imports are negligible.  Any foray into global grain markets by China could create a significant spike in prices, and point to even greater possible international price volatility in the future – an aspect of the food markets that the FAO expects will in any case continue to be a signficant characteristic of prices over the medium-term.

The alert states:

This drought in north China seems to be putting further pressure on wheat prices, which have been rising rapidly in the last few months (…).  In January 2011 the national average retail price of wheat flour rose by more than 8 percent compared to two months earlier and stood at 16 percent higher than a year earlier

We have previously noted at this blog the renewed interest in the impacts that environmental stresses can engender, including exacerbating civil unrest through food price volatility.  In particular, the World Economic Forum in its Global Risks report 2011 picked the food-water-energy nexus as a key critical issue to watch.

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